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Amendment For Taxes

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Amendment For Taxes

Amendment for taxes Publication 551 - Main Content Table of Contents Cost BasisStocks and Bonds Real Property Business Assets Allocating the Basis Adjusted BasisIncreases to Basis Decreases to Basis Adjustments to Basis Example Basis Other Than CostProperty Received for Services Taxable Exchanges Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed to Business or Rental Use How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Amendment for taxes Cost Basis The basis of property you buy is usually its cost. Amendment for taxes The cost is the amount you pay in cash, debt obligations, other property, or services. Amendment for taxes Your cost also includes amounts you pay for the following items. Amendment for taxes Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if assumed for the seller). Amendment for taxes  You may also have to capitalize (add to basis) certain other costs related to buying or producing property. Amendment for taxes Loans with low or no interest. Amendment for taxes   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. Amendment for taxes You generally have unstated interest if your interest rate is less than the applicable federal rate. Amendment for taxes For more information, see Unstated Interest and Original Issue Discount in Publication 537. Amendment for taxes Purchase of a business. Amendment for taxes   When you purchase a trade or business, you generally purchase all assets used in the business operations, such as land, buildings, and machinery. Amendment for taxes Allocate the price among the various assets, including any section 197 intangibles. Amendment for taxes See Allocating the Basis, later. Amendment for taxes Stocks and Bonds The basis of stocks or bonds you buy is generally the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. Amendment for taxes If you get stocks or bonds other than by purchase, your basis is usually determined by the fair market value (FMV) or the previous owner's adjusted basis of the stock. Amendment for taxes You must adjust the basis of stocks for certain events that occur after purchase. Amendment for taxes See Stocks and Bonds in chapter 4 of Publication 550 for more information on the basis of stock. Amendment for taxes Identifying stock or bonds sold. Amendment for taxes   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. Amendment for taxes If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Amendment for taxes For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Amendment for taxes Mutual fund shares. Amendment for taxes   If you sell mutual fund shares acquired at different times and prices, you can choose to use an average basis. Amendment for taxes For more information, see Publication 550. Amendment for taxes Real Property Real property, also called real estate, is land and generally anything built on or attached to it. Amendment for taxes If you buy real property, certain fees and other expenses become part of your cost basis in the property. Amendment for taxes Real estate taxes. Amendment for taxes   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Amendment for taxes You cannot deduct them as taxes. Amendment for taxes   If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. Amendment for taxes Do not include that amount in the basis of the property. Amendment for taxes If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Amendment for taxes Settlement costs. Amendment for taxes   Your basis includes the settlement fees and closing costs for buying property. Amendment for taxes You cannot include in your basis the fees and costs for getting a loan on property. Amendment for taxes A fee for buying property is a cost that must be paid even if you bought the property for cash. Amendment for taxes   The following items are some of the settlement fees or closing costs you can include in the basis of your property. Amendment for taxes Abstract fees (abstract of title fees); Charges for installing utility services; Legal fees (including title search and preparation of the sales contract and deed); Recording fees; Surveys; Transfer taxes; Owner's title insurance; and Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Amendment for taxes   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Amendment for taxes   The following items are some settlement fees and closing costs you cannot include in the basis of the property. Amendment for taxes Casualty insurance premiums. Amendment for taxes Rent for occupancy of the property before closing. Amendment for taxes Charges for utilities or other services related to occupancy of the property before closing. Amendment for taxes Charges connected with getting a loan. Amendment for taxes The following are examples of these charges. Amendment for taxes Points (discount points, loan origination fees). Amendment for taxes Mortgage insurance premiums. Amendment for taxes Loan assumption fees. Amendment for taxes Cost of a credit report. Amendment for taxes Fees for an appraisal required by a lender. Amendment for taxes Fees for refinancing a mortgage. Amendment for taxes If these costs relate to business property, items (1) through (3) are deductible as business expenses. Amendment for taxes Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan. Amendment for taxes Points. Amendment for taxes   If you pay points to obtain a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. Amendment for taxes Generally, you deduct the points over the term of the loan. Amendment for taxes For more information on how to deduct points, see Points in chapter 4 of Publication 535. Amendment for taxes Points on home mortgage. Amendment for taxes   Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. Amendment for taxes If certain requirements are met, you can deduct the points in full for the year in which they are paid. Amendment for taxes Reduce the basis of your home by any seller-paid points. Amendment for taxes For more information, see Points in Publication 936, Home Mortgage Interest Deduction. Amendment for taxes Assumption of mortgage. Amendment for taxes   If you buy property and assume (or buy subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. Amendment for taxes Example. Amendment for taxes If you buy a building for $20,000 cash and assume a mortgage of $80,000 on it, your basis is $100,000. Amendment for taxes Constructing assets. Amendment for taxes   If you build property or have assets built for you, your expenses for this construction are part of your basis. Amendment for taxes Some of these expenses include the following costs. Amendment for taxes Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. Amendment for taxes In addition, if you own a business and use your employees, material, and equipment to build an asset, do not deduct the following expenses. Amendment for taxes You must include them in the asset's basis. Amendment for taxes Employee wages paid for the construction work, reduced by any employment credits allowed; Depreciation on equipment you own while it is used in the construction; Operating and maintenance costs for equipment used in the construction; and The cost of business supplies and materials used in the construction. Amendment for taxes    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. Amendment for taxes Business Assets If you purchase property to use in your business, your basis is usually its actual cost to you. Amendment for taxes If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. Amendment for taxes In certain circumstances, you may be subject to the uniform capitalization rules, next. Amendment for taxes Uniform Capitalization Rules The uniform capitalization rules specify the costs you add to basis in certain circumstances. Amendment for taxes Activities subject to the rules. Amendment for taxes   You must use the uniform capitalization rules if you do any of the following in your trade or business or activity carried on for profit. Amendment for taxes Produce real or tangible personal property for use in the business or activity, Produce real or tangible personal property for sale to customers, or Acquire property for resale. Amendment for taxes However, this rule does not apply to personal property if your average annual gross receipts for the 3 previous tax years are $10 million or less. Amendment for taxes   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. Amendment for taxes Treat property produced for you under a contract as produced by you up to the amount you pay or costs you otherwise incur for the property. Amendment for taxes Tangible personal property includes films, sound recordings, video tapes, books, or similar property. Amendment for taxes    Under the uniform capitalization rules, you must capitalize all direct costs and an allocable part of most indirect costs you incur due to your production or resale activities. Amendment for taxes To capitalize means to include certain expenses in the basis of property you produce or in your inventory costs rather than deduct them as a current expense. Amendment for taxes You recover these costs through deductions for depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Amendment for taxes   Any cost you cannot use to figure your taxable income for any tax year is not subject to the uniform capitalization rules. Amendment for taxes Example. Amendment for taxes If you incur a business meal expense for which your deduction would be limited to 50% of the cost of the meal, that amount is subject to the uniform capitalization rules. Amendment for taxes The nondeductible part of the cost is not subject to the uniform capitalization rules. Amendment for taxes More information. Amendment for taxes   For more information about these rules, see the regulations under section 263A of the Internal Revenue Code and Publication 538, Accounting Periods and Methods. Amendment for taxes Exceptions. Amendment for taxes   The following are not subject to the uniform capitalization rules. Amendment for taxes Property you produce that you do not use in your trade, business, or activity conducted for profit; Qualified creative expenses you pay or incur as a free-lance (self-employed) writer, photographer, or artist that are otherwise deductible on your tax return; Property you produce under a long-term contract, except for certain home construction contracts; Research and experimental expenses deductible under section 174 of the Internal Revenue Code; and Costs for personal property acquired for resale if your (or your predecessor's) average annual gross receipts for the 3 previous tax years do not exceed $10 million. Amendment for taxes For other exceptions to the uniform capitalization rules, see section 1. Amendment for taxes 263A-1(b) of the regulations. Amendment for taxes   For information on the special rules that apply to costs incurred in the business of farming, see chapter 6 of Publication 225, Farmer's Tax Guide. Amendment for taxes Intangible Assets Intangible assets include goodwill, patents, copyrights, trademarks, trade names, and franchises. Amendment for taxes The basis of an intangible asset is usually the cost to buy or create it. Amendment for taxes If you acquire multiple assets, for example a going business for a lump sum, see Allocating the Basis below to figure the basis of the individual assets. Amendment for taxes The basis of certain intangibles can be amortized. Amendment for taxes See chapter 8 of Publication 535 for information on the amortization of these costs. Amendment for taxes Patents. Amendment for taxes   The basis of a patent you get for an invention is the cost of development, such as research and experimental expenditures, drawings, working models, and attorneys' and governmental fees. Amendment for taxes If you deduct the research and experimental expenditures as current business expenses, you cannot include them in the basis of the patent. Amendment for taxes The value of the inventor's time spent on an invention is not part of the basis. Amendment for taxes Copyrights. Amendment for taxes   If you are an author, the basis of a copyright will usually be the cost of getting the copyright plus copyright fees, attorneys' fees, clerical assistance, and the cost of plates that remain in your possession. Amendment for taxes Do not include the value of your time as the author, or any other person's time you did not pay for. Amendment for taxes Franchises, trademarks, and trade names. Amendment for taxes   If you buy a franchise, trademark, or trade name, the basis is its cost, unless you can deduct your payments as a business expense. Amendment for taxes Allocating the Basis If you buy multiple assets for a lump sum, allocate the amount you pay among the assets you receive. Amendment for taxes You must make this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. Amendment for taxes See Trade or Business Acquired below. Amendment for taxes Group of Assets Acquired If you buy multiple assets for a lump sum, you and the seller may agree to a specific allocation of the purchase price among the assets in the sales contract. Amendment for taxes If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. Amendment for taxes However, see Trade or Business Acquired, next. Amendment for taxes Trade or Business Acquired If you acquire a trade or business, allocate the consideration paid to the various assets acquired. Amendment for taxes Generally, reduce the consideration paid by any cash and general deposit accounts (including checking and savings accounts) received. Amendment for taxes Allocate the remaining consideration to the other business assets received in proportion to (but not more than) their fair market value in the following order. Amendment for taxes Certificates of deposit, U. Amendment for taxes S. Amendment for taxes Government securities, foreign currency, and actively traded personal property, including stock and securities. Amendment for taxes Accounts receivable, other debt instruments, and assets you mark to market at least annually for federal income tax purposes. Amendment for taxes Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held primarily for sale to customers in the ordinary course of business. Amendment for taxes All other assets except section 197 intangibles, goodwill, and going concern value. Amendment for taxes Section 197 intangibles except goodwill and going concern value. Amendment for taxes Goodwill and going concern value (whether or not they qualify as section 197 intangibles). Amendment for taxes Agreement. Amendment for taxes   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value (FMV) of any of the assets. Amendment for taxes This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Amendment for taxes Reporting requirement. Amendment for taxes   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Amendment for taxes Use Form 8594 to provide this information. Amendment for taxes The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Amendment for taxes More information. Amendment for taxes   See Sale of a Business in chapter 2 of Publication 544 for more information. Amendment for taxes Land and Buildings If you buy buildings and the land on which they stand for a lump sum, allocate the basis of the property among the land and the buildings so you can figure the depreciation allowable on the buildings. Amendment for taxes Figure the basis of each asset by multiplying the lump sum by a fraction. Amendment for taxes The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Amendment for taxes If you are not certain of the FMV of the land and buildings, you can allocate the basis based on their assessed values for real estate tax purposes. Amendment for taxes Demolition of building. Amendment for taxes   Add demolition costs and other losses incurred for the demolition of any building to the basis of the land on which the demolished building was located. Amendment for taxes Do not claim the costs as a current deduction. Amendment for taxes Modification of building. Amendment for taxes   A modification of a building will not be treated as a demolition if the following conditions are satisfied. Amendment for taxes 75 percent or more of the existing external walls of the building are retained in place as internal or external walls, and 75 percent or more of the existing internal structural framework of the building is retained in place. Amendment for taxes   If the building is a certified historic structure, the modification must also be part of a certified rehabilitation. Amendment for taxes   If these conditions are met, add the costs of the modifications to the basis of the building. Amendment for taxes Subdivided lots. Amendment for taxes   If you buy a tract of land and subdivide it, you must determine the basis of each lot. Amendment for taxes This is necessary because you must figure the gain or loss on the sale of each individual lot. Amendment for taxes As a result, you do not recover your entire cost in the tract until you have sold all of the lots. Amendment for taxes   To determine the basis of an individual lot, multiply the total cost of the tract by a fraction. Amendment for taxes The numerator is the FMV of the lot and the denominator is the FMV of the entire tract. Amendment for