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E File Income Tax Return

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E File Income Tax Return

E file income tax return 5. E file income tax return   Soil and Water Conservation Expenses Table of Contents Introduction Topics - This chapter discusses: Business of Farming Plan Certification Conservation ExpensesWater well. E file income tax return Assessment by Conservation DistrictAssessment for Depreciable Property 25% Limit on DeductionNet operating loss. E file income tax return When to Deduct or Capitalize Sale of a Farm Introduction If you are in the business of farming, you can choose to deduct certain expenses for: Soil or water conservation, Prevention of erosion of land used in farming, or Endangered species recovery. E file income tax return Otherwise, these are capital expenses that must be added to the basis of the land. E file income tax return (See chapter 6 for information on determining basis. E file income tax return ) Conservation expenses for land in a foreign country do not qualify for this special treatment. E file income tax return The deduction for conservation expenses cannot be more than 25% of your gross income from farming. E file income tax return See 25% Limit on Deduction , later. E file income tax return Although some expenses are not deductible as soil and water conservation expenses, they may be deductible as ordinary and necessary farm expenses. E file income tax return These include interest and taxes, the cost of periodically clearing brush from productive land, the regular removal of sediment from a drainage ditch, and expenses paid or incurred primarily to produce an agricultural crop that may also conserve soil. E file income tax return You must include in income most government payments for approved conservation practices. E file income tax return However, you can exclude some payments you receive under certain cost-sharing conservation programs. E file income tax return For more information, see Agricultural Program Payments in chapter 3. E file income tax return To get the full deduction to which you are entitled, you should maintain your records to clearly distinguish between your ordinary and necessary farm business expenses and your soil and water conservation expenses. E file income tax return Topics - This chapter discusses: Business of farming Plan certification Conservation expenses Assessment by conservation district 25% limit on deduction When to deduct or capitalize Sale of a farm Business of Farming For purposes of soil and water conservation expenses, you are in the business of farming if you cultivate, operate, or manage a farm for profit, either as an owner or a tenant. E file income tax return You are not in the business of farming if you cultivate or operate a farm for recreation or pleasure, rather than for profit. E file income tax return You are not farming if you are engaged only in forestry or the growing of timber. E file income tax return Farm defined. E file income tax return   A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. E file income tax return It also includes plantations, ranches, ranges, and orchards. E file income tax return A fish farm is an area where fish and other marine animals are grown or raised and artificially fed, protected, etc. E file income tax return It does not include an area where they are merely caught or harvested. E file income tax return A plant nursery is a farm for purposes of deducting soil and water conservation expenses. E file income tax return Farm rental. E file income tax return   If you own a farm and receive farm rental payments based on farm production, either in cash or crop shares, you are in the business of farming. E file income tax return If you get cash rental for a farm you own that is not used in farm production, you cannot deduct soil and water conservation expenses for that farm. E file income tax return   If you receive a fixed rental payment that is not based on farm production, you are in the business of farming only if you materially participate in operating or managing the farm. E file income tax return Example. E file income tax return You own a farm in Iowa and live in California. E file income tax return You rent the farm for $175 in cash per acre and do not materially participate in producing or managing production of the crops grown on the farm. E file income tax return You cannot deduct your soil conservation expenses for this farm. E file income tax return You must capitalize the expenses and add them to the basis of the land. E file income tax return     For more information, see Material participation for landlords under Landlord Participation in Farming in chapter 12. E file income tax return Plan Certification You can deduct soil and water conservation expenses only if they are consistent with a plan approved by the Natural Resources Conservation Service (NRCS) of the Department of Agriculture. E file income tax return If no such plan exists, the expenses must be consistent with a soil conservation plan of a comparable state agency. E file income tax return Keep a copy of the plan with your books and records to support your deductions. E file income tax return Conservation plan. E file income tax return   A conservation plan includes the farming conservation practices approved for the area where your farmland is located. E file income tax return There are three types of approved plans. E file income tax return NRCS individual site plans. E file income tax return These plans are issued individually to farmers who request assistance from NRCS to develop a conservation plan designed specifically for their farmland. E file income tax return NRCS county plans. E file income tax return These plans include a listing of farm conservation practices approved for the county where the farmland is located. E file income tax return You can deduct expenses for conservation practices not included on the NRCS county plans only if the practice is a part of an individual site plan. E file income tax return Comparable state agency plans. E file income tax return These plans are approved by state agencies and can be approved individual site plans or county plans. E file income tax return   A list of NRCS conservation programs is available at www. E file income tax return nrcs. E file income tax return usda. E file income tax return gov/programs. E file income tax return Individual site plans can be obtained from NRCS offices and the comparable state agencies. E file income tax return Conservation Expenses You can deduct conservation expenses only for land you or your tenant are using, or have used in the past, for farming. E file income tax return These expenses include, but are not limited to, the following. E file income tax return The treatment or movement of earth, such as: Leveling, Conditioning, Grading, Terracing, Contour furrowing, and Restoration of soil fertility. E file income tax return The construction, control, and protection of: Diversion channels, Drainage ditches, Irrigation ditches, Earthen dams, and Watercourses, outlets, and ponds. E file income tax return The eradication of brush. E file income tax return The planting of windbreaks. E file income tax return You cannot deduct expenses to drain or fill wetlands, or to prepare land for center pivot irrigation systems, as soil and water conservation expenses. E file income tax return These expenses are added to the basis of the land. E file income tax return If you choose to deduct soil and water conservation expenses, you cannot exclude from gross income any cost-sharing payments you receive for those expenses. E file income tax return See chapter 3 for information about payments eligible for the cost-sharing exclusion. E file income tax return New farm or farmland. E file income tax return   If you acquire a new farm or new farmland from someone who was using it in farming immediately before you acquired the land, soil and water conservation expenses you incur on it will be treated as made on land used in farming at the time the expenses were paid or incurred. E file income tax return You can deduct soil and water conservation expenses for this land if your use of it is substantially a continuation of its use in farming. E file income tax return The new farming activity does not have to be the same as the old farming activity. E file income tax return For example, if you buy land that was used for grazing cattle and then prepare it for use as an apple orchard, you can deduct your conservation expenses. E file income tax return Land not used for farming. E file income tax return   If your conservation expenses benefit both land that does not qualify as land used for farming and land that does qualify, you must allocate the expenses between the two types of land. E file income tax return For example, if the expenses benefit 200 acres of your land, but only 120 acres of this land are used for farming, then you can deduct 60% (120 ÷ 200) of the expenses. E file income tax return You can use another method to allocate these expenses if you can clearly show that your method is more reasonable. E file income tax return Depreciable conservation assets. E file income tax return   You generally cannot deduct your expenses for depreciable conservation assets. E file income tax return However, you can deduct certain amounts you pay or incur for an assessment for depreciable property that a soil and water conservation or drainage district levies against your farm. E file income tax return See Assessment for Depreciable Property , later. E file income tax return   You must capitalize expenses to buy, build, install, or improve depreciable structures or facilities. E file income tax return These expenses include those for materials, supplies, wages, fuel, hauling, and moving dirt when making structures such as tanks, reservoirs, pipes, culverts, canals, dams, wells, or pumps composed of masonry, concrete, tile, metal, or wood. E file income tax return You recover your capital investment through annual allowances for depreciation. E file income tax return   You can deduct soil and water conservation expenses for nondepreciable earthen items. E file income tax return Nondepreciable earthen items include certain dams, ponds, and terraces described under Property Having a Determinable Useful Life in chapter 7. E file income tax return Water well. E file income tax return   You cannot deduct the cost of drilling a water well for irrigation and other agricultural purposes as a soil and water conservation expense. E file income tax return It is a capital expense. E file income tax return You recover your cost through depreciation. E file income tax return You also must capitalize your cost for drilling a test hole. E file income tax return If the test hole produces no water and you continue drilling, the cost of the test hole is added to the cost of the producing well. E file income tax return You can recover the total cost through depreciation deductions. E file income tax return   If a test hole, dry hole, or dried-up well (resulting from prolonged lack of rain, for instance) is abandoned, you can deduct your unrecovered cost in the year of abandonment. E file income tax return Abandonment means that all economic benefits from the well are terminated. E file income tax return For example, filling or sealing a well excavation or casing so that all economic benefits from the well are terminated constitutes an abandonment. E file income tax return Endangered species recovery expenses. E file income tax return   If you are in the business of farming and meet other specific requirements, you can choose to deduct the conservation expenses discussed earlier as endangered species recovery expenses. E file income tax return Otherwise, these are