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2012 Amended 1040x

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2012 Amended 1040x

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IRS Releases FY 2013 Data Book

 

IR-2014-34, March 21, 2014

WASHINGTON — The Internal Revenue Service today released the 2013 IRS Data Book, a snapshot of agency activities for the fiscal year.

The report describes activities conducted by the IRS from Oct. 1, 2012, to Sept. 30, 2013, and includes information about returns filed, taxes collected, enforcement, taxpayer assistance and the IRS budget and workforce, among others.

During fiscal year 2013, the IRS collected almost $2.9 trillion in federal revenue and processed 240 million returns, of which 151 million were filed electronically. Out of the 146 million individual income tax returns filed, almost 83 percent were e-filed. More than 118 million individual income tax return filers received a tax refund, which totaled almost $312.8 billion. On average, the IRS spent 41 cents to collect $100 in tax revenue during the fiscal year, matching low-cost results for 2008 and 2001.

The IRS examined just under one percent of all tax returns filed and about one percent of all individual income tax returns during fiscal year 2013. Of the 1.4 million individual tax returns examined, over 39,000 resulted in additional refunds. The IRS provided taxpayer assistance through 456 million visits to IRS.gov and assisted almost 91 million taxpayers through its toll-free telephone helpline or at walk-in sites.

An electronic version of the 2013 Data Book can be found on the Tax Stats page of IRS.gov.

Printed copies of the IRS Data Book, Publication 55B, will be available by mid-April 2014 from the U.S. Government Printing Office. To obtain a copy, write to the Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954, or call (202) 512-1800 for voicemail, or fax a request to (202) 512-2250.

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Page Last Reviewed or Updated: 21-Mar-2014

The 2012 Amended 1040x

2012 amended 1040x 6. 2012 amended 1040x   Basis of Assets Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Cost BasisReal Property Allocating the Basis Uniform Capitalization Rules Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostTaxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Received as a Gift Property Transferred From a Spouse Inherited Property Property Distributed From a Partnership or Corporation Introduction Your basis is the amount of your investment in property for tax purposes. 2012 amended 1040x Use basis to figure the gain or loss on the sale, exchange, or other disposition of property. 2012 amended 1040x Also use basis to figure depreciation, amortization, depletion, and casualty losses. 2012 amended 1040x If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. 2012 amended 1040x Only the basis allocated to the business or investment use of the property can be depreciated. 2012 amended 1040x Your original basis in property is adjusted (increased or decreased) by certain events. 2012 amended 1040x For example, if you make improvements to the property, increase your basis. 2012 amended 1040x If you take deductions for depreciation, or casualty losses, or claim certain credits, reduce your basis. 2012 amended 1040x Keep accurate records of all items that affect the basis of your assets. 2012 amended 1040x For information on keeping records, see chapter 1. 2012 amended 1040x Topics - This chapter discusses: Cost basis Adjusted basis Basis other than cost Useful Items - You may want to see: Publication 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property See chapter 16 for information about getting publications and forms. 2012 amended 1040x Cost Basis The basis of property you buy is usually its cost. 2012 amended 1040x Cost is the amount you pay in cash, debt obligations, other property, or services. 2012 amended 1040x Your cost includes amounts you pay for sales tax, freight, installation, and testing. 2012 amended 1040x The basis of real estate and business assets will include other items, discussed later. 2012 amended 1040x Basis generally does not include interest payments. 2012 amended 1040x However, see Carrying charges and Capitalized interest in chapter 4 of Publication 535. 2012 amended 1040x You also may have to capitalize (add to basis) certain other costs related to buying or producing property. 2012 amended 1040x Under the uniform capitalization rules, discussed later, you may have to capitalize direct costs and certain indirect costs of producing property. 2012 amended 1040x Loans with low or no interest. 2012 amended 1040x   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus the amount considered to be unstated interest. 2012 amended 1040x You generally have unstated interest if your interest rate is less than the applicable federal rate. 2012 amended 1040x See the discussion of unstated interest in Publication 537, Installment Sales. 2012 amended 1040x Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. 2012 amended 1040x If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. 2012 amended 1040x Some of these expenses are discussed next. 2012 amended 1040x Lump sum purchase. 2012 amended 1040x   If you buy improvements, such as buildings, and the land on which they stand for a lump sum, allocate your cost basis between the land and improvements. 