taxes Future improvement costs. Amendment for taxes   If you are a developer and sell subdivided lots before the development work is completed, you can (with IRS consent) include in the basis of the properties sold an allocation of the estimated future cost for common improvements. Amendment for taxes See Revenue Procedure 92–29 for more information, including an explanation of the procedures for getting consent from the IRS. Amendment for taxes Use of erroneous cost basis. Amendment for taxes   If you made a mistake in figuring the cost basis of subdivided lots sold in previous years, you cannot correct the mistake for years for which the statute of limitations (generally 3 tax years) has expired. Amendment for taxes Figure the basis of any remaining lots by allocating the correct original cost basis of the entire tract among the original lots. Amendment for taxes Example. Amendment for taxes You bought a tract of land to which you assigned a cost of $15,000. Amendment for taxes You subdivided the land into 15 building lots of equal size and equitably divided your basis so that each lot had a basis of $1,000. Amendment for taxes You treated the sale of each lot as a separate transaction and figured gain or loss separately on each sale. Amendment for taxes Several years later you determine that your original basis in the tract was $22,500 and not $15,000. Amendment for taxes You sold eight lots using $8,000 of basis in years for which the statute of limitations has expired. Amendment for taxes You now can take $1,500 of basis into account for figuring gain or loss only on the sale of each of the remaining seven lots ($22,500 basis divided among all 15 lots). Amendment for taxes You cannot refigure the basis of the eight lots sold in tax years barred by the statute of limitations. Amendment for taxes Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the basis of the property. Amendment for taxes The result of these adjustments to the basis is the adjusted basis. Amendment for taxes Increases to Basis Increase the basis of any property by all items properly added to a capital account. Amendment for taxes These include the cost of any improvements having a useful life of more than 1 year. Amendment for taxes Rehabilitation expenses also increase basis. Amendment for taxes However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis. Amendment for taxes If you have to recapture any of the credit, increase your basis by the recaptured amount. Amendment for taxes If you make additions or improvements to business property, keep separate accounts for them. Amendment for taxes Also, you must depreciate the basis of each according to the depreciation rules that would apply to the underlying property if you had placed it in service at the same time you placed the addition or improvement in service. Amendment for taxes For more information, see Publication 946. Amendment for taxes The following items increase the basis of property. Amendment for taxes The cost of extending utility service lines to the property; Impact fees; Legal fees, such as the cost of defending and perfecting title; Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements; Zoning costs; and The capitalized value of a redeemable ground rent. Amendment for taxes Assessments for Local Improvements Increase the basis of property by assessments for items such as paving roads and building ditches that increase the value of the property assessed. Amendment for taxes Do not deduct them as taxes. Amendment for taxes However, you can deduct as taxes charges for maintenance, repairs, or interest charges related to the improvements. Amendment for taxes Example. Amendment for taxes Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected landowners for the cost of the conversion. Amendment for taxes Add the assessment to your property's basis. Amendment for taxes In this example, the assessment is a depreciable asset. Amendment for taxes Deducting vs. Amendment for taxes Capitalizing Costs Do not add to your basis costs you can deduct as current expenses. Amendment for taxes For example, amounts paid for incidental repairs or maintenance that are deductible as business expenses cannot be added to basis. Amendment for taxes However, you can choose either to deduct or to capitalize certain other costs. Amendment for taxes If you capitalize these costs, include them in your basis. Amendment for taxes If you deduct them, do not include them in your basis. Amendment for taxes See Uniform Capitalization Rules earlier. Amendment for taxes The costs you can choose to deduct or to capitalize include the following. Amendment for taxes Carrying charges, such as interest and taxes, that you pay to own property, except carrying charges that must be capitalized under the uniform capitalization rules; Research and experimentation costs; Intangible drilling and development costs for oil, gas, and geothermal wells; Exploration costs for new mineral deposits; Mining development costs for a new mineral deposit; Costs of establishing, maintaining, or increasing the circulation of a newspaper or other periodical; and Costs of removing architectural and transportation barriers to people with disabilities and the elderly. Amendment for taxes If you claim the disabled access credit, you must reduce the amount you deduct or capitalize by the amount of the credit. Amendment for taxes For more information about deducting or capitalizing costs, see chapter 7 in Publication 535. Amendment for taxes Table 1. Amendment for taxes Examples of Increases and Decreases to Basis Increases to Basis Decreases to Basis Capital improvements:   Putting an addition on your home   Replacing an entire roof  Paving your driveway  Installing central air conditioning Rewiring your home Exclusion from income of subsidies for energy conservation measures  Casualty or theft loss deductions and insurance reimbursements  Vehicle credits Assessments for local improvements: Water connections Sidewalks Roads Section 179 deduction  Casualty losses: Restoring damaged property Depreciation  Nontaxable corporate distributions Legal fees:  Cost of defending and perfecting a title   Zoning costs   Decreases to Basis The following are some items that reduce the basis of property. Amendment for taxes Section 179 deduction; Nontaxable corporate distributions; Deductions previously allowed (or allowable) for amortization, depreciation, and depletion; Exclusion of subsidies for energy conservation measures; Vehicle credits; Residential energy credits; Postponed gain from sale of home; Investment credit (part or all) taken; Casualty and theft losses and insurance reimbursement; Certain canceled debt excluded from income; Rebates from a manufacturer or seller; Easements; Gas-guzzler tax; Adoption tax benefits; and Credit for employer-provided child care. Amendment for taxes Some of these items are discussed next. Amendment for taxes Casualties and Thefts If you have a casualty or theft loss, decrease the basis in your property by any insurance or other reimbursement and by any deductible loss not covered by insurance. Amendment for taxes You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use. Amendment for taxes To make this determination, compare the repaired property to the property before the casualty. Amendment for taxes For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts. Amendment for taxes Easements The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. Amendment for taxes It reduces the basis of the affected part of the property. Amendment for taxes If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Amendment for taxes Vehicle Credits Unless you elect not to claim the qualified plug-in electric vehicle credit, the alternative motor vehicle credit, or the qualified plug-in electric drive motor vehicle credit, you may have to reduce the basis of each qualified vehicle by certain amounts reported. Amendment for taxes For more information, see Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit; Form 8910, Alternative Motor Vehicle Credit; Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit;and the related instructions. Amendment for taxes Gas-Guzzler Tax Decrease the basis in your car by the gas-guzzler (fuel economy) tax if you begin using the car within 1 year of the date of its first sale for ultimate use. Amendment for taxes This rule also applies to someone who later buys the car and begins using it not more than 1 year after the original sale for ultimate use. Amendment for taxes If the car is imported, the one-year period begins on the date of entry or withdrawal of the car from the warehouse if that date is later than the date of the first sale for ultimate use. Amendment for taxes Section 179 Deduction If you take the section 179 deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. Amendment for taxes For more information about the section 179 deduction, see Publication 946. Amendment for taxes Exclusion of Subsidies for Energy Conservation Measures You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of any energy conservation measure for a dwelling unit. Amendment for taxes Reduce the basis of the property for which you received the subsidy by the excluded amount. Amendment for taxes For more information on this subsidy, see Publication 525. Amendment for taxes Depreciation Decrease the basis of property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. Amendment for taxes If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. Amendment for taxes If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. Amendment for taxes Unless a timely election is made not to deduct the special depreciation allowance for property placed in service after September 10, 2001, decrease the property's basis by the special depreciation allowance you deducted or could have deducted. Amendment for taxes If you deducted more depreciation than you should have, decrease your basis by the amount equal to the depreciation you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for the year. Amendment for taxes In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation capitalized under the uniform capitalization rules. Amendment for taxes For information on figuring depreciation, see Publication 946. Amendment for taxes If you are claiming depreciation on a business vehicle, see Publication 463. Amendment for taxes If the car is not used more than 50% for business during the tax year, you may have to recapture excess depreciation. Amendment for taxes Include the excess depreciation in your gross income and add it to your basis in the property. Amendment for taxes For information on the computation of excess depreciation, see chapter 4 in Publication 463. Amendment for taxes Canceled Debt Excluded From Income If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. Amendment for taxes A debt includes any indebtedness for which you are liable or which attaches to property you hold. Amendment for taxes You can exclude canceled debt from income in the following situations. Amendment for taxes Debt canceled in a bankruptcy case or when you are insolvent, Qualified farm debt, and Qualified real property business debt (provided you are not a C corporation). Amendment for taxes If you exclude from income canceled debt under situation (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. Amendment for taxes However, in situation (3), you must reduce the basis of your depreciable property by the excluded amount. Amendment for taxes For more information about canceled debt in a bankruptcy case or during insolvency, see Publication 908, Bankruptcy Tax Guide. Amendment for taxes For more information about canceled debt that is qualified farm debt, see chapter 3 in Publication 225. Amendment for taxes For more information about qualified real property business debt, see chapter 5 in Publication 334, Tax Guide for Small Business. Amendment for taxes Postponed Gain From Sale of Home If you postponed gain from the sale of your main home before May 7, 1997, you must reduce the basis of your new home by the postponed gain. Amendment for taxes For more information on the rules for the sale of a home, see Publication 523. Amendment for taxes Adoption Tax Benefits If you claim an adoption credit for the cost of improvements you added to the basis of your home, decrease the basis of your home by the credit allowed. Amendment for taxes This also applies to amounts you received under an employer's adoption assistance program and excluded from income. Amendment for taxes For more information Form 8839, Qualified Adoption Expenses. Amendment for taxes Employer-Provided Child Care If you are an employer, you can claim the employer-provided child care credit on amounts you paid or incurred to acquire, construct, rehabilitate, or expand property used as part of your qualified child care facility. Amendment for taxes You must reduce your basis in that property by the credit claimed. Amendment for taxes For more information, see Form 8882, Credit for Employer-Provided Child Care Facilities and Services. Amendment for taxes Adjustments to Basis Example In January 2005, you paid $80,000 for real property to be used as a factory. Amendment for taxes You also paid commissions of $2,000 and title search and legal fees of $600. Amendment for taxes You allocated the total cost of $82,600 between the land and the building—$10,325 for the land and $72,275 for the building. Amendment for taxes Immediately you spent $20,000 in remodeling the building before you placed it in service. Amendment for taxes You were allowed depreciation of $14,526 for the years 2005 through 2009. Amendment for taxes In 2008 you had a $5,000 casualty loss from a that was not covered by insurance on the building. Amendment for taxes You claimed a deduction for this loss. Amendment for taxes You spent $5,500 to repair the damages and extend the useful life of the building. Amendment for taxes The adjusted basis of the building on January 1, 2010, is figured as follows: Original cost of building including fees and commissions $72,275 Adjustments to basis:     Add:         Improvements 20,000   Repair of damages 5,500       $97,775 Subtract:       Depreciation $14,526     Deducted casualty loss 5,000 19,526 Adjusted basis on January 1, 2010 $78,249 The basis of the land, $10,325, remains unchanged. Amendment for taxes It is not affected by any of the above adjustments. Amendment for taxes Basis Other Than Cost There are many times when you cannot use cost as basis. Amendment for taxes In these cases, the fair market value or the adjusted basis of property may be used. Amendment for taxes Adjusted basis is discussed earlier. Amendment for taxes Fair market value (FMV). Amendment for taxes   FMV is the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Amendment for taxes Sales of similar property on or about the same date may be helpful in figuring the property's FMV. Amendment for taxes Property Received for Services If you receive property for services, include the property's FMV in income. Amendment for taxes The amount you include in income becomes your basis. Amendment for taxes If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Amendment for taxes Bargain Purchases A bargain purchase is a purchase of an item for less than its FMV. Amendment for taxes If, as compensation for services, you purchase goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. Amendment for taxes Your basis in the property is its FMV (your purchase price plus the amount you include in income). Amendment for taxes If the difference between your purchase price and the FMV represents a qualified employee discount, do not include the difference in income. Amendment for taxes However, your basis in the property is still its FMV. Amendment for taxes See Employee Discounts in Publication 15-B. Amendment for taxes Restricted Property If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested unless you make the election discussed later. Amendment for taxes Property becomes substantially vested when your rights in the property or the rights of any person to whom you transfer the property are not subject to a substantial risk of forfeiture. Amendment for taxes There is substantial risk of forfeiture when the rights to full enjoyment of the property depend on the future performance of substantial services by any person. Amendment for taxes When the property becomes substantially vested, include the FMV, less any amount you paid for the property, in income. Amendment for taxes Example. Amendment for taxes Your employer gives you stock for services performed under the condition that you will have to return the stock unless you complete 5 years of service. Amendment for taxes The stock is under a substantial risk of forfeiture and is not substantially vested when you receive it. Amendment for taxes You do not report any income until you have completed the 5 years of service that satisfy the condition. Amendment for taxes Fair market value. Amendment for taxes   Figure the FMV of property you received without considering any restriction except one that by its terms will never end. Amendment for taxes Example. Amendment for taxes You received stock from your employer for services you performed. Amendment for taxes If you want to sell the stock while you are still employed, you must sell the stock to your employer at book value. Amendment