capital expenses that must be added to the basis of the land. E file income tax return   The expenses must be paid or incurred for the purpose of achieving site-specific management actions recommended in a recovery plan approved under section 4(f) of the Endangered Species Act of 1973. E file income tax return See Internal Revenue Code section 175 for more information. E file income tax return Assessment by Conservation District In some localities, a soil or water conservation or drainage district incurs expenses for soil or water conservation and levies an assessment against the farmers who benefit from the expenses. E file income tax return You can deduct as a conservation expense amounts you pay or incur for the part of an assessment that: Covers expenses you could deduct if you had paid them directly, or Covers expenses for depreciable property used in the district's business. E file income tax return Assessment for Depreciable Property You generally can deduct as a conservation expense amounts you pay or incur for the part of a conservation or drainage district assessment that covers expenses for depreciable property. E file income tax return This includes items such as pumps, locks, concrete structures (including dams and weir gates), draglines, and similar equipment. E file income tax return The depreciable property must be used in the district's soil and water conservation activities. E file income tax return However, the following limits apply to these assessments. E file income tax return The total assessment limit. E file income tax return The yearly assessment limit. E file income tax return After you apply these limits, the amount you can deduct is added to your other conservation expenses for the year. E file income tax return The total for these expenses is then subject to the 25% of gross income from farming limit on the deduction, discussed later. E file income tax return See Table 5-1 for a brief summary of these limits. E file income tax return Table 5-1. E file income tax return Limits on Deducting an Assessment by a Conservation District for Depreciable Property Total Limit on Deduction for Assessment for Depreciable Property Yearly Limit on Deduction for Assessment for Depreciable Property Yearly Limit for All Conservation Expenses 10% of: $500 + 10% of: 25% of: Total assessment against all members of the district for the property. E file income tax return Your deductible share of the cost to the district for the property. E file income tax return Your gross income from farming. E file income tax return No one taxpayer can deduct more than 10% of the total assessment. E file income tax return Any amount over 10% is a capital expense and is added to the basis of your land. E file income tax return If an assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. E file income tax return If the amount you pay or incur for any year is more than the limit, you can deduct for that year only 10% of your deductible share of the cost. E file income tax return You can deduct the remainder in equal amounts over the next 9 tax years. E file income tax return Limit for all conservation expenses, including assessments for depreciable property. E file income tax return Amounts greater than 25% can be carried to the following year and added to that year's expenses. E file income tax return The total is then subject to the 25% of gross income from farming limit in that year. E file income tax return To ensure your deduction is within the deduction limits, keep records to show the following. E file income tax return The total assessment against all members of the district for the depreciable property. E file income tax return Your deductible share of the cost to the district for the depreciable property. E file income tax return Your gross income from farming. E file income tax return Total assessment limit. E file income tax return   You cannot deduct more than 10% of the total amount assessed to all members of the conservation or drainage district for the depreciable property. E file income tax return This applies whether you pay the assessment in one payment or in installments. E file income tax return If your assessment is more than 10% of the total amount assessed, both the following rules apply. E file income tax return The amount over 10% is a capital expense and is added to the basis of your land. E file income tax return If the assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. E file income tax return Yearly assessment limit. E file income tax return   The maximum amount you can deduct in any one year is the total of 10% of your deductible share of the cost as explained earlier, plus $500. E file income tax return If the amount you pay or incur is equal to or less than the maximum amount, you can deduct it in the year it is paid or incurred. E file income tax return If the amount you pay or incur is more, you can deduct in that year only 10% of your deductible share of the cost. E file income tax return You can deduct the remainder in equal amounts over the next 9 tax years. E file income tax return Your total conservation expense deduction for each year is also subject to the 25% of gross income from farming limit on the deduction, discussed later. E file income tax return Example 1. E file income tax return This year, the soil conservation district levies and you pay an assessment of $2,400 against your farm. E file income tax return Of the assessment, $1,500 is for digging drainage ditches. E file income tax return You can deduct this part as a soil or conservation expense as if you had paid it directly. E file income tax return The remaining $900 is for depreciable equipment to be used in the district's irrigation activities. E file income tax return The total amount assessed by the district against all its members for the depreciable equipment is $7,000. E file income tax return The total amount you can deduct for the depreciable equipment is limited to 10% of the total amount assessed by the district against all its members for depreciable equipment, or $700. E file income tax return The $200 excess ($900 − $700) is a capital expense you must add to the basis of your farm. E file income tax return To figure the maximum amount you can deduct for the depreciable equipment this year, multiply your deductible share of the total assessment ($700) by 10%. E file income tax return Add $500 to the result for a total of $570. E file income tax return Your deductible share, $700, is greater than the maximum amount deductible in one year, so you can deduct only $70 of the amount you paid or incurred for depreciable property this year (10% of $700). E file income tax return You can deduct the balance at the rate of $70 a year over the next 9 years. E file income tax return You add $70 to the $1,500 portion of the assessment for drainage ditches. E file income tax return You can deduct $1,570 of the $2,400 assessment as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed later. E file income tax return Example 2. E file income tax return Assume the same facts in Example 1 except that $1,850 of the $2,400 assessment is for digging drainage ditches and $550 is for depreciable equipment. E file income tax return The total amount assessed by the district against all its members for depreciable equipment is $5,500. E file income tax return The total amount you can deduct for the depreciable equipment is limited to 10% of this amount, or $550. E file income tax return The maximum amount you can deduct this year for the depreciable equipment is $555 (10% of your deductible share of the total assessment, $55, plus $500). E file income tax return Since your deductible share is less than the maximum amount deductible in one year, you can deduct the entire $550 this year. E file income tax return You can deduct the entire assessment, $2,400, as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed below. E file income tax return Sale or other disposal of land during 9-year period. E file income tax return   If you dispose of the land during the 9-year period for deducting conservation expenses subject to the yearly limit, any amounts you have not yet deducted because of this limit are added to the basis of the property. E file income tax return Death of farmer during 9-year period. E file income tax return   If a farmer dies during the 9-year period, any remaining amounts not yet deducted are deducted in the year of death. E file income tax return 25% Limit on Deduction The total deduction for conservation expenses in any tax year is limited to 25% of your gross income from farming for the year. E file income tax return Gross income from farming. E file income tax return   Gross income from farming is the income you derive in the business of farming from the production of crops, fish, fruits, other agricultural products, or livestock. E file income tax return Gains from sales of draft, breeding, or dairy livestock are included. E file income tax return Gains from sales of assets such as farm machinery, or from the disposition of land, are not included. E file income tax return Carryover of deduction. E file income tax return   If your deductible conservation expenses in any year are more than 25% of your gross income from farming for that year, you can carry the unused deduction over to later years. E file income tax return However, the deduction in any later year is limited to 25% of the gross income from farming for that year as well. E file income tax return Example. E file income tax return In 2012, you have gross income of $32,000 from two farms. E file income tax return During the year, you incurred $10,000 of deductible soil and water conservation expenses for one of the farms. E file income tax return However, your deduction is limited to 25% of $32,000, or $8,000. E file income tax return The $2,000 excess ($10,000 − $8,000) is carried over to 2013 and added to deductible soil and water conservation expenses made in that year. E file income tax return The total of the 2012 carryover plus 2013 expenses is deductible in 2013, subject to the limit of 25% of your gross income from farming in 2013. E file income tax return Any expenses over the limit in that year are carried to 2014 and later years. E file income tax return Net operating loss. E file income tax return   The deduction for soil and water conservation expenses, after applying the 25% limit, is included when figuring a net operating loss (NOL) for the year. E file income tax return If the NOL is carried to another year, the soil and water conservation deduction included in the NOL is not subject to the 25% limit in the year to which it is carried. E file income tax return When to Deduct or Capitalize If you choose to deduct soil and water conservation expenses, you must deduct the total allowable amount on your tax return for the first year you pay or incur these expenses. E file income tax return If you do not choose to deduct the expenses, you must capitalize them. E file income tax return Change of method. E file income tax return   If you want to change your method for the treatment of soil and water conservation expenses, or you want to treat the expenses for a particular project or a single farm in a different manner, you must get the approval of the IRS. E file income tax return To get this approval, submit a written request by the due date of your return for the first tax year you want the new method to apply. E file income tax return You or your authorized representative must sign the request. E file income tax return   The request must include the following information. E file income tax return Your name and address. E file income tax return The first tax year the method or change of method is to apply. E file income tax return Whether the method or change of method applies to all your soil and water conservation expenses or only to those for a particular project or farm. E file income tax return If the method or change of method does not apply to all your expenses, identify the project or farm to which the expenses apply. E file income tax return The total expenses you paid or incurred in the first tax year the method or change of method is to apply. E file income tax return A statement that you will account separately in your books for the expenses to which this method or change of method relates. E file income tax return Send your request to the following  address. E file income tax return  Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999  For more information, see Change in  Accounting Method in chapter 2. E file income tax return Sale of a Farm If you sell your farm, you cannot adjust the basis of the land at the time of the sale for any unused carryover of soil and water conservation expenses (except for deductions of assessments for depreciable property, discussed earlier). E file income tax return However, if you acquire another farm and return to the business of farming, you can start taking deductions again for the unused carryovers. E file income tax return Gain on sale of farmland. E file income tax return   If you held the land 5 years or less before you sold it, gain on the sale of the land is treated as ordinary income up to the amount you previously deducted for soil and water conservation expenses. E file income tax return If you held the land less than 10 but more than 5 years, the gain is treated as ordinary income up to a specified percentage of the previous deductions. E file income tax return See Section 1252 property under Other Gains in chapter 9. 