2012 amended 1040x Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. 2012 amended 1040x Figure the basis of each asset by multiplying the lump sum by a fraction. 2012 amended 1040x The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. 2012 amended 1040x Fair market value (FMV). 2012 amended 1040x   FMV is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. 2012 amended 1040x Sales of similar property on or about the same date may help in figuring the FMV of the property. 2012 amended 1040x If you are not certain of the FMV of the land and improvements, you can allocate the basis according to their assessed values for real estate tax purposes. 2012 amended 1040x Real estate taxes. 2012 amended 1040x   If you pay the real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. 2012 amended 1040x   If you reimburse the seller for taxes the seller paid for you, you generally can deduct that amount as a tax expense. 2012 amended 1040x Whether or not you reimburse the seller, do not include that amount in the basis of your property. 2012 amended 1040x Settlement costs. 2012 amended 1040x   Your basis includes the settlement fees and closing costs for buying the property. 2012 amended 1040x See Publication 551 for a detailed list of items you can and cannot include in basis. 2012 amended 1040x   Do not include fees and costs for getting a loan on the property. 2012 amended 1040x Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. 2012 amended 1040x Points. 2012 amended 1040x   If you pay points to get a loan (including a mortgage, second mortgage, or line-of-credit), do not add the points to the basis of the related property. 2012 amended 1040x You may be able to deduct the points currently or over the term of the loan. 2012 amended 1040x For more information about deducting points, see Points in chapter 4 of Publication 535. 2012 amended 1040x Assumption of a mortgage. 2012 amended 1040x   If you buy property and assume (or buy the property subject to) an existing mortgage, your basis includes the amount you pay for the property plus the amount you owe on the mortgage. 2012 amended 1040x Example. 2012 amended 1040x If you buy a farm for $100,000 cash and assume a mortgage of $400,000, your basis is $500,000. 2012 amended 1040x Constructing assets. 2012 amended 1040x   If you build property or have assets built for you, your expenses for this construction are part of your basis. 2012 amended 1040x Some of these expenses include the following costs: Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. 2012 amended 1040x   In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses. 2012 amended 1040x You must capitalize them (include them in the asset's basis). 2012 amended 1040x Employee wages paid for the construction work, reduced by any employment credits allowed. 2012 amended 1040x Depreciation on equipment you own while it is used in the construction. 2012 amended 1040x Operating and maintenance costs for equipment used in the construction. 2012 amended 1040x The cost of business supplies and materials used in the construction. 2012 amended 1040x    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. 2012 amended 1040x Allocating the Basis In some instances, the rules for determining basis apply to a group of assets acquired in the same transaction or to property that consists of separate items. 2012 amended 1040x To determine the basis of these assets or separate items, there must be an allocation of basis. 2012 amended 1040x Group of assets acquired. 2012 amended 1040x   If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. 2012 amended 1040x Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. 2012 amended 1040x You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. 2012 amended 1040x If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. 2012 amended 1040x Farming business acquired. 2012 amended 1040x   If you buy a group of assets that makes up a farming business, there are special rules you must use to allocate the purchase price among the assets. 2012 amended 1040x Generally, reduce the purchase price by any cash received. 2012 amended 1040x Allocate the remaining purchase price to the other business assets received in proportion to (but not more than) their FMV and in a certain order. 2012 amended 1040x See Trade or Business Acquired under Allocating the Basis in Publication 551 for more information. 2012 amended 1040x Transplanted embryo. 2012 amended 1040x   If you buy a cow that is pregnant with a transplanted embryo, allocate to the basis of the cow the part of the purchase price equal to the FMV of the cow without the implant. 2012 amended 1040x Allocate the rest of the purchase price to the basis of the calf. 2012 amended 1040x Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense. 2012 amended 1040x Uniform Capitalization Rules Under the uniform capitalization rules, you must include certain direct and indirect costs in the basis of property you produce or in your inventory costs, rather than claim them as a current deduction. 2012 amended 1040x You recover these costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. 2012 amended 1040x Generally, you are subject to the uniform capitalization rules if you do any of the following: Produce real or tangible personal property, or Acquire property for resale. 