for taxes At your retirement or death, you or your estate must offer to sell the stock to your employer at its book value. Amendment for taxes This is a restriction that by its terms will never end and you must consider it when you figure the FMV. Amendment for taxes Election. Amendment for taxes   You can choose to include in your gross income the FMV of the property at the time of transfer, less any amount you paid for it. Amendment for taxes If you make this choice, the substantially vested rules do not apply. Amendment for taxes Your basis is the amount you paid plus the amount you included in income. Amendment for taxes   See the discussion of Restricted Property in Publication 525 for more information. Amendment for taxes Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Amendment for taxes A taxable gain or deductible loss is also known as a recognized gain or loss. Amendment for taxes If you receive property in exchange for other property in a taxable exchange, the basis of property you receive is usually its FMV at the time of the exchange. Amendment for taxes A taxable exchange occurs when you receive cash or property not similar or related in use to the property exchanged. Amendment for taxes Example. Amendment for taxes You trade a tract of farm land with an adjusted basis of $3,000 for a tractor that has an FMV of $6,000. Amendment for taxes You must report a taxable gain of $3,000 for the land. Amendment for taxes The tractor has a basis of $6,000. Amendment for taxes Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, you can figure the basis of the replacement property you receive using the basis of the converted property. Amendment for taxes Similar or related property. Amendment for taxes   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the old property's basis on the date of the conversion. Amendment for taxes However, make the following adjustments. Amendment for taxes Decrease the basis by the following. Amendment for taxes Any loss you recognize on the conversion, and Any money you receive that you do not spend on similar property. Amendment for taxes Increase the basis by the following. Amendment for taxes Any gain you recognize on the conversion, and Any cost of acquiring the replacement property. Amendment for taxes Money or property not similar or related. Amendment for taxes   If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the new property is its cost decreased by the gain not recognized on the conversion. Amendment for taxes Example. Amendment for taxes The state condemned your property. Amendment for taxes The property had an adjusted basis of $26,000 and the state paid you $31,000 for it. Amendment for taxes You realized a gain of $5,000 ($31,000 − $26,000). Amendment for taxes You bought replacement property similar in use to the converted property for $29,000. Amendment for taxes You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Amendment for taxes Your gain not recognized is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Amendment for taxes The basis of the new property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of the replacement property $26,000 Allocating the basis. Amendment for taxes   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Amendment for taxes Example. Amendment for taxes The state in the previous example condemned your unimproved real property and the replacement property you bought was improved real property with both land and buildings. Amendment for taxes Allocate the replacement property's $26,000 basis between land and buildings based on their respective costs. Amendment for taxes More information. Amendment for taxes   For more information about condemnations, see Involuntary Conversions in Publication 544. Amendment for taxes For more information about casualty and theft losses, see Publication 547. Amendment for taxes Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Amendment for taxes If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. Amendment for taxes A nontaxable gain or loss is also known as an unrecognized gain or loss. Amendment for taxes Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Amendment for taxes To qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. Amendment for taxes There must also be an exchange of like-kind property. Amendment for taxes For more information, see Like-Kind Exchanges in Publication 544. Amendment for taxes The basis of the property you receive is the same as the basis of the property you gave up. Amendment for taxes Example. Amendment for taxes You exchange real estate (adjusted basis $50,000, FMV $80,000) held for investment for other real estate (FMV $80,000) held for investment. Amendment for taxes Your basis in the new property is the same as the basis of the old ($50,000). Amendment for taxes Exchange expenses. Amendment for taxes   Exchange expenses are generally the closing costs you pay. Amendment for taxes They include such items as brokerage commissions, attorney fees, deed preparation fees, etc. Amendment for taxes Add them to the basis of the like-kind property received. Amendment for taxes Property plus cash. Amendment for taxes   If you trade property in a like-kind exchange and also pay money, the basis of the property received is the basis of the property you gave up increased by the money you paid. Amendment for taxes Example. Amendment for taxes You trade in a truck (adjusted basis $3,000) for another truck (FMV $7,500) and pay $4,000. Amendment for taxes Your basis in the new truck is $7,000 (the $3,000 basis of the old truck plus the $4,000 paid). Amendment for taxes Special rules for related persons. Amendment for taxes   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. Amendment for taxes Each person must report any gain or loss not recognized on the original exchange. Amendment for taxes Each person reports it on the tax return filed for the year in which the later disposition occurs. Amendment for taxes If this rule applies, the basis of the property received in the original exchange will be its fair market value. Amendment for taxes   These rules generally do not apply to the following kinds of property dispositions. Amendment for taxes Dispositions due to the death of either related person, Involuntary conversions, and Dispositions in which neither the original exchange nor the subsequent disposition had as a main purpose the avoidance of federal income tax. Amendment for taxes Related persons. Amendment for taxes   Generally, related persons are ancestors, lineal descendants, brothers and sisters (whole or half), and a spouse. Amendment for taxes   For other related persons (for example, two corporations, an individual and a corporation, a grantor and fiduciary, etc. Amendment for taxes ), see Nondeductible Loss in chapter 2 of Publication 544. Amendment for taxes Exchange of business property. Amendment for taxes   Exchanging the assets of one business for the assets of another business is a multiple property exchange. Amendment for taxes For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. Amendment for taxes Partially Nontaxable Exchange A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like property. Amendment for taxes The basis of the property you receive is the same as the basis of the property you gave up, with the following adjustments. Amendment for taxes Decrease the basis by the following amounts. Amendment for taxes Any money you receive, and Any loss you recognize on the exchange. Amendment for taxes Increase the basis by the following amounts. Amendment for taxes Any additional costs you incur, and Any gain you recognize on the exchange. Amendment for taxes If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Amendment for taxes Example. Amendment for taxes You traded a truck (adjusted basis $6,000) for a new truck (FMV $5,200) and $1,000 cash. Amendment for taxes You realized a gain of $200 ($6,200 − $6,000). Amendment for taxes This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($5,200 + $1,000 – $6,000). Amendment for taxes You include all the gain in income (recognized gain) because the gain is less than the cash received. Amendment for taxes Your basis in the new truck is: Adjusted basis of old truck $6,000 Minus: Cash received (adjustment 1(a)) 1,000   $5,000 Plus: Gain recognized (adjustment 2(b)) 200 Basis of new truck $5,200 Allocation of basis. Amendment for taxes   Allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Amendment for taxes The rest is the basis of the like property. Amendment for taxes Example. Amendment for taxes You had an adjusted basis of $15,000 in real estate you held for investment. Amendment for taxes You exchanged it for other real estate to be held for investment with an FMV of $12,500, a truck with an FMV of $3,000, and $1,000 cash. Amendment for taxes The truck is unlike property. Amendment for taxes You realized a gain of $1,500 ($16,500 − $15,000). Amendment for taxes This is the FMV of the real estate received plus the FMV of the truck received plus the cash minus the adjusted basis of the real estate you traded ($12,500 + $3,000 + $1,000 – $15,000). Amendment for taxes You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. Amendment for taxes Your basis in the properties you received is figured as follows. Amendment for taxes Adjusted basis of real estate transferred $15,000 Minus: Cash received (adjustment 1(a)) 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property — the truck ($3,000). Amendment for taxes This is the truck's FMV. Amendment for taxes The rest ($12,500) is the basis of the real estate. Amendment for taxes Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. Amendment for taxes Example. Amendment for taxes You are a salesperson and you use one of your cars 100% for business. Amendment for taxes You have used this car in your sales activities for 2 years and have depreciated it. Amendment for taxes Your adjusted basis in the car is $22,600 and its FMV is $23,100. Amendment for taxes You are interested in a new car, which sells for $28,000. Amendment for taxes If you trade your old car and pay $4,900 for the new one, your basis for depreciation for the new car would be $27,500 ($4,900 plus the $22,600 basis of your old car). Amendment for taxes However, you want a higher basis for depreciating the new car, so you agree to pay the dealer $28,000 for the new car if he will pay you $23,100 for your old car. Amendment for taxes Because the two transactions are dependent on each other, you are treated as having exchanged your old car for the new one and paid $4,900 ($28,000 − $23,100). Amendment for taxes Your basis for depreciating the new car is $27,500, the same as if you traded the old car. Amendment for taxes Partial Business Use of Property If you have property used partly for business and partly for personal use, and you exchange it in a nontaxable exchange for property to be used wholly or partly in your business, the basis of the property you receive is figured as if you had exchanged two properties. Amendment for taxes The first is an exchange of like-kind property. Amendment for taxes The second is personal-use property on which gain is recognized and loss is not recognized. Amendment for taxes First, figure your adjusted basis in the property as if you transferred two separate properties. Amendment for taxes Figure the adjusted basis of each part of the property by taking into account any adjustments to basis. Amendment for taxes Deduct the depreciation you took or could have taken from the adjusted basis of the business part. Amendment for taxes Then figure the amount realized for your property and allocate it to the business and nonbusiness parts of the property. Amendment for taxes The business part of the property is permitted to be exchanged tax free. Amendment for taxes However, you must recognize any gain from the exchange of the nonbusiness part. Amendment for taxes You are deemed to have received, in exchange for the nonbusiness part, an amount equal to its FMV on the date of the exchange. Amendment for taxes The basis of the property you acquired is the total basis of the property transferred (adjusted to the date of the exchange), increased by any gain recognized on the nonbusiness part. Amendment for taxes If the nonbusiness part of the property transferred is your main home, you may qualify to exclude from income all or part of the gain on that part. Amendment for taxes For more information, see Publication 523. Amendment for taxes Trade of car used partly in business. Amendment for taxes   If you trade in a car you used partly in your business for another car you will use in your business, your basis for depreciation of the new car is not the same as your basis for figuring a gain or loss on its sale. Amendment for taxes   For information on figuring your basis for depreciation, see Publication 463. Amendment for taxes Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse (or former spouse if the transfer is incident to divorce), is the same as your spouse's adjusted basis. Amendment for taxes However, adjust your basis for any gain recognized by your spouse or former spouse on property transferred in trust. Amendment for taxes This rule applies only to a transfer of property in trust in which the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. Amendment for taxes If the property transferred to you is a series E, series EE, or series I United States savings bond, the transferor must include in income the interest accrued to the date of transfer. Amendment for taxes Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. Amendment for taxes For more information on these bonds, see Publication 550. Amendment for taxes At the time of the transfer, the transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of transfer. Amendment for taxes For more information, see Publication 504, Divorced or Separated Individuals. Amendment for taxes Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. Amendment for taxes FMV Less Than Donor's Adjusted Basis If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Amendment for taxes Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustment to basis while you held the property. Amendment for taxes Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property (see Adjusted Basis earlier). Amendment for taxes If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and have a gain, you have neither gain nor loss on the sale or disposition of the property. Amendment for taxes Example. Amendment for taxes You received an acre of land as a gift. Amendment for taxes At the time of the gift, the land had an FMV of $8,000. Amendment for taxes The donor's adjusted basis was $10,000. Amendment for taxes After you received the land, no events occurred to increase or decrease your basis. Amendment for taxes If you sell the land for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis ($10,000) at the time of the gift as your basis to figure gain. Amendment for taxes If you sell the land for $7,000, you will have a $1,000 loss because you must use the FMV ($8,000) at the time of the gift as your basis to figure a loss. Amendment for taxes If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Amendment for taxes For instance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis ($10,000), you would get a $1,000 loss. Amendment for taxes If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain. Amendment for taxes Business property. Amendment for taxes   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduction is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Amendment for taxes FMV Equal to or More Than Donor's Adjusted Basis If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Amendment for taxes Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Amendment for taxes Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis by any required adjustments to basis while you held the property. Amendment for taxes See Adjusted Basis earlier. Amendment for taxes Gift received before 1977. Amendment for taxes   If you received a gift before 1977, increase your basis in the gift (the donor's adjusted basis) by any gift tax paid on it. Amendment for taxes However, do not increase your basis above the FMV of the gift at the time it was given to you. Amendment for taxes Example 1. Amendment for taxes You were given a house in 1976 with an FMV of $21,000. Amendment for taxes The donor's adjusted basis was $20,000. Amendment for taxes The donor paid a gift tax of $500. Amendment for taxes Your basis is $20,500, the donor's adjusted basis plus the gift tax paid. Amendment for taxes Example 2. Amendment for taxes If, in Example 1, the gift tax paid had been $1,500, your basis would be $21,000. Amendment for taxes This is the donor's adjusted basis plus the gift tax paid, limited to the FMV of the house at the time you received the gift. Amendment for taxes Gift received after 1976. Amendment for taxes   If you received a gift after 1976, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. Amendment for taxes Figure the increase by multiplying the gift tax paid by a fraction. Amendment for taxes The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Amendment for taxes   The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. Amendment for taxes The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Amendment for taxes