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Amendment For Taxes

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Amendment For Taxes

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

Amendment for taxes Publication 939 - Main Content Table of Contents General Information Taxation of Periodic PaymentsInvestment in the Contract Expected Return Computation Under the General Rule How To Use Actuarial TablesUnisex Annuity Tables Special Elections Worksheets for Determining Taxable Annuity Actuarial Tables Requesting a Ruling on Taxation of Annuity How To Get Tax HelpLow Income Taxpayer Clinics General Information Some of the terms used in this publication are defined in the following paragraphs. Amendment for taxes A pension is generally a series of payments made to you after you retire from work. Amendment for taxes Pension payments are made regularly and are for past services with an employer. Amendment for taxes An annuity is a series of payments under a contract. Amendment for taxes You can buy the contract alone or you can buy it with the help of your employer. Amendment for taxes Annuity payments are made regularly for more than one full year. Amendment for taxes Note. Amendment for taxes Distributions from pensions and annuities follow the same rules as outlined in this publication unless otherwise noted. Amendment for taxes Types of pensions and annuities. Amendment for taxes   Particular types of pensions and annuities include: Fixed period annuities. Amendment for taxes You receive definite amounts at regular intervals for a definite length of time. Amendment for taxes Annuities for a single life. Amendment for taxes You receive definite amounts at regular intervals for life. Amendment for taxes The payments end at death. Amendment for taxes Joint and survivor annuities. Amendment for taxes The first annuitant receives a definite amount at regular intervals for life. Amendment for taxes After he or she dies, a second annuitant receives a definite amount at regular intervals for life. Amendment for taxes The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant. Amendment for taxes Variable annuities. Amendment for taxes You receive payments that may vary in amount for a definite length of time or for life. Amendment for taxes The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds or cost-of-living indexes. Amendment for taxes Disability pensions. Amendment for taxes You are under minimum retirement age and receive payments because you retired on disability. Amendment for taxes If, at the time of your retirement, you were permanently and totally disabled, you may be eligible for the credit for the elderly or the disabled discussed in Publication 524. Amendment for taxes If your annuity starting date is after November 18, 1996, the General Rule cannot be used for the following qualified plans. Amendment for taxes A qualified employee plan is an employer's stock bonus, pension, or profit-sharing plan that is for the exclusive benefit of employees or their beneficiaries. Amendment for taxes This plan must meet Internal Revenue Code requirements. Amendment for taxes It qualifies for special tax benefits, including tax deferral for employer contributions and rollover distributions. Amendment for taxes However, you must use the General Rule if you were 75 or over and the annuity payments are guaranteed for more than 5 years. Amendment for taxes A qualified employee annuity is a retirement annuity purchased by an employer for an employee under a plan that meets Internal Revenue Code requirements. Amendment for taxes A tax-sheltered annuity is a special annuity plan or contract purchased for an employee of a public school or tax-exempt organization. Amendment for taxes   The General Rule is used to figure the tax treatment of various types of pensions and annuities, including nonqualified employee plans. Amendment for taxes A nonqualified employee plan is an employer's plan that does not meet Internal Revenue Code requirements. Amendment for taxes It does not qualify for most of the tax benefits of a qualified plan. Amendment for taxes Annuity worksheets. Amendment for taxes   The worksheets found near the end of the text of this publication may be useful to you in figuring the taxable part of your annuity. Amendment for taxes Request for a ruling. Amendment for taxes   If you are unable to determine the income tax treatment of your pension or annuity, you may ask the Internal Revenue Service to figure the taxable part of your annuity payments. Amendment for taxes This is treated as a request for a ruling. Amendment for taxes See Requesting a Ruling on Taxation of Annuity near the end of this publication. Amendment for taxes Withholding tax and estimated tax. Amendment for taxes   Your pension or annuity is subject to federal income tax withholding unless you choose not to have tax withheld. Amendment for taxes If you choose not to have tax withheld from your pension or annuity, or if you do not have enough income tax withheld, you may have to make estimated tax payments. Amendment for taxes Taxation of Periodic Payments This section explains how the periodic payments you receive under a pension or annuity plan are taxed under the General Rule. Amendment for taxes Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Amendment for taxes These payments are also known as amounts received as an annuity. Amendment for taxes If you receive an amount from your plan that is a nonperiodic payment (amount not received as an annuity), see Taxation of Nonperiodic Payments in Publication 575. Amendment for taxes In general, you can recover your net cost of the pension or annuity tax free over the period you are to receive the payments. Amendment for taxes The amount of each payment that is more than the part that represents your net cost is taxable. Amendment for taxes Under the General Rule, the part of each annuity payment that represents your net cost is in the same proportion that your investment in the contract is to your expected return. Amendment for taxes These terms are explained in the following discussions. Amendment for taxes Investment in the Contract In figuring how much of your pension or annuity is taxable under the General Rule, you must figure your investment in the contract. Amendment for taxes First, find your net cost of the contract as of the annuity starting date (defined later). Amendment for taxes To find this amount, you must first figure the total premiums, contributions, or other amounts paid. Amendment for taxes This includes the amounts your employer contributed if you were required to include these amounts in income. Amendment for taxes It also includes amounts you actually contributed (except amounts for health and accident benefits and deductible voluntary employee contributions). Amendment for taxes From this total cost you subtract: Any refunded premiums, rebates, dividends, or unrepaid loans (any of which were not included in your income) that you received by the later of the annuity starting date or the date on which you received your first payment. Amendment for taxes Any additional premiums paid for double indemnity or disability benefits. Amendment for taxes Any other tax-free amounts you received under the contract or plan before the later of the dates in (1). Amendment for taxes The annuity starting date   is the later of the first day of the first period for which you receive payment under the contract or the date on which the obligation under the contract becomes fixed. Amendment for taxes Example. Amendment for taxes On January 1 you completed all your payments required under an annuity contract providing for monthly payments starting on August 1, for the period beginning July 1. Amendment for taxes The annuity starting date is July 1. Amendment for taxes This is the date you use in figuring your investment in the contract and your expected return (discussed later). Amendment for taxes Adjustments If any of the following items apply, adjust (add or subtract) your total cost to find your net cost. Amendment for taxes Foreign employment. Amendment for taxes   If you worked abroad, your cost may include contributions by your employer to the retirement plan, but only if those contributions would be excludible from your gross income had they been paid directly to you as compensation. Amendment for taxes The contributions that apply are: Contributions before 1963 by your employer, Contributions after 1962 by your employer if the contributions would be excludible from your gross income (without regard to the foreign earned income exclusion) had they been paid directly to you, or Contributions after 1996 by your employer on your behalf if you performed the services of a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person) if the contributions would be excludible from your gross income had they been paid directly to you. Amendment for taxes Foreign employment contributions while a nonresident alien. Amendment for taxes   In determining your cost, special rules apply if you are a U. Amendment for taxes S. Amendment for taxes citizen or resident alien who received distributions from a plan to which contributions were made while you were a nonresident alien. Amendment for taxes Your contributions and your employer's contributions are not included in your cost if the contributions: Were made based on compensation which was for services performed outside the United States which you were a nonresident alien, and Were not subject to income tax under the laws of the United States or any foreign country, but only if the contribution would have been subject to income tax if they had been paid as cash compensation when the services were performed. Amendment for taxes Death benefit exclusion. Amendment for taxes   If you are the beneficiary of a deceased employee (or former employee), who died before August 21, 1996, you may qualify for a death benefit exclusion of up to $5,000. Amendment for taxes The beneficiary of a deceased employee who died after August 20, 1996, will not qualify for the death benefit exclusion. Amendment for taxes How to adjust your total cost. Amendment for taxes   If you are eligible, treat the amount of any allowable death benefit exclusion as additional cost paid by the employee. Amendment for taxes Add it to the cost or unrecovered cost of the annuity at the annuity starting date. Amendment for taxes See Example 3 under Computation Under General Rule for an illustration of the adjustment to the cost of the contract. Amendment for taxes Net cost. Amendment for taxes   Your total cost plus certain adjustments and minus other amounts already recovered before the annuity starting date is your net cost. Amendment for taxes This is the unrecovered investment in the contract as of the annuity starting date. Amendment for taxes If your annuity starting date is after 1986, this is the maximum amount that you may recover tax free under the contract. Amendment for taxes Refund feature. Amendment for taxes   Adjustment for the value of the refund feature is only applicable when you report your pension or annuity under the General Rule. Amendment for taxes Your annuity contract has a refund feature if: The expected return ( discussed later) of an annuity depends entirely or partly on the life of one or more individuals, The contract provides that payments will be made to a beneficiary or the estate of an annuitant on or after the death of the annuitant if a stated amount or a stated number of payments has not been paid to the annuitant or annuitants before death, and The payments are a refund of the amount you paid for the annuity contract. Amendment for taxes   If your annuity has a refund feature, you must reduce your net cost of the contract by the value of the refund feature (figured using Table III or VII at the end of this publication, also see How To Use Actuarial Tables , later) to find the investment in the contract. Amendment for taxes Zero value of refund feature. Amendment for taxes   For a joint and survivor annuity, the value of the refund feature is zero if: Both annuitants are age 74 or younger, The payments are guaranteed for less than 2½ years, and The survivor's annuity is at least 50% of the first annuitant's annuity. Amendment for taxes   For a single-life annuity without survivor benefit, the value of the refund feature is zero if: The payments are guaranteed for less than 2½ years, and The annuitant is: Age 57 or younger (if using the new (unisex) annuity tables), Age 42 or younger (if male and using the old annuity tables), or Age 47 or younger (if female and using the old annuity tables). Amendment for taxes   If you do not meet these requirements, you will have to figure the value of the refund feature, as explained in the following discussion. Amendment for taxes Examples. Amendment for taxes The first example shows how to figure the value of the refund feature when there is only one beneficiary. Amendment for taxes Example 2 shows how to figure the value of the refund feature when the contract provides, in addition to a whole life annuity, one or more temporary life annuities for the lives of children. Amendment for taxes In both examples, the taxpayer elects to use Tables V through VIII. Amendment for taxes If you need the value of the refund feature for a joint and survivor annuity, write to the Internal Revenue Service as explained under Requesting a Ruling on Taxation of Annuity near the end of this publication. Amendment for taxes Example 1. Amendment for taxes At age 65, Barbara bought for $21,053 an annuity with a refund feature. Amendment for taxes She will get $100 a month for life. Amendment for taxes Barbara's contract provides that if she does not live long enough to recover the full $21,053, similar payments will be made to her surviving beneficiary until a total of $21,053 has been paid under the contract. Amendment for taxes In this case, the contract cost and the total guaranteed return are the same ($21,053). Amendment for taxes Barbara's investment in the contract is figured as follows: Net cost $21,053 Amount to be received annually $1,200   Number of years for which payment is guaranteed ($21,053 divided by $1,200) 17. Amendment for taxes 54   Rounded to nearest whole number of years 18   Percentage from Actuarial Table VII for age 65 with 18 years of guaranteed payments 15%   Value of the refund feature (rounded to the nearest dollar)—15% of $21,053 3,158 Investment in the contract, adjusted for value of refund feature $17,895       If the total guaranteed return were less than the $21,053 net cost of the contract, Barbara would apply the appropriate percentage from the tables to the lesser amount. Amendment for taxes For example, if the contract guaranteed the $100 monthly payments for 17 years to Barbara's estate or beneficiary if she were to die before receiving all the payments for that period, the total guaranteed return would be $20,400 ($100 × 12 × 17 years). Amendment for taxes In this case, the value of the refund feature would be $2,856 (14% of $20,400) and Barbara's investment in the contract would be $18,197 ($21,053 minus $2,856) instead of $17,895. Amendment for taxes Example 2. Amendment for taxes John died while still employed. Amendment for taxes His widow, Eleanor, age 48, receives $171 a month for the rest of her life. Amendment for taxes John's son, Elmer, age 9, receives $50 a month until he reaches age 18. Amendment for taxes John's contributions to the retirement fund totaled $7,559. Amendment for taxes 45, with interest on those contributions of $1,602. Amendment for taxes 53. Amendment for taxes The guarantee or total refund feature of the contract is $9,161. Amendment for taxes 98 ($7,559. Amendment for taxes 45 plus $1,602. Amendment for taxes 53). Amendment for taxes The adjustment in the investment in the contract is figured as follows: A) Expected return:*       1) Widow's expected return:         Annual annuity ($171 × 12) $2,052       Multiplied by factor from Table V         (nearest age 48) 34. Amendment for taxes 9 $71,614. Amendment for taxes 80   2) Child's expected return:         Annual annuity ($50 × 12) $600       Multiplied by factor from         Table VIII (nearest age 9         for term of 9 years) 9. Amendment for taxes 0 5,400. Amendment for taxes 00   3) Total expected return   $77,014. Amendment for taxes 80 B) Adjustment for refund feature:       1) Contributions (net cost) $7,559. Amendment for taxes 45   2) Guaranteed amount (contributions of $7,559. Amendment for taxes 45 plus interest of $1,602. Amendment for taxes 53) $9,161. Amendment for taxes 98   3) Minus: Expected return under child's (temporary life) annuity (A(2)) 5,400. Amendment for taxes 00   4) Net guaranteed amount $3,761. Amendment for taxes 98   