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2012 Federal Tax Form 1040

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2012 Federal Tax Form 1040

2012 federal tax form 1040 Publication 501 - Introductory Material Table of Contents What's New Reminders IntroductionOrdering forms and publications. 2012 federal tax form 1040 Tax questions. 2012 federal tax form 1040 Useful Items - You may want to see: What's New Who must file. 2012 federal tax form 1040   In some cases, the amount of income you can receive before you must file a tax return has increased. 2012 federal tax form 1040 Table 1 shows the filing requirements for most taxpayers. 2012 federal tax form 1040 Exemption amount. 2012 federal tax form 1040  The amount you can deduct for each exemption has increased. 2012 federal tax form 1040 It was $3,800 for 2012. 2012 federal tax form 1040 It is $3,900 for 2013. 2012 federal tax form 1040 Exemption phaseout. 2012 federal tax form 1040  You lose at least part of the benefit of your exemptions if your adjusted gross income is above a certain amount. 2012 federal tax form 1040 For 2013, the phaseout begins at $150,000 for married individuals filing separate returns; $250,000 for single individuals; $275,000 for heads of household; and $300,000 for married individuals filing joint returns or qualifying widow(er)s. 2012 federal tax form 1040 See Phaseout of Exemptions , later. 2012 federal tax form 1040 Standard deduction increased. 2012 federal tax form 1040   The standard deduction for some taxpayers who do not itemize their deductions on Schedule A of Form 1040 is higher for 2013 than it was for 2012. 2012 federal tax form 1040 The amount depends on your filing status. 2012 federal tax form 1040 You can use the 2013 Standard Deduction Tables near the end of this publication to figure your standard deduction. 2012 federal tax form 1040 Same-sex marriages. 2012 federal tax form 1040 . 2012 federal tax form 1040  If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. 2012 federal tax form 1040 See Same-sex marriage under Marital Status, later. 2012 federal tax form 1040 If you meet certain requirements, you may be able to file amended returns to change your filing status for some earlier years. 2012 federal tax form 1040 For details on filing amended returns, see Joint Return After Separate Returns . 2012 federal tax form 1040 Reminders Future developments. 2012 federal tax form 1040  Information about any future developments affecting Publication 501 (such as legislation enacted after we release it) will be posted at www. 2012 federal tax form 1040 irs. 2012 federal tax form 1040 gov/pub501. 2012 federal tax form 1040 Taxpayer identification number for aliens. 2012 federal tax form 1040   If you are a nonresident or resident alien and you do not have and are not eligible to get a social security number (SSN), you must apply for an individual taxpayer identification number (ITIN). 2012 federal tax form 1040 Your spouse also may need an ITIN if he or she does not have and is not eligible to get an SSN. 2012 federal tax form 1040 See Form W-7, Application for IRS Individual Taxpayer Identification Number. 2012 federal tax form 1040 Also, see Social Security Numbers for Dependents , later. 2012 federal tax form 1040 Photographs of missing children. 2012 federal tax form 1040   The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 2012 federal tax form 1040 Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 2012 federal tax form 1040 You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. 2012 federal tax form 1040 Introduction This publication discusses some tax rules that affect every person who may have to file a federal income tax return. 2012 federal tax form 1040 It answers some basic questions: who must file; who should file; what filing status to use; how many exemptions to claim; and the amount of the standard deduction. 2012 federal tax form 1040 Who Must File explains who must file an income tax return. 2012 federal tax form 1040 If you have little or no gross income, reading this section will help you decide if you have to file a return. 2012 federal tax form 1040 Who Should File helps you decide if you should file a return, even if you are not required to do so. 2012 federal tax form 1040 Filing Status helps you determine which filing status to use. 2012 federal tax form 1040 Filing status is important in determining whether you must file a return and whether you may claim certain deductions and credits. 2012 federal tax form 1040 It also helps determine your standard deduction and tax rate. 2012 federal tax form 1040 Exemptions, which reduce your taxable income, are discussed in Exemptions . 2012 federal tax form 1040 Exemptions for Dependents explains the difference between a qualifying child and a qualifying relative. 2012 federal tax form 1040 Other topics include the social security number requirement for dependents, the rules for multiple support agreements, and the rules for divorced or separated parents. 2012 federal tax form 1040 Phaseout of Exemptions explains how to determine whether you must reduce the dollar amount of exemptions you claim and, if so, the amount of the reduction. 2012 federal tax form 1040 Standard Deduction gives the rules and dollar amounts for the standard deduction — a benefit for taxpayers who do not itemize their deductions. 2012 federal tax form 1040 This section also discusses the standard deduction for taxpayers who are blind or age 65 or older, as well as special rules that limit the standard deduction available to dependents. 2012 federal tax form 1040 In addition, this section helps you decide whether you would be better off taking the standard deduction or itemizing your deductions. 2012 federal tax form 1040 How To Get Tax Help explains how to get tax help from the IRS. 2012 federal tax form 1040 This publication is for U. 2012 federal tax form 1040 S. 2012 federal tax form 1040 citizens and resident aliens only. 2012 federal tax form 1040 If you are a resident alien for the entire year, you must follow the same tax rules that apply to U. 2012 federal tax form 1040 S. 2012 federal tax form 1040 citizens. 2012 federal tax form 1040 The rules to determine if you are a resident or nonresident alien are discussed in chapter 1 of Publication 519, U. 2012 federal tax form 1040 S. 2012 federal tax form 1040 Tax Guide for Aliens. 2012 federal tax form 1040 Nonresident aliens. 2012 federal tax form 1040    If you were a nonresident alien at any time during the year, the rules and tax forms that apply to you may be different from those that apply to U. 2012 federal tax form 1040 S. 2012 federal tax form 1040 citizens. 2012 federal tax form 1040 See Publication 519. 2012 federal tax form 1040 Comments and suggestions. 2012 federal tax form 1040    We welcome your comments about this publication and your suggestions for future editions. 2012 federal tax form 1040   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 2012 federal tax form 1040 NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. 2012 federal tax form 1040 Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 2012 federal tax form 1040   You can send your comments from www. 2012 federal tax form 1040 irs. 2012 federal tax form 1040 gov/formspubs. 2012 federal tax form 1040 Click on “More Information” and then on “Comment on Tax Forms and Publications. 2012 federal tax form 1040 ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 2012 federal tax form 1040 Ordering forms and publications. 2012 federal tax form 1040    Visit www. 2012 federal tax form 1040 irs. 2012 federal tax form 1040 gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. 2012 federal tax form 1040 Internal Revenue Service 1201 N. 2012 federal tax form 1040 Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 2012 federal tax form 1040    If you have a tax question, check the information available on IRS. 2012 federal tax form 1040 gov or call 1-800-829-1040. 2012 federal tax form 1040 We cannot answer tax questions sent to either of the above addresses. 2012 federal tax form 1040 Useful Items - You may want to see: Publication 559 Survivors, Executors, and Administrators 929 Tax Rules for Children and Dependents Form (and Instructions) 1040X Amended U. 2012 federal tax form 1040 S. 2012 federal tax form 1040 Individual Income Tax Return 2848 Power of Attorney and Declaration of Representative 8332 Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent 8814 Parents' Election To Report Child's Interest and Dividends Prev  Up  Next   Home   More Online Publications
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The 2012 Federal Tax Form 1040

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