For information on the gift tax, see Publication 950, Introduction to Estate and Gift Taxes. Amendment for taxes Example. Amendment for taxes In 2010, you received a gift of property from your mother that had an FMV of $50,000. Amendment for taxes Her adjusted basis was $20,000. Amendment for taxes The amount of the gift for gift tax purposes was $37,000 ($50,000 minus the $13,000 annual exclusion). Amendment for taxes She paid a gift tax of $9,000. Amendment for taxes Your basis, $27,290, is figured as follows: Fair market value $50,000 Minus: Adjusted basis 20,000 Net increase in value $30,000 Gift tax paid $9,000 Multiplied by ($30,000 ÷ $37,000) . Amendment for taxes 81 Gift tax due to net increase in value $7,290 Adjusted basis of property to your mother 20,000 Your basis in the property $27,290 Inherited Property Special rules apply to property acquired from a decedent who died in 2010. Amendment for taxes See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Amendment for taxes If you inherited property from a decedent who died before 2010, your basis in property you inherit from a decedent is generally one of the following. Amendment for taxes The FMV of the property at the date of the individual's death. Amendment for taxes The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. Amendment for taxes For information on the alternate valuation date, see the Instructions for Form 706. Amendment for taxes The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. Amendment for taxes This method is discussed later. Amendment for taxes The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. Amendment for taxes For information on a qualified conservation easement, see the Instructions for Form 706. Amendment for taxes If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Amendment for taxes For more information, see the Instructions for Form 706. Amendment for taxes Appreciated property. Amendment for taxes   The above rule does not apply to appreciated property you receive from a decedent if you or your spouse originally gave the property to the decedent within 1 year before the decedent's death. Amendment for taxes Your basis in this property is the same as the decedent's adjusted basis in the property immediately before his or her death, rather than its FMV. Amendment for taxes Appreciated property is any property whose FMV on the day it was given to the decedent is more than its adjusted basis. Amendment for taxes Community Property In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. Amendment for taxes When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. Amendment for taxes For this rule to apply, at least half the value of the community property interest must be includable in the decedent's gross estate, whether or not the estate must file a return. Amendment for taxes For example, you and your spouse owned community property that had a basis of $80,000. Amendment for taxes When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Amendment for taxes The FMV of the community interest was $100,000. Amendment for taxes The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Amendment for taxes The basis of the other half to your spouse's heirs is also $50,000. Amendment for taxes For more information on community property, see Publication 555, Community Property. Amendment for taxes Property Held by Surviving Tenant The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety. Amendment for taxes Example. Amendment for taxes John and Jim owned, as joint tenants with right of survivorship, business property they purchased for $30,000. Amendment for taxes John furnished two-thirds of the purchase price and Jim furnished one-third. Amendment for taxes Depreciation deductions allowed before John's death were $12,000. Amendment for taxes Under local law, each had a half interest in the income from the property. Amendment for taxes At the date of John's death, the property had an FMV of $60,000, two-thirds of which is includable in John's estate. Amendment for taxes Jim figures his basis in the property at the date of John's death as follows: Interest Jim bought with his own funds—1/3 of $30,000 cost $10,000   Interest Jim received on John's death—2/3 of $60,000 FMV 40,000 $50,000 Minus: ½ of $12,000 depreciation before John's death 6,000 Jim's basis at the date of John's death $44,000 If Jim had not contributed any part of the purchase price, his basis at the date of John's death would be $54,000. Amendment for taxes This is figured by subtracting from the $60,000 FMV, the $6,000 depreciation allocated to Jim's half interest before the date of death. Amendment for taxes If under local law Jim had no interest in the income from the property and he contributed no part of the purchase price, his basis at John's death would be $60,000, the FMV of the property. Amendment for taxes Qualified Joint Interest Include one-half of the value of a qualified joint interest in the decedent's gross estate. Amendment for taxes It does not matter how much each spouse contributed to the purchase price. Amendment for taxes Also, it does not matter which spouse dies first. Amendment for taxes A qualified joint interest is any interest in property held by husband and wife as either of the following. Amendment for taxes Tenants by the entirety, or Joint tenants with right of survivorship if husband and wife are the only joint tenants. Amendment for taxes Basis. Amendment for taxes   As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of your half of the property with certain adjustments. Amendment for taxes Decrease the cost by any deductions allowed to you for depreciation and depletion. Amendment for taxes Increase the reduced cost by your basis in the half you inherited. Amendment for taxes Farm or Closely Held Business Under certain conditions, when a person dies the executor or personal representative of that person's estate can choose to value the qualified real property on other than its FMV. Amendment for taxes If so, the executor or personal representative values the qualified real property based on its use as a farm or its use in a closely held business. Amendment for taxes If the executor or personal representative chooses this method of valuation for estate tax purposes, that value is the basis of the property for the heirs. Amendment for taxes Qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. Amendment for taxes Special-use valuation. Amendment for taxes   If you are a qualified heir who received special-use valuation property, your basis in the property is the estate's or trust's basis in that property immediately before the distribution. Amendment for taxes Increase your basis by any gain recognized by the estate or trust because of post-death appreciation. Amendment for taxes Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or the alternate valuation date. Amendment for taxes Figure all FMVs without regard to the special-use valuation. Amendment for taxes   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. Amendment for taxes This tax is assessed if, within 10 years after the death of the decedent, you transfer the property to a person who is not a member of your family or the property stops being used as a farm or in a closely held business. Amendment for taxes   To increase your basis in the property, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of the payment of the additional estate tax. Amendment for taxes If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. Amendment for taxes The increase in your basis is considered to have occurred immediately before the event that results in the additional estate tax. Amendment for taxes   You make the election by filing with Form 706-A a statement that does all of the following. Amendment for taxes Contains your name, address, and taxpayer identification number and those of the estate; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which the election is made; and Provides any additional information required by the Instructions for Form 706-A. Amendment for taxes   For more information, see the Instructions for Form 706 and the Instructions for Form 706-A. Amendment for taxes Property Changed to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. Amendment for taxes An example of changing property held for personal use to business use would be renting out your former main home. Amendment for taxes Basis for depreciation. Amendment for taxes   The basis for depreciation is the lesser of the following amounts. Amendment for taxes The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. Amendment for taxes Example. Amendment for taxes Several years ago you paid $160,000 to have your home built on a lot that cost $25,000. Amendment for taxes You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. Amendment for taxes Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Amendment for taxes Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Amendment for taxes On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Amendment for taxes The basis for figuring depreciation on the house is its FMV on the date of change ($165,000) because it is less than your adjusted basis ($178,000). Amendment for taxes Sale of property. Amendment for taxes   If you later sell or dispose of property changed to business or rental use, the basis of the property you use will depend on whether you are figuring gain or loss. Amendment for taxes Gain. Amendment for taxes   The basis for figuring a gain is your adjusted basis when you sell the property. Amendment for taxes Example. Amendment for taxes Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. Amendment for taxes Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Amendment for taxes Loss. Amendment for taxes   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Amendment for taxes Then adjust this amount for the period after the change in the property's use, as discussed earlier under Adjusted Basis, to arrive at a basis for loss. Amendment for taxes Example. Amendment for taxes Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. Amendment for taxes In this case, you would start with the FMV on the date of the change to rental use ($180,000) because it is less than the adjusted basis of $203,000 ($178,000 + $25,000) on that date. Amendment for taxes Reduce that amount ($180,000) by the depreciation deductions to arrive at a basis for loss of $142,500 ($180,000 − $37,500). Amendment for taxes How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. Amendment for taxes By selecting the method that is best for you, you will have quick and easy access to tax help. Amendment for taxes Contacting your Taxpayer Advocate. Amendment for taxes   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. Amendment for taxes We help taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving tax problems with the IRS; and those who believe that an IRS system or procedure is not working as it should. Amendment for taxes Here are seven things every taxpayer should know about TAS. Amendment for taxes TAS is your voice at the IRS. Amendment for taxes Our service is free, confidential, and tailored to meet your needs. Amendment for taxes You may be eligible for our help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should. Amendment for taxes We help taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. Amendment for taxes This includes businesses as well as individuals. Amendment for taxes Our employees know the IRS and how to navigate it. Amendment for taxes If you qualify for our help, we'll assign your case to an advocate who will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved. Amendment for taxes We have at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. Amendment for taxes You can call your local advocate, whose number is in your phone book, in Publication 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www. Amendment for taxes irs. Amendment for taxes gov/advocate. Amendment for taxes You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059. Amendment for taxes You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www. Amendment for taxes taxtoolkit. Amendment for taxes irs. Amendment for taxes gov. Amendment for taxes You can get updates on hot tax topics by visiting our YouTube channel at www. Amendment for taxes youtube. Amendment for taxes com/tasnta and our Facebook page at www. Amendment for taxes facebook. Amendment for taxes com/YourVoiceAtIRS, or by following our tweets at www. Amendment for taxes twitter. Amendment for taxes com/YourVoiceAtIRS. Amendment for taxes Low Income Taxpayer Clinics (LITCs). Amendment for taxes   The Low Income Taxpayer Clinic program serves individuals who have a problem with the IRS and whose income is below a certain level. Amendment for taxes LITCs are independent from the IRS. Amendment for taxes Most LITCs can provide representation before the IRS or in court on audits, tax collection disputes, and other issues for free or a small fee. Amendment for taxes If an individual's native language is not English, some clinics can provide multilingual information about taxpayer rights and responsibilities. Amendment for taxes For more information, see Publication 4134, Low Income Taxpayer Clinic List. Amendment for taxes This publication is available at IRS. Amendment for taxes gov, by calling 1-800-TAX-FORM (1-800-829-3676), or at your local IRS office. Amendment for taxes Free tax services. Amendment for taxes   Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. Amendment for taxes Learn about free tax information from the IRS, including publications, services, and education and assistance programs. Amendment for taxes The publication also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on the telephone. Amendment for taxes The majority of the information and services listed in this publication are available to you free of charge. Amendment for taxes If there is a fee associated with a resource or service, it is listed in the publication. Amendment for taxes   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with d
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File a Delayed Baggage Report

If your bags aren't on the conveyor belt when you arrive, file a report with the airline before you leave the airport.

  • Insist they fill out a form and give you a copy, even if they say the bag will be on the next flight.
  • Get the name of the person who filled out the form and a phone number for follow up.
  • Confirm that the airline will deliver the bag to you without charge when it's found.

Some airlines will give you money to purchase a few necessities. If they don't provide you with cash, ask what types of articles would be reimbursable, and keep all receipts.

If a suitcase arrives damaged, the airline will usually pay for repairs. If an item can't be fixed, they will negotiate to pay you its depreciated value. The same is true for belongings packed inside. Of course, airlines may refuse to pay for damage if it was caused by your failure to pack something properly rather than the airline's handling.

Submit a Second Detailed Report

If your bag is declared officially lost, you will have to submit a second, more detailed form within a time period set by the airline. The information on the form is used to estimate the value of your lost belongings. Airlines can limit their liability for delayed, lost and damaged baggage, however, they must prominently display a sign that explains the limit. According to the Office of Aviation Consumer Protection and Enforcement; the maximum an airline pays on lost bags and their contents is limited to $3,000 per passenger on domestic flights, and $1,500 per passenger for checked baggage on international flights. The Travel Insider offers more information on maximum liability, including special rates that change on a daily basis.

If the airline's offer doesn't fully cover your loss, check your homeowner's or renter's insurance to see if it covers losses away from home. Some credit card companies and travel agencies also offer optional or even automatic supplemental baggage coverage.

On those trips when you know you're carrying more than the liability limits, you may want to ask about purchasing "excess valuation" from the airline when you check in. Of course, there is no guarantee the airline will sell you this protection. The airline may refuse, especially if the item is valuable or breakable.

Airline Fees

Air travelers may choose from a wide variety of airfares. Compare rates online using airline websites or third-party reservation services. You can also contact a travel agent, another ticket outlet, or the airlines serving the places to which you want to travel. Watch for newspaper, magazine, and radio ads. Be wary of new companies serving the market; they may offer lower fares but may not yet have a track record for safety or reliability.
Many airlines charge extra fees for checked baggage, advance seat assignments, meals, and other services. The Department of Transportation has ruled that an airline must prominently disclose all potential fees on their websites. The airline must also refund baggage fees if they lose your baggage. Airlines are also required to include all government taxes and fees in the advertised price. For more information contact the Department of Transportation's Aviation Consumer Protection Division.