2012 amended 1040x However, this rule does not apply to personal property if your average annual gross receipts for the 3-tax-year period ending with the year preceding the current tax year are $10 million or less. 2012 amended 1040x You produce property if you construct, build, install, manufacture, develop, improve, or create the property. 2012 amended 1040x You are not subject to the uniform capitalization rules if the property is produced for personal use. 2012 amended 1040x In a farming business, you produce property if you raise or grow any agricultural or horticultural commodity, including plants and animals. 2012 amended 1040x Plants. 2012 amended 1040x   A plant produced in a farming business includes the following items: A fruit, nut, or other crop-bearing tree; An ornamental tree; A vine; A bush; Sod; and The crop or yield of a plant that will have more than one crop or yield. 2012 amended 1040x Animals. 2012 amended 1040x   An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life. 2012 amended 1040x The direct and indirect costs of producing plants or animals include preparatory costs and preproductive period costs. 2012 amended 1040x Preparatory costs include the acquisition costs of the seed, seedling, plant, or animal. 2012 amended 1040x For plants, preproductive period costs include the costs of items such as irrigation, pruning, frost protection, spraying, and harvesting. 2012 amended 1040x For animals, preproductive period costs include the costs of items such as feed, maintaining pasture or pen areas, breeding, veterinary services, and bedding. 2012 amended 1040x Exceptions. 2012 amended 1040x   In a farming business, the uniform capitalization rules do not apply to: Any animal, Any plant with a preproductive period of 2 years or less, or Any costs of replanting certain plants lost or damaged due to casualty. 2012 amended 1040x   Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. 2012 amended 1040x See Accrual Method Required under Accounting Methods in chapter 2. 2012 amended 1040x   In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. 2012 amended 1040x If you make this election, special rules apply. 2012 amended 1040x This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. 2012 amended 1040x This election also does not apply to any costs incurred for the planting, cultivation, maintenance, or development of any citrus or almond grove (or any part thereof) within the first 4 years the trees were planted. 2012 amended 1040x    If you elect not to use the uniform capitalization rules, you must use the alternative depreciation system for all property used in any of your farming businesses and placed in service in any tax year during which the election is in effect. 2012 amended 1040x See chapter 7, for additional information on depreciation. 2012 amended 1040x Example. 2012 amended 1040x You grow trees that have a preproductive period of more than 2 years. 2012 amended 1040x The trees produce an annual crop. 2012 amended 1040x You are an individual and the uniform capitalization rules apply to your farming business. 2012 amended 1040x You must capitalize the direct costs and an allocable part of indirect costs incurred due to the production of the trees. 2012 amended 1040x You are not required to capitalize the costs of producing the annual crop because its preproductive period is 2 years or less. 2012 amended 1040x Preproductive period of more than 2 years. 2012 amended 1040x   The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. 2012 amended 1040x Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. 2012 amended 1040x Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years. 2012 amended 1040x More information. 2012 amended 1040x   For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1. 2012 amended 1040x 263A-4. 2012 amended 1040x Table 6-1. 2012 amended 1040x Plants With a Preproductive Period of More Than 2 Years Plants producing the following crops or yields have a nationwide weighted average preproductive period of more than 2 years. 2012 amended 1040x Almonds Apples Apricots Avocados Blueberries Cherries Chestnuts Coffee beans Currants Dates Figs Grapefruit Grapes Guavas Kiwifruit Kumquats Lemons Limes Macadamia nuts Mangoes Nectarines Olives Oranges Peaches Pears Pecans Persimmons Pistachio nuts Plums Pomegranates Prunes Tangelos Tangerines Tangors Walnuts Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the cost basis or basis other than cost (discussed later) of the property. 2012 amended 1040x The adjustments to the original basis are increases or decreases to the cost basis or other basis which result in the adjusted basis of the property. 2012 amended 1040x Increases to Basis Increase the basis of any property by all items properly added to a capital account. 2012 amended 1040x These include the cost of any improvements having a useful life of more than 1 year. 2012 amended 1040x The following costs increase the basis of property. 2012 amended 1040x The cost of extending utility service lines to property. 2012 amended 1040x Legal fees, such as the cost of defending and perfecting title. 2012 amended 1040x Legal fees for seeking a decrease in an assessment levied against property to pay for local improvements. 2012 amended 1040x Assessments for items such as paving roads and building ditches that increase the value of the property assessed. 