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E file income tax return 1. E file income tax return   Gain or Loss Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesGain or Loss From Sales and Exchanges Abandonments Foreclosures and RepossessionsAmount realized on a nonrecourse debt. E file income tax return Amount realized on a recourse debt. E file income tax return Involuntary ConversionsCondemnations Nontaxable ExchangesLike-Kind Exchanges Other Nontaxable Exchanges Transfers to Spouse Rollover of Gain From Publicly Traded Securities Gains on Sales of Qualified Small Business Stock Exclusion of Gain From Sale of DC Zone Assets Topics - This chapter discusses: Sales and exchanges Abandonments Foreclosures and repossessions Involuntary conversions Nontaxable exchanges Transfers to spouse Rollovers and exclusions for certain capital gains Useful Items - You may want to see: Publication 523 Selling Your Home 537 Installment Sales 547 Casualties, Disasters, and Thefts 550 Investment Income and Expenses 551 Basis of Assets 908 Bankruptcy Tax Guide 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1040 U. E file income tax return S. E file income tax return Individual Income Tax Return 1040X Amended U. E file income tax return S. E file income tax return Individual Income Tax Return 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets Although the discussions in this chapter may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. E file income tax return However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. E file income tax return See chapter 5 for information about getting publications and forms. E file income tax return Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. E file income tax return An exchange is a transfer of property for other property or services. E file income tax return The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. E file income tax return Sale or lease. E file income tax return    Some agreements that seem to be leases may really be conditional sales contracts. E file income tax return The intention of the parties to the agreement can help you distinguish between a sale and a lease. E file income tax return   There is no test or group of tests to prove what the parties intended when they made the agreement. E file income tax return You should consider each agreement based on its own facts and circumstances. E file income tax return For more information, see chapter 3 in Publication 535, Business Expenses. E file income tax return Cancellation of a lease. E file income tax return    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. E file income tax return Payments received by a landlord (lessor) for the cancellation of a lease are essentially a substitute for rental payments and are taxed as ordinary income in the year in which they are received. E file income tax return Copyright. E file income tax return    Payments you receive for granting the exclusive use of (or right to exploit) a copyright throughout its life in a particular medium are treated as received from the sale of property. E file income tax return It does not matter if the payments are a fixed amount or a percentage of receipts from the sale, performance, exhibition, or publication of the copyrighted work, or an amount based on the number of copies sold, performances given, or exhibitions made. E file income tax return Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. E file income tax return   If the copyright was used in your trade or business and you held it longer than a year, the gain or loss may be a section 1231 gain or loss. E file income tax return For more information, see Section 1231 Gains and Losses in chapter 3. E file income tax return Easement. E file income tax return   The amount received for granting an easement is subtracted from the basis of the property. E file income tax return If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. E file income tax return If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received. E file income tax return   Any amount received that is more than the basis to be reduced is a taxable gain. E file income tax return The transaction is reported as a sale of property. E file income tax return   If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property. E file income tax return However, if you make a qualified conservation contribution of a restriction or easement granted in perpetuity, it is treated as a charitable contribution and not a sale or exchange, even though you keep a beneficial interest in the property affected by the easement. E file income tax return   If you grant an easement on your property (for example, a right-of-way over it) under condemnation or threat of condemnation, you are considered to have made a forced sale, even though you keep the legal title. E file income tax return Although you figure gain or loss on the easement in the same way as a sale of property, the gain or loss is treated as a gain or loss from a condemnation. E file income tax return See Gain or Loss From Condemnations, later. E file income tax return Property transferred to satisfy debt. E file income tax return   A transfer of property to satisfy a debt is an exchange. E file income tax return Note's maturity date extended. E file income tax return   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. E file income tax return Also, it is not considered a closed and completed transaction that would result in a gain or loss. E file income tax return However, an extension will be treated as a taxable exchange of the outstanding note for a new and materially different note if the changes in the terms of the note are significant. E file income tax return Each case must be determined by its own facts. E file income tax return For more information, see Regulations section 1. E file income tax return 1001-3. E file income tax return Transfer on death. E file income tax return   The transfer of property of a decedent to an executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or exchange or other disposition. E file income tax return No taxable gain or deductible loss results from the transfer. E file income tax return Bankruptcy. E file income tax return   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. E file income tax return Consequently, the transfer generally does not result in gain or loss. E file income tax return For more information, see Publication 908, Bankruptcy Tax Guide. E file income tax return Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. E file income tax return A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. E file income tax return A loss is the adjusted basis of the property that is more than the amount you realize. E file income tax return   Table 1-1. E file income tax return How To Figure Whether You Have a Gain or Loss IF your. E file income tax return . E file income tax return . E file income tax return THEN you have a. E file income tax return . E file income tax return . E file income tax return Adjusted basis is more than the amount realized, Loss. E file income tax return Amount realized is more than the adjusted basis, Gain. E file income tax return Basis. E file income tax return   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. E file income tax return The basis of property you buy is usually its cost. E file income tax return However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. E file income tax return See Basis Other Than Cost in Publication 551, Basis of Assets. E file income tax return Special rules apply to property acquired from a decedent who died in 2010 and the executor made the election to file Form 8939, Allocation of Increase in Basis for Property Received From a Decedent. E file income tax return See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. E file income tax return Adjusted basis. E file income tax return   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. E file income tax return Increases include costs of any improvements having a useful life of more than 1 year. E file income tax return Decreases include depreciation and casualty losses. E file income tax return For more details and additional examples, see Adjusted Basis in Publication 551. E file income tax return Amount realized. E file income tax return   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (defined below) of all property or services you receive. E file income tax return The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. E file income tax return Fair market value. E file income tax return   Fair market value (FMV) is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. E file income tax return If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. E file income tax return If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. E file income tax return Example. E file income tax return You used a building in your business that cost you $70,000. E file income tax return You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. E file income tax return You sold the building for $100,000 plus property having an FMV of $20,000. E file income tax return The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. E file income tax return The selling expenses were $4,000. E file income tax return Your gain on the sale is figured as follows. E file income tax return Amount realized:     Cash $100,000   FMV of property received 20,000   Real estate taxes assumed by buyer 3,000   Mortgage assumed by  buyer 17,000   Total 140,000   Minus: Selling expenses 4,000 $136,000 Adjusted basis:     Cost of building $70,000   Improvements 20,000   Total $90,000   Minus: Depreciation 10,000   Adjusted basis   $80,000 Gain on sale $56,000 Amount recognized. E file income tax return   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. E file income tax return Recognized gains must be included in gross income. E file income tax return Recognized losses are deductible from gross income. E file income tax return However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. E file income tax return See Nontaxable