The Amendment For Taxes

Amendment for taxes Publication 517 - Main Content Table of Contents Social Security CoverageCoverage of Members of the Clergy Coverage of Religious Workers (Church Employees) U. Amendment for taxes S. Amendment for taxes Citizens and Resident and Nonresident Aliens Ministerial ServicesMinisters Members of Religious Orders Christian Science Practitioners and Readers Exemption From Self-Employment (SE) TaxMembers of the Clergy Members of Recognized Religious Sects Self-Employment Tax: Figuring Net EarningsRegular Method Nonfarm Optional Method Income Tax: Income and ExpensesIncome Items Expense Items Income Tax Withholding and Estimated Tax Filing Your Return Retirement Savings ArrangementsDeducting contributions to tax-sheltered annuity plans. Amendment for taxes Full-time student. Amendment for taxes Adjusted gross income. Amendment for taxes More information. Amendment for taxes Earned Income Credit Comprehensive ExampleForm W-2 From Church Form W-2 From College Schedule C-EZ (Form 1040) Form 2106-EZ Schedule A (Form 1040) Schedule SE (Form 1040) Form 1040 Attachment 1 Attachment 2 How To Get Tax HelpLow Income Taxpayer Clinics Social Security Coverage This section gives information about which system (SECA or FICA) is used to collect social security and Medicare taxes from members of the clergy (ministers, members of a religious order, and Christian Science practitioners and readers) and religious workers (church employees). Amendment for taxes Coverage of Members of the Clergy The services you perform in the exercise of your ministry, of the duties required by your religious order, or of your profession as a Christian Science practitioner or reader are covered by social security and Medicare under SECA. Amendment for taxes Your earnings for these ministerial services (defined later) are subject to self-employment (SE) tax unless one of the following applies. Amendment for taxes You are a member of a religious order who has taken a vow of poverty. Amendment for taxes You ask the Internal Revenue Service (IRS) for an exemption from SE tax for your services and the IRS approves your request. Amendment for taxes See Exemption From Self-Employment (SE) Tax , later. Amendment for taxes You are subject only to the social security laws of a foreign country under the provisions of a social security agreement between the United States and that country. Amendment for taxes For more information, see Bilateral Social Security (Totalization) Agreements in Publication 54. Amendment for taxes Your earnings that are not from ministerial services may be subject to social security tax under FICA or SECA according to the rules that apply to taxpayers in general. Amendment for taxes See Ministerial Services , later. Amendment for taxes Ministers If you are a minister of a church, your earnings for the services you perform in your capacity as a minister are subject to SE tax, even if you perform these services as an employee of that church. Amendment for taxes However, you can request that the IRS grant you an exemption, as discussed under Exemption From Self-Employment (SE) Tax , later. Amendment for taxes For the specific services covered, see Ministerial Services , later. Amendment for taxes Ministers defined. Amendment for taxes   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Amendment for taxes Ministers have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination. Amendment for taxes   If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes. Amendment for taxes Employment status for other tax purposes. Amendment for taxes   Even though all of your income from performing ministerial services is subject to self-employment tax for social security tax purposes, you may be an employee for income tax or retirement plan purposes in performing those same services. Amendment for taxes For income tax or retirement plan purposes, your income earned as an employee will be considered wages. Amendment for taxes Common-law employee. Amendment for taxes   Under common-law rules, you are considered either an employee or a self-employed person. Amendment for taxes Generally, you are an employee if you perform services for someone who has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action. Amendment for taxes For more information about the common-law rules, see Publication 15-A, Employer's Supplemental Tax Guide. Amendment for taxes   If a congregation employs you and pays you a salary, you are generally a common-law employee and income from the exercise of your ministry is wages for income tax purposes. Amendment for taxes However, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services, are not wages; such amounts are self-employment income for both income tax purposes and social security tax purposes. Amendment for taxes Example. Amendment for taxes A church hires and pays you a salary to perform ministerial services subject to its control. Amendment for taxes Under the common-law rules, you are an employee of the church while performing those services. Amendment for taxes Form SS-8. Amendment for taxes   If you are not certain whether you are an employee or a self-employed person, you can get a determination from the IRS by filing Form SS-8. Amendment for taxes Members of Religious Orders If you are a member of a religious order who has not taken a vow of poverty, your earnings for ministerial services you perform as a member of the order are subject to SE tax. Amendment for taxes See Ministerial Services , later. Amendment for taxes However, you can request that the IRS grant you an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. Amendment for taxes Vow of poverty. Amendment for taxes   If you are a member of a religious order and have taken a vow of poverty, you are already exempt from paying SE tax on your earnings for ministerial services you perform as an agent of your church or its agencies. Amendment for taxes You do not need to request a separate exemption. Amendment for taxes For income tax purposes, the earnings are tax free to you. Amendment for taxes Your earnings are considered the income of the religious order. Amendment for taxes Services covered under FICA at the election of the order. Amendment for taxes   However, even if you have taken a vow of poverty, the services you perform for your church or its agencies may be covered under social security. Amendment for taxes Your services are covered if your order, or an autonomous subdivision of the order, elects social security coverage for its current and future vow-of-poverty members. Amendment for taxes   The order or subdivision elects coverage by filing Form SS-16. Amendment for taxes The election may cover certain vow-of-poverty members for a retroactive period of up to 20 calendar quarters before the quarter in which it files the certificate. Amendment for taxes If the election is made, the order or subdivision pays both the employer's and employee's share of the tax. Amendment for taxes You do not pay any of the FICA tax. Amendment for taxes Services performed outside the order. Amendment for taxes   Even if you are a member of a religious order who has taken a vow of poverty and the order requires you to turn over amounts you earn, your earnings are subject to federal income tax and either SE tax or FICA tax (including estimated tax payments and/or withholding) if you: Are self-employed or an employee of an organization outside your religious community, and Perform work not required by, or done on behalf of, the order. Amendment for taxes   In these cases, your income from self-employment or as an employee of that outside organization is taxable to you directly. Amendment for taxes You may, however, be able to take a charitable deduction for the amount you turn over to the order. Amendment for taxes See Publication 526, Charitable Contributions. Amendment for taxes Rulings. Amendment for taxes   Organizations and individuals may request rulings from the IRS on whether they are religious orders, or members of a religious order, respectively, for FICA tax, SE tax, and federal income tax withholding purposes. Amendment for taxes To request a ruling, follow the procedures in Revenue Procedure 2014-1, 2014-1 I. Amendment for taxes R. Amendment for taxes B. Amendment for taxes 1, available at www. Amendment for taxes irs. Amendment for taxes gov/irb/2014-1_IRB/ar05. Amendment for taxes html. Amendment for taxes Christian Science Practitioners and Readers Generally, your earnings from services you perform in your profession as a Christian Science practitioner or reader are subject to SE tax. Amendment for taxes However, you can request an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. Amendment for taxes Practitioners. Amendment for taxes   Christian Science practitioners are members in good standing of the Mother Church, The First Church of Christ, Scientist, in Boston, Massachusetts, who practice healing according to the teachings of Christian Science. Amendment for taxes State law specifically exempts Christian Science practitioners from licensing requirements. Amendment for taxes   Some Christian Science practitioners also are Christian Science teachers or lecturers. Amendment for taxes Income from teaching or lecturing is considered the same as income from their work as practitioners. Amendment for taxes Readers. Amendment for taxes   For tax purposes, Christian Science readers are considered the same as ordained, commissioned, or licensed ministers. Amendment for taxes Coverage of Religious Workers (Church Employees) If you are a religious worker (a church employee) and are not in one of the classes already discussed, your wages are generally subject to social security and Medicare tax under FICA, not SECA. Amendment for taxes Some exceptions are discussed next. Amendment for taxes Election by Church To Exclude Its Employees From FICA Coverage Churches and qualified church-controlled organizations (church organizations) that are opposed for religious reasons to the payment of social security and Medicare taxes can elect to exclude their employees from FICA coverage. Amendment for taxes If your employer makes this election, it does not pay the employer's portion of the FICA taxes or withhold from your pay your portion of the FICA taxes. Amendment for taxes Instead, your wages are subject to SECA and you must pay SE tax on your wages if they exceed $108. Amendment for taxes 28 during the tax year. Amendment for taxes However, you can request an exemption from SE tax if you are a member of a recognized religious sect, as discussed below. Amendment for taxes Churches and church organizations make this election by filing two copies of Form 8274. Amendment for taxes For more information about making this election, see Form 8274. Amendment for taxes Election by Certain Church Employees Who Are Opposed to Social Security and Medicare You may be able to choose to be exempt from social security and Medicare taxes, including the SE tax, if you are a member of a recognized religious sect or division and work for a church (or church-controlled nonprofit division) that does not pay the employer's part of the social security tax on wages. Amendment for taxes This exemption does not apply to your service, if any, as a minister of a church or as a member of a religious order. Amendment for taxes Make this choice by filing Form 4029. Amendment for taxes See Requesting Exemption—Form 4029 , later, under Members of Recognized Religious Sects. Amendment for taxes U. Amendment for taxes S. Amendment for taxes Citizens and Resident and Nonresident Aliens To be covered under the SE tax provisions (SECA), individuals generally must be citizens or resident aliens of the United States. Amendment for taxes Nonresident aliens are not covered under SECA unless a social security agreement in effect between the United States and the foreign country determines that you are covered under the U. Amendment for taxes S. Amendment for taxes social security system. Amendment for taxes To determine your alien status, see Publication 519, U. Amendment for taxes S. Amendment for taxes Tax Guide for Aliens. Amendment for taxes Residents of Puerto Rico, the U. Amendment for taxes S. Amendment for taxes Virgin Islands, Guam, the CNMI, and American Samoa. Amendment for taxes   If you are a resident of one of these U. Amendment for taxes S. Amendment for taxes possessions but not a U. Amendment for taxes S. Amendment for taxes citizen, for SE tax purposes you are treated the same as a citizen or resident alien of the United States. Amendment for taxes For information on figuring the tax, see Self-Employment Tax: Figuring Net Earnings , later. Amendment for taxes Ministerial Services Ministerial services, in general, are the services you perform in the exercise of your ministry, in the exercise of your duties as required by your religious order, or in the exercise of your profession as a Christian Science practitioner or reader. Amendment for taxes Income you receive for performing ministerial services is subject to SE tax unless you have an exemption as explained later. Amendment for taxes Even if you have an exemption, only the income you receive for performing ministerial services is exempt. Amendment for taxes The exemption does not apply to any other income. Amendment for taxes The following discussions provide more detailed information on ministerial services of ministers, members of a religious order, and Christian Science practitioners and readers. Amendment for taxes Ministers Most services you perform as a minister, priest, rabbi, etc. Amendment for taxes , are ministerial services. Amendment for taxes These services include: Performing sacerdotal functions, Conducting religious worship, and Controlling, conducting, and maintaining religious organizations (including the religious boards, societies, and other integral agencies of such organizations) that are under the authority of a religious body that is a church or denomination. Amendment for taxes You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities. Amendment for taxes A religious organization is under the authority of a religious body that is a church or denomination if it is organized for and dedicated to carrying out the principles of a faith according to the requirements governing the creation of institutions of the faith. Amendment for taxes Services for nonreligious organizations. Amendment for taxes   Your services for a nonreligious organization are ministerial services if the services are assigned or designated by your church. Amendment for taxes Assigned or designated services qualify even if they do not involve performing sacerdotal functions or conducting religious worship. Amendment for taxes   If your services are not assigned or designated by your church, they are ministerial services only if they involve performing sacerdotal functions or conducting religious worship. Amendment for taxes Services that are not part of your ministry. Amendment for taxes   Income from services you perform as an employee that are not ministerial services is subject to social security and Medicare tax withholding under FICA (not SECA) under the rules that apply to employees in general. Amendment for taxes The following are not ministerial services. Amendment for taxes Services you perform for nonreligious organizations other than the services stated above. Amendment for taxes Services you perform as a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, the District of Columbia, a foreign government, or any of their political subdivisions. Amendment for taxes These services are not ministerial services even if you are performing sacerdotal functions or conducting religious worship. Amendment for taxes (For example, if you perform services as a chaplain in the Armed Forces of the United States, those services are not ministerial services. Amendment for taxes ) Services you perform in a government-owned and operated hospital. Amendment for taxes (These services are considered performed by a government employee, not by a minister as part of the ministry. Amendment for taxes ) However, services that you perform at a church-related hospital or health and welfare institution, or a private nonprofit hospital, are considered to be part of the ministry and are considered ministerial services. Amendment for taxes Books or articles. Amendment for taxes   Writing religious books or articles is considered to be in the exercise of your ministry and is considered a ministerial service. Amendment for taxes   This rule also applies to members of religious orders and to Christian Science practitioners and readers. Amendment for taxes Members of Religious Orders Services you perform as a member of a religious order in the exercise of duties required by the order are ministerial services. Amendment for taxes The services are considered ministerial because you perform them as an agent of the order. Amendment for taxes For example, if the order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to perform the services as an agent of the order. Amendment for taxes However, if the order directs you to work outside the order, this employment will not be considered a duty required by the order unless: Your services are the kind that are ordinarily performed by members of the order, and Your services are part of the duties that must be exercised for, or on behalf of, the religious order as its agent. Amendment for taxes Effect of employee status. Amendment for taxes   Ordinarily, if your services are not considered directed or required of you by the order, you and the outside party for whom you work are considered employee and employer. Amendment for taxes In this case, your earnings from the services are taxed under the rules that apply to employees in general, not under the rules for services provided as agent for the order. Amendment for taxes This result is true even if you have taken a vow of poverty. Amendment for taxes Example. Amendment for taxes Pat Brown and Chris Green are members of a religious order and have taken vows of poverty. Amendment for taxes They renounce all claims to their earnings. Amendment for taxes The earnings belong to the order. Amendment for taxes Pat is a licensed attorney. Amendment for taxes The superiors of the order instructed her to get a job with a law firm. Amendment for taxes Pat joined a law firm as an employee and, as she requested, the firm made the salary payments directly to the order. Amendment for taxes Chris is a secretary. Amendment for taxes