2012 amended 1040x Do not deduct these expenses as taxes. 2012 amended 1040x However, you can deduct as taxes amounts assessed for maintenance or repairs, or for meeting interest charges related to the improvements. 2012 amended 1040x If you make additions or improvements to business property, depreciate the basis of each addition or improvement as separate depreciable property using the rules that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. 2012 amended 1040x See chapter 7. 2012 amended 1040x Deducting vs. 2012 amended 1040x capitalizing costs. 2012 amended 1040x   Do not add to your basis costs you can deduct as current expenses. 2012 amended 1040x For example, amounts paid for incidental repairs or maintenance are deductible as business expenses and are not added to basis. 2012 amended 1040x However, you can elect either to deduct or to capitalize certain other costs. 2012 amended 1040x See chapter 7 in Publication 535. 2012 amended 1040x Decreases to Basis The following are some items that reduce the basis of property. 2012 amended 1040x Section 179 deduction. 2012 amended 1040x Deductions previously allowed or allowable for amortization, depreciation, and depletion. 2012 amended 1040x Alternative motor vehicle credit. 2012 amended 1040x See Form 8910. 2012 amended 1040x Alternative fuel vehicle refueling property credit. 2012 amended 1040x See Form 8911. 2012 amended 1040x Residential energy efficient property credits. 2012 amended 1040x See Form 5695. 2012 amended 1040x Investment credit (part or all) taken. 2012 amended 1040x Casualty and theft losses and insurance reimbursements. 2012 amended 1040x Payments you receive for granting an easement. 2012 amended 1040x Exclusion from income of subsidies for energy conservation measures. 2012 amended 1040x Certain canceled debt excluded from income. 2012 amended 1040x Rebates from a manufacturer or seller. 2012 amended 1040x Patronage dividends received from a cooperative association as a result of a purchase of property. 2012 amended 1040x See Patronage Dividends in chapter 3. 2012 amended 1040x Gas-guzzler tax. 2012 amended 1040x See Form 6197. 2012 amended 1040x Some of these items are discussed next. 2012 amended 1040x For a more detailed list of items that decrease basis, see section 1016 of the Internal Revenue Code and Publication 551. 2012 amended 1040x Depreciation and section 179 deduction. 2012 amended 1040x   The adjustments you must make to the basis of the property if you take the section 179 deduction or depreciate the property are explained next. 2012 amended 1040x For more information on these deductions, see chapter 7. 2012 amended 1040x Section 179 deduction. 2012 amended 1040x   If you take the section 179 expense deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. 2012 amended 1040x Depreciation. 2012 amended 1040x   Decrease the basis of property by the depreciation you deducted or could have deducted on your tax returns under the method of depreciation you chose. 2012 amended 1040x If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. 2012 amended 1040x If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. 2012 amended 1040x   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for any year. 2012 amended 1040x   See chapter 7 for information on figuring the depreciation you should have claimed. 2012 amended 1040x   In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation you must capitalize under the uniform capitalization rules. 2012 amended 1040x Casualty and theft losses. 2012 amended 1040x   If you have a casualty or theft loss, decrease the basis of the property by any insurance or other reimbursement. 2012 amended 1040x Also, decrease it by any deductible loss not covered by insurance. 2012 amended 1040x See chapter 11 for information about figuring your casualty or theft loss. 2012 amended 1040x   You must increase your basis in the property by the amount you spend on clean-up costs (such as debris removal) and repairs that restore the property to its pre-casualty condition. 2012 amended 1040x To make this determination, compare the repaired property to the property before the casualty. 2012 amended 1040x Easements. 2012 amended 1040x   The amount you receive for granting an easement is usually considered to be proceeds from the sale of an interest in the real property. 2012 amended 1040x It reduces the basis of the affected part of the property. 2012 amended 1040x If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. 2012 amended 1040x See Easements and rights-of-way in chapter 3. 2012 amended 1040x Exclusion from income of subsidies for energy conservation measures. 2012 amended 1040x   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. 2012 amended 1040x Reduce the basis of the property by the excluded amount. 2012 amended 1040x Canceled debt excluded from income. 2012 amended 1040x   If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. 2012 amended 1040x A debt includes any indebtedness for which you are liable or which attaches to property you hold. 2012 amended 1040x   You can exclude your canceled debt from income if the debt is any of the following. 2012 amended 1040x Debt canceled in a bankruptcy case or when you are insolvent. 2012 amended 1040x Qualified farm debt. 2012 amended 1040x Qualified real property business debt (provided you are not a C corporation). 2012 amended 1040x Qualified principal residence indebtedness. 