5) Multiple from Table VII (nearest age 48 for 2 years duration (recovery of $3,761. Amendment for taxes 98 at $171 a month to nearest whole year)) 0%   6) Adjustment required for value of refund feature rounded to the nearest whole dollar  (0% × $3,761. Amendment for taxes 98, the smaller of B(3) or B(6)) 0 *Expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Amendment for taxes See the discussion of expected return, later in this publication. Amendment for taxes Free IRS help. Amendment for taxes   If you need to request assistance to figure the value of the refund feature, see Requesting a Ruling on Taxation of Annuity near the end of this publication. Amendment for taxes Expected Return Your expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Amendment for taxes The following discussions explain how to figure the expected return with each type of annuity. Amendment for taxes A person's age, for purposes of figuring the expected return, is the age at the birthday nearest to the annuity starting date. Amendment for taxes Fixed period annuity. Amendment for taxes   If you will get annuity payments for a fixed number of years, without regard to your life expectancy, you must figure your expected return based on that fixed number of years. Amendment for taxes It is the total amount you will get beginning at the annuity starting date. Amendment for taxes You will receive specific periodic payments for a definite period of time, such as a fixed number of months (but not less than 13). Amendment for taxes To figure your expected return, multiply the fixed number of months for which payments are to be made by the amount of the payment specified for each period. Amendment for taxes Single life annuity. Amendment for taxes   If you are to get annuity payments for the rest of your life, find your expected return as follows. Amendment for taxes You must multiply the amount of the annual payment by a multiple based on your life expectancy as of the annuity starting date. Amendment for taxes These multiples are set out in actuarial Tables I and V near the end of this publication (see How To Use Actuarial Tables , later). Amendment for taxes   You may need to adjust these multiples if the payments are made quarterly, semiannually, or annually. Amendment for taxes See Adjustments to Tables I, II, V, VI, and VIA following Table I. Amendment for taxes Example. Amendment for taxes Henry bought an annuity contract that will give him an annuity of $500 a month for his life. Amendment for taxes If at the annuity starting date Henry's nearest birthday is 66, the expected return is figured as follows: Annual payment ($500 × 12 months) $6,000 Multiple shown in Table V, age 66 × 19. Amendment for taxes 2 Expected return $115,200 If the payments were to be made to Henry quarterly and the first payment was made one full month after the annuity starting date, Henry would adjust the 19. Amendment for taxes 2 multiple by +. Amendment for taxes 1. Amendment for taxes His expected return would then be $115,800 ($6,000 × 19. Amendment for taxes 3). Amendment for taxes Annuity for shorter of life or specified period. Amendment for taxes   With this type of annuity, you are to get annuity payments either for the rest of your life or until the end of a specified period, whichever period is shorter. Amendment for taxes To figure your expected return, multiply the amount of your annual payment by a multiple in Table IV or VIII for temporary life annuities. Amendment for taxes Find the proper multiple based on your sex (if using Table IV), your age at the annuity starting date, and the nearest whole number of years in the specified period. Amendment for taxes Example. Amendment for taxes Harriet purchased an annuity this year that will pay her $200 each month for five years or until she dies, whichever period is shorter. Amendment for taxes She was age 65 at her birthday nearest the annuity starting date. Amendment for taxes She figures the expected return as follows: Annual payment ($200 × 12 months) $2,400 Multiple shown in Table VIII, age 65, 5-year term × 4. Amendment for taxes 9 Expected return $11,760 She uses Table VIII (not Table IV) because all her contributions were made after June 30, 1986. Amendment for taxes See Special Elections, later. Amendment for taxes Joint and survivor annuities. Amendment for taxes   If you have an annuity that pays you a periodic income for life and after your death provides an identical lifetime periodic income to your spouse (or some other person), you figure the expected return based on your combined life expectancies. Amendment for taxes To figure the expected return, multiply the annual payment by a multiple in Table II or VI based on your joint life expectancies. Amendment for taxes If your payments are made quarterly, semiannually, or annually, you may need to adjust these multiples. Amendment for taxes See Adjustments to Tables I, II, V, VI, and VIA following Table I near the end of this publication. Amendment for taxes Example. Amendment for taxes John bought a joint and survivor annuity providing payments of $500 a month for his life, and, after his death, $500 a month for the remainder of his wife's life. Amendment for taxes At John's annuity starting date, his age at his nearest birthday is 70 and his wife's at her nearest birthday is 67. Amendment for taxes The expected return is figured as follows: Annual payment ($500 × 12 months) $6,000 Multiple shown in Table VI, ages 67 and 70 × 22. Amendment for taxes 0 Expected return $132,000 Different payments to survivor. Amendment for taxes   If your contract provides that payments to a survivor annuitant will be different from the amount you receive, you must use a computation which accounts for both the joint lives of the annuitants and the life of the survivor. Amendment for taxes Example 1. Amendment for taxes Gerald bought a contract providing for payments to him of $500 a month for life and, after his death, payments to his wife, Mary, of $350 a month for life. Amendment for taxes If, at the annuity starting date, Gerald's nearest birthday is 70 and Mary's is 67, the expected return under the contract is figured as follows: Combined multiple for Gerald and Mary, ages 70 and 67 (from Table VI)   22. Amendment for taxes 0 Multiple for Gerald, age 70 (from Table V)   16. Amendment for taxes 0 Difference: Multiple applicable to Mary   6. Amendment for taxes 0 Gerald's annual payment ($500 × 12) $6,000   Gerald's multiple 16. Amendment for taxes 0   Gerald's expected return   $96,000 Mary's annual payment ($350 × 12) $4,200   Mary's multiple 6. Amendment for taxes 0   Mary's expected return   25,200 Total expected return under the contract   $121,200 Example 2. Amendment for taxes Your husband died while still employed. Amendment for taxes Under the terms of his employer's retirement plan, you are entitled to get an immediate annuity of $400 a month for the rest of your life or until you remarry. Amendment for taxes Your daughters, Marie and Jean, are each entitled to immediate temporary life annuities of $150 a month until they reach age 18. Amendment for taxes You were 50 years old at the annuity starting date. Amendment for taxes Marie was 16 and Jean was 14. Amendment for taxes Using the multiples shown in Tables V and VIII at the end of this publication, the total expected return on the annuity starting date is $169,680, figured as follows: Widow, age 50 (multiple from Table V—33. Amendment for taxes 1 × $4,800 annual payment) $158,880 Marie, age 16 for 2 years duration (multiple from Table VIII—2. Amendment for taxes 0 × $1,800 annual payment) 3,600 Jean, age 14 for 4 years duration (multiple from Table VIII—4. Amendment for taxes 0 × $1,800 annual payment) 7,200 Total expected return $169,680 No computation of expected return is made based on your husband's age at the date of death because he died before the annuity starting date. Amendment for taxes Computation Under the General Rule Note. Amendment for taxes Variable annuities use a different computation for determining the exclusion amounts. Amendment for taxes See Variable annuities later. Amendment for taxes Under the General Rule, you figure the taxable part of your annuity by using the following steps: Step 1. Amendment for taxes   Figure the amount of your investment in the contract, including any adjustments for the refund feature and the death benefit