The superiors of the order instructed him to accept a job with the business office of the church that supervises the order. Amendment for taxes Chris took the job and gave all his earnings to the order. Amendment for taxes Pat's services are not duties required by the order. Amendment for taxes Her earnings are subject to social security and Medicare tax under FICA and to federal income tax. Amendment for taxes Chris' services are duties required by the order. Amendment for taxes He is acting as an agent of the order and not as an employee of a third party. Amendment for taxes He does not include the earnings in gross income, and they are not subject to income tax withholding or to social security and Medicare tax under FICA or SECA. Amendment for taxes Christian Science Practitioners and Readers Services you perform as a Christian Science practitioner or reader in the exercise of your profession are ministerial services. Amendment for taxes Amounts you receive for performing these services are generally subject to SE tax. Amendment for taxes You may request an exemption from SE tax, discussed next, which applies only to those services. Amendment for taxes Exemption From Self-Employment (SE) Tax You can request an exemption from SE tax if you are a member of the clergy (minister, member of a religious order, or Christian Science practitioner or reader) or a member of a recognized religious sect. Amendment for taxes Generally, members of religious orders who have taken a vow of poverty are already exempt from paying SE tax, as discussed earlier under Members of Religious Orders under Social Security Coverage. Amendment for taxes They do not have to request the exemption. Amendment for taxes Who cannot be exempt. Amendment for taxes   You cannot be exempt from SE tax if you made one of the following elections to be covered under social security. Amendment for taxes These elections are irrevocable. Amendment for taxes You elected to be covered under social security by filing Form 2031, Revocation of Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners, for your 1986, 1987, 2000, or 2001 tax year. Amendment for taxes You elected before 1968 to be covered under social security for your ministerial services. Amendment for taxes Requesting exemption. Amendment for taxes    Table 2, earlier, briefly summarizes the procedure for requesting exemption from the SE tax. Amendment for taxes More detailed explanations follow. Amendment for taxes If you are a minister, member of a religious order, or Christian Science practitioner, an approved exemption only applies to earnings you receive for ministerial services, discussed earlier. Amendment for taxes It does not apply to any other self-employment income. Amendment for taxes Table 2. Amendment for taxes The Self-Employment Tax Exemption Application and Approval Process   Who Can Apply Members of the Clergy Members of Recognized  Religious Sects How File Form 4361 File Form 4029 When File by the due date (including extensions) of your income tax return for the second tax year in which you had at least $400 of net earnings from self-employment (at least part from ministerial services) File anytime Approval If approved, you will receive an approved copy of Form 4361 If approved, you will receive an approved copy of Form 4029 Effective Date For all tax years after 1967 in which you have at least $400 of net earnings from self-employment For all tax years beginning with the first year you meet the eligibility requirements discussed later Members of the Clergy To claim the exemption from SE tax, you must meet all of the following conditions. Amendment for taxes You file Form 4361, described below under Requesting Exemption—Form 4361 . Amendment for taxes You are conscientiously opposed to public insurance because of your individual religious considerations (not because of your general conscience), or you are opposed because of the principles of your religious denomination. Amendment for taxes You file for other than economic reasons. Amendment for taxes You inform the ordaining, commissioning, or licensing body of your church or order that you are opposed to public insurance if you are a minister or a member of a religious order (other than a vow-of-poverty member). Amendment for taxes This requirement does not apply to Christian Science practitioners or readers. Amendment for taxes You establish that the organization that ordained, commissioned, or licensed you, or your religious order, is a tax-exempt religious organization. Amendment for taxes You establish that the organization is a church or a convention or association of churches. Amendment for taxes You did not make an election discussed earlier under Who cannot be exempt . Amendment for taxes You sign and return the statement the IRS mails to you to certify that you are requesting an exemption based on the grounds listed on the statement. Amendment for taxes Requesting Exemption—Form 4361 To request exemption from SE tax, file Form 4361 in triplicate (original and two copies) with the IRS. Amendment for taxes The IRS will return to you a copy of the Form 4361 that you filed indicating whether it has approved your exemption. Amendment for taxes If it is approved, keep the approved copy of Form 4361 in your permanent records. Amendment for taxes When to file. Amendment for taxes   File Form 4361 by the date your income tax return is due, including extensions, for the second tax year in which both of the following are true. Amendment for taxes You have net earnings from self-employment of at least $400. Amendment for taxes Any part of those net earnings was from ministerial services you performed as a: Minister, Member of a religious order, or Christian Science practitioner or reader. Amendment for taxes The 2 years do not have to be consecutive tax years. Amendment for taxes    The approval process can take some time, so you should file Form 4361 as soon as possible. Amendment for taxes Example 1. Amendment for taxes Rev. Amendment for taxes Lawrence Jaeger, a clergyman ordained in 2013, has net self-employment earnings as a minister of $450 in 2013 and $500 in 2014. Amendment for taxes He must file his application for exemption by the due date, including extensions, for his 2014 income tax return. Amendment for taxes However, if Rev. Amendment for taxes Jaeger does not receive IRS approval for an exemption by April 15, 2015, his SE tax for 2014 is due by that date. Amendment for taxes Example 2. Amendment for taxes Rev. Amendment for taxes Louise Wolfe has only $300 in net self-employment earnings as a minister in 2013, but earned more than $400 in 2012 and expects to earn more than $400 in 2014. Amendment for taxes She must file her application for exemption by the due date, including extensions, for her 2014 income tax return. Amendment for taxes However, if she does not receive IRS approval for an exemption by April 15, 2015, her SE tax for 2014 is due by that date. Amendment for taxes Example 3. Amendment for taxes In 2011, Rev. Amendment for taxes David Moss was ordained a minister and had $700 in net self-employment earnings as a minister. Amendment for taxes In 2012, he received $1,000 as a minister, but his related expenses were over $1,000. Amendment for taxes Therefore, he had no net self-employment earnings as a minister in 2012. Amendment for taxes Also in 2012, he opened a book store and had $8,000 in net self-employment earnings from the store. Amendment for taxes In 2013, he had net self-employment earnings of $1,500 as a minister and $10,000 net self-employment earnings from the store. Amendment for taxes Rev. Amendment for taxes Moss had net earnings from self-employment in 2011 and 2013 that were $400 or more each year, and part of the self-employment earnings in each of those years was for his services as a minister. Amendment for taxes Thus, he must file his application for exemption by the due date, including extensions, for his 2013 income tax return. Amendment for taxes Death of individual. Amendment for taxes   The right to file an application for exemption ends with an individual's death. Amendment for taxes A surviving spouse, executor, or administrator cannot file an exemption application for a deceased clergy member. Amendment for taxes Effective date of exemption. Amendment for taxes   An approved exemption is effective for all tax years after 1967 in which you have $400 or more of net earnings from self-employment and any part of those earnings is for services as a member of the clergy. Amendment for taxes Once the exemption is approved, it is irrevocable. Amendment for taxes Example. Amendment for taxes Rev. Amendment for taxes Trudy Austin, ordained in 2010, had $400 or more in net self-employment earnings as a minister in both 2010 and 2013. Amendment for taxes She files an application for exemption on February 20, 2014. Amendment for taxes If an exemption is granted, it is effective for 2010 and the following years. Amendment for taxes Refunds of SE tax. Amendment for taxes   If, after receiving an approved Form 4361, you find that you overpaid SE tax, you can file a claim for refund on Form 1040X. Amendment for taxes Generally, for a refund, you must file Form 1040X within 3 years from the date you filed the return or within 2 years from the date you paid the tax, whichever is later. Amendment for taxes A return you filed, or tax you paid, before the due date is considered to have been filed or paid on the due date. Amendment for taxes   If you file a claim after the 3-year period but within 2 years from the time you paid the tax, the credit or refund will not be more than the tax you paid within the 2 years immediately before you file the claim. Amendment for taxes Members of Recognized Religious Sects If you are a member of a recognized religious sect, or a division of a recognized religious sect, you can apply for an exemption from payment of social security and Medicare taxes on both your self-employment income and the wages you earn from an employer who also has an exemption. Amendment for taxes Exception. Amendment for taxes   If you received social security benefits or payments, or anyone else received these benefits or payments based on your wages or self-employment income, you cannot apply. Amendment for taxes However, if you pay your benefits back, you may be considered for exemption. Amendment for taxes Contact your local Social Security Administration office to find out the amount you must pay back. Amendment for taxes Eligibility requirements. Amendment for taxes   To claim this exemption from SE tax, all the following requirements must be met. Amendment for taxes You must file Form 4029, discussed later under Requesting Exemption—Form 4029 . Amendment for taxes As a follower of the established teachings of the sect or division, you must be conscientiously opposed to accepting benefits of any private or public insurance that makes payments for death, disability, old age, retirement, or medical care, or provides services for medical care. Amendment for taxes You must waive all rights to receive any social security payment or benefit and agree that no benefits or payments will be made to anyone else based on your wages and self-employment income. Amendment for taxes The Commissioner of Social Security must determine that: Your sect or division has the established teachings as described in (2) above, It is the practice, and has been for a substantial period of time, for members of the sect or division to provide for their dependent members in a manner that is reasonable in view of the members' general level of living, and The sect or division has existed at all times since December 31, 1950. Amendment for taxes Requesting Exemption—Form 4029 To request the exemption, file Form 4029 in triplicate (original and two copies) with the Social Security Administration at the address shown on the form. Amendment for taxes The sect or division must complete part of the form. Amendment for taxes The IRS will return to you a copy of the Form 4029 that you filed indicating whether it has approved your exemption. Amendment for taxes If it is approved, keep the approved copy of Form 4029 in your permanent records. Amendment for taxes When to file. Amendment for taxes   You can file Form 4029 at any time. Amendment for taxes   If you have an approved exemption from SE tax and for some reason that approved exemption ended, you must file a new Form 4029 if you subsequently meet the eligibility requirements, discussed earlier. Amendment for taxes See Effective date of exemption next for information on when the newly approved exemption would become effective. Amendment for taxes    If you have a previously approved exemption from SE tax and you change membership to another recognized religious sect, without any change to your eligibility requirements, then you do not need to file a new Form 4029. Amendment for taxes Effective date of exemption. Amendment for taxes   An approved exemption from SE tax generally is effective for all tax years beginning with the first year you meet the eligibility requirements discussed earlier. Amendment for taxes (For example, if you meet the eligibility requirements in 2011, you file Form 4029 in 2012, and the IRS approves your exemption in 2013, your exemption is effective for tax year 2011 and all later years. Amendment for taxes )   The exemption will end if you fail to meet the eligibility requirements or if the Commissioner of Social Security determines that the sect or division fails to meet them. Amendment for taxes You must notify the IRS within 60 days if you are no longer a member of the religious group, or if you no longer follow the established teachings of this group. Amendment for taxes The exemption will end for the tax year where you or your sect/division first fails to meet the eligibility requirements. Amendment for taxes Refunds of SE tax paid. Amendment for taxes    To get a refund of any SE tax you paid while the exemption was in effect, file Form 1040X. Amendment for taxes For information on filing this form, see Refunds of SE tax under Requesting Exemption—Form 4361, earlier. Amendment for taxes Exemption From FICA Taxes Generally, under FICA, the employer and the employee each pay half of the social security and Medicare tax. Amendment for taxes Both the employee and the employer, if they meet the eligibility requirements discussed earlier, can apply to be exempt from their share of FICA taxes on wages paid by the employer to the employee. Amendment for taxes A partnership in which each partner holds a religious exemption from social security and Medicare is an employer for this purpose. Amendment for taxes If the employer's application is approved, the exemption will apply only to FICA taxes on wages paid to employees who also received an approval of identical applications. Amendment for taxes Information for employers. Amendment for taxes   If you have an approved Form 4029 and you have an employee who has an approved Form 4029, do not report wages you paid to the employee as social security and Medicare wages. Amendment for taxes   If you have an employee who does not have an approved Form 4029, you must withhold the employee's share of social security and Medicare taxes and pay the employer's share. Amendment for taxes Form W-2. Amendment for taxes   When preparing a Form W-2 for an employee with an approved Form 4029, enter “Form 4029” in box 14, “Other. Amendment for taxes ” Do not make any entries in boxes 3, 4, 5, or 6. Amendment for taxes Forms 941, 943, and 944. Amendment for taxes   If both you and your employee have received approved Forms 4029, do not include these exempt wages on the following forms. Amendment for taxes Instead, follow the instructions given below. Amendment for taxes Form 941, Employer's QUARTERLY Federal Tax Return: check the box on line 4 and enter “Form 4029” in the empty space below the check box. Amendment for taxes Form 943, Employer's Annual Federal Tax Return for Agricultural Employees: enter “Form 4029” on the dotted line next to the lines 2 and 4 entry spaces. Amendment for taxes Form 944, Employer's ANNUAL Federal Tax Return: check the box on line 3 and enter “Form 4029” in the empty space below the check box. Amendment for taxes Effective date. Amendment for taxes   An approved exemption from FICA becomes effective on the first day of the first calendar quarter after the quarter in which you file Form 4029. Amendment for taxes The exemption will end on the last day of the calendar quarter before the quarter in which the employer, employee, sect, or division fails to meet the requirements. Amendment for taxes Self-Employment Tax: Figuring Net Earnings There are two methods for figuring your net earnings from self-employment as a member of the clergy or a religious worker. Amendment for taxes Regular method. Amendment for taxes Nonfarm optional method. Amendment for taxes You may find Worksheets 1 through 4 helpful in figuring your net earnings from self-employment. Amendment for taxes Blank worksheets are in the back of this publication, after the Comprehensive Example. Amendment for taxes Regular Method Most people use the regular method. Amendment for taxes Under this method, figure your net earnings from self-employment by totaling your gross income for services you performed as a minister, a member of a religious order who has not taken a vow of poverty, or a Christian Science practitioner or reader. Amendment for taxes Then, subtract your allowable business deductions and multiply the difference by 92. Amendment for taxes 35% (. Amendment for taxes 9235). Amendment for taxes Use Schedule SE (Form 1040) to figure your net earnings and SE tax. Amendment for taxes If you are an employee of a church that elected to exclude you from FICA coverage, figure net earnings by multiplying your church wages shown on Form W-2 by 92. Amendment for taxes 35% (. Amendment for taxes 9235). Amendment for taxes Do not reduce your wages by any business deductions when making this computation. Amendment for taxes Use Schedule SE (Form 1040), Section B, to figure your net earnings and SE tax. Amendment for taxes If you have an approved exemption, or you are automatically exempt, do not include the income or deductions from ministerial services in figuring your net earnings from self-employment. Amendment for taxes Amounts included in gross income. Amendment for taxes   To figure your net earnings from self-employment (on Schedule SE (Form 1040)), include in gross income: Salaries and fees for