2012 amended 1040x Discharge of certain indebtedness of a qualified individual because of Midwestern disasters. 2012 amended 1040x If you exclude canceled debt described in (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. 2012 amended 1040x If you exclude canceled debt described in (3), you must only reduce the basis of your depreciable property by the excluded amount. 2012 amended 1040x   For more information about canceled debt in a bankruptcy case, see Publication 908, Bankruptcy Tax Guide. 2012 amended 1040x For more information about insolvency and canceled debt that is qualified farm debt or qualified principal residence indebtedness, see chapter 3. 2012 amended 1040x For more information about qualified real property business debt, see Publication 334, Tax Guide for Small Business. 2012 amended 1040x For more information about canceled debt in Midwestern disaster areas, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. 2012 amended 1040x Basis Other Than Cost There are times when you cannot use cost as basis. 2012 amended 1040x In these situations, the fair market value or the adjusted basis of property may be used. 2012 amended 1040x Examples are discussed next. 2012 amended 1040x Property changed from personal to business or rental use. 2012 amended 1040x   When you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. 2012 amended 1040x An example of changing property from personal to business use would be changing the use of your pickup truck that you originally purchased for your personal use to use in your farming business. 2012 amended 1040x   The basis for depreciation is the lesser of: The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. 2012 amended 1040x   If you later sell or dispose of this property, the basis you use will depend on whether you are figuring a gain or loss. 2012 amended 1040x The basis for figuring a gain is your adjusted basis in the property when you sell the property. 2012 amended 1040x Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. 2012 amended 1040x Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . 2012 amended 1040x Property received for services. 2012 amended 1040x   If you receive property for services, include the property's FMV in income. 2012 amended 1040x The amount you include in income becomes your basis. 2012 amended 1040x If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. 2012 amended 1040x Example. 2012 amended 1040x George Smith is an accountant and also operates a farming business. 2012 amended 1040x George agreed to do some accounting work for his neighbor in exchange for a dairy cow. 2012 amended 1040x The accounting work and the cow are each worth $1,500. 2012 amended 1040x George must include $1,500 in income for his accounting services. 2012 amended 1040x George's basis in the cow is $1,500. 2012 amended 1040x Taxable Exchanges A taxable exchange is one in which the gain is taxable, or the loss is deductible. 2012 amended 1040x A taxable gain or deductible loss also is known as a recognized gain or loss. 2012 amended 1040x A taxable exchange occurs when you receive cash or get property that is not similar or related in use to the property exchanged. 2012 amended 1040x If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. 2012 amended 1040x Example. 2012 amended 1040x You trade a tract of farmland with an adjusted basis of $2,000 for a tractor that has an FMV of $6,000. 2012 amended 1040x You must report a taxable gain of $4,000 for the land. 2012 amended 1040x The tractor has a basis of $6,000. 2012 amended 1040x Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property you receive using the basis of the converted property. 2012 amended 1040x Similar or related property. 2012 amended 1040x   If the replacement property is similar or related in service or use to the converted property, the replacement property's basis is the same as the old property's basis on the date of the conversion. 2012 amended 1040x However, make the following adjustments. 2012 amended 1040x Decrease the basis by the following amounts. 2012 amended 1040x Any loss you recognize on the involuntary conversion. 2012 amended 1040x Any money you receive that you do not spend on similar property. 2012 amended 1040x Increase the basis by the following amounts. 2012 amended 1040x Any gain you recognize on the involuntary conversion. 2012 amended 1040x Any cost of acquiring the replacement property. 2012 amended 1040x Money or property not similar or related. 2012 amended 1040x   If you receive money or property not similar or related in service or use to the converted property and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the involuntary conversion. 2012 amended 1040x Allocating the basis. 2012 amended 1040x   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. 2012 amended 1040x Basis for depreciation. 2012 amended 1040x   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. 2012 amended 1040x For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. 2012 amended 1040x For more information about involuntary conversions, see chapter 11. 2012 amended 1040x Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. 2012 amended 1040x A nontaxable gain or loss also is known as an unrecognized gain or loss. 2012 amended 1040x If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. 