Exchanges, later. E file income tax return Also, a loss from the sale or other disposition of property held for personal use is not deductible, except in the case of a casualty or theft. E file income tax return Interest in property. E file income tax return   The amount you realize from the disposition of a life interest in property, an interest in property for a set number of years, or an income interest in a trust is a recognized gain under certain circumstances. E file income tax return If you received the interest as a gift, inheritance, or in a transfer from a spouse or former spouse incident to a divorce, the amount realized is a recognized gain. E file income tax return Your basis in the property is disregarded. E file income tax return This rule does not apply if all interests in the property are disposed of at the same time. E file income tax return Example 1. E file income tax return Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. E file income tax return You decide to sell your life interest in the farm. E file income tax return The entire amount you receive is a recognized gain. E file income tax return Your basis in the farm is disregarded. E file income tax return Example 2. E file income tax return The facts are the same as in Example 1, except that your brother joins you in selling the farm. E file income tax return The entire interest in the property is sold, so your basis in the farm is not disregarded. E file income tax return Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. E file income tax return Canceling a sale of real property. E file income tax return   If you sell real property under a sales contract that allows the buyer to return the property for a full refund and the buyer does so, you may not have to recognize gain or loss on the sale. E file income tax return If the buyer returns the property in the year of sale, no gain or loss is recognized. E file income tax return This cancellation of the sale in the same year it occurred places both you and the buyer in the same positions you were in before the sale. E file income tax return If the buyer returns the property in a later tax year, you must recognize gain (or loss, if allowed) in the year of the sale. E file income tax return When the property is returned in a later year, you acquire a new basis in the property. E file income tax return That basis is equal to the amount you pay to the buyer. E file income tax return Bargain Sale If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. E file income tax return You have a gain if the amount realized is more than your adjusted basis in the property. E file income tax return However, you do not have a loss if the amount realized is less than the adjusted basis of the property. E file income tax return Bargain sales to charity. E file income tax return   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. E file income tax return If a charitable deduction for the contribution is allowable, you must allocate your adjusted basis in the property between the part sold and the part contributed based on the fair market value of each. E file income tax return The adjusted basis of the part sold is figured as follows. E file income tax return Adjusted basis of entire property × Amount realized (fair market value of part sold)   Fair market value of entire property   Based on this allocation rule, you will have a gain even if the amount realized is not more than your adjusted basis in the property. E file income tax return This allocation rule does not apply if a charitable contribution deduction is not allowable. E file income tax return   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. E file income tax return Example. E file income tax return You sold property with a fair market value of $10,000 to a charitable organization for $2,000 and are allowed a deduction for your contribution. E file income tax return Your adjusted basis in the property is $4,000. E file income tax return Your gain on the sale is $1,200, figured as follows. E file income tax return Sales price $2,000 Minus: Adjusted basis of part sold ($4,000 × ($2,000 ÷ $10,000)) 800 Gain on the sale $1,200 Property Used Partly for Business or Rental Generally, if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property. E file income tax return You must subtract depreciation you took or could have taken from the basis of the business or rental part. E file income tax return However, see the special rule below for a home used partly for business or rental. E file income tax return You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. E file income tax return Gain or loss on the business or rental part of the property may be a capital gain or loss or an ordinary gain or loss, as discussed in chapter 3 under Section 1231 Gains and Losses. E file income tax return Any gain on the personal part of the property is a capital gain. E file income tax return You cannot deduct a loss on the personal part. E file income tax return Home used partly for business or rental. E file income tax return    If you use property partly as a home and partly for business or to produce rental income, the computation and treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. E file income tax return See Property Used Partly for Business or Rental, in Publication 523. E file income tax return Property Changed to Business or Rental Use You cannot deduct a loss on the sale of property you purchased or constructed for use as your home and used as your home until the time of sale. E file income tax return You can deduct a loss on the sale of property you acquired for use as your home but changed to business or rental property and used as business or rental property at the time of sale. E file income tax return However, if the adjusted basis of the property at the time of the change was more than its fair market value, the loss you can deduct is limited. E file income tax return Figure the loss you can deduct as follows. E file income tax return Use the lesser of the property's adjusted basis or fair market value at the time of the change. E file income tax return Add to (1) the cost of any improvements and other increases to basis since the change. E file income tax return Subtract from (2) depreciation and any other decreases to basis since the change. E file income tax return Subtract the amount you realized on the sale from the result in (3). E file income tax return If the amount you realized is more than the result in (3), treat this result as zero. E file income tax return The result in (4) is the loss you can deduct. E file income tax return Example. E file income tax return You changed your main home to rental property 5 years ago. E file income tax return At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. E file income tax return This year, you sold the property for $55,000. E file income tax return You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. E file income tax return Although your loss on the sale is $7,380 [($75,000 − $12,620) − $55,000], the amount you can deduct as a loss is limited to $2,380, figured as follows. E file income tax return Lesser of adjusted basis or fair market value at time of the change $70,000 Plus: Cost of any improvements and any other additions to basis after the change -0-   70,000 Minus: Depreciation and any other decreases to basis after the change 12,620   57,380 Minus: Amount you realized from the sale 55,000 Deductible loss $2,380 Gain. E file income tax return   If you have a gain on the sale, you generally must recognize the full amount of the gain. E file income tax return You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. E file income tax return   You may be able to exclude all or part of the gain if you owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. E file income tax return However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. E file income tax return   For more information, see Business Use or Rental of Home in Publication 523. E file income tax return In addition, special rules apply if the home sold was acquired in a like-kind exchange. E file income tax return See Special Situations in Publication 523. E file income tax return Also see Like-Kind Exchanges, later. E file income tax return Abandonments The abandonment of property is a disposition of property. E file income tax return You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. E file income tax return Generally, abandonment is not treated as a sale or exchange of the property. E file income tax return If the amount you realize (if any) is more than your adjusted basis, then you have a gain. E file income tax return If your adjusted basis is more than the amount you realize (if any), then you have a loss. E file income tax return Loss from abandonment of business or investment property is deductible as a loss. E file income tax return A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. E file income tax return This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. E file income tax return If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. E file income tax return The abandonment loss is deducted in the tax year in which the loss is sustained. E file income tax return If the abandoned property is secured by debt, special rules apply. E file income tax return The tax consequences of abandonment of property that is secured by debt depend on whether you are personally liable for the debt (recourse debt) or you are not personally liable for the debt (nonrecourse debt). E file income tax return For more information, including examples, see chapter 3 of Publication 4681. E file income tax return You cannot deduct any loss from abandonment of your home or other property held for personal use only. E file income tax return Cancellation of debt. E file income tax return   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you may realize ordinary income equal to the canceled debt. E file income tax return This income is separate from any loss realized from abandonment of the property. E file income tax return   You must report this income on your tax return unless one of the following applies. E file income tax return The cancellation is intended as a gift. E file income tax return The debt is qualified farm debt. E file income tax return The debt is qualified real property business debt. E file income tax return You are insolvent or bankrupt. E file income tax return The debt is qualified principal residence indebtedness. E file income tax return File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. E file income tax return For more information, including other exceptions and exclusion, see Publication 4681. E file income tax return Forms 1099-A and 1099-C. E file income tax return   If you abandon property that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your loss from the abandonment. E file income tax return However, if your debt is canceled and the lender must file Form 1099-C, the lender may include the information about the abandonment on that form instead of on Form 1099-A, and send you Form 1099-C only. E file income tax return The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. E file income tax return For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. E file income tax return Foreclosures and Repossessions If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. E file income tax return The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. E file income tax return This is true even if you voluntarily return the property to the lender. E file income tax return You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. E file income tax return Buyer's (borrower's) gain or loss. E file income tax return   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. E file income tax return