your ministerial services (discussed earlier), Offerings you receive for marriages, baptisms, funerals, masses, etc. Amendment for taxes , The value of meals and lodging provided to you, your spouse, and your dependents for your employer's convenience, The fair rental value of a parsonage provided to you (including the cost of utilities that are furnished) and the rental allowance (including an amount for payment of utilities) paid to you, and Any amount a church pays toward your income tax or SE tax, other than withholding the amount from your salary. Amendment for taxes This amount is also subject to income tax. Amendment for taxes   For the income tax treatment of items (2) and (4), see Income Tax: Income and Expenses , later. Amendment for taxes Example. Amendment for taxes Pastor Roger Adams receives an annual salary of $39,000 as a full-time minister. Amendment for taxes The $39,000 includes $5,000 that is designated as a rental allowance to pay utilities. Amendment for taxes His church owns a parsonage that has a fair rental value of $12,000 per year. Amendment for taxes The church gives Pastor Adams the use of the parsonage. Amendment for taxes He is not exempt from SE tax. Amendment for taxes He must include $51,000 ($39,000 plus $12,000) when figuring his net earnings for SE tax purposes. Amendment for taxes The results would be the same if, instead of the use of the parsonage and receipt of the rental allowance for utilities, Pastor Adams had received an annual salary of $51,000 of which $17,000 ($5,000 plus $12,000) per year was designated as a rental allowance. Amendment for taxes Overseas duty. Amendment for taxes   Your net earnings from self-employment are determined without any foreign earned income exclusion or the foreign housing exclusion or deduction if you are a U. Amendment for taxes S. Amendment for taxes citizen or resident alien serving abroad and living in a foreign country. Amendment for taxes   For information on excluding foreign earned income or the foreign housing amount, see Publication 54. Amendment for taxes Example. Amendment for taxes Diane Jones was the minister of a U. Amendment for taxes S. Amendment for taxes church in Mexico. Amendment for taxes She earned $35,000 in that position and was able to exclude it all for income tax purposes under the foreign earned income exclusion. Amendment for taxes The United States does not have a social security agreement with Mexico, so Mrs. Amendment for taxes Jones is subject to U. Amendment for taxes S. Amendment for taxes SE tax and must include $35,000 when figuring net earnings from self-employment. Amendment for taxes Specified U. Amendment for taxes S. Amendment for taxes possessions. Amendment for taxes    The exclusion from gross income for amounts derived from American Samoa or Puerto Rico does not apply in computing net earnings from self-employment. Amendment for taxes Also see Residents of Puerto Rico, the U. Amendment for taxes S. Amendment for taxes Virgin Islands, Guam, the CNMI, and American Samoa , earlier, under U. Amendment for taxes S. Amendment for taxes Citizens and Resident and Nonresident Aliens. Amendment for taxes Amounts not included in gross income. Amendment for taxes   Do not include the following amounts in gross income when figuring your net earnings from self-employment. Amendment for taxes Offerings that others made to the church. Amendment for taxes Contributions by your church to a tax-sheltered annuity plan set up for you, including any salary reduction contributions (elective deferrals) that are not included in your gross income. Amendment for taxes Pension payments or retirement allowances you receive for your past ministerial services. Amendment for taxes The rental value of a parsonage or a parsonage allowance provided to you after you retire. Amendment for taxes Allowable deductions. Amendment for taxes   When figuring your net earnings from self-employment, deduct all your expenses related to your ministerial services performed as a self-employed person. Amendment for taxes These are ministerial expenses you incurred while working other than as a common-law employee of the church. Amendment for taxes They include expenses incurred in performing marriages and baptisms, and in delivering speeches. Amendment for taxes Deduct these expenses on Schedule C or C-EZ (Form 1040), and carry the net amount to line 2 of Schedule SE (Form 1040), Section A or B. Amendment for taxes   Wages earned as a common-law employee (explained earlier) of a church are generally subject to self-employment tax unless an exemption is requested, as discussed earlier under Exemption From Self-Employment (SE) Tax . Amendment for taxes Subtract any allowable expenses (including unreimbursed employee business expenses) from those wages, include the net amount on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. Amendment for taxes Do not complete Schedule C or C-EZ (Form 1040). Amendment for taxes However, for income tax purposes, the expenses are allowed only as an itemized deduction on Schedule A (Form 1040) to the extent they exceed 2% of adjusted gross income. Amendment for taxes Employee reimbursement arrangements. Amendment for taxes   If you received an advance, allowance, or reimbursement for your employee expenses, how you report this amount and your employee expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan. Amendment for taxes Ask your employer if you are not sure if it reimburses you using an accountable or a nonaccountable plan. Amendment for taxes Accountable plans. Amendment for taxes   To be an accountable plan, your employer's reimbursement arrangement must include all three of the following rules. Amendment for taxes Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Amendment for taxes You must adequately account to your employer for these expenses within a reasonable period of time. Amendment for taxes You must return any excess reimbursement or allowance within a reasonable period of time. Amendment for taxes   The reimbursement is not reported on your Form W-2. Amendment for taxes Generally, if your expenses equal your reimbursement, you have no deduction. Amendment for taxes If your expenses are more than your reimbursement, you can deduct your excess expenses for SE tax and income tax purposes. Amendment for taxes Nonaccountable plan. Amendment for taxes   A nonaccountable plan is a reimbursement arrangement that does not meet all three of the rules listed under Accountable plans above. Amendment for taxes In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan. Amendment for taxes Excess reimbursements you fail to return to your employer. Amendment for taxes Reimbursement of nondeductible expenses related to your employer's business. Amendment for taxes   Your employer will combine any reimbursement paid to you under a nonaccountable plan with your wages, salary, or other compensation and report the combined total in box 1 of your Form W-2. Amendment for taxes Since reimbursements under a nonaccountable plan are included in your gross income, you can deduct your related expenses (for SE tax and income tax purposes) regardless of whether they are more than, less than, or equal to your reimbursement. Amendment for taxes   For more information on accountable and nonaccountable plans, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Amendment for taxes Married Couple Missionary Team If both spouses are duly ordained, commissioned, or licensed ministers of a church and have an agreement that each will perform specific services for which they are paid jointly or separately, they must divide the self-employment income according to the agreement. Amendment for taxes If the agreement is with one spouse only and the other spouse is not paid for any specific duties, amounts received for their services are included only in the self-employment income of the spouse having the agreement. Amendment for taxes Earnings Subject to SE Tax For 2013, the maximum net earnings from self-employment subject to social security (old age, survivors, and disability insurance) tax is $113,700 minus any wages and tips you earned that were subject to social security tax. Amendment for taxes The tax rate for the social security part is 12. Amendment for taxes 4%. Amendment for taxes In addition, all of your net earnings are subject to the Medicare (hospital insurance) part of the SE tax. Amendment for taxes This tax rate is 2. Amendment for taxes 9%. Amendment for taxes The combined self-employment tax rate is 15. Amendment for taxes 3%. Amendment for taxes Additional Medicare Tax. Amendment for taxes   Beginning in 2013, a 0. Amendment for taxes 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. Amendment for taxes Medicare wages and self-employment income are combined to determine if income exceeds the threshold. Amendment for taxes A self-employment loss is not considered for purposes of this tax. Amendment for taxes RRTA compensation is separately compared to the threshold. Amendment for taxes For more information, see Form 8959, Additional Medicare Tax, and its separate instructions. Amendment for taxes Nonfarm Optional Method You may be able to use the nonfarm optional method for figuring your net earnings from self-employment. Amendment for taxes In general, the nonfarm optional method is intended to permit continued coverage for social security and Medicare purposes when your income for the tax year is low. Amendment for taxes You may use the nonfarm optional method if you meet all the following tests. Amendment for taxes You are self-employed on a regular basis. Amendment for taxes You meet this test if your actual net earnings from self-employment were $400 or more in at least 2 of the 3 tax years before the one for which you use this method. Amendment for taxes The net earnings can be from either farm or nonfarm earnings or both. Amendment for taxes You have used this method less than 5 prior years. Amendment for taxes (There is a 5-year lifetime limit. Amendment for taxes ) The years do not have to be consecutive. Amendment for taxes Your net nonfarm profits were: Less than $5,024, and Less than 72. Amendment for taxes 189% of your gross nonfarm income. Amendment for taxes If you meet all three tests, use Table 3 to figure your net earnings from self-employment under the nonfarm optional method. Amendment for taxes Table 3. Amendment for taxes Figuring Nonfarm Net Earnings IF your gross nonfarm income is . Amendment for taxes . Amendment for taxes . Amendment for taxes THEN your net earnings are equal to . Amendment for taxes . Amendment for taxes . Amendment for taxes $6,960 or less Two-thirds of your gross nonfarm income. Amendment for taxes More than $6,960 $4,640. Amendment for taxes Actual net earnings. Amendment for taxes   Multiply your total earnings subject to SE tax by 92. Amendment for taxes 35% (. Amendment for taxes 9235) to get actual net earnings. Amendment for taxes Actual net earnings are equivalent to net earnings under the “Regular Method. Amendment for taxes ” More information. Amendment for taxes   For more information on the nonfarm optional method, see Publication 334, Tax Guide for Small Business, and the Schedule SE (Form 1040) instructions. Amendment for taxes Income Tax: Income and Expenses Some income and expense items are treated the same for both income tax and SE tax purposes and some are treated differently. Amendment for taxes Note. Amendment for taxes For purposes of this section, references to members of the clergy are only to ministers or members of a religious order. Amendment for taxes Income Items The tax treatment of offerings and fees, outside earnings, rental allowances, rental value of a parsonage, earnings of members of religious orders, and foreign earned income is discussed here. Amendment for taxes Offerings and Fees If you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. Amendment for taxes , in addition to your salary. Amendment for taxes If the offering is made to the religious institution, it is not taxable to you. Amendment for taxes Outside Earnings If you are a member of a religious organization and you give your outside earnings to the organization, you still must include the earnings in your income. Amendment for taxes However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. Amendment for taxes For more information, see Publication 526. Amendment for taxes Exclusion of Rental Allowance and Fair Rental Value of a Parsonage Ordained, commissioned, or licensed ministers of the gospel may be able to exclude from income tax the rental allowance or fair rental value of a parsonage that is provided to them as pay for their services. Amendment for taxes Services include: Ministerial services, discussed earlier, Administrative duties and teaching at theological seminaries, and The ordinary duties of a minister performed as an employee of the United States (other than as a chaplain in the Armed Forces), a state, possession, political subdivision, or the District of Columbia. Amendment for taxes This exclusion applies only for income tax purposes. Amendment for taxes It does not apply for SE tax purposes, as discussed earlier under Amounts included in gross income under Self-Employment Tax: Figuring Net Earnings. Amendment for taxes Designation requirement. Amendment for taxes   The church or organization that employs you must officially designate the payment as a housing allowance before it makes the payment. Amendment for taxes It must designate a definite amount. Amendment for taxes It cannot determine the amount of the housing allowance at a later date. Amendment for taxes If the church or organization does not officially designate a definite amount as a housing allowance, you must include your total salary in your income. Amendment for taxes   If you are employed and paid by a local congregation, a resolution by a national church agency of your denomination does not effectively designate a housing allowance for you. Amendment for taxes The local congregation must officially designate the part of your salary that is a housing allowance. Amendment for taxes However, a resolution of a national church agency can designate your housing allowance if you are directly employed by the national agency. Amendment for taxes Rental allowances. Amendment for taxes   If you receive in your salary an amount officially designated as a rental allowance (including an amount to pay utility costs), you can exclude the allowance from your gross income if: You use the amount to provide or rent a home, and The amount is not more than reasonable pay for your services. Amendment for taxes   The amount you exclude cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities. Amendment for taxes Fair rental value of parsonage. Amendment for taxes   You can exclude from gross income the fair rental value of a house or parsonage, including utilities, furnished to you as part of your earnings. Amendment for taxes However, the exclusion cannot be more than the reasonable pay for your services. Amendment for taxes If you pay for the utilities, you can exclude any allowance designated for utility costs, up to your actual cost. Amendment for taxes Example. Amendment for taxes Rev. Amendment for taxes Joanna Baker is a full-time minister. Amendment for taxes The church allows her to use a parsonage that has an annual fair rental value of $24,000. Amendment for taxes The church pays her an annual salary of $67,000, of which $7,500 is designated for utility costs. Amendment for taxes Her actual utility costs during the year were $7,000. Amendment for taxes For income tax purposes, Rev. Amendment for taxes Baker excludes $31,000 from gross income ($24,000 fair rental value of the parsonage plus $7,000 from the allowance for utility costs). Amendment for taxes She will report $60,000 ($59,500 salary plus $500 of unused utility allowance). Amendment for taxes Her income for SE tax purposes, however, is $91,000 ($67,000 salary + $24,000 fair rental value of the parsonage). Amendment for taxes Home ownership. Amendment for taxes   If you own your home and you receive as part of your salary a housing or rental allowance, you may exclude from gross income the smallest of: The amount actually used to provide a home, The amount officially designated as a rental allowance, or The fair rental value of the home, including furnishings, utilities, garage, etc. Amendment for taxes Excess rental allowance. Amendment for taxes   You must include in gross income the amount of any rental allowance that is more than the smallest of: Your reasonable salary, The fair rental value of the home plus utilities, or The amount actually used to provide a home. Amendment for taxes   Include in the total on Form 1040, line 7. Amendment for taxes On the dotted line next to line 7, enter “Excess allowance” and the amount. Amendment for taxes You may deduct the home mortgage interest and real estate taxes paid on your home even though you pay all or part of those expenses with funds you get through a tax-free rental or parsonage allowance. Amendment for taxes However, you can only deduct these expenses as itemized deductions on Schedule A (Form 1040). Amendment for taxes Retired ministers. Amendment for taxes   If you are a retired minister, you can exclude from your gross income the rental value of a home (plus utilities) furnished to you by your church as a part of your pay for past services, or the part of your pension that was designated as a rental allowance. Amendment for taxes However, a minister's surviving spouse cannot exclude the rental value unless the rental value is for ministerial services he or she performs or performed. Amendment for taxes Teachers or administrators. Amendment for taxes   If you are a minister employed as a teacher or administrator by a church school, college, or university, you are performing ministerial services for purposes of the housing exclusion. Amendment for taxes However, if you perform services as a teacher or administrator on the faculty of a nonchurch college, you cannot exclude from your income a housing allowance or the value of a home that the college provides to you. Amendment for taxes    If you live in faculty lodging as an employee of an educational institution or academic health center, all or part of the value of that lodging may be nontaxable under a different rule. Amendment for taxes In Publication 525, see Faculty lodging in the discussion on meals and lodging under Fringe Benefits. Amendment for taxes   If you serve as a minister of