2012 amended 1040x Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. 2012 amended 1040x For an exchange to qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. 2012 amended 1040x There must also be an exchange of like-kind property. 2012 amended 1040x For more information, see Like-Kind Exchanges in  chapter 8. 2012 amended 1040x The basis of the property you receive generally is the same as the adjusted basis of the property you gave up. 2012 amended 1040x Example 1. 2012 amended 1040x You traded a truck you used in your farming business for a new smaller truck to use in farming. 2012 amended 1040x The adjusted basis of the old truck was $10,000. 2012 amended 1040x The FMV of the new truck is $30,000. 2012 amended 1040x Because this is a nontaxable exchange, you do not recognize any gain, and your basis in the new truck is $10,000, the same as the adjusted basis of the truck you traded. 2012 amended 1040x Example 2. 2012 amended 1040x You trade a field cultivator (adjusted basis of $8,000) for a planter (FMV of $9,000). 2012 amended 1040x You use both the field cultivator and the planter in your farming business. 2012 amended 1040x The basis of the planter you receive is $8,000, the same as the field cultivator traded Exchange expenses. 2012 amended 1040x   Exchange expenses generally are the closing costs that you pay. 2012 amended 1040x They include such items as brokerage commissions, attorney fees, and deed preparation fees. 2012 amended 1040x Add them to the basis of the like-kind property you receive. 2012 amended 1040x Property plus cash. 2012 amended 1040x   If you trade property in a like-kind exchange and also pay money, the basis of the property you receive is the adjusted basis of the property you gave up plus the money you paid. 2012 amended 1040x Example. 2012 amended 1040x You trade in a truck (adjusted basis of $3,000) for another truck (FMV of $7,500) and pay $4,000. 2012 amended 1040x Your basis in the new truck is $7,000 (the $3,000 adjusted basis of the old truck plus the $4,000 cash). 2012 amended 1040x Special rules for related persons. 2012 amended 1040x   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. 2012 amended 1040x Each person must report any gain or loss not recognized on the original exchange unless the loss is not deductible under the related party rules. 2012 amended 1040x Each person reports it on the tax return filed for the year in which the later disposition occurred. 2012 amended 1040x If this rule applies, the basis of the property received in the original exchange will be its FMV. 2012 amended 1040x For more information, see chapter 8. 2012 amended 1040x Exchange of business property. 2012 amended 1040x   Exchanging the property of one business for the property of another business generally is a multiple property exchange. 2012 amended 1040x For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. 2012 amended 1040x Basis for depreciation. 2012 amended 1040x   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind transaction. 2012 amended 1040x For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. 2012 amended 1040x Partially Nontaxable Exchanges A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. 2012 amended 1040x The basis of the property you receive is the same as the adjusted basis of the property you gave up with the following adjustments. 2012 amended 1040x Decrease the basis by the following amounts. 2012 amended 1040x Any money you receive. 2012 amended 1040x Any loss you recognize on the exchange. 2012 amended 1040x Increase the basis by the following amounts. 2012 amended 1040x Any additional costs you incur. 2012 amended 1040x Any gain you recognize on the exchange. 2012 amended 1040x If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. 2012 amended 1040x Example 1. 2012 amended 1040x You trade farmland (basis of $100,000) for another tract of farmland (FMV of $110,000) and $30,000 cash. 2012 amended 1040x You realize a gain of $40,000. 2012 amended 1040x This is the FMV of the land received plus the cash minus the basis of the land you traded ($110,000 + $30,000 − $100,000). 2012 amended 1040x Include your gain in income (recognize gain) only to the extent of the cash received. 2012 amended 1040x Your basis in the land you received is figured as follows. 2012 amended 1040x Basis of land traded $100,000 Minus: Cash received (adjustment 1(a)) − 30,000   $70,000 Plus: Gain recognized (adjustment 2(b)) + 30,000 Basis of land received $100,000 Example 2. 2012 amended 1040x You trade a truck (adjusted basis of $22,750) for another truck (FMV of $20,000) and $10,000 cash. 2012 amended 1040x You realize a gain of $7,250. 2012 amended 1040x This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($20,000 + $10,000 − $22,750). 2012 amended 1040x You include all the gain in your income (recognize gain) because the gain is less than the cash you received. 2012 amended 1040x Your basis in the truck you received is figured as follows. 2012 amended 1040x Adjusted basis of truck traded $22,750 Minus: Cash received (adjustment 1(a)) −10,000   $12,750 Plus: Gain recognized (adjustment 2(b)) + 7,250 Basis of truck received $20,000 Allocation of basis. 2012 amended 1040x   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. 2012 amended 1040x The rest is the basis of the like-kind property. 2012 amended 1040x Example. 