The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. E file income tax return See Gain or Loss From Sales and Exchanges, earlier. E file income tax return You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. E file income tax return Amount realized on a nonrecourse debt. E file income tax return   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full debt canceled by the transfer. E file income tax return The full canceled debt is included even if the fair market value of the property is less than the canceled debt. E file income tax return Example 1. E file income tax return Chris bought a new car for $15,000. E file income tax return He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. E file income tax return Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. E file income tax return The credit company repossessed the car because he stopped making loan payments. E file income tax return The balance due after taking into account the payments Chris made was $10,000. E file income tax return The fair market value of the car when repossessed was $9,000. E file income tax return The amount Chris realized on the repossession is $10,000. E file income tax return That is the outstanding amount of the debt canceled by the repossession, even though the car's fair market value is less than $10,000. E file income tax return Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). E file income tax return He has a $5,000 nondeductible loss. E file income tax return Example 2. E file income tax return Abena paid $200,000 for her home. E file income tax return She paid $15,000 down and borrowed the remaining $185,000 from a bank. E file income tax return Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. E file income tax return The bank foreclosed on the loan because Abena stopped making payments. E file income tax return When the bank foreclosed on the loan, the balance due was $180,000, the fair market value of the house was $170,000, and Abena's adjusted basis was $175,000 due to a casualty loss she had deducted. E file income tax return The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. E file income tax return She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). E file income tax return She has a $5,000 realized gain. E file income tax return Amount realized on a recourse debt. E file income tax return   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. E file income tax return You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. E file income tax return The amount realized does not include the canceled debt that is your income from cancellation of debt. E file income tax return See Cancellation of debt, below. E file income tax return Seller's (lender's) gain or loss on repossession. E file income tax return   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. E file income tax return For more information, see Repossession in Publication 537. E file income tax return    Table 1-2. E file income tax return Worksheet for Foreclosures and Repossessions Part 1. E file income tax return Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. E file income tax return Complete this part only  if you were personally liable for the debt. E file income tax return Otherwise,  go to Part 2. E file income tax return   1. E file income tax return Enter the amount of outstanding debt immediately before the transfer of   property reduced by any amount for which you remain personally liable after   the transfer of property   2. E file income tax return Enter the fair market value of the transferred property   3. E file income tax return Ordinary income from cancellation of debt upon foreclosure or    repossession. E file income tax return * Subtract line 2 from line 1. E file income tax return   If less than zero, enter zero   Part 2. E file income tax return Figure your gain or loss from foreclosure or repossession. E file income tax return   4. E file income tax return If you completed Part 1, enter the smaller of line 1 or line 2. E file income tax return   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. E file income tax return Enter any proceeds you received from the foreclosure sale   6. E file income tax return Add lines 4 and 5   7. E file income tax return Enter the adjusted basis of the transferred property   8. E file income tax return Gain or loss from foreclosure or repossession. E file income tax return Subtract line 7  from line 6   * The income may not be taxable. E file income tax return See Cancellation of debt. E file income tax return Cancellation of debt. E file income tax return   If property that is repossessed or foreclosed on secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the fair market value of the property. E file income tax return This income is separate from any gain or loss realized from the foreclosure or repossession. E file income tax return Report the income from cancellation of a debt related to a business or rental activity as business or rental income. E file income tax return    You can use Table 1-2 to figure your income from cancellation of debt. E file income tax return   You must report this income on your tax return unless one of the following applies. E file income tax return The cancellation is intended as a gift. E file income tax return The debt is qualified farm debt. E file income tax return The debt is qualified real property business debt. E file income tax return You are insolvent or bankrupt. E file income tax return The debt is qualified principal residence indebtedness. E file income tax return File Form 982 to report the income exclusion. E file income tax return Example 1. E file income tax return Assume the same facts as in Example 1 under Amount realized on a nonrecourse debt, earlier, except Chris is personally liable for the car loan (recourse debt). E file income tax return In this case, the amount he realizes is $9,000. E file income tax return This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). E file income tax return Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). E file income tax return He has a $6,000 nondeductible loss. E file income tax return He also is treated as receiving ordinary income from cancellation of debt. E file income tax return That income is $1,000 ($10,000 − $9,000). E file income tax return This is the part of the canceled debt not included in the amount realized. E file income tax return Example 2. E file income tax return Assume the same facts as in Example 2 under Amount realized on a nonrecourse debt, earlier, except Abena is personally liable for the loan (recourse debt). E file income tax return In this case, the amount she realizes is $170,000. E file income tax return This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). E file income tax return Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). E file income tax return She has a $5,000 nondeductible loss. E file income tax return She also is treated as receiving ordinary income from cancellation of debt. E file income tax return (The debt is not exempt from tax as discussed under Cancellation of debt, above. E file income tax return ) That income is $10,000 ($180,000 − $170,000). E file income tax return This is the part of the canceled debt not included in the amount realized. E file income tax return Forms 1099-A and 1099-C. E file income tax return   A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A showing the information you need to figure your gain or loss. E file income tax return However, if the lender also cancels part of your debt and must file Form 1099-C, the lender may include the information about the foreclosure or repossession on that form instead of on Form 1099-A and send you Form 1099-C only. E file income tax return The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. E file income tax return For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. E file income tax return Involuntary Conversions An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. E file income tax return Involuntary conversions are also called involuntary exchanges. E file income tax return Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. E file income tax return You report the gain or deduct the loss on your tax return for the year you realize it. E file income tax return You cannot deduct a loss from an involuntary conversion of property you held for personal use unless the loss resulted from a casualty or theft. E file income tax return However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. E file income tax return Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. E file income tax return Your basis for the new property is the same as your basis for the converted property. E file income tax return This means that the gain is deferred until a taxable sale or exchange occurs. E file income tax return If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can elect to postpone reporting the gain on the property purchased. E file income tax return This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. E file income tax return If you have a gain or loss from the destruction or theft of property, see Publication 547. E file income tax return Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. E file income tax return The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. E file income tax return The owner receives a condemnation award (money or property) in exchange for the property taken. E file income tax return A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. E file income tax return Example. E file income tax return A local government authorized to acquire land for public parks informed you that it wished to acquire your property. E file income tax return After the local government took action to condemn your property, you went to court to keep it. E file income tax return But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. E file income tax return This is a condemnation of private property for public use. E file income tax return Threat of condemnation. E file income tax return   A threat of condemnation exists if a representative of a government body or a public official authorized to acquire property for public use informs you that the government body or official has decided to acquire your property. E file income tax return You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. E file income tax return   The sale of your property to someone other than the condemning authority will also qualify as an involuntary conversion, provided you have reasonable grounds to believe that your property will be condemned. E file income tax return If the buyer of this property knows at the time of purchase that it will be condemned and sells it to the condemning authority, this sale also qualifies as an involuntary conversion. E file income tax return Reports of condemnation. E file income tax return   A threat of condemnation exists if you learn of a decision to acquire your property for public use through a report in a newspaper or other news medium, and this report is confirmed by a representative of the government body or public official involved. E file income tax return You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. E file income tax return If you relied on oral statements made by a government representative or public official, the Internal Revenue Service (IRS) may ask you to get written confirmation of the statements. E file income tax return Example. E file income tax return Your property lies along public utility lines. E file income tax return The utility company has the authority to condemn your property. E file income tax return The company informs you that it intends to acquire your property by negotiation or condemnation. E file income tax return A threat of condemnation exists when you receive the