exclusion, if applicable. Amendment for taxes See Death benefit exclusion , earlier. Amendment for taxes Step 2. Amendment for taxes   Figure your expected return. Amendment for taxes Step 3. Amendment for taxes   Divide Step 1 by Step 2 and round to three decimal places. Amendment for taxes This will give you the exclusion percentage. Amendment for taxes Step 4. Amendment for taxes   Multiply the exclusion percentage by the first regular periodic payment. Amendment for taxes The result is the tax-free part of each pension or annuity payment. Amendment for taxes   The tax-free part remains the same even if the total payment increases due to variation in the annuity amount such as cost of living increases, or you outlive the life expectancy factor used. Amendment for taxes However, if your annuity starting date is after 1986, the total amount of annuity income that is tax free over the years cannot exceed your net cost. Amendment for taxes   Each annuitant applies the same exclusion percentage to his or her initial payment called for in the contract. Amendment for taxes Step 5. Amendment for taxes   Multiply the tax-free part of each payment (step 4) by the number of payments received during the year. Amendment for taxes This will give you the tax-free part of the total payment for the year. Amendment for taxes    In the first year of your annuity, your first payment or part of your first payment may be for a fraction of the payment period. Amendment for taxes This fractional amount is multiplied by your exclusion percentage to get the tax-free part. Amendment for taxes Step 6. Amendment for taxes   Subtract the tax-free part from the total payment you received. Amendment for taxes The rest is the taxable part of your pension or annuity. Amendment for taxes Example 1. Amendment for taxes You purchased an annuity with an investment in the contract of $10,800. Amendment for taxes Under its terms, the annuity will pay you $100 a month for life. Amendment for taxes The multiple for your age (age 65) is 20. Amendment for taxes 0 as shown in Table V. Amendment for taxes Your expected return is $24,000 (20 × 12 × $100). Amendment for taxes Your cost of $10,800, divided by your expected return of $24,000, equals 45. Amendment for taxes 0%. Amendment for taxes This is the percentage you will not have to include in income. Amendment for taxes Each year, until your net cost is recovered, $540 (45% of $1,200) will be tax free and you will include $660 ($1,200 − $540) in your income. Amendment for taxes If you had received only six payments of $100 ($600) during the year, your exclusion would have been $270 (45% of $100 × 6 payments). Amendment for taxes Example 2. Amendment for taxes Gerald bought a joint and survivor annuity. Amendment for taxes Gerald's investment in the contract is $62,712 and the expected return is $121,200. Amendment for taxes The exclusion percentage is 51. Amendment for taxes 7% ($62,712 ÷ $121,200). Amendment for taxes Gerald will receive $500 a month ($6,000 a year). Amendment for taxes Each year, until his net cost is recovered, $3,102 (51. Amendment for taxes 7% of his total payments received of $6,000) will be tax free and $2,898 ($6,000 − $3,102) will be included in his income. Amendment for taxes If Gerald dies, his wife will receive $350 a month ($4,200 a year). Amendment for taxes If Gerald had not recovered all of his net cost before his death, his wife will use the same exclusion percentage (51. Amendment for taxes 7%). Amendment for taxes Each year, until the entire net cost is recovered, his wife will receive $2,171. Amendment for taxes 40 (51. Amendment for taxes 7% of her payments received of $4,200) tax free. Amendment for taxes She will include $2,028. Amendment for taxes 60 ($4,200 − $2,171. Amendment for taxes 40) in her income tax return. Amendment for taxes Example 3. Amendment for taxes Using the same facts as Example 2 under Different payments to survivor, you are to receive an annual annuity of $4,800 until you die or remarry. Amendment for taxes Your two daughters each receive annual annuities of $1,800 until they reach age 18. Amendment for taxes Your husband contributed $25,576 to the plan. Amendment for taxes You are eligible for the $5,000 death benefit exclusion because your husband died before August 21, 1996. Amendment for taxes Adjusted Investment in the Contract Contributions $25,576 Plus: Death benefit exclusion 5,000 Adjusted investment in the contract $30,576 The total expected return, as previously figured (in Example 2 under Different payments to survivor), is $169,680. Amendment for taxes The exclusion percentage of 18. Amendment for taxes 0% ($30,576 ÷ $169,680) applies to the annuity payments you and each of your daughters receive. Amendment for taxes Each full year $864 (18. Amendment for taxes 0% × $4,800) will be tax free to you, and you must include $3,936 in your income tax return. Amendment for taxes Each year, until age 18, $324 (18. Amendment for taxes 0% × $1,800) of each of your daughters' payments will be tax free and each must include the balance, $1,476, as income on her own income tax return. Amendment for taxes Part-year payments. Amendment for taxes   If you receive payments for only part of a year, apply the exclusion percentage to the first regular periodic payment, and multiply the result by the number of payments received during the year. Amendment for taxes   If you receive amounts during the year that represent 12 payments, one for each month in that year, and an amount that represents payments for months in a prior year, apply the exclusion percentage to the first regular periodic payment, and multiply the result by the number of payments the amounts received represent. Amendment for taxes For instance, if you received amounts during the year that represent the 12 payments for that year plus an amount that represents three payments for a prior year, multiply that amount by the 15 (12 + 3) payments received that the year. Amendment for taxes   If you received a fractional payment, follow Step 5, discussed earlier. Amendment for taxes This gives you the tax-free part of your total payment. Amendment for taxes Example. Amendment for taxes On September 28, Mary bought an annuity contract for $22,050 that will give her $125 a month for life, beginning October 30. Amendment for taxes The applicable multiple from Table V is 23. Amendment for taxes 3 (age 61). Amendment for taxes Her expected return is $34,950 ($125 × 12 × 23. Amendment for taxes 3). Amendment for taxes Mary's investment in the contract of $22,050, divided by her expected return of $34,950, equals 63. Amendment for taxes 1%. Amendment for taxes Each payment received will consist of 63. Amendment for taxes 1% return of cost and 36. Amendment for taxes 9% taxable income, until her net cost of the contract is fully recovered. Amendment for taxes During the first year, Mary received three payments of $125, or $375, of which $236. Amendment for taxes 63 (63. Amendment for taxes 1% × $375) is a return of cost. Amendment for taxes The remaining $138. Amendment for taxes 37 is included in income. Amendment for taxes Increase in annuity payments. Amendment for taxes   The tax-free amount remains the same as the amount figured at the annuity starting date, even if the payment increases. Amendment for taxes All increases in the installment payments are fully taxable. Amendment for taxes   However, if your annuity payments are scheduled to increase at a definite date in the future you must figure the expected return for that annuity using the method described in section 1. Amendment for taxes 72-5(a)(5) of the regulations. Amendment for taxes Example. Amendment for taxes Joe's wife died while she was still employed and, as her beneficiary, he began receiving an annuity of $147 per month. Amendment for taxes In figuring the taxable part, Joe elects to use Tables V through VIII. Amendment for taxes The cost of the contract was $7,938, consisting of the sum of his wife's net contributions, adjusted for any refund feature. Amendment for taxes His expected return as of the annuity starting date is $35,280 (age 65, multiple of 20. Amendment for taxes 0 × $1,764 annual payment). Amendment for taxes The exclusion percentage is $7,938 ÷ $35,280, or 22. Amendment for taxes 5%. Amendment for taxes During the year he received 11 monthly payments of $147, or $1,617. Amendment