2012 amended 1040x You traded a tractor with an adjusted basis of $15,000 for another tractor that had an FMV of $12,500. 2012 amended 1040x You also received $1,000 cash and a truck that had an FMV of $3,000. 2012 amended 1040x The truck is unlike property. 2012 amended 1040x You realized a gain of $1,500. 2012 amended 1040x This is the FMV of the tractor received plus the FMV of the truck received plus the cash minus the adjusted basis of the tractor you traded ($12,500 + $3,000 + $1,000 − $15,000). 2012 amended 1040x You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. 2012 amended 1040x Your basis in the properties you received is figured as follows. 2012 amended 1040x Adjusted basis of old tractor $15,000 Minus: Cash received (adjustment 1(a)) − 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) + 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property—the truck ($3,000). 2012 amended 1040x This is the truck's FMV. 2012 amended 1040x The rest ($12,500) is the basis of the tractor. 2012 amended 1040x Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. 2012 amended 1040x Example. 2012 amended 1040x You used a tractor on your farm for 3 years. 2012 amended 1040x Its adjusted basis is $22,000 and its FMV is $40,000. 2012 amended 1040x You are interested in a new tractor, which sells for $60,000. 2012 amended 1040x Ordinarily, you would trade your old tractor for the new one and pay the dealer $20,000. 2012 amended 1040x Your basis for depreciating the new tractor would then be $42,000 ($20,000 + $22,000, the adjusted basis of your old tractor). 2012 amended 1040x However, you want a higher basis for depreciating the new tractor, so you agree to pay the dealer $60,000 for the new tractor if he will pay you $40,000 for your old tractor. 2012 amended 1040x Because the two transactions are dependent on each other, you are treated as having exchanged your old tractor for the new one and paid $20,000 ($60,000 − $40,000). 2012 amended 1040x Your basis for depreciating the new tractor is $42,000, the same as if you traded the old tractor. 2012 amended 1040x Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you. 2012 amended 1040x You also must know its FMV at the time it was given to you and any gift tax paid on it. 2012 amended 1040x FMV equal to or greater than donor's adjusted basis. 2012 amended 1040x   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis when you received the gift. 2012 amended 1040x Increase your basis by all or part of any gift tax paid, depending on the date of the gift. 2012 amended 1040x   Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. 2012 amended 1040x See Adjusted Basis , earlier. 2012 amended 1040x   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. 2012 amended 1040x Figure the increase by multiplying the gift tax paid by the following fraction. 2012 amended 1040x Net increase in value of the gift Amount of the gift   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. 2012 amended 1040x The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. 2012 amended 1040x Example. 2012 amended 1040x In 2013, you received a gift of property from your mother that had an FMV of $50,000. 2012 amended 1040x Her adjusted basis was $20,000. 2012 amended 1040x The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). 2012 amended 1040x She paid a gift tax of $7,320. 2012 amended 1040x Your basis, $26,076, is figured as follows. 2012 amended 1040x Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000 Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . 2012 amended 1040x 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. 2012 amended 1040x If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. 2012 amended 1040x However, your basis cannot exceed the FMV of the gift when it was given to you. 2012 amended 1040x FMV less than donor's adjusted basis. 2012 amended 1040x   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. 2012 amended 1040x Your basis for figuring gain is the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. 2012 amended 1040x Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. 2012 amended 1040x (See Adjusted Basis , earlier. 2012 amended 1040x )   If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither gain nor loss on the sale or other disposition of the property. 2012 amended 1040x Example. 2012 amended 1040x You received farmland as a gift from your parents when they retired from farming. 2012 amended 1040x At the time of the gift, the land had an FMV of $80,000. 2012 amended 1040x Your parents' adjusted basis was $100,000. 2012 amended 1040x After you received the land, no events occurred that would increase or decrease your basis. 2012 amended 1040x If you sell the land for $120,000, you will have a $20,000 gain because you must use the donor's adjusted basis at the time of the gift ($100,000) as your basis to figure a gain. 2012 amended 1040x If you sell the land for $70,000, you will have a $10,000 loss because you must use the FMV at the time of the gift ($80,000) as your basis to figure a loss. 2012 amended 1040x If the sales price is between $80,000 and $100,000, you have neither gain nor loss. 2012 amended 1040x For instance, if the sales price was $90,000 and you tried to figure a gain using the donor's adjusted basis ($100,000), you would get a $10,000 loss. 2012 amended 1040x If you then tried to figure a loss using the FMV ($80,000), you would get a $10,000 gain. 2012 amended 1040x Business property. 