notice. E file income tax return Related property voluntarily sold. E file income tax return   A voluntary sale of your property may be treated as a forced sale that qualifies as an involuntary conversion if the property had a substantial economic relationship to property of yours that was condemned. E file income tax return A substantial economic relationship exists if together the properties were one economic unit. E file income tax return You also must show that the condemned property could not reasonably or adequately be replaced. E file income tax return You can elect to postpone reporting the gain by buying replacement property. E file income tax return See Postponement of Gain, later. E file income tax return Gain or Loss From Condemnations If your property was condemned or disposed of under the threat of condemnation, figure your gain or loss by comparing the adjusted basis of your condemned property with your net condemnation award. E file income tax return If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. E file income tax return You can postpone reporting gain from a condemnation if you buy replacement property. E file income tax return If only part of your property is condemned, you can treat the cost of restoring the remaining part to its former usefulness as the cost of replacement property. E file income tax return See Postponement of Gain, later. E file income tax return If your net condemnation award is less than your adjusted basis, you have a loss. E file income tax return If your loss is from property you held for personal use, you cannot deduct it. E file income tax return You must report any deductible loss in the tax year it happened. E file income tax return You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. E file income tax return Main home condemned. E file income tax return   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. E file income tax return You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). E file income tax return For information on this exclusion, see Publication 523. E file income tax return If your gain is more than you can exclude but you buy replacement property, you may be able to postpone reporting the rest of the gain. E file income tax return See Postponement of Gain, later. E file income tax return Table 1-3. E file income tax return Worksheet for Condemnations Part 1. E file income tax return Gain from severance damages. E file income tax return  If you did not receive severance damages, skip Part 1 and go to Part 2. E file income tax return   1. E file income tax return Enter gross severance damages received   2. E file income tax return Enter your expenses in getting severance damages   3. E file income tax return Subtract line 2 from line 1. E file income tax return If less than zero, enter -0-   4. E file income tax return Enter any special assessment on remaining property taken out of your award   5. E file income tax return Net severance damages. E file income tax return Subtract line 4 from line 3. E file income tax return If less than zero, enter -0-   6. E file income tax return Enter the adjusted basis of the remaining property   7. E file income tax return Gain from severance damages. E file income tax return Subtract line 6 from line 5. E file income tax return If less than zero, enter -0-   8. E file income tax return Refigured adjusted basis of the remaining property. E file income tax return Subtract line 5 from line 6. E file income tax return If less than zero, enter -0-   Part 2. E file income tax return Gain or loss from condemnation award. E file income tax return   9. E file income tax return Enter the gross condemnation award received   10. E file income tax return Enter your expenses in getting the condemnation award   11. E file income tax return If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. E file income tax return If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. E file income tax return Otherwise, enter -0-   12. E file income tax return Add lines 10 and 11   13. E file income tax return Net condemnation award. E file income tax return Subtract line 12 from line 9   14. E file income tax return Enter the adjusted basis of the condemned property   15. E file income tax return Gain from condemnation award. E file income tax return If line 14 is more than line 13, enter -0-. E file income tax return Otherwise, subtract line 14 from  line 13 and skip line 16   16. E file income tax return Loss from condemnation award. E file income tax return Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. E file income tax return )   Part 3. E file income tax return Postponed gain from condemnation. E file income tax return  (Complete only if line 7 or line 15 is more than zero and you bought qualifying replacement property or made expenditures to restore the usefulness of your remaining property. E file income tax return )   17. E file income tax return If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. E file income tax return Otherwise, enter -0-   18. E file income tax return If line 15 is more than zero, enter the amount from line 13. E file income tax return Otherwise, enter -0-   19. E file income tax return Add lines 17 and 18. E file income tax return If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. E file income tax return Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. E file income tax return Subtract line 20 from line 19. E file income tax return If less than zero, enter -0-   22. E file income tax return If you completed Part 1, add lines 7 and 15. E file income tax return Otherwise, enter the amount from line 15. E file income tax return If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. E file income tax return Recognized gain. E file income tax return Enter the smaller of line 21 or line 22. E file income tax return   24. E file income tax return Postponed gain. E file income tax return Subtract line 23 from line 22. E file income tax return If less than zero, enter -0-   Condemnation award. E file income tax return   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. E file income tax return The award is also the amount you are paid for the sale of your property under threat of condemnation. E file income tax return Payment of your debts. E file income tax return   Amounts taken out of the award to pay your debts are considered paid to you. E file income tax return Amounts the government pays directly to the holder of a mortgage or lien against your property are part of your award, even if the debt attaches to the property and is not your personal liability. E file income tax return Example. E file income tax return The state condemned your property for public use. E file income tax return The award was set at $200,000. E file income tax return The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. E file income tax return You are considered to have received the entire $200,000 as a condemnation award. E file income tax return Interest on award. E file income tax return   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. E file income tax return You must report the interest separately as ordinary income. E file income tax return Payments to relocate. E file income tax return   Payments you receive to relocate and replace housing because you have been displaced from your home, business, or farm as a result of federal or federally assisted programs are not part of the condemnation award. E file income tax return Do not include them in your income. E file income tax return Replacement housing payments used to buy new property are included in the property's basis as part of your cost. E file income tax return Net condemnation award. E file income tax return   A net condemnation award is the total award you received, or are considered to have received, for the condemned property minus your expenses of obtaining the award. E file income tax return If only a part of your property was condemned, you also must reduce the award by any special assessment levied against the part of the property you retain. E file income tax return This is discussed later under Special assessment taken out of award. E file income tax return Severance damages. E file income tax return    Severance damages are not part of the award paid for the property condemned. E file income tax return They are paid to you if part of your property is condemned and the value of the part you keep is decreased because of the condemnation. E file income tax return   For example, you may receive severance damages if your property is subject to flooding because you sell flowage easement rights (the condemned property) under threat of condemnation. E file income tax return Severance damages also may be given to you if, because part of your property is condemned for a highway, you must replace fences, dig new wells or ditches, or plant trees to restore your remaining property to the same usefulness it had before the condemnation. E file income tax return   The contracting parties should agree on the specific amount of severance damages in writing. E file income tax return If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. E file income tax return   You cannot make a completely new allocation of the total award after the transaction is completed. E file income tax return However, you can show how much of the award both parties intended for severance damages. E file income tax return The severance damages part of the award is determined from all the facts and circumstances. E file income tax return Example. E file income tax return You sold part of your property to the state under threat of condemnation. E file income tax return The contract you and the condemning authority signed showed only the total purchase price. E file income tax return It did not specify a fixed sum for severance damages. E file income tax return However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. E file income tax return You may treat this part as severance damages. E file income tax return Treatment of severance damages. E file income tax return   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. E file income tax return Use them to reduce the basis of the remaining property. E file income tax return If the amount of severance damages is based on damage to a specific part of the property you kept, reduce the basis of only that part by the net severance damages. E file income tax return   If your net severance damages are more than the basis of your retained property, you have a gain. E file income tax return You may be able to postpone reporting the gain. E file income tax return See Postponement of Gain, later. E file income tax return    You can use Part 1 of Table 1-3 to figure any gain from severance damages and to refigure the adjusted basis of the remaining part of your property. E file income tax return Net severance damages. E file income tax return   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. E file income tax return You then reduce them by any special assessment (described later) levied against the remaining part of the property and retained out of the award by the condemning authority. E file income tax return The balance is your net severance damages. E file income tax return Expenses of obtaining a condemnation award and severance damages. E file income tax return   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. E file income tax return Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. E file income tax return If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. E file income tax return Example. E file income tax return You receive a condemnation award and severance damages. E file income tax return One-fourth of the total was designated as severance damages in your agreement with the condemning authority. E file income