music or minister of education, or serve in an administrative or other function of your religious organization, but are not authorized to perform substantially all of the religious duties of an ordained minister in your church (even if you are commissioned as a minister of the gospel), the housing exclusion does not apply to you. Amendment for taxes Theological students. Amendment for taxes   If you are a theological student serving a required internship as a part-time or assistant pastor, you cannot exclude a parsonage or rental allowance from your income unless you are ordained, commissioned, or licensed as a minister. Amendment for taxes Traveling evangelists. Amendment for taxes   You can exclude a designated rental allowance from out-of-town churches if you meet all of the following requirements. Amendment for taxes You are an ordained minister. Amendment for taxes You perform ministerial services at churches located away from your community. Amendment for taxes You actually use the rental allowance to maintain your permanent home. Amendment for taxes Cantors. Amendment for taxes   If you have a bona fide commission and your congregation employs you on a full-time basis to perform substantially all the religious functions of the Jewish faith, you can exclude a rental allowance from your gross income. Amendment for taxes Earnings—Members of Religious Orders Your earnings may be exempt from both income tax and SE tax if you are a member of a religious order who: Has taken a vow of poverty, Receives earnings for services performed as an agent of the order and in the exercise of duties required by the order, and Renounces the earnings and gives them to the order. Amendment for taxes See Members of Religious Orders , earlier, under Social Security Coverage. Amendment for taxes Foreign Earned Income Certain income may be exempt from income tax if you work in a foreign country or in a specified U. Amendment for taxes S. Amendment for taxes possession. Amendment for taxes Publication 54 discusses the foreign earned income exclusion. Amendment for taxes Publication 570, Tax Guide for Individuals With Income From U. Amendment for taxes S. Amendment for taxes Possessions, covers the rules for taxpayers with income from U. Amendment for taxes S. Amendment for taxes possessions. Amendment for taxes You can get these free publications from the Internal Revenue Service at IRS. Amendment for taxes gov or from most U. Amendment for taxes S. Amendment for taxes Embassies or consulates. Amendment for taxes Expense Items The tax treatment of ministerial trade or business expenses, expenses allocable to tax-free income, and health insurance costs is discussed here. Amendment for taxes Ministerial Trade or Business Expenses as an Employee When you figure your income tax, you must itemize your deductions on Schedule A (Form 1040) to claim allowable deductions for ministerial trade or business expenses incurred while working as an employee. Amendment for taxes You also may have to file Form 2106, Employee Business Expenses (or Form 2106-EZ, Unreimbursed Employee Business Expenses). Amendment for taxes You claim these expenses as miscellaneous itemized deductions that are subject to the 2%-of-adjusted-gross-income (AGI) limit. Amendment for taxes See Publication 529 for more information on this limit. Amendment for taxes However, you cannot deduct any of your employee business expenses that are allocable to tax-free income (discussed next). Amendment for taxes Expenses Allocable to Tax-Free Income If you receive a rental or parsonage allowance that is exempt from income tax (tax free), you must allocate a portion of the expenses of operating your ministry to that tax-free income. Amendment for taxes You cannot deduct the portion of your expenses that you allocate to your tax-free rental or parsonage allowance. Amendment for taxes Exception. Amendment for taxes   This rule does not apply to your deductions for home mortgage interest or real estate taxes on your home. Amendment for taxes Figuring the allocation. Amendment for taxes   Figure the portion of your otherwise deductible expenses that you cannot deduct (because you must allocate that portion to tax-free income) by multiplying the expenses by the following fraction:      Tax-free rental or parsonage allowance     All income (taxable and tax free) earned from your ministry           When figuring the allocation, include the income and expenses related to the ministerial duties you perform both as an employee and as a self-employed person. Amendment for taxes    Reduce your otherwise deductible expenses only in figuring your income tax, not your SE tax. Amendment for taxes Example. Amendment for taxes Rev. Amendment for taxes Charles Ashford received $40,000 in earnings for ministerial services consisting of a $28,000 salary for ministerial services performed as an employee, $2,000 for weddings and baptisms performed as a self-employed person, and a $10,000 tax-free parsonage allowance. Amendment for taxes He incurred $4,000 of unreimbursed expenses connected with his earnings for ministerial services. Amendment for taxes $3,500 of the $4,000 is for employee expenses related to his ministerial salary, and $500 is related to the weddings and baptisms he performed as a self-employed person. Amendment for taxes Rev. Amendment for taxes Ashford figures the nondeductible (tax-free) portion of expenses related to his ministerial salary as follows: ($10,000 ÷ $40,000) x $3,500 = $875   Rev. Amendment for taxes Ashford figures the nondeductible (tax-free) portion of expenses related to his wedding and baptism income as follows: ($10,000 ÷ $40,000) x $500 = $125 Required statement. Amendment for taxes   If you receive a tax-free rental or parsonage allowance and have ministerial expenses, attach a statement to your tax return. Amendment for taxes The statement must contain all of the following information. Amendment for taxes A list of each item of taxable ministerial income by source (such as wages, salary, weddings, baptisms, etc. Amendment for taxes ) plus the amount. Amendment for taxes A list of each item of tax-free ministerial income by source (parsonage allowance) plus the amount. Amendment for taxes A list of each item of otherwise deductible ministerial expenses plus the amount. Amendment for taxes How you figured the nondeductible part of your otherwise deductible expenses. Amendment for taxes A statement that the other deductions claimed on your tax return are not allocable to your tax-free income. Amendment for taxes   See the attachments prepared for the Comprehensive Example , later. Amendment for taxes Following the example, you will find blank worksheets for your own use. Amendment for taxes Health Insurance Costs of Self-Employed Ministers If you are self-employed, you may be able to deduct the amount you paid in 2013 for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents. Amendment for taxes If you qualify, you can take this deduction as an adjustment to income on Form 1040, line 29. Amendment for taxes See the Instructions for Form 1040 to figure your deduction. Amendment for taxes The following special rules apply to the self-employed health insurance deduction. Amendment for taxes You cannot take a medical expense deduction on Schedule A (Form 1040) for any expenses you claim for purposes of the self-employed health insurance deduction. Amendment for taxes You cannot take the deduction for any month you are eligible to participate in a subsidized plan of your (or your spouse's) employer. Amendment for taxes The deduction cannot exceed your net earnings from the business under which the insurance plan is established. Amendment for taxes Your net earnings under this rule do not include the income you earned as a common-law employee (discussed earlier) of a church. Amendment for taxes More information. Amendment for taxes   For more information about the self-employed health insurance deduction, see chapter 6 in Publication 535. Amendment for taxes Deduction for SE Tax You can deduct one-half of your SE tax in figuring adjusted gross income. Amendment for taxes This is an income tax deduction only, on Form 1040, line 27. Amendment for taxes Do not claim this deduction in figuring net earnings from self-employment subject to SE tax. Amendment for taxes Income Tax Withholding and Estimated Tax The federal income tax is a pay-as-you-go tax. Amendment for taxes You must pay the tax as you earn or receive income during the year. Amendment for taxes An employee usually has income tax withheld from his or her wages or salary. Amendment for taxes However, your salary is not subject to federal income tax withholding if both of the following conditions apply. Amendment for taxes You are a duly ordained, commissioned, or licensed minister, a member of a religious order (who has not taken a vow of poverty), or a Christian Science practitioner or reader. Amendment for taxes Your salary is for ministerial services (see Ministerial Services , earlier). Amendment for taxes If your salary is not subject to withholding, or if you do not pay enough tax through withholding, you may need to make estimated tax payments to avoid penalties for not paying enough tax as you earn your income. Amendment for taxes You generally must make estimated tax payments if you expect to owe taxes, including SE tax, of $1,000 or more, when you file your return. Amendment for taxes Determine your estimated tax by using the worksheets in Publication 505, Tax Withholding and Estimated Tax. Amendment for taxes Pay the entire estimated tax for 2014 or the first installment by April 15, 2014. Amendment for taxes See Form 1040-ES for the different payment methods. Amendment for taxes The April 15 date applies whether or not your tax home and your abode are outside the United States and Puerto Rico. Amendment for taxes For more information, see chapter 2 of Publication 505. Amendment for taxes If you perform your services as a common-law employee of the church and your salary is not subject to income tax withholding, you can enter into a voluntary withholding agreement with the church to cover any income and SE tax that may be due. Amendment for taxes Filing Your Return You must file an income tax return for 2013 if your gross income was at least the amount shown in the third column of Table 4 above. Amendment for taxes Table 4. Amendment for taxes 2013 Filing Requirements for Most Taxpayers IF your filing status is . Amendment for taxes . Amendment for taxes . Amendment for taxes AND at the end of 2013 you were* . Amendment for taxes . Amendment for taxes . Amendment for taxes THEN file a return if your gross income** was at least . Amendment for taxes . Amendment for taxes . Amendment for taxes single under age 65 65 or older   $10,000 $11,500   married filing jointly*** under 65 (both spouses) 65 or older (one spouse) 65 or older (both spouses)   $20,000  $21,200  $22,400   married filing separately any age   $3,900   head of household under 65 65 or older   $12,850 $14,350   qualifying widow(er) with dependent child under 65 65 or older   $16,100  $17,300   * If you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. Amendment for taxes ** Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). Amendment for taxes Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2013, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). Amendment for taxes If (a) or (b) applies, see the instructions for Form 1040, lines 20a and 20b, to figure the taxable part of social security benefits you must include in gross income. Amendment for taxes Gross income includes gains, but not losses, reported on Form 8949 or Schedule D (Form 1040). Amendment for taxes Gross income from a business means, for example, the amount on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. Amendment for taxes But, in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. Amendment for taxes *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900, you must file a return regardless of your age. Amendment for taxes Additional requirements. Amendment for taxes   Even if your income was less than the amount shown in Table 4, you must file an income tax return on Form 1040, and attach a completed Schedule SE (Form 1040), if:    You are not exempt from SE tax, and you have net earnings from self-employment (discussed earlier under Self-Employment Tax: Figuring Net Earnings ) of $400 or more in the tax year, You are exempt from SE tax on earnings from ministerial services and you have $400 or more of other net earnings subject to SE tax, or You had wages of $108. Amendment for taxes 28 or more from an electing church or church-controlled organization (see Coverage of Religious Workers (Church Employees) , earlier, under Social Security Coverage). Amendment for taxes Self-employment tax. Amendment for taxes   If you are liable for SE tax, you must file Schedule SE (Form 1040) with your return. Amendment for taxes   If you filed Form 4361 and did not receive approval from the IRS, you must pay SE tax on your ministerial earnings, as explained earlier. Amendment for taxes You should report ministerial earnings and expenses from nonemployee ministerial services on Schedule C or C-EZ (Form 1040). Amendment for taxes You should then carry the net amount over to line 2 of Schedule SE (Form 1040), Section A or B. Amendment for taxes However, if you were a duly ordained minister who was an employee of a church and you must pay SE tax on the wages you earned for those services, do not report those wages on Schedule C or C-EZ (Form 1040). Amendment for taxes Instead, report those wages less any allowable expenses (including any unreimbursed employee business expenses), on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. Amendment for taxes Note. Amendment for taxes For income tax purposes, the unreimbursed employee business expenses that you incurred as an employee of the church and subtracted from your wages on line 2 of Schedule SE (Form 1040) are allowed only as an itemized deduction on Schedule A (Form 1040) if they exceed 2% of your adjusted gross income. Amendment for taxes You cannot deduct these expenses on Schedule C or C-EZ (Form 1040) as a trade or business expense. Amendment for taxes Exemption from SE tax. Amendment for taxes   If you filed Form 4361 and received IRS approval not to be taxed on your ministerial earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). Amendment for taxes Instead, enter “Exempt—Form 4361” on the dotted line next to Form 1040, line 56. Amendment for taxes However, if you had net earnings from another trade or business of $400 or more subject to SE tax, see line A at the top of Schedule SE (Form 1040), Section B. Amendment for taxes    If you filed Form 4029 and received IRS approval not to be taxed on those earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). Amendment for taxes Instead, enter “Exempt—Form 4029” on the dotted line next to Form 1040, line 56. Amendment for taxes More information. Amendment for taxes   For more information on filing your return, including when and where to file it, see the Instructions for Form 1040. Amendment for taxes Retirement Savings Arrangements Retirement savings arrangements are plans that offer you a tax-favored way to save for your retirement. Amendment for taxes You generally can deduct your contributions to the plan. Amendment for taxes Your contributions and the earnings on them are not taxed until they are distributed. Amendment for taxes Retirement plans for the self-employed. Amendment for taxes   To set up one of the following plans you must be self-employed. Amendment for taxes SEP (simplified employee pension) plan. Amendment for taxes SIMPLE (savings incentive match plan for employees) plan. Amendment for taxes Qualified retirement plan (also called a Keogh or H. Amendment for taxes R. Amendment for taxes 10 plan). Amendment for taxes   The common-law rules determine whether you are an employee or a self-employed person for purposes of setting up a retirement plan. Amendment for taxes See Employment status for other tax purposes under Coverage of Members of the Clergy, earlier. Amendment for taxes This result is true even if your compensation for ministerial services (defined earlier) is subject to SE tax. Amendment for taxes   For example, if a congregation pays you a salary for performing ministerial services and you are subject to the congregation's control, you generally are a common-law employee. Amendment for taxes You are not a self-employed person for purposes of setting up a retirement plan. Amendment for taxes This result is true even if your salary is subject to SE tax. Amendment for taxes   On the other hand, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services that you report on Schedule C or C-EZ (Form 1040), are earnings from self-employment for all tax purposes. Amendment for taxes   For more information on establishing a SEP, SIMPLE, or qualified retirement plan, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). Amendment for taxes Individual retirement arrangements (IRAs). Amendment for taxes   The traditional IRA and the Roth IRA are two individual retirement arrangements you can use to save money for your retirement. Amendment for taxes Generally, your maximum contribution for 2013 to either of these plans (or to a combination of the two) is the smaller of your taxable compensation or $5,500 ($6,500 if you are age 50 or older). Amendment for taxes   However, your maximum contribution to a Roth IRA will be further reduced or eliminated if your adjusted gross income is above a certain amount. Amendment for taxes You cannot deduct Roth IRA contributions, but if you satisfy certain requirements, all earnings in the Roth IRA are tax free and neither your nondeductible contributions nor any earnings on them are taxable when distributed. Amendment for taxes   If you contribute to a traditional IRA, your contribution may be deductible. Amendment for taxes However, your deduction may be reduced or eliminated if you or your spouse is covered by an employer retirement plan (including, but not limited to, a SEP, SIMPLE, or qualified retirement plan). Amendment for taxes   For more information on IRAs, see Publication 590. Amendment for taxes Tax-sheltered annuity plans. Amendment for taxes   Church employees, members of religious orders, and duly ordained, commissioned, or licensed ministers working as ministers or chaplains can participate in tax-sheltered annuity (403(b)) plans. Amendment for taxes For more