2012 amended 1040x   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. 2012 amended 1040x Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. 2012 amended 1040x The same rule applies to a transfer by your former spouse if the transfer is incident to divorce. 2012 amended 1040x However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed plus the liabilities to which the property is subject are more than the adjusted basis of the property transferred. 2012 amended 1040x The transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. 2012 amended 1040x For more information, see Property Settlements in Publication 504, Divorced or Separated Individuals. 2012 amended 1040x Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. 2012 amended 1040x If a federal estate return is filed, you can use its appraised value. 2012 amended 1040x The FMV on the alternate valuation date, if the personal representative for the estate elects to use alternate valuation. 2012 amended 1040x For information on the alternate valuation, see the Instructions for Form 706. 2012 amended 1040x The decedent's adjusted basis in land to the extent of the value that is excluded from the decedent's taxable estate as a qualified conservation easement. 2012 amended 1040x If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. 2012 amended 1040x Special-use valuation method. 2012 amended 1040x   Under certain conditions, when a person dies, the executor or personal representative of that person's estate may elect to value qualified real property at other than its FMV. 2012 amended 1040x If so, the executor or personal representative values the qualified real property based on its use as a farm or other closely held business. 2012 amended 1040x If the executor or personal representative elects this method of valuation for estate tax purposes, this value is the basis of the property for the qualified heirs. 2012 amended 1040x The qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. 2012 amended 1040x   If you are a qualified heir who received special-use valuation property, increase your basis by any gain recognized by the estate or trust because of post-death appreciation. 2012 amended 1040x Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or on the alternate valuation date. 2012 amended 1040x Figure all FMVs without regard to the special-use valuation. 2012 amended 1040x   You may be liable for an additional estate tax if, within 10 years after the death of the decedent, you transfer the property or the property stops being used as a farm. 2012 amended 1040x This tax does not apply if you dispose of the property in a like-kind exchange or in an involuntary conversion in which all of the proceeds are reinvested in qualified replacement property. 2012 amended 1040x The tax also does not apply if you transfer the property to a member of your family and certain requirements are met. 2012 amended 1040x   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. 2012 amended 1040x To increase your basis, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of payment of the additional estate tax. 2012 amended 1040x If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. 2012 amended 1040x The increase in your basis is considered to have occurred immediately before the event that resulted in the additional estate tax. 2012 amended 1040x   You make the election by filing, with Form 706-A, United States Additional Estate Tax Return, a statement that: Contains your (and the estate's) name, address, and taxpayer identification number; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which you are making the election; and Provides any additional information required by the Form 706-A instructions. 2012 amended 1040x   For more information, see Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706-A, and the related instructions. 2012 amended 1040x Property inherited from a decedent who died in 2010. 2012 amended 1040x   If you inherited property from a decedent who died in 2010, different rules may apply. 2012 amended 1040x See Publication 4895, Tax Treatment of Property Acquired From a Decendent Dying in 2010, for details. 2012 amended 1040x Property Distributed From a Partnership or Corporation The following rules apply to determine a partner's basis and a shareholder's basis in property distributed respectively from a partnership to the partner with respect to the partner's interest in the partnership and from a corporation to the shareholder with respect to the shareholder's ownership of stock in the corporation. 2012 amended 1040x Partner's basis. 2012 amended 1040x   Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed by a partnership to the partner is its adjusted basis to the partnership immediately before the distribution. 2012 amended 1040x However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. 2012 amended 1040x For more information, see Partner's Basis for Distributed Property in Publication 541, Partnerships. 2012 amended 1040x Shareholder's basis. 2012 amended 1040x   The basis of property distributed by a corporation to a shareholder is its fair market value. 2012 amended 1040x For more information about corporate distributions, see Distributions to Shareholders in Publication 542, Corporations. 2012 amended 1040x Prev  Up  Next   Home   More Online Publications