tax return You had legal expenses for the entire condemnation proceeding. E file income tax return You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. E file income tax return You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. E file income tax return Special assessment retained out of award. E file income tax return   When only part of your property is condemned, a special assessment levied against the remaining property may be retained by the governing body out of your condemnation award. E file income tax return An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. E file income tax return Examples of improvements that may cause a special assessment are widening a street and installing a sewer. E file income tax return   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. E file income tax return Example. E file income tax return To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. E file income tax return You were awarded $5,000 for this and spent $300 to get the award. E file income tax return Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. E file income tax return The city then paid you only $4,300. E file income tax return Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). E file income tax return If the $700 special assessment was not retained out of the award and you were paid $5,000, your net award would be $4,700 ($5,000 − $300). E file income tax return The net award would not change, even if you later paid the assessment from the amount you received. E file income tax return Severance damages received. E file income tax return   If severance damages are included in the condemnation proceeds, the special assessment retained out of the severance damages is first used to reduce the severance damages. E file income tax return Any balance of the special assessment is used to reduce the condemnation award. E file income tax return Example. E file income tax return You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. E file income tax return You spent $300 to obtain the severance damages. E file income tax return A special assessment of $800 was retained out of the award. E file income tax return The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. E file income tax return Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. E file income tax return Part business or rental. E file income tax return   If you used part of your condemned property as your home and part as business or rental property, treat each part as a separate property. E file income tax return Figure your gain or loss separately because gain or loss on each part may be treated differently. E file income tax return   Some examples of this type of property are a building in which you live and operate a grocery, and a building in which you live on the first floor and rent out the second floor. E file income tax return Example. E file income tax return You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. E file income tax return You rented half the building and lived in the other half. E file income tax return You paid $25,000 for the building and spent an additional $1,000 for a new roof. E file income tax return You claimed allowable depreciation of $4,600 on the rental half. E file income tax return You spent $200 in legal expenses to obtain the condemnation award. E file income tax return Figure your gain or loss as follows. E file income tax return     Resi- dential Part Busi- ness Part 1) Condemnation award received $12,000 $12,000 2) Minus: Legal expenses, $200 100 100 3) Net condemnation award $11,900 $11,900 4) Adjusted basis:       ½ of original cost, $25,000 $12,500 $12,500   Plus: ½ of cost of roof, $1,000 500 500   Total $13,000 $13,000 5) Minus: Depreciation   4,600 6) Adjusted basis, business part   $8,400 7) (Loss) on residential property ($1,100)   8) Gain on business property $3,500 The loss on the residential part of the property is not deductible. E file income tax return Postponement of Gain Do not report the gain on condemned property if you receive only property that is similar or related in service or use to the condemned property. E file income tax return Your basis for the new property is the same as your basis for the old. E file income tax return Money or unlike property received. E file income tax return   You ordinarily must report the gain if you receive money or unlike property. E file income tax return You can elect to postpone reporting the gain if you buy property that is similar or related in service or use to the condemned property within the replacement period, discussed later. E file income tax return You also can elect to postpone reporting the gain if you buy a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the condemned property. E file income tax return See Controlling interest in a corporation, later. E file income tax return   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. E file income tax return If the cost of the replacement property is less than the amount realized, you must report the gain up to the unspent part of the amount realized. E file income tax return   The basis of the replacement property is its cost, reduced by the postponed gain. E file income tax return Also, if your replacement property is stock in a corporation that owns property similar or related in service or use, the corporation generally will reduce its basis in its assets by the amount by which you reduce your basis in the stock. E file income tax return See Controlling interest in a corporation, later. E file income tax return You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. E file income tax return Postponing gain on severance damages. E file income tax return   If you received severance damages for part of your property because another part was condemned and you buy replacement property, you can elect to postpone reporting gain. E file income tax return See Treatment of severance damages, earlier. E file income tax return You can postpone reporting all your gain if the replacement property costs at least as much as your net severance damages plus your net condemnation award (if resulting in gain). E file income tax return   You also can make this election if you spend the severance damages, together with other money you received for the condemned property (if resulting in gain), to acquire nearby property that will allow you to continue your business. E file income tax return If suitable nearby property is not available and you are forced to sell the remaining property and relocate in order to continue your business, see Postponing gain on the sale of related property, next. E file income tax return   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. E file income tax return Postponing gain on the sale of related property. E file income tax return   If you sell property that is related to the condemned property and then buy replacement property, you can elect to postpone reporting gain on the sale. E file income tax return You must meet the requirements explained earlier under Related property voluntarily sold. E file income tax return You can postpone reporting all your gain if the replacement property costs at least as much as the amount realized from the sale plus your net condemnation award (if resulting in gain) plus your net severance damages, if any (if resulting in gain). E file income tax return Buying replacement property from a related person. E file income tax return   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. E file income tax return For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. E file income tax return   This rule applies to the following taxpayers. E file income tax return C corporations. E file income tax return Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. E file income tax return All others (including individuals, partnerships (other than those in (2)), and S corporations) if the total realized gain for the tax year on all involuntarily converted properties on which there is realized gain of more than $100,000. E file income tax return   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. E file income tax return If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. E file income tax return If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. E file income tax return Exception. E file income tax return   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. E file income tax return Advance payment. E file income tax return   If you pay a contractor in advance to build your replacement property, you have not bought replacement property unless it is finished before the end of the replacement period (discussed later). E file income tax return Replacement property. E file income tax return   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. E file income tax return You do not have to use the actual funds from the condemnation award to acquire the replacement property. E file income tax return Property you acquire by gift or inheritance does not qualify as replacement property. E file income tax return Similar or related in service or use. E file income tax return   Your replacement property must be similar or related in service or use to the property it replaces. E file income tax return   If the condemned property is real property you held for productive use in your trade or business or for investment (other than property held mainly for sale), like-kind property to be held either for productive use in trade or business or for investment will be treated as property similar or related in service or use. E file income tax return For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. E file income tax return Owner-user. E file income tax return   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. E file income tax return Example. E file income tax return Your home was condemned and you invested the proceeds from the condemnation in a grocery store. E file income tax return Your replacement property is not similar or related in service or use to the condemned property. E file income tax return To be similar or related in service or use, your replacement property must also be used by you as your home. E file income tax return Owner-investor. E file income tax return   If you are an owner-investor, similar or related in service or use means that any replacement property must have the same relationship of services or uses to you as the property it replaces. E file income tax return You decide this by determining all the following information. E file income tax return Whether the properties are of similar service to you. E file income tax return The nature of the business risks connected with the properties. E file income tax return What the properties demand of you in the way of management, service, and relations to your tenants. E file income tax return Example. E file income tax return You owned land and a building you rented to a manufacturing company. E file income tax return The building was condemned. E file income tax return During the replacement period, you had a new building built on other land you already owned. E file income tax return You rented out the new building for use as a wholesale grocery warehouse. E file income tax return The replacement property is also rental property, so the two properties are considered similar or related in service or use if there is a similarity in all the following areas. E file income tax return Your management activities. E file income tax return The amount and kind of services you provide to your tenants. E file income tax return The nature of your business risks connected with the properties. E file income tax return Leasehold replaced with fee simple property. E file income tax return   Fee simple property you will use in your trade or business or for investment can qualify as replacement