for taxes Of this amount, 22. Amendment for taxes 5% × $147 × 11 ($363. Amendment for taxes 83) is tax free as a return of cost and the balance of $1,253. Amendment for taxes 17 is taxable. Amendment for taxes Later, because of a cost-of-living increase, his annuity payment was increased to $166 per month, or $1,992 a year (12 × $166). Amendment for taxes The tax-free part is still only 22. Amendment for taxes 5% of the annuity payments as of the annuity starting date (22. Amendment for taxes 5% × $147 × 12 = $396. Amendment for taxes 90 for a full year). Amendment for taxes The increase of $228 ($1,992 − $1,764 (12 × $147)) is fully taxable. Amendment for taxes Variable annuities. Amendment for taxes   For variable annuity payments, figure the amount of each payment that is tax free by dividing your investment in the contract (adjusted for any refund feature) by the total number of periodic payments you expect to get under the contract. Amendment for taxes   If the annuity is for a definite period, you determine the total number of payments by multiplying the number of payments to be made each year by the number of years you will receive payments. Amendment for taxes If the annuity is for life, you determine the total number of payments by using a multiple from the appropriate actuarial table. Amendment for taxes Example. Amendment for taxes Frank purchased a variable annuity at age 65. Amendment for taxes The total cost of the contract was $12,000. Amendment for taxes The annuity starting date is January 1 of the year of purchase. Amendment for taxes His annuity will be paid, starting July 1, in variable annual installments for his life. Amendment for taxes The tax-free amount of each payment, until he has recovered his cost of his contract, is: Investment in the contract $12,000 Number of expected annual payments (multiple for age 65 from Table V) 20 Tax-free amount of each payment ($12,000 ÷ 20) $600 If Frank's first payment is $920, he includes only $320 ($920 − $600) in his gross income. Amendment for taxes   If the tax-free amount for a year is more than the payments you receive in that year, you may choose, when you receive the next payment, to refigure the tax-free part. Amendment for taxes Divide the amount of the periodic tax-free part that is more than the payment you received by the remaining number of payments you expect. Amendment for taxes The result is added to the previously figured periodic tax-free part. Amendment for taxes The sum is the amount of each future payment that will be tax free. Amendment for taxes Example. Amendment for taxes Using the facts of the previous example about Frank, assume that after Frank's $920 payment, he received $500 in the following year, and $1,200 in the year after that. Amendment for taxes Frank does not pay tax on the $500 (second year) payment because $600 of each annual pension payment is tax free. Amendment for taxes Since the $500 payment is less than the $600 annual tax-free amount, he may choose to refigure his tax-free part when he receives his $1,200 (third year) payment, as follows: Amount tax free in second year $600. Amendment for taxes 00 Amount received in second year 500. Amendment for taxes 00 Difference $100. Amendment for taxes 00 Number of remaining payments after the first 2 payments (age 67, from Table V) 18. Amendment for taxes 4 Amount to be added to previously determined annual tax-free part ($100 ÷ 18. Amendment for taxes 4) $5. Amendment for taxes 43 Revised annual tax-free part for third and later years ($600 + $5. Amendment for taxes 43) $605. Amendment for taxes 43 Amount taxable in third year ($1,200 − $605. Amendment for taxes 43) $594. Amendment for taxes 57 If you choose to refigure your tax-free amount,   you must file a statement with your income tax return stating that you are refiguring the tax-free amount in accordance with the rules of section 1. Amendment for taxes 72–4(d)(3) of the Income Tax Regulations. Amendment for taxes The statement must also show the following information: The annuity starting date and your age on that date. Amendment for taxes The first day of the first period for which you received an annuity payment in the current year. Amendment for taxes Your investment in the contract as originally figured. Amendment for taxes The total of all amounts received tax free under the annuity from the annuity starting date through the first day of the first period for which you received an annuity payment in the current tax year. Amendment for taxes Exclusion Limits Your annuity starting date determines the total amount of annuity income that you can exclude from income over the years. Amendment for taxes Exclusion limited to net cost. Amendment for taxes   If your annuity starting date is after 1986, the total amount of annuity income that you can exclude over the years as a return of your cost cannot exceed your net cost (figured without any reduction for a refund feature). Amendment for taxes This is the unrecovered investment in the contract as of the annuity starting date. Amendment for taxes   If your annuity starting date is after July 1, 1986, any unrecovered net cost at your (or last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Amendment for taxes This deduction is not subject to the 2%-of-adjusted-gross-income limit. Amendment for taxes Example 1. Amendment for taxes Your annuity starting date is after 1986. Amendment for taxes Your total cost is $12,500, and your net cost is $10,000, taking into account certain adjustments. Amendment for taxes There is no refund feature. Amendment for taxes Your monthly annuity payment is $833. Amendment for taxes 33. Amendment for taxes Your exclusion ratio is 12% and you exclude $100 a month. Amendment for taxes Your exclusion ends after 100 months, when you have excluded your net cost of $10,000. Amendment for taxes Thereafter, your annuity payments are fully taxable. Amendment for taxes Example 2. Amendment for taxes The facts are the same as in Example 1, except that there is a refund feature, and you die after 5 years with no surviving annuitant. Amendment for taxes The adjustment for the refund feature is $1,000, so the investment in the contract is $9,000. Amendment for taxes The exclusion ratio is 10. Amendment for taxes 8%, and your monthly exclusion is $90. Amendment for taxes After 5 years (60 months), you have recovered tax free only $5,400 ($90 x 60). Amendment for taxes An itemized deduction for the unrecovered net cost of $4,600 ($10,000 net cost minus $5,400) may be taken on your final income tax return. Amendment for taxes Your unrecovered investment is determined without regard to the refund feature adjustment, discussed earlier, under Adjustments. Amendment for taxes Exclusion not limited to net cost. Amendment for taxes   If your annuity starting date was before 1987, you could continue to take your monthly exclusion for as long as you receive your annuity. Amendment for taxes If you choose a joint and survivor annuity, your survivor continues to take the survivor's exclusion figured as of the annuity starting date. Amendment for taxes The total exclusion may be more than your investment in the contract. Amendment for taxes How To Use Actuarial Tables In figuring, under the General Rule, the taxable part of your annuity payments that you are to get for the rest of your life (rather than for a fixed number of years), you must use one or more of the actuarial tables in this publication. Amendment for taxes Unisex Annuity Tables Effective July 1, 1986, the Internal Revenue Service adopted new annuity Tables V through VIII, in which your sex is not considered when determining the applicable factor. Amendment for taxes These tables correspond to the old Tables I through IV. Amendment for taxes In general, Tables V through VIII must be used if you made contributions to the retirement plan after June 30, 1986. Amendment for taxes If you made no contributions to the plan after June 30, 1986, generally you must use only Tables I through IV. Amendment for taxes However, if you received an annuity payment after June 30, 1986, you may elect to use Tables V through VIII (see Annuity received after June 30, 1986, later). Amendment for taxes Special Elections Although you generally must use Tables V through VIII if you made contributions to the retirement plan after June 30, 1986, and Tables I through IV if you made no contributions after June 30, 1986, you can make the following special elections to select which tables to use. Amendment for taxes Contributions made both before July 1986 and after June 1986. Amendment for taxes   If you made contributions to the retirement plan both before July 1986 and after June 1986, you may elect to use Tables I through IV for the pre-July 1986 cost of the contract, and Tables V through VIII for the post-June 1986 cost. Amendment for taxes (See the examples below. Amendment for taxes )    Making the election. Amendment for taxes Attach this statement to your income tax return for the first year in which you receive an annuity:    “I elect to apply the provisions of paragraph (d) of section 1. Amendment for taxes 72–6 of the Income Tax Regulations. Amendment for taxes ”   The statement must also include your name, address, social security number, and the amount of the pre-July 1986 investment in the contract. Amendment for taxes   If your investment in the contract includes post-June 1986 contributions to the plan, and you do not make the election to use Tables I through IV and Tables V through VIII, then you can only use Tables V through VIII in figuring the taxable part of your annuity. Amendment for taxes You must also use Tables V through VIII if you are unable or do not wish to determine the portions of your contributions which were made before July 1, 1986, and after June 30, 1986. Amendment for taxes    Advantages of election. Amendment for taxes In general, a lesser amount of each annual annuity payment is taxable if you separately figure your exclusion ratio for pre-July 1986 and post-June 1986 contributions. Amendment for taxes    If you intend to make this election, save your records that substantiate your pre-July 1986 and post-June 1986 contributions. Amendment for taxes If the death benefit exclusion applies (see discussion, earlier), you do not have to apportion it between the pre-July 1986 and the post-June 1986 investment in the contract. Amendment for taxes   The following examples illustrate the separate computations required if you elect to use Tables I through IV for your pre-July 1986 investment in the contract and Tables V through VIII for your post-June 1986 investment in the contract. Amendment for taxes Example 1. Amendment for taxes Bill, who is single, contributed $42,000 to the retirement plan and will receive an annual annuity of $24,000 for life. Amendment for taxes Payment of the $42,000 contribution is guaranteed under a refund feature. Amendment for taxes Bill is 55 years old as of the annuity starting date. Amendment for taxes For figuring the taxable part of Bill's annuity, he chose to make separate computations for his pre-July 1986 investment in the contract of $41,300, and for his post-June 1986 investment in the contract of $700. Amendment for taxes       Pre- July 1986   Post- June 1986 A. Amendment for taxes Adjustment for refund feature         1) Net cost $41,300   $700   2) Annual annuity—$24,000  ($41,300/$42,000 × $24,000) $23,600       ($700/$42,000 × $24,000)     $400   3) Guarantee under contract $41,300   $700   4) No. Amendment for taxes of years payments  guaranteed (rounded), A(3) ÷ A(2) 2   2   5) Applicable percentage from  Tables III and VII 1%   0%   6) Adjustment for value of refund  feature, A(5) × smaller of A(1)  or A(3) $413   $0 B. Amendment for taxes Investment in the contract         1) Net cost $41,300   $700   2) Minus: Amount in A(6) 413   0   3) Investment in the contract $40,887   $700 C. Amendment for taxes Expected return         1) Annual annuity receivable $24,000   $24,000   2) Multiples from Tables I and V 21. Amendment for taxes 7   28. Amendment for taxes 6   3) Expected return, C(1) × C(2) $520,800   $686,400 D. Amendment for taxes Tax-free part of annuity         1) Exclusion ratio as decimal,  B(3) ÷ C(3) . Amendment for taxes 079   . Amendment for taxes 001   2) Tax-free part, C(1) × D(1) $1,896   $24 The tax-free part of Bill's total annuity is $1,920 ($1,896 plus $24). Amendment for taxes The taxable part of his annuity is $22,080 ($24,000 minus $1,920). Amendment for taxes If the annuity starting date is after 1986, the exclusion over the years cannot exceed the net cost (figured without any reduction for a refund feature). Amendment for taxes Example 2. Amendment for taxes Al is age 62 at his nearest birthday to the annuity starting date. Amendment for taxes Al's wife is age 60 at her nearest birthday to the annuity starting date. Amendment for taxes The joint and survivor annuity pays $1,000 per month to Al for life, and $500 per month to Al's surviving wife after his death. Amendment for taxes The pre-July 1986 investment in the contract is $53,100 and the post-June 1986 investment in the contract is $7,000. Amendment for taxes Al makes the election described in Example 1 . Amendment for taxes For purposes of this example, assume the refund feature adjustment is zero. Amendment for taxes If an adjustment is required, IRS will figure the amount. Amendment for taxes See Requesting a Ruling on Taxation of Annuity near the end of this publication. Amendment for taxes       Pre-  July 1986   Post-  June 1986 A. Amendment for taxes Adjustment for refund feature         1) Net cost $53,100   $7,000   2) Annual annuity—$12,000  ($53,100/$60,100 × $12,000) $10,602       ($7,000/$60,100 × $12,000)     $1,398   3) Guaranteed under the contract $53,100   $7,000   4) Number of years guaranteed,  rounded, A(3) ÷ A(2) 5   5   5) Applicable percentages 0%   0%   6) Refund feature adjustment, A(5) × smaller of A(1) or A(3) 0   0 B. Amendment for taxes Investment in the contract         1) Net cost $53,100   $7,000   2) Refund feature adjustment 0   0   3) Investment in the contract adjusted for refund feature $53,100   $7,000 C. Amendment for taxes Expected return         1) Multiple for both annuitants from Tables II and VI 25. Amendment for taxes 4   28. Amendment for taxes 8   2) Multiple for first annuitant from Tables I and V 16. Amendment for taxes 9   22. Amendment for taxes 5   3) Multiple applicable to surviving annuitant, subtract C(2) from C(1) 8. Amendment for taxes 5   6. Amendment for taxes 3   4) Annual annuity to surviving annuitant $6,000   $6,000   5) Portion of expected return for surviving annuitant, C(4) × C(3) $51,000   $37,800   6) Annual annuity to first annuitant $12,000   $12,000   7) Plus: Portion of expected return for first annuitant, C(6) × C(2) $202,800   $270,000   8) Expected return for both annuitants, C(5) + C(7) $253,800   $307,800 D. Amendment for taxes Tax-free part of annuity         1) Exclusion ratio as a decimal, B(3) ÷ C(8) . Amendment for taxes 209   . Amendment for taxes 023   2) Retiree's tax-free part of annuity, C(6) × D(1) $2,508   $276   3) Survivor's tax-free part of annuity, C(4) × D(1) $1,254   $138 The tax-free part of Al's total annuity is $2,784 ($2,508 + $276). Amendment for taxes The taxable part of his annuity is $9,216 ($12,000 − $2,784). Amendment for taxes The exclusion over the years cannot exceed the net cost of the contract (figured without any reduction for a refund feature) if the annuity starting date is after 1986. Amendment for taxes After Al's death, his widow will apply the same exclusion percentages (20. Amendment for taxes 9% and 2. Amendment for taxes 3%) to her annual annuity of $6,000 to figure the tax-free part of her annuity. Amendment for taxes Annuity received after June 30, 1986. Amendment for taxes   If you receive an annuity payment after June 30, 1986, (regardless of your annuity starting date), you may elect to treat the entire cost of the contract as post-June 1986 cost (even if you made no post-June 1986 contributions to the plan) and use Tables V through VIII. Amendment for taxes Once made, you cannot revoke the election, which will apply to all payments during the year and in any later year. Amendment for taxes    Make the election by attaching the following statement to your income tax return. Amendment for taxes    “I elect, under section 1. Amendment for taxes 72–9 of the Income Tax Regulations, to treat my entire cost of the contract as a post-June 1986 cost of the plan. Amendment for taxes ”   The statement must also include your name, address, and social security number. Amendment for taxes   You should also indicate you are making this election if you are unable or do not wish to determine the parts of your contributions which were made before July 1, 1986, and after June 30, 1986. Amendment for taxes Disqualifying form of payment or settlement. Amendment for taxes   If your annuity starting date is after June 30, 1986, and the contract provides for a disqualifying form of payment or settlement, such as an option to receive a lump sum in full discharge of the obligation under the contract, the entire investment in the contract is treated as post-June 1986 investment in the contract. Amendment for taxes See regulations section 1. Amendment for taxes 72–6(d)(3) for additional examples of disqualifying forms of payment or settlement. Amendment for taxes You can find the Income Tax Regulations in many libraries and at Internal Revenue Service Offices. Amendment for taxes Worksheets for Determining Taxable Annuity Worksheets I and II. Amendment for taxes   Worksheets I and II follow for determining your taxable annuity under Regulations Section 1. Amendment for taxes 72–6(d)(6) Election. Amendment for taxes Worksheet I For Determining Taxable Annuity Under Regulations Section 1. Amendment for taxes 72-6(d)(6) Election For Single Annuitant With No Survivor Annuity               Pre-July 1986   Post-June 1986 A. Amendment for taxes   Refund Feature Adjustment             1)   Net cost (total cost less returned premiums, dividends, etc. Amendment for taxes )             2)   Annual annuity allocation:                   Portion of net cost in A(1) x annual annuity                   Net cost             3)   Guaranteed under the contract             4)   Number of years guaranteed, rounded to whole years:                   A(3) divided by A(2)             5)   Applicable percentages* from Tables III and VII                   *If your annuity meets the three conditions listed in Zero value of refund feature in Investment in the Contract, earlier, both percentages are 0. Amendment for taxes If not, the IRS will calculate the refund feature percentage. Amendment for taxes             6)   Refund feature adjustment:                   A(5) times lesser of A(1) or A(3)                             B. Amendment for taxes   Investment in the Contract             1)   Net cost:                   A(1)             2)   Refund feature adjustment:                   A(6)             3)   Investment in the contract adjusted for refund feature:                   B(1) minus B(2)                             C. Amendment for taxes   Expected Return             1)   Annual Annuity:                   12 times monthly annuity**             2)   Expected return multiples from Tables I and V             3)     Expected return:                   C(1) times C(2)                             D. Amendment for taxes   Tax-Free Part of Annuity             1)     Exclusion ratio, as a decimal rounded to 3 places:                   B(3) divided by C(3)             2)     Tax-free part of annuity:                   C(1) times D(1)             **If the annuity is not paid monthly, figure the amount to enter by using the total number of periodic payments for the year times the amount of the periodic payment. Amendment for taxes     Worksheet II For Determining Taxable Annuity Under Regulations Section 1. Amendment for taxes 72-6(d)(6) Election For Joint and Survivor Annuity               Pre-July 1986   Post-June 1986 A. Amendment for taxes   Refund Feature Adjustment             1)   Net cost (total cost less returned premiums, dividends, etc. Amendment for taxes )             2)   Annual annuity allocation:                   Portion of net cost in A(1) x annual annuity                   Net cost             3)   Guaranteed under the contract             4)     Number of years guaranteed, rounded to whole years:                   A(3) divided by A(2)             5)   Applicable percentages*                   *If your annuity meets the three conditions listed in Zero value of refund feature in Investment in the Contract, earlier, both percentages are 0. Amendment for taxes If not, the IRS will calculate the refund feature percentage. Amendment for taxes             6)   Refund feature adjustment:                   A(5) times lesser of A(1) or A(3)                             B. Amendment for taxes   Investment in the Contract             1)   Net cost:                   A(1)             2)   Refund feature adjustment:                   A(6)             3)   Investment in the contract adjusted for refund future:                   B(1) minus B(2)                             C. Amendment for taxes   Expected Return             1)   Multiples for both annuitants, Tables II and VI             2)   Multiple for retiree. Amendment for taxes Tables I and VI             3)   Multiple for survivor:                   C(1) minus C(2)             4)   Annual annuity to survivor:                   12 times potential monthly rate for survivor**             5)   Expected return for survivor:                   C(3) times C(4)             6)   Annual annuity to retiree:                   12 times monthly rate for retiree**             7)   Expected return for retiree:                   C(2) times C(6)             8)   Total expected return:                   C(5) plus C(7)                             D. Amendment for taxes   Tax-Free Part of Annuity             1)   Exclusion ratio, as a decimal rounded to 3 places:                   B(3) divided by C(8)             2)   Retiree's tax-free part of annuity:                   C(6) times D(1)             3)   Survivor's tax-free part of annuity, if surviving after death of retiree:                   C(4) times D(1)             **If the annuity is not paid monthly, figure the amount to enter by using the total number of periodic payments for the year times the amount of the periodic payment. Amendment for taxes   Actuarial Tables Please click here for the text description of the image. Amendment for taxes Actuarial Tables Please click here for the text description of the image. Amendment for taxes Actuarial Tables Please click here for the text description of the image. Amendment for taxes Actuarial tables Please click here for the text description of the image. 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Amendment for taxes Actuarial tables Please click here for the text description of the image. Amendment for taxes Actuarial tables Please click here for the text description of the image. Amendment for taxes Actuarial tables Please click here for the text description of the image. Amendment for taxes Actuarial tables Please click here for the text description of the image. Amendment for taxes Actuarial tables Please click here for the text description of the image. Amendment for taxes Actuarial tables Please click here for the text description of the image. Amendment for taxes Actuarial tables Please click here for the text description of the image. Amendment for taxes Actuarial tables Please click here for the text description of the image. Amendment for taxes Actuarial tables Please click here for the text description of the image. Amendment for taxes Actuarial tables Please click here for the text description of the image. 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Amendment for taxes Actuarial tables Requesting a Ruling on Taxation of Annuity If you are a retiree, or the survivor of an employee or retiree, you may ask the Internal Revenue Service to help you determine the taxation of your annuity. Amendment for taxes If you make this request, you are asking for a ruling. Amendment for taxes User fee. Amendment for taxes   Under the law in effect at the time this publication went to print, the IRS must charge a user fee for all ruling requests. Amendment for taxes You should call the IRS for the proper fee. Amendment for taxes A request solely for the value of the refund feature is not treated as a ruling request and requires no fee. Amendment for taxes Send your request to:     Internal Revenue Service  Attention: EP Letter Rulings P. Amendment for taxes O. Amendment for taxes Box 27063 McPherson Station Washington, DC 20038 The user fee is allowed as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit. Amendment for taxes When to make the request. Amendment for taxes   Please note that requests sent between February 1 and April 15 may experience some delay. Amendment for taxes We process requests in the order received, and we will reply to your request as soon as we can process it. Amendment for taxes If you do not receive your ruling by the required filing date, you may use Form 4868, Application for Automatic Extension of Time To File U. Amendment for taxes S. Amendment for taxes Individual Income Tax Return, to get an extension of time to file. Amendment for taxes Information you must furnish. Amendment for taxes   You must furnish the information listed below so the IRS can comply with your request. Amendment for taxes Failure to furnish the information will result in a delay in processing your request. Amendment for taxes Please send only copies of the following documents, as the IRS retains all material sent for its records: A letter explaining the question(s) you wish to have resolved or the information you need from the ruling. Amendment for taxes Copies of any documents showing distributions, annuity rates, and annuity options available to you. Amendment for taxes A copy of any Form 1099–R you received since your annuity began. Amendment for taxes A statement indicating whether you have filed your return for the year for which you are making the request. Amendment for taxes If you have requested an extension of time to file that return, please indicate the extension date. Amendment for taxes Your daytime phone number. Amendment for taxes Your current mailing address. Amendment for taxes A power of attorney if someone other than you, an attorney, a certified public accountant, or an enrolled agent is signing this request. Amendment for taxes Form 2848, Power of Attorney and Declaration of Representative, may be used for this purpose. Amendment for taxes A completed Tax Information Sheet (or facsimile) shown on the next page. Amendment for taxes Sign and date the Disclosure and Perjury Statement (or facsimile) at the end of the tax information sheet. Amendment for taxes This statement must be signed by the retiree or the survivor annuitant. Amendment for taxes It cannot be signed by a representative. Amendment for taxes Tax Information Sheet Please click here for the text description of the image. Amendment for taxes Tax Information Sheet Please click here for the text description of the image. Amendment for taxes Tax Information Sheet (continued) How To Get Tax Help Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Amendment for taxes Free help with your tax return. Amendment for taxes   You can get free help preparing your return nationwide from IRS-certified volunteers. Amendment for taxes The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Amendment for taxes The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Amendment for taxes Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Amendment for taxes In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Amendment for taxes To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Amendment for taxes gov, download the IRS2Go app, or call 1-800-906-9887. Amendment for taxes   As part of the TCE program, AARP offers the Tax-Aide counseling program. Amendment for taxes To find the nearest AARP Tax-Aide site, visit AARP's website at www. Amendment for taxes aarp. Amendment for taxes org/money/taxaide or call 1-888-227-7669. Amendment for taxes For more information on these programs, go to IRS. Amendment for taxes gov and enter “VITA” in the search box. Amendment for taxes Internet. Amendment for taxes    IRS. Amendment for taxes gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Amendment for taxes Download the free IRS2Go app from the iTunes app store or from Google Play. Amendment for taxes Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Amendment for taxes Check the status of your 2013 refund with the Where's My Refund? application on IRS. Amendment for taxes gov or download the IRS2Go app and select the Refund Status option. Amendment for taxes The IRS issues more than 9 out of 10 refunds in less than 21 days. Amendment for taxes Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Amendment for taxes You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Amendment for taxes The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Amendment for taxes Use the Interactive Tax Assistant (ITA) to research your tax questions. Amendment for taxes No need to wait on the phone or stand in line. Amendment for taxes The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Amendment for taxes When you reach the response screen, you can print the entire interview and the final response for your records. Amendment for taxes New subject areas are added on a regular basis. Amendment for taxes  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Amendment for taxes gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Amendment for taxes You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Amendment for taxes The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Amendment for taxes When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Amendment for taxes Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Amendment for taxes You can also ask the IRS to mail a return or an account transcript to you. Amendment for taxes Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Amendment for taxes gov or by calling 1-800-908-9946. Amendment for taxes Tax return and tax account transcripts are generally available for the current year and the past three years. Amendment for taxes Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Amendment for taxes Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Amendment for taxes If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Amendment for taxes Check the status of your amended return using Where's My Amended Return? Go to IRS. Amendment for taxes gov and enter Where's My Amended Return? in the search box. Amendment for taxes You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Amendment for taxes It can take up to 3 weeks from the date you mailed it to show up in our system. Amendment for taxes Make a payment using one of several safe and convenient electronic payment options available on IRS. Amendment for taxes gov. Amendment for taxes Select the Payment tab on the front page of IRS. Amendment for taxes gov for more information. Amendment for taxes Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Amendment for taxes Figure your income tax withholding with the IRS Withholding Calculator on IRS. Amendment for taxes gov. Amendment for taxes Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Amendment for taxes Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Amendment for taxes gov. Amendment for taxes Request an Electronic Filing PIN by going to IRS. Amendment for taxes gov and entering Electronic Filing PIN in the search box. Amendment for taxes Download forms, instructions and publications, including accessible versions for people with disabilities. Amendment for taxes Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Amendment for taxes gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Amendment for taxes An employee can answer questions about your tax account or help you set up a payment plan. Amendment for taxes Before you visit, check the Office Locator on IRS. Amendment for taxes gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Amendment for taxes If you have a special need, such as a disability, you can request an appointment. Amendment for taxes Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Amendment for taxes Apply for an Employer Identification Number (EIN). Amendment for taxes Go to IRS. Amendment for taxes gov and enter Apply for an EIN in the search box. Amendment for taxes Read the Internal Revenue Code, regulations, or other official guidance. Amendment for taxes Read Internal Revenue Bulletins. Amendment for taxes Sign up to receive local and national tax news and more by email. Amendment for taxes Just click on “subscriptions” above the search box on IRS. Amendment for taxes gov and choose from a variety of options. Amendment for taxes    Phone. Amendment for taxes You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Amendment for taxes Download the free IRS2Go app from the iTunes app store or from Google Play. Amendment for taxes Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. Amendment for taxes gov, or download the IRS2Go app. Amendment for taxes Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Amendment for taxes The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Amendment for taxes Mos