property that is similar or related in service or use to a condemned leasehold if you use it in the same business and for the identical purpose as the condemned leasehold. E file income tax return   A fee simple property interest generally is a property interest that entitles the owner to the entire property with unconditional power to dispose of it during his or her lifetime. E file income tax return A leasehold is property held under a lease, usually for a term of years. E file income tax return Outdoor advertising display replaced with real property. E file income tax return   You can elect to treat an outdoor advertising display as real property. E file income tax return If you make this election and you replace the display with real property in which you hold a different kind of interest, your replacement property can qualify as like-kind property. E file income tax return For example, real property bought to replace a destroyed billboard and leased property on which the billboard was located qualify as property of a like-kind. E file income tax return   You can make this election only if you did not claim a section 179 deduction for the display. E file income tax return You cannot cancel this election unless you get the consent of the IRS. E file income tax return   An outdoor advertising display is a sign or device rigidly assembled and permanently attached to the ground, a building, or any other permanent structure used to display a commercial or other advertisement to the public. E file income tax return Substituting replacement property. E file income tax return   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. E file income tax return But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. E file income tax return Controlling interest in a corporation. E file income tax return   You can replace property by acquiring a controlling interest in a corporation that owns property similar or related in service or use to your condemned property. E file income tax return You have controlling interest if you own stock having at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation. E file income tax return Basis adjustment to corporation's property. E file income tax return   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. E file income tax return You are not required to reduce the adjusted basis of the corporation's properties below your adjusted basis in the corporation's stock (determined after reduction by your postponed gain). E file income tax return   Allocate this reduction to the following classes of property in the order shown below. E file income tax return Property that is similar or related in service or use to the condemned property. E file income tax return Depreciable property not reduced in (1). E file income tax return All other property. E file income tax return If two or more properties fall in the same class, allocate the reduction to each property in proportion to the adjusted basis of all the properties in that class. E file income tax return The reduced basis of any single property cannot be less than zero. E file income tax return Main home replaced. E file income tax return   If your gain from a condemnation of your main home is more than you can exclude from your income (see Main home condemned under Gain or Loss From Condemnations, earlier), you can postpone reporting the rest of the gain by buying replacement property that is similar or related in service or use. E file income tax return The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. E file income tax return   You must reduce the basis of your replacement property by the postponed gain. E file income tax return Also, if you postpone reporting any part of your gain under these rules, you are treated as having owned and used the replacement property as your main home for the period you owned and used the condemned property as your main home. E file income tax return Example. E file income tax return City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. E file income tax return The city paid you a condemnation award of $400,000. E file income tax return Your adjusted basis in the property was $80,000. E file income tax return You realize a gain of $320,000 ($400,000 − $80,000). E file income tax return You purchased a new home for $100,000. E file income tax return You can exclude $250,000 of the realized gain from your gross income. E file income tax return The amount realized is then treated as being $150,000 ($400,000 − $250,000) and the gain realized is $70,000 ($150,000 amount realized − $80,000 adjusted basis). E file income tax return You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). E file income tax return The remaining $20,000 of realized gain is postponed. E file income tax return Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). E file income tax return Replacement period. E file income tax return   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. E file income tax return This is the replacement period. E file income tax return   The replacement period for a condemnation begins on the earlier of the following dates. E file income tax return The date on which you disposed of the condemned property. E file income tax return The date on which the threat of condemnation began. E file income tax return   The replacement period generally ends 2 years after the end of the first tax year in which any part of the gain on the condemnation is realized. E file income tax return However, see the exceptions below. E file income tax return Three-year replacement period for certain property. E file income tax return   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the end of the first tax year in which any part of the gain on the condemnation is realized. E file income tax return However, this 3-year replacement period cannot be used if you replace the condemned property by acquiring control of a corporation owning property that is similar or related in service or use. E file income tax return Five-year replacement period for certain property. E file income tax return   The replacement period ends 5 years after the end of the first tax year in which any part of the gain is realized on the compulsory or involuntary conversion of the following qualified property. E file income tax return Property in any Midwestern disaster area compulsorily or involuntarily converted on or after the applicable disaster date as a result of severe storms, tornadoes, or flooding, but only if substantially all of the use of the replacement property is in a Midwestern disaster area. E file income tax return Property in the Kansas disaster area compulsorily or involuntarily converted after May 3, 2007, but only if substantially all of the use of the replacement property is in the Kansas disaster area. E file income tax return Property in the Hurricane Katrina disaster area compulsorily or involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, but only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. E file income tax return Extended replacement period for taxpayers affected by other federally declared disasters. E file income tax return    If you are affected by a federally declared disaster, the IRS may grant disaster relief by extending the periods to perform certain tax-related acts for 2013, including the replacement period, by up to one year. E file income tax return For more information visit www. E file income tax return irs. E file income tax return gov/uac/Tax-Relief-in-Disaster-Situations. E file income tax return Weather-related sales of livestock in an area eligible for federal assistance. E file income tax return   Generally, if the sale or exchange of livestock is due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. E file income tax return    If the weather-related conditions continue for longer than 3 years, the replacement period may be extended on a regional basis until the end of your first drought-free year for the applicable region. E file income tax return See Notice 2006-82. E file income tax return You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. E file income tax return irs. E file income tax return gov/irb/2006-39_IRB/ar13. E file income tax return html. E file income tax return    Each year, the IRS publishes a list of counties, districts, cities, or parishes for which exceptional, extreme, or severe drought was reported during the preceding 12 months. E file income tax return If you qualified for a 4-year replacement period for livestock sold or exchanged on account of drought and your replacement period is scheduled to expire at the end of 2013 (or at the end of the tax year that includes August 31, 2013), see Notice 2013-62. E file income tax return You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. E file income tax return irs. E file income tax return gov/irb/2013-45_IRB/ar04. E file income tax return html. E file income tax return The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. E file income tax return Determining when gain is realized. E file income tax return   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. E file income tax return If the condemning authority makes deposits with the court, you realize gain when you withdraw (or have the right to withdraw) amounts that are more than your basis. E file income tax return   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. E file income tax return A replacement will be too late if you wait for a final determination that does not take place in the applicable replacement period after you first realize gain. E file income tax return   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. E file income tax return All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. E file income tax return All or part of the award is actually or constructively received. E file income tax return For example, if you have an absolute right to a part of a condemnation award when it is deposited with the court, the amount deposited accrues in the year the deposit is made even though the full amount of the award is still contested. E file income tax return Replacement property bought before the condemnation. E file income tax return   If you buy your replacement property after there is a threat of condemnation but before the actual condemnation and you still hold the replacement property at the time of the condemnation, you have bought your replacement property within the replacement period. E file income tax return Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. E file income tax return Example. E file income tax return On April 3, 2012, city authorities notified you that your property would be condemned. E file income tax return On June 5, 2012, you acquired property to replace the property to be condemned. E file income tax return You still had the new property when the city took possession of your old property on September 4, 2013. E file income tax return You have made a replacement within the replacement period. E file income tax return Extension. E file income tax return   You can request an extension of the replacement period from the IRS director for your area. E file income tax return You should apply before the end of the replacement period. E file income tax return Your request should explain in detail why you need an extension. E file income tax return The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. E file income tax return An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. E file income tax return   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. E file income tax return Extensions are usually limited to a period of 1 year or less. E file income tax return The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. E file income tax return If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri