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File 1040ez Online

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File 1040ez online Publication 551 - Main Content Table of Contents Cost BasisStocks and Bonds Real Property Business Assets Allocating the Basis Adjusted BasisIncreases to Basis Decreases to Basis Adjustments to Basis Example Basis Other Than CostProperty Received for Services Taxable Exchanges Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed to Business or Rental Use How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). File 1040ez online Cost Basis The basis of property you buy is usually its cost. File 1040ez online The cost is the amount you pay in cash, debt obligations, other property, or services. File 1040ez online Your cost also includes amounts you pay for the following items. File 1040ez online Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if assumed for the seller). File 1040ez online  You may also have to capitalize (add to basis) certain other costs related to buying or producing property. File 1040ez online Loans with low or no interest. File 1040ez online   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. File 1040ez online You generally have unstated interest if your interest rate is less than the applicable federal rate. File 1040ez online For more information, see Unstated Interest and Original Issue Discount in Publication 537. File 1040ez online Purchase of a business. File 1040ez online   When you purchase a trade or business, you generally purchase all assets used in the business operations, such as land, buildings, and machinery. File 1040ez online Allocate the price among the various assets, including any section 197 intangibles. File 1040ez online See Allocating the Basis, later. File 1040ez online Stocks and Bonds The basis of stocks or bonds you buy is generally the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. File 1040ez online If you get stocks or bonds other than by purchase, your basis is usually determined by the fair market value (FMV) or the previous owner's adjusted basis of the stock. File 1040ez online You must adjust the basis of stocks for certain events that occur after purchase. File 1040ez online See Stocks and Bonds in chapter 4 of Publication 550 for more information on the basis of stock. File 1040ez online Identifying stock or bonds sold. File 1040ez online   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. File 1040ez online If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. File 1040ez online For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. File 1040ez online Mutual fund shares. File 1040ez online   If you sell mutual fund shares acquired at different times and prices, you can choose to use an average basis. File 1040ez online For more information, see Publication 550. File 1040ez online Real Property Real property, also called real estate, is land and generally anything built on or attached to it. File 1040ez online If you buy real property, certain fees and other expenses become part of your cost basis in the property. File 1040ez online Real estate taxes. File 1040ez online   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. File 1040ez online You cannot deduct them as taxes. File 1040ez online   If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. File 1040ez online Do not include that amount in the basis of the property. File 1040ez online If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. File 1040ez online Settlement costs. File 1040ez online   Your basis includes the settlement fees and closing costs for buying property. File 1040ez online You cannot include in your basis the fees and costs for getting a loan on property. File 1040ez online A fee for buying property is a cost that must be paid even if you bought the property for cash. File 1040ez online   The following items are some of the settlement fees or closing costs you can include in the basis of your property. File 1040ez online Abstract fees (abstract of title fees); Charges for installing utility services; Legal fees (including title search and preparation of the sales contract and deed); Recording fees; Surveys; Transfer taxes; Owner's title insurance; and Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. File 1040ez online   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. File 1040ez online   The following items are some settlement fees and closing costs you cannot include in the basis of the property. File 1040ez online Casualty insurance premiums. File 1040ez online Rent for occupancy of the property before closing. File 1040ez online Charges for utilities or other services related to occupancy of the property before closing. File 1040ez online Charges connected with getting a loan. File 1040ez online The following are examples of these charges. File 1040ez online Points (discount points, loan origination fees). File 1040ez online Mortgage insurance premiums. File 1040ez online Loan assumption fees. File 1040ez online Cost of a credit report. File 1040ez online Fees for an appraisal required by a lender. File 1040ez online Fees for refinancing a mortgage. File 1040ez online If these costs relate to business property, items (1) through (3) are deductible as business expenses. File 1040ez online Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan. File 1040ez online Points. File 1040ez online   If you pay points to obtain a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. File 1040ez online Generally, you deduct the points over the term of the loan. File 1040ez online For more information on how to deduct points, see Points in chapter 4 of Publication 535. File 1040ez online Points on home mortgage. File 1040ez online   Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. File 1040ez online If certain requirements are met, you can deduct the points in full for the year in which they are paid. File 1040ez online Reduce the basis of your home by any seller-paid points. File 1040ez online For more information, see Points in Publication 936, Home Mortgage Interest Deduction. File 1040ez online Assumption of mortgage. File 1040ez online   If you buy property and assume (or buy subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. File 1040ez online Example. File 1040ez online If you buy a building for $20,000 cash and assume a mortgage of $80,000 on it, your basis is $100,000. File 1040ez online Constructing assets. File 1040ez online   If you build property or have assets built for you, your expenses for this construction are part of your basis. File 1040ez online Some of these expenses include the following costs. File 1040ez online Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. File 1040ez online In addition, if you own a business and use your employees, material, and equipment to build an asset, do not deduct the following expenses. File 1040ez online You must include them in the asset's basis. File 1040ez online Employee wages paid for the construction work, reduced by any employment credits allowed; Depreciation on equipment you own while it is used in the construction; Operating and maintenance costs for equipment used in the construction; and The cost of business supplies and materials used in the construction. File 1040ez online    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. File 1040ez online Business Assets If you purchase property to use in your business, your basis is usually its actual cost to you. File 1040ez online If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. File 1040ez online In certain circumstances, you may be subject to the uniform capitalization rules, next. File 1040ez online Uniform Capitalization Rules The uniform capitalization rules specify the costs you add to basis in certain circumstances. File 1040ez online Activities subject to the rules. File 1040ez online   You must use the uniform capitalization rules if you do any of the following in your trade or business or activity carried on for profit. File 1040ez online Produce real or tangible personal property for use in the business or activity, Produce real or tangible personal property for sale to customers, or Acquire property for resale. File 1040ez online However, this rule does not apply to personal property if your average annual gross receipts for the 3 previous tax years are $10 million or less. File 1040ez online   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. File 1040ez online Treat property produced for you under a contract as produced by you up to the amount you pay or costs you otherwise incur for the property. File 1040ez online Tangible personal property includes films, sound recordings, video tapes, books, or similar property. File 1040ez online    Under the uniform capitalization rules, you must capitalize all direct costs and an allocable part of most indirect costs you incur due to your production or resale activities. File 1040ez online To capitalize means to include certain expenses in the basis of property you produce or in your inventory costs rather than deduct them as a current expense. File 1040ez online You recover these costs through deductions for depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. File 1040ez online   Any cost you cannot use to figure your taxable income for any tax year is not subject to the uniform capitalization rules. File 1040ez online Example. File 1040ez online If you incur a business meal expense for which your deduction would be limited to 50% of the cost of the meal, that amount is subject to the uniform capitalization rules. File 1040ez online The nondeductible part of the cost is not subject to the uniform capitalization rules. File 1040ez online More information. File 1040ez online   For more information about these rules, see the regulations under section 263A of the Internal Revenue Code and Publication 538, Accounting Periods and Methods. File 1040ez online Exceptions. File 1040ez online   The following are not subject to the uniform capitalization rules. File 1040ez online Property you produce that you do not use in your trade, business, or activity conducted for profit; Qualified creative expenses you pay or incur as a free-lance (self-employed) writer, photographer, or artist that are otherwise deductible on your tax return; Property you produce under a long-term contract, except for certain home construction contracts; Research and experimental expenses deductible under section 174 of the Internal Revenue Code; and Costs for personal property acquired for resale if your (or your predecessor's) average annual gross receipts for the 3 previous tax years do not exceed $10 million. File 1040ez online For other exceptions to the uniform capitalization rules, see section 1. File 1040ez online 263A-1(b) of the regulations. File 1040ez online   For information on the special rules that apply to costs incurred in the business of farming, see chapter 6 of Publication 225, Farmer's Tax Guide. File 1040ez online Intangible Assets Intangible assets include goodwill, patents, copyrights, trademarks, trade names, and franchises. File 1040ez online The basis of an intangible asset is usually the cost to buy or create it. File 1040ez online If you acquire multiple assets, for example a going business for a lump sum, see Allocating the Basis below to figure the basis of the individual assets. File 1040ez online The basis of certain intangibles can be amortized. File 1040ez online See chapter 8 of Publication 535 for information on the amortization of these costs. File 1040ez online Patents. File 1040ez online   The basis of a patent you get for an invention is the cost of development, such as research and experimental expenditures, drawings, working models, and attorneys' and governmental fees. File 1040ez online If you deduct the research and experimental expenditures as current business expenses, you cannot include them in the basis of the patent. File 1040ez online The value of the inventor's time spent on an invention is not part of the basis. File 1040ez online Copyrights. File 1040ez online   If you are an author, the basis of a copyright will usually be the cost of getting the copyright plus copyright fees, attorneys' fees, clerical assistance, and the cost of plates that remain in your possession. File 1040ez online Do not include the value of your time as the author, or any other person's time you did not pay for. File 1040ez online Franchises, trademarks, and trade names. File 1040ez online   If you buy a franchise, trademark, or trade name, the basis is its cost, unless you can deduct your payments as a business expense. File 1040ez online Allocating the Basis If you buy multiple assets for a lump sum, allocate the amount you pay among the assets you receive. File 1040ez online You must make this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. File 1040ez online See Trade or Business Acquired below. File 1040ez online Group of Assets Acquired If you buy multiple assets for a lump sum, you and the seller may agree to a specific allocation of the purchase price among the assets in the sales contract. File 1040ez online If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. File 1040ez online However, see Trade or Business Acquired, next. File 1040ez online Trade or Business Acquired If you acquire a trade or business, allocate the consideration paid to the various assets acquired. File 1040ez online Generally, reduce the consideration paid by any cash and general deposit accounts (including checking and savings accounts) received. File 1040ez online Allocate the remaining consideration to the other business assets received in proportion to (but not more than) their fair market value in the following order. File 1040ez online Certificates of deposit, U. File 1040ez online S. File 1040ez online Government securities, foreign currency, and actively traded personal property, including stock and securities. File 1040ez online Accounts receivable, other debt instruments, and assets you mark to market at least annually for federal income tax purposes. File 1040ez online Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held primarily for sale to customers in the ordinary course of business. File 1040ez online All other assets except section 197 intangibles, goodwill, and going concern value. File 1040ez online Section 197 intangibles except goodwill and going concern value. File 1040ez online Goodwill and going concern value (whether or not they qualify as section 197 intangibles). File 1040ez online Agreement. File 1040ez online   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value (FMV) of any of the assets. File 1040ez online This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. File 1040ez online Reporting requirement. File 1040ez online   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. File 1040ez online Use Form 8594 to provide this information. File 1040ez online The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. File 1040ez online More information. File 1040ez online   See Sale of a Business in chapter 2 of Publication 544 for more information. File 1040ez online Land and Buildings If you buy buildings and the land on which they stand for a lump sum, allocate the basis of the property among the land and the buildings so you can figure the depreciation allowable on the buildings. File 1040ez online Figure the basis of each asset by multiplying the lump sum by a fraction. File 1040ez online The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. File 1040ez online If you are not certain of the FMV of the land and buildings, you can allocate the basis based on their assessed values for real estate tax purposes. File 1040ez online Demolition of building. File 1040ez online   Add demolition costs and other losses incurred for the demolition of any building to the basis of the land on which the demolished building was located. File 1040ez online Do not claim the costs as a current deduction. File 1040ez online Modification of building. File 1040ez online   A modification of a building will not be treated as a demolition if the following conditions are satisfied. File 1040ez online 75 percent or more of the existing external walls of the building are retained in place as internal or external walls, and 75 percent or more of the existing internal structural framework of the building is retained in place. File 1040ez online   If the building is a certified historic structure, the modification must also be part of a certified rehabilitation. File 1040ez online   If these conditions are met, add the costs of the modifications to the basis of the building. File 1040ez online Subdivided lots. File 1040ez online   If you buy a tract of land and subdivide it, you must determine the basis of each lot. File 1040ez online This is necessary because you must figure the gain or loss on the sale of each individual lot. File 1040ez online As a result, you do not recover your entire cost in the tract until you have sold all of the lots. File 1040ez online   To determine the basis of an individual lot, multiply the total cost of the tract by a fraction. File 1040ez online The numerator is the FMV of the lot and the denominator is the FMV of the entire tract. File 1040ez online Future improvement costs. File 1040ez online   If you are a developer and sell subdivided lots before the development work is completed, you can (with IRS consent) include in the basis of the properties sold an allocation of the estimated future cost for common improvements. File 1040ez online See Revenue Procedure 92–29 for more information, including an explanation of the procedures for getting consent from the IRS. File 1040ez online Use of erroneous cost basis. File 1040ez online   If you made a mistake in figuring the cost basis of subdivided lots sold in previous years, you cannot correct the mistake for years for which the statute of limitations (generally 3 tax years) has expired. File 1040ez online Figure the basis of any remaining lots by allocating the correct original cost basis of the entire tract among the original lots. File 1040ez online Example. File 1040ez online You bought a tract of land to which you assigned a cost of $15,000. File 1040ez online You subdivided the land into 15 building lots of equal size and equitably divided your basis so that each lot had a basis of $1,000. File 1040ez online You treated the sale of each lot as a separate transaction and figured gain or loss separately on each sale. File 1040ez online Several years later you determine that your original basis in the tract was $22,500 and not $15,000. File 1040ez online You sold eight lots using $8,000 of basis in years for which the statute of limitations has expired. File 1040ez online You now can take $1,500 of basis into account for figuring gain or loss only on the sale of each of the remaining seven lots ($22,500 basis divided among all 15 lots). File 1040ez online You cannot refigure the basis of the eight lots sold in tax years barred by the statute of limitations. File 1040ez online Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the basis of the property. File 1040ez online The result of these adjustments to the basis is the adjusted basis. File 1040ez online Increases to Basis Increase the basis of any property by all items properly added to a capital account. File 1040ez online These include the cost of any improvements having a useful life of more than 1 year. File 1040ez online Rehabilitation expenses also increase basis. File 1040ez online However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis. File 1040ez online If you have to recapture any of the credit, increase your basis by the recaptured amount. File 1040ez online If you make additions or improvements to business property, keep separate accounts for them. File 1040ez online Also, you must depreciate the basis of each according to the depreciation rules that would apply to the underlying property if you had placed it in service at the same time you placed the addition or improvement in service. File 1040ez online For more information, see Publication 946. File 1040ez online The following items increase the basis of property. File 1040ez online The cost of extending utility service lines to the property; Impact fees; Legal fees, such as the cost of defending and perfecting title; Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements; Zoning costs; and The capitalized value of a redeemable ground rent. File 1040ez online Assessments for Local Improvements Increase the basis of property by assessments for items such as paving roads and building ditches that increase the value of the property assessed. File 1040ez online Do not deduct them as taxes. File 1040ez online However, you can deduct as taxes charges for maintenance, repairs, or interest charges related to the improvements. File 1040ez online Example. File 1040ez online Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected landowners for the cost of the conversion. File 1040ez online Add the assessment to your property's basis. File 1040ez online In this example, the assessment is a depreciable asset. File 1040ez online Deducting vs. File 1040ez online Capitalizing Costs Do not add to your basis costs you can deduct as current expenses. File 1040ez online For example, amounts paid for incidental repairs or maintenance that are deductible as business expenses cannot be added to basis. File 1040ez online However, you can choose either to deduct or to capitalize certain other costs. File 1040ez online If you capitalize these costs, include them in your basis. File 1040ez online If you deduct them, do not include them in your basis. File 1040ez online See Uniform Capitalization Rules earlier. File 1040ez online The costs you can choose to deduct or to capitalize include the following. File 1040ez online Carrying charges, such as interest and taxes, that you pay to own property, except carrying charges that must be capitalized under the uniform capitalization rules; Research and experimentation costs; Intangible drilling and development costs for oil, gas, and geothermal wells; Exploration costs for new mineral deposits; Mining development costs for a new mineral deposit; Costs of establishing, maintaining, or increasing the circulation of a newspaper or other periodical; and Costs of removing architectural and transportation barriers to people with disabilities and the elderly. File 1040ez online If you claim the disabled access credit, you must reduce the amount you deduct or capitalize by the amount of the credit. File 1040ez online For more information about deducting or capitalizing costs, see chapter 7 in Publication 535. File 1040ez online Table 1. File 1040ez online Examples of Increases and Decreases to Basis Increases to Basis Decreases to Basis Capital improvements:   Putting an addition on your home   Replacing an entire roof  Paving your driveway  Installing central air conditioning Rewiring your home Exclusion from income of subsidies for energy conservation measures  Casualty or theft loss deductions and insurance reimbursements  Vehicle credits Assessments for local improvements: Water connections Sidewalks Roads Section 179 deduction  Casualty losses: Restoring damaged property Depreciation  Nontaxable corporate distributions Legal fees:  Cost of defending and perfecting a title   Zoning costs   Decreases to Basis The following are some items that reduce the basis of property. File 1040ez online Section 179 deduction; Nontaxable corporate distributions; Deductions previously allowed (or allowable) for amortization, depreciation, and depletion; Exclusion of subsidies for energy conservation measures; Vehicle credits; Residential energy credits; Postponed gain from sale of home; Investment credit (part or all) taken; Casualty and theft losses and insurance reimbursement; Certain canceled debt excluded from income; Rebates from a manufacturer or seller; Easements; Gas-guzzler tax; Adoption tax benefits; and Credit for employer-provided child care. File 1040ez online Some of these items are discussed next. File 1040ez online Casualties and Thefts If you have a casualty or theft loss, decrease the basis in your property by any insurance or other reimbursement and by any deductible loss not covered by insurance. File 1040ez online You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use. File 1040ez online To make this determination, compare the repaired property to the property before the casualty. File 1040ez online For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts. File 1040ez online Easements The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. File 1040ez online It reduces the basis of the affected part of the property. File 1040ez online If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. File 1040ez online Vehicle Credits Unless you elect not to claim the qualified plug-in electric vehicle credit, the alternative motor vehicle credit, or the qualified plug-in electric drive motor vehicle credit, you may have to reduce the basis of each qualified vehicle by certain amounts reported. File 1040ez online For more information, see Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit; Form 8910, Alternative Motor Vehicle Credit; Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit;and the related instructions. File 1040ez online Gas-Guzzler Tax Decrease the basis in your car by the gas-guzzler (fuel economy) tax if you begin using the car within 1 year of the date of its first sale for ultimate use. File 1040ez online This rule also applies to someone who later buys the car and begins using it not more than 1 year after the original sale for ultimate use. File 1040ez online If the car is imported, the one-year period begins on the date of entry or withdrawal of the car from the warehouse if that date is later than the date of the first sale for ultimate use. File 1040ez online Section 179 Deduction If you take the section 179 deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. File 1040ez online For more information about the section 179 deduction, see Publication 946. File 1040ez online Exclusion of Subsidies for Energy Conservation Measures You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of any energy conservation measure for a dwelling unit. File 1040ez online Reduce the basis of the property for which you received the subsidy by the excluded amount. File 1040ez online For more information on this subsidy, see Publication 525. File 1040ez online Depreciation Decrease the basis of property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. File 1040ez online If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. File 1040ez online If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. File 1040ez online Unless a timely election is made not to deduct the special depreciation allowance for property placed in service after September 10, 2001, decrease the property's basis by the special depreciation allowance you deducted or could have deducted. File 1040ez online If you deducted more depreciation than you should have, decrease your basis by the amount equal to the depreciation you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for the year. File 1040ez online In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation capitalized under the uniform capitalization rules. File 1040ez online For information on figuring depreciation, see Publication 946. File 1040ez online If you are claiming depreciation on a business vehicle, see Publication 463. File 1040ez online If the car is not used more than 50% for business during the tax year, you may have to recapture excess depreciation. File 1040ez online Include the excess depreciation in your gross income and add it to your basis in the property. File 1040ez online For information on the computation of excess depreciation, see chapter 4 in Publication 463. File 1040ez online Canceled Debt Excluded From Income If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. File 1040ez online A debt includes any indebtedness for which you are liable or which attaches to property you hold. File 1040ez online You can exclude canceled debt from income in the following situations. File 1040ez online Debt canceled in a bankruptcy case or when you are insolvent, Qualified farm debt, and Qualified real property business debt (provided you are not a C corporation). File 1040ez online If you exclude from income canceled debt under situation (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. File 1040ez online However, in situation (3), you must reduce the basis of your depreciable property by the excluded amount. File 1040ez online For more information about canceled debt in a bankruptcy case or during insolvency, see Publication 908, Bankruptcy Tax Guide. File 1040ez online For more information about canceled debt that is qualified farm debt, see chapter 3 in Publication 225. File 1040ez online For more information about qualified real property business debt, see chapter 5 in Publication 334, Tax Guide for Small Business. File 1040ez online Postponed Gain From Sale of Home If you postponed gain from the sale of your main home before May 7, 1997, you must reduce the basis of your new home by the postponed gain. File 1040ez online For more information on the rules for the sale of a home, see Publication 523. File 1040ez online Adoption Tax Benefits If you claim an adoption credit for the cost of improvements you added to the basis of your home, decrease the basis of your home by the credit allowed. File 1040ez online This also applies to amounts you received under an employer's adoption assistance program and excluded from income. File 1040ez online For more information Form 8839, Qualified Adoption Expenses. File 1040ez online Employer-Provided Child Care If you are an employer, you can claim the employer-provided child care credit on amounts you paid or incurred to acquire, construct, rehabilitate, or expand property used as part of your qualified child care facility. File 1040ez online You must reduce your basis in that property by the credit claimed. File 1040ez online For more information, see Form 8882, Credit for Employer-Provided Child Care Facilities and Services. File 1040ez online Adjustments to Basis Example In January 2005, you paid $80,000 for real property to be used as a factory. File 1040ez online You also paid commissions of $2,000 and title search and legal fees of $600. File 1040ez online You allocated the total cost of $82,600 between the land and the building—$10,325 for the land and $72,275 for the building. File 1040ez online Immediately you spent $20,000 in remodeling the building before you placed it in service. File 1040ez online You were allowed depreciation of $14,526 for the years 2005 through 2009. File 1040ez online In 2008 you had a $5,000 casualty loss from a that was not covered by insurance on the building. File 1040ez online You claimed a deduction for this loss. File 1040ez online You spent $5,500 to repair the damages and extend the useful life of the building. File 1040ez online The adjusted basis of the building on January 1, 2010, is figured as follows: Original cost of building including fees and commissions $72,275 Adjustments to basis:     Add:         Improvements 20,000   Repair of damages 5,500       $97,775 Subtract:       Depreciation $14,526     Deducted casualty loss 5,000 19,526 Adjusted basis on January 1, 2010 $78,249 The basis of the land, $10,325, remains unchanged. File 1040ez online It is not affected by any of the above adjustments. File 1040ez online Basis Other Than Cost There are many times when you cannot use cost as basis. File 1040ez online In these cases, the fair market value or the adjusted basis of property may be used. File 1040ez online Adjusted basis is discussed earlier. File 1040ez online Fair market value (FMV). File 1040ez online   FMV is the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. File 1040ez online Sales of similar property on or about the same date may be helpful in figuring the property's FMV. File 1040ez online Property Received for Services If you receive property for services, include the property's FMV in income. File 1040ez online The amount you include in income becomes your basis. File 1040ez online If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. File 1040ez online Bargain Purchases A bargain purchase is a purchase of an item for less than its FMV. File 1040ez online If, as compensation for services, you purchase goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. File 1040ez online Your basis in the property is its FMV (your purchase price plus the amount you include in income). File 1040ez online If the difference between your purchase price and the FMV represents a qualified employee discount, do not include the difference in income. File 1040ez online However, your basis in the property is still its FMV. File 1040ez online See Employee Discounts in Publication 15-B. File 1040ez online Restricted Property If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested unless you make the election discussed later. File 1040ez online Property becomes substantially vested when your rights in the property or the rights of any person to whom you transfer the property are not subject to a substantial risk of forfeiture. File 1040ez online There is substantial risk of forfeiture when the rights to full enjoyment of the property depend on the future performance of substantial services by any person. File 1040ez online When the property becomes substantially vested, include the FMV, less any amount you paid for the property, in income. File 1040ez online Example. File 1040ez online Your employer gives you stock for services performed under the condition that you will have to return the stock unless you complete 5 years of service. File 1040ez online The stock is under a substantial risk of forfeiture and is not substantially vested when you receive it. File 1040ez online You do not report any income until you have completed the 5 years of service that satisfy the condition. File 1040ez online Fair market value. File 1040ez online   Figure the FMV of property you received without considering any restriction except one that by its terms will never end. File 1040ez online Example. File 1040ez online You received stock from your employer for services you performed. File 1040ez online If you want to sell the stock while you are still employed, you must sell the stock to your employer at book value. File 1040ez online At your retirement or death, you or your estate must offer to sell the stock to your employer at its book value. File 1040ez online This is a restriction that by its terms will never end and you must consider it when you figure the FMV. File 1040ez online Election. File 1040ez online   You can choose to include in your gross income the FMV of the property at the time of transfer, less any amount you paid for it. File 1040ez online If you make this choice, the substantially vested rules do not apply. File 1040ez online Your basis is the amount you paid plus the amount you included in income. File 1040ez online   See the discussion of Restricted Property in Publication 525 for more information. File 1040ez online Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. File 1040ez online A taxable gain or deductible loss is also known as a recognized gain or loss. File 1040ez online If you receive property in exchange for other property in a taxable exchange, the basis of property you receive is usually its FMV at the time of the exchange. File 1040ez online A taxable exchange occurs when you receive cash or property not similar or related in use to the property exchanged. File 1040ez online Example. File 1040ez online You trade a tract of farm land with an adjusted basis of $3,000 for a tractor that has an FMV of $6,000. File 1040ez online You must report a taxable gain of $3,000 for the land. File 1040ez online The tractor has a basis of $6,000. File 1040ez online Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, you can figure the basis of the replacement property you receive using the basis of the converted property. File 1040ez online Similar or related property. File 1040ez online   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the old property's basis on the date of the conversion. File 1040ez online However, make the following adjustments. File 1040ez online Decrease the basis by the following. File 1040ez online Any loss you recognize on the conversion, and Any money you receive that you do not spend on similar property. File 1040ez online Increase the basis by the following. File 1040ez online Any gain you recognize on the conversion, and Any cost of acquiring the replacement property. File 1040ez online Money or property not similar or related. File 1040ez online   If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the new property is its cost decreased by the gain not recognized on the conversion. File 1040ez online Example. File 1040ez online The state condemned your property. File 1040ez online The property had an adjusted basis of $26,000 and the state paid you $31,000 for it. File 1040ez online You realized a gain of $5,000 ($31,000 − $26,000). File 1040ez online You bought replacement property similar in use to the converted property for $29,000. File 1040ez online You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. File 1040ez online Your gain not recognized is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. File 1040ez online The basis of the new property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of the replacement property $26,000 Allocating the basis. File 1040ez online   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. File 1040ez online Example. File 1040ez online The state in the previous example condemned your unimproved real property and the replacement property you bought was improved real property with both land and buildings. File 1040ez online Allocate the replacement property's $26,000 basis between land and buildings based on their respective costs. File 1040ez online More information. File 1040ez online   For more information about condemnations, see Involuntary Conversions in Publication 544. File 1040ez online For more information about casualty and theft losses, see Publication 547. File 1040ez online Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. File 1040ez online If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. File 1040ez online A nontaxable gain or loss is also known as an unrecognized gain or loss. File 1040ez online Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. File 1040ez online To qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. File 1040ez online There must also be an exchange of like-kind property. File 1040ez online For more information, see Like-Kind Exchanges in Publication 544. File 1040ez online The basis of the property you receive is the same as the basis of the property you gave up. File 1040ez online Example. File 1040ez online You exchange real estate (adjusted basis $50,000, FMV $80,000) held for investment for other real estate (FMV $80,000) held for investment. File 1040ez online Your basis in the new property is the same as the basis of the old ($50,000). File 1040ez online Exchange expenses. File 1040ez online   Exchange expenses are generally the closing costs you pay. File 1040ez online They include such items as brokerage commissions, attorney fees, deed preparation fees, etc. File 1040ez online Add them to the basis of the like-kind property received. File 1040ez online Property plus cash. File 1040ez online   If you trade property in a like-kind exchange and also pay money, the basis of the property received is the basis of the property you gave up increased by the money you paid. File 1040ez online Example. File 1040ez online You trade in a truck (adjusted basis $3,000) for another truck (FMV $7,500) and pay $4,000. File 1040ez online Your basis in the new truck is $7,000 (the $3,000 basis of the old truck plus the $4,000 paid). File 1040ez online Special rules for related persons. File 1040ez online   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. File 1040ez online Each person must report any gain or loss not recognized on the original exchange. File 1040ez online Each person reports it on the tax return filed for the year in which the later disposition occurs. File 1040ez online If this rule applies, the basis of the property received in the original exchange will be its fair market value. File 1040ez online   These rules generally do not apply to the following kinds of property dispositions. File 1040ez online Dispositions due to the death of either related person, Involuntary conversions, and Dispositions in which neither the original exchange nor the subsequent disposition had as a main purpose the avoidance of federal income tax. File 1040ez online Related persons. File 1040ez online   Generally, related persons are ancestors, lineal descendants, brothers and sisters (whole or half), and a spouse. File 1040ez online   For other related persons (for example, two corporations, an individual and a corporation, a grantor and fiduciary, etc. File 1040ez online ), see Nondeductible Loss in chapter 2 of Publication 544. File 1040ez online Exchange of business property. File 1040ez online   Exchanging the assets of one business for the assets of another business is a multiple property exchange. File 1040ez online For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. File 1040ez online Partially Nontaxable Exchange A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like property. File 1040ez online The basis of the property you receive is the same as the basis of the property you gave up, with the following adjustments. File 1040ez online Decrease the basis by the following amounts. File 1040ez online Any money you receive, and Any loss you recognize on the exchange. File 1040ez online Increase the basis by the following amounts. File 1040ez online Any additional costs you incur, and Any gain you recognize on the exchange. File 1040ez online If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. File 1040ez online Example. File 1040ez online You traded a truck (adjusted basis $6,000) for a new truck (FMV $5,200) and $1,000 cash. File 1040ez online You realized a gain of $200 ($6,200 − $6,000). File 1040ez online This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($5,200 + $1,000 – $6,000). File 1040ez online You include all the gain in income (recognized gain) because the gain is less than the cash received. File 1040ez online Your basis in the new truck is: Adjusted basis of old truck $6,000 Minus: Cash received (adjustment 1(a)) 1,000   $5,000 Plus: Gain recognized (adjustment 2(b)) 200 Basis of new truck $5,200 Allocation of basis. File 1040ez online   Allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. File 1040ez online The rest is the basis of the like property. File 1040ez online Example. File 1040ez online You had an adjusted basis of $15,000 in real estate you held for investment. File 1040ez online You exchanged it for other real estate to be held for investment with an FMV of $12,500, a truck with an FMV of $3,000, and $1,000 cash. File 1040ez online The truck is unlike property. File 1040ez online You realized a gain of $1,500 ($16,500 − $15,000). File 1040ez online This is the FMV of the real estate received plus the FMV of the truck received plus the cash minus the adjusted basis of the real estate you traded ($12,500 + $3,000 + $1,000 – $15,000). File 1040ez online You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. File 1040ez online Your basis in the properties you received is figured as follows. File 1040ez online Adjusted basis of real estate transferred $15,000 Minus: Cash received (adjustment 1(a)) 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property — the truck ($3,000). File 1040ez online This is the truck's FMV. File 1040ez online The rest ($12,500) is the basis of the real estate. File 1040ez online Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. File 1040ez online Example. File 1040ez online You are a salesperson and you use one of your cars 100% for business. File 1040ez online You have used this car in your sales activities for 2 years and have depreciated it. File 1040ez online Your adjusted basis in the car is $22,600 and its FMV is $23,100. File 1040ez online You are interested in a new car, which sells for $28,000. File 1040ez online If you trade your old car and pay $4,900 for the new one, your basis for depreciation for the new car would be $27,500 ($4,900 plus the $22,600 basis of your old car). File 1040ez online However, you want a higher basis for depreciating the new car, so you agree to pay the dealer $28,000 for the new car if he will pay you $23,100 for your old car. File 1040ez online Because the two transactions are dependent on each other, you are treated as having exchanged your old car for the new one and paid $4,900 ($28,000 − $23,100). File 1040ez online Your basis for depreciating the new car is $27,500, the same as if you traded the old car. File 1040ez online Partial Business Use of Property If you have property used partly for business and partly for personal use, and you exchange it in a nontaxable exchange for property to be used wholly or partly in your business, the basis of the property you receive is figured as if you had exchanged two properties. File 1040ez online The first is an exchange of like-kind property. File 1040ez online The second is personal-use property on which gain is recognized and loss is not recognized. File 1040ez online First, figure your adjusted basis in the property as if you transferred two separate properties. File 1040ez online Figure the adjusted basis of each part of the property by taking into account any adjustments to basis. File 1040ez online Deduct the depreciation you took or could have taken from the adjusted basis of the business part. File 1040ez online Then figure the amount realized for your property and allocate it to the business and nonbusiness parts of the property. File 1040ez online The business part of the property is permitted to be exchanged tax free. File 1040ez online However, you must recognize any gain from the exchange of the nonbusiness part. File 1040ez online You are deemed to have received, in exchange for the nonbusiness part, an amount equal to its FMV on the date of the exchange. File 1040ez online The basis of the property you acquired is the total basis of the property transferred (adjusted to the date of the exchange), increased by any gain recognized on the nonbusiness part. File 1040ez online If the nonbusiness part of the property transferred is your main home, you may qualify to exclude from income all or part of the gain on that part. File 1040ez online For more information, see Publication 523. File 1040ez online Trade of car used partly in business. File 1040ez online   If you trade in a car you used partly in your business for another car you will use in your business, your basis for depreciation of the new car is not the same as your basis for figuring a gain or loss on its sale. File 1040ez online   For information on figuring your basis for depreciation, see Publication 463. File 1040ez online Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse (or former spouse if the transfer is incident to divorce), is the same as your spouse's adjusted basis. File 1040ez online However, adjust your basis for any gain recognized by your spouse or former spouse on property transferred in trust. File 1040ez online This rule applies only to a transfer of property in trust in which the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. File 1040ez online If the property transferred to you is a series E, series EE, or series I United States savings bond, the transferor must include in income the interest accrued to the date of transfer. File 1040ez online Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. File 1040ez online For more information on these bonds, see Publication 550. File 1040ez online At the time of the transfer, the transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of transfer. File 1040ez online For more information, see Publication 504, Divorced or Separated Individuals. File 1040ez online Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. File 1040ez online FMV Less Than Donor's Adjusted Basis If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. File 1040ez online Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustment to basis while you held the property. File 1040ez online Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property (see Adjusted Basis earlier). File 1040ez online If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and have a gain, you have neither gain nor loss on the sale or disposition of the property. File 1040ez online Example. File 1040ez online You received an acre of land as a gift. File 1040ez online At the time of the gift, the land had an FMV of $8,000. File 1040ez online The donor's adjusted basis was $10,000. File 1040ez online After you received the land, no events occurred to increase or decrease your basis. File 1040ez online If you sell the land for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis ($10,000) at the time of the gift as your basis to figure gain. File 1040ez online If you sell the land for $7,000, you will have a $1,000 loss because you must use the FMV ($8,000) at the time of the gift as your basis to figure a loss. File 1040ez online If the sales price is between $8,000 and $10,000, you have neither gain nor loss. File 1040ez online For instance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis ($10,000), you would get a $1,000 loss. File 1040ez online If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain. File 1040ez online Business property. File 1040ez online   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduction is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. File 1040ez online FMV Equal to or More Than Donor's Adjusted Basis If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. File 1040ez online Increase your basis by all or part of any gift tax paid, depending on the date of the gift. File 1040ez online Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis by any required adjustments to basis while you held the property. File 1040ez online See Adjusted Basis earlier. File 1040ez online Gift received before 1977. File 1040ez online   If you received a gift before 1977, increase your basis in the gift (the donor's adjusted basis) by any gift tax paid on it. File 1040ez online However, do not increase your basis above the FMV of the gift at the time it was given to you. File 1040ez online Example 1. File 1040ez online You were given a house in 1976 with an FMV of $21,000. File 1040ez online The donor's adjusted basis was $20,000. File 1040ez online The donor paid a gift tax of $500. File 1040ez online Your basis is $20,500, the donor's adjusted basis plus the gift tax paid. File 1040ez online Example 2. File 1040ez online If, in Example 1, the gift tax paid had been $1,500, your basis would be $21,000. File 1040ez online This is the donor's adjusted basis plus the gift tax paid, limited to the FMV of the house at the time you received the gift. File 1040ez online Gift received after 1976. File 1040ez online   If you received a gift after 1976, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. File 1040ez online Figure the increase by multiplying the gift tax paid by a fraction. File 1040ez online The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. File 1040ez online   The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. File 1040ez online The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. File 1040ez online For information on the gift tax, see Publication 950, Introduction to Estate and Gift Taxes. File 1040ez online Example. File 1040ez online In 2010, you received a gift of property from your mother that had an FMV of $50,000. File 1040ez online Her adjusted basis was $20,000. File 1040ez online The amount of the gift for gift tax purposes was $37,000 ($50,000 minus the $13,000 annual exclusion). File 1040ez online She paid a gift tax of $9,000. File 1040ez online Your basis, $27,290, is figured as follows: Fair market value $50,000 Minus: Adjusted basis 20,000 Net increase in value $30,000 Gift tax paid $9,000 Multiplied by ($30,000 ÷ $37,000) . File 1040ez online 81 Gift tax due to net increase in value $7,290 Adjusted basis of property to your mother 20,000 Your basis in the property $27,290 Inherited Property Special rules apply to property acquired from a decedent who died in 2010. File 1040ez online See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. File 1040ez online If you inherited property from a decedent who died before 2010, your basis in property you inherit from a decedent is generally one of the following. File 1040ez online The FMV of the property at the date of the individual's death. File 1040ez online The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. File 1040ez online For information on the alternate valuation date, see the Instructions for Form 706. File 1040ez online The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. File 1040ez online This method is discussed later. File 1040ez online The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. File 1040ez online For information on a qualified conservation easement, see the Instructions for Form 706. File 1040ez online If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. File 1040ez online For more information, see the Instructions for Form 706. File 1040ez online Appreciated property. File 1040ez online   The above rule does not apply to appreciated property you receive from a decedent if you or your spouse originally gave the property to the decedent within 1 year before the decedent's death. File 1040ez online Your basis in this property is the same as the decedent's adjusted basis in the property immediately before his or her death, rather than its FMV. File 1040ez online Appreciated property is any property whose FMV on the day it was given to the decedent is more than its adjusted basis. File 1040ez online Community Property In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. File 1040ez online When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. File 1040ez online For this rule to apply, at least half the value of the community property interest must be includable in the decedent's gross estate, whether or not the estate must file a return. File 1040ez online For example, you and your spouse owned community property that had a basis of $80,000. File 1040ez online When your spouse died, half the FMV of the community interest was includible in your spouse's estate. File 1040ez online The FMV of the community interest was $100,000. File 1040ez online The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). File 1040ez online The basis of the other half to your spouse's heirs is also $50,000. File 1040ez online For more information on community property, see Publication 555, Community Property. File 1040ez online Property Held by Surviving Tenant The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety. File 1040ez online Example. File 1040ez online John and Jim owned, as joint tenants with right of survivorship, business property they purchased for $30,000. File 1040ez online John furnished two-thirds of the purchase price and Jim furnished one-third. File 1040ez online Depreciation deductions allowed before John's death were $12,000. File 1040ez online Under local law, each had a half interest in the income from the property. File 1040ez online At the date of John's death, the property had an FMV of $60,000, two-thirds of which is includable in John's estate. File 1040ez online Jim figures his basis in the property at the date of John's death as follows: Interest Jim bought with his own funds—1/3 of $30,000 cost $10,000   Interest Jim received on John's death—2/3 of $60,000 FMV 40,000 $50,000 Minus: ½ of $12,000 depreciation before John's death 6,000 Jim's basis at the date of John's death $44,000 If Jim had not contributed any part of the purchase price, his basis at the date of John's death would be $54,000. File 1040ez online This is figured by subtracting from the $60,000 FMV, the $6,000 depreciation allocated to Jim's half interest before the date of death. File 1040ez online If under local law Jim had no interest in the income from the property and he contributed no part of the purchase price, his basis at John's death would be $60,000, the FMV of the property. File 1040ez online Qualified Joint Interest Include one-half of the value of a qualified joint interest in the decedent's gross estate. File 1040ez online It does not matter how much each spouse contributed to the purchase price. File 1040ez online Also, it does not matter which spouse dies first. File 1040ez online A qualified joint interest is any interest in property held by husband and wife as either of the following. File 1040ez online Tenants by the entirety, or Joint tenants with right of survivorship if husband and wife are the only joint tenants. File 1040ez online Basis. File 1040ez online   As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of your half of the property with certain adjustments. File 1040ez online Decrease the cost by any deductions allowed to you for depreciation and depletion. File 1040ez online Increase the reduced cost by your basis in the half you inherited. File 1040ez online Farm or Closely Held Business Under certain conditions, when a person dies the executor or personal representative of that person's estate can choose to value the qualified real property on other than its FMV. File 1040ez online If so, the executor or personal representative values the qualified real property based on its use as a farm or its use in a closely held business. File 1040ez online If the executor or personal representative chooses this method of valuation for estate tax purposes, that value is the basis of the property for the heirs. File 1040ez online Qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. File 1040ez online Special-use valuation. File 1040ez online   If you are a qualified heir who received special-use valuation property, your basis in the property is the estate's or trust's basis in that property immediately before the distribution. File 1040ez online Increase your basis by any gain recognized by the estate or trust because of post-death appreciation. File 1040ez online Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or the alternate valuation date. File 1040ez online Figure all FMVs without regard to the special-use valuation. File 1040ez online   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. File 1040ez online This tax is assessed if, within 10 years after the death of the decedent, you transfer the property to a person who is not a member of your family or the property stops being used as a farm or in a closely held business. File 1040ez online   To increase your basis in the property, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of the payment of the additional estate tax. File 1040ez online If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. File 1040ez online The increase in your basis is considered to have occurred immediately before the event that results in the additional estate tax. File 1040ez online   You make the election by filing with Form 706-A a statement that does all of the following. File 1040ez online Contains your name, address, and taxpayer identification number and those of the estate; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which the election is made; and Provides any additional information required by the Instructions for Form 706-A. File 1040ez online   For more information, see the Instructions for Form 706 and the Instructions for Form 706-A. File 1040ez online Property Changed to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. File 1040ez online An example of changing property held for personal use to business use would be renting out your former main home. File 1040ez online Basis for depreciation. File 1040ez online   The basis for depreciation is the lesser of the following amounts. File 1040ez online The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. File 1040ez online Example. File 1040ez online Several years ago you paid $160,000 to have your home built on a lot that cost $25,000. File 1040ez online You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. File 1040ez online Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. File 1040ez online Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). File 1040ez online On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. File 1040ez online The basis for figuring depreciation on the house is its FMV on the date of change ($165,000) because it is less than your adjusted basis ($178,000). File 1040ez online Sale of property. File 1040ez online   If you later sell or dispose of property changed to business or rental use, the basis of the property you use will depend on whether you are figuring gain or loss. File 1040ez online Gain. File 1040ez online   The basis for figuring a gain is your adjusted basis when you sell the property. File 1040ez online Example. File 1040ez online Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. File 1040ez online Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). File 1040ez online Loss. File 1040ez online   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. File 1040ez online Then adjust this amount for the period after the change in the property's use, as discussed earlier under Adjusted Basis, to arrive at a basis for loss. File 1040ez online Example. File 1040ez online Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. File 1040ez online In this case, you would start with the FMV on the date of the change to rental use ($180,000) because it is less than the adjusted basis of $203,000 ($178,000 + $25,000) on that date. File 1040ez online Reduce that amount ($180,000) by the depreciation deductions to arrive at a basis for loss of $142,500 ($180,000 − $37,500). File 1040ez online How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. File 1040ez online By selecting the method that is best for you, you will have quick and easy access to tax help. File 1040ez online Contacting your Taxpayer Advocate. File 1040ez online   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. File 1040ez online We help taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving tax problems with the IRS; and those who believe that an IRS system or procedure is not working as it should. File 1040ez online Here are seven things every taxpayer should know about TAS. File 1040ez online TAS is your voice at the IRS. File 1040ez online Our service is free, confidential, and tailored to meet your needs. File 1040ez online You may be eligible for our help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should. File 1040ez online We help taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. File 1040ez online This includes businesses as well as individuals. File 1040ez online Our employees know the IRS and how to navigate it. File 1040ez online If you qualify for our help, we'll assign your case to an advocate who will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved. File 1040ez online We have at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. File 1040ez online You can call your local advocate, whose number is in your phone book, in Publication 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www. File 1040ez online irs. File 1040ez online gov/advocate. File 1040ez online You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059. File 1040ez online You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www. File 1040ez online taxtoolkit. File 1040ez online irs. File 1040ez online gov. File 1040ez online You can get updates on hot tax topics by visiting our YouTube channel at www. File 1040ez online youtube. File 1040ez online com/tasnta and our Facebook page at www. File 1040ez online facebook. File 1040ez online com/YourVoiceAtIRS, or by following our tweets at www. File 1040ez online twitter. File 1040ez online com/YourVoiceAtIRS. File 1040ez online Low Income Taxpayer Clinics (LITCs). File 1040ez online   The Low Income Taxpayer Clinic program serves individuals who have a problem with the IRS and whose income is below a certain level. File 1040ez online LITCs are independent from the IRS. File 1040ez online Most LITCs can provide representation before the IRS or in court on audits, tax collection disputes, and other issues for free or a small fee. File 1040ez online If an individual's native language is not English, some clinics can provide multilingual information about taxpayer rights and responsibilities. File 1040ez online For more information, see Publication 4134, Low Income Taxpayer Clinic List. File 1040ez online This publication is available at IRS. File 1040ez online gov, by calling 1-800-TAX-FORM (1-800-829-3676), or at your local IRS office. File 1040ez online Free tax services. File 1040ez online   Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. File 1040ez online Learn about free tax information from the IRS, including publications, services, and education and assistance programs. File 1040ez online The publication also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on the telephone. File 1040ez online The majority of the information and services listed in this publication are available to you free of charge. File 1040ez online If there is a fee associated with a resource or service, it is listed in the publication. File 1040ez online   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with d
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Consider These Factors

There are many types of credit cards with various features, but there is no one best credit card. The card you use depends entirely on how you plan to use it. Are you going to use it for everyday purchases or larger purchases? Do you plan to pay your balance off each month?When you apply for a credit card, consider:

  • The Annual Percentage Rate (APR). If the interest rate is variable, how is it determined and when can it change?
  • Periodic rate. This is the interest rate used to determine the finance charge on your balance each billing period.
  • Annual fee. While some cards have no annual fee, others expect you to pay an amount each year for being a cardholder.
  • Rewards programs. Can you earn points for flights, hotel stays, and gift certificates to your favorite retailers? Use online tools to find the card that offers the best rewards for you.
  • Grace period. This is the number of days you have to pay your bill before finance charges start. Without this period, you may have to pay interest from the date you use your card or when the purchase is posted to your account.
  • Finance charges. Most lenders calculate finance charges using an average daily account balance, which is the average of what you owed each day in the billing cycle. Look for offers that use an adjusted balance, which subtracts your monthly payment from your beginning balance. This method usually has the lowest finance charges. Stay away from offers that use the previous balance in calculating what you owe; this method has the highest finance charge. Also don't forget to check if there is a minimum finance charge.
  • Swipe fees. Some credit card companies may allow individual retailers to set and charge a fee when you swipe your credit card.
  • Other fees. Ask about fees when you get a cash advance, make a late payment, or go over your credit limit. Some credit card companies also charge a monthly fee. Be careful: sometimes companies may also try to upsell by offering other services such as credit protection, insurance, or debt coverage. The Federal Reserve has more information about credit card fees.

The Fair Credit and Charge Card Disclosure Act require credit and charge card issuers to include this information on credit applications. The Federal Trade Commission (FTC) offers a wide range of free publications on credit and consumer rights. The Federal Reserve Board provides a free brochure on choosing a credit card and a guide to credit protection laws.

Lost and Stolen Credit Cards

Immediately call the card issuer when you suspect a credit or charge card has been lost or stolen. Once you report the loss or theft of a card, you have no further responsibility for unauthorized charges. In any event, your maximum liability under federal law is $50 per card.

By federal law, once you report the loss or theft of a card, you have no further responsibility for unauthorized charges. In any event, your maximum liability under federal law is $50 per card.

The File 1040ez Online

File 1040ez online Car Expenses Table of Contents Introduction Depreciation of CarSpecial Depreciation Allowance Depreciation Limit Amended Return Election Not To Claim Special Allowance If you purchased a car after September 10, 2001, for use in your business (or as an employee) and figure your deductible expenses using the actual car expense method, new law contains provisions that may affect your depreciation deduction for that car. File 1040ez online Publication 463, Travel, Entertainment, Gift, and Car Expenses, contains information on figuring depreciation on your car. File 1040ez online However, Publication 463 does not contain the new provisions because it was printed before the law was enacted. File 1040ez online The new provisions are in the Supplement to Publication 463, which is reprinted below. File 1040ez online Supplement to Publication 463 Travel, Entertainment, Gift, and Car Expenses   Introduction This supplemental publication is for taxpayers who purchased a car for business purposes after September 10, 2001, and figure their deductible expenses, including a deduction for depreciation, using the actual car expense method. File 1040ez online After Publication 463 was printed, the Job Creation and Worker Assistance Act of 2002 was signed into law by the President. File 1040ez online Certain provisions of this new law may reduce your taxes for 2001. File 1040ez online The new law contains the following provisions. File 1040ez online A new depreciation deduction, the special depreciation allowance. File 1040ez online An increase in the limit on depreciation for any car for which you claim the new special depreciation allowance. File 1040ez online If you have already filed your 2001 return, you may wish to file an amended return to claim any of these benefits. File 1040ez online See Amended Return, later. File 1040ez online Depreciation of Car If you used the actual car expense method to figure your deduction for a car you own and use in your business (or as an employee), you generally can claim a depreciation deduction. File 1040ez online However, there is a limit on the depreciation deduction you can take for your car each year. File 1040ez online See Depreciation Limit later. File 1040ez online Special Depreciation Allowance The new law allows you to claim a special depreciation allowance. File 1040ez online This special allowance is a deduction equal to 30% of the depreciable basis of qualified property. File 1040ez online You figure the amount of the special depreciation allowance after any section 179 deduction you choose to claim, but before figuring your regular depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS). File 1040ez online See Depreciation Deduction under Actual Car Expenses in chapter 4 of Publication 463 for information about MACRS. File 1040ez online You can claim the special depreciation allowance only for the year the qualified property is placed in service. File 1040ez online Qualified property. File 1040ez online   Qualified property includes a car (any four-wheeled vehicle, including a truck or van not more than 6,000 pounds, that is made primarily for use on public streets, roads, and highways) that meets all of the following requirements. File 1040ez online You bought it new. File 1040ez online You bought it after September 10, 2001. File 1040ez online (But a car is not qualified property if a binding written contract for you to buy the car was in effect before September 11, 2001. File 1040ez online ) You began using it for business after September 10, 2001, and used it more than 50% in a qualified business use. File 1040ez online Example. File 1040ez online Bob bought a new car on October 15, 2001, for $20,000 and placed it in service immediately, using it 75% for business. File 1040ez online Bob's car is qualified property. File 1040ez online Bob chooses not to take a section 179 deduction for the car. File 1040ez online He does claim the new special depreciation allowance. File 1040ez online Bob first must figure the car's depreciable basis, which is $15,000 ($20,000 × . File 1040ez online 75). File 1040ez online He then figures the special depreciation allowance of $4,500 ($15,000 × . File 1040ez online 30). File 1040ez online The remaining depreciable basis of $10,500 ($15,000 - $4,500) is depreciated using MACRS (200% declining balance method, half-year convention) and results in a deduction of $2,100 ($10,500 × . File 1040ez online 20), for a total depreciation deduction for 2001 of $6,600 ($4,500 + $2,100). File 1040ez online However, Bob's depreciation deduction is limited to $5,745 ($7,660 × . File 1040ez online 75), as discussed next. File 1040ez online Depreciation Limit The limit on your depreciation deduction for 2001 is increased to $7,660 for a car that is qualified property (defined above) and for which you claim the special depreciation allowance. File 1040ez online The limit is increased to $23,080 if the car is an electric car. File 1040ez online The section 179 deduction is treated as depreciation for purposes of this limit. File 1040ez online If you use a car less than 100% in your business or work, the limit is $7,660 (or $23,080 for an electric car) multiplied by the percentage of business and investment use during the year. File 1040ez online For cars that do not qualify for (or for which you choose not to claim) the special depreciation allowance, the limit remains $3,060 ($9,280 for electric cars). File 1040ez online Amended Return If you filed your 2001 calendar year return before June 1, 2002, and did not claim the new special depreciation allowance for a qualified car, you can claim it by filing an amended return on Form 1040X, Amended U. File 1040ez online S. File 1040ez online Individual Income Tax Return, by April 15, 2003. File 1040ez online At the top of the Form 1040X, print “Filed pursuant to Revenue Procedure 2002–33. File 1040ez online ” If you are an employee, attach Form 2106, Employee Business Expenses (revised March 2002). File 1040ez online If you are self-employed, attach Form 4562, Depreciation and Amortization (revised March 2002). File 1040ez online Or, you can claim the special depreciation allowance by filing Form 3115, Application for Change in Accounting Method, with your 2002 return. File 1040ez online For details, see Revenue Procedure 2002–33. File 1040ez online (But, filing Form 1040X for 2001 enables you to claim the special allowance earlier than attaching Form 3115 to your 2002 return. File 1040ez online ) You cannot claim the special depreciation allowance on an amended return (or by using Form 3115) if you made, or are treated as having made, the election not to claim it described later. File 1040ez online Example. File 1040ez online The facts are the same as in the previous example except that Bob filed his original 2001 income tax return on April 15, 2002, and claimed a $3,000 ($20,000 x . File 1040ez online 75 x . File 1040ez online 20) depreciation deduction for his new car using MACRS. File 1040ez online Bob now wishes to claim the special depreciation allowance for his new car on an amended 2001 return. File 1040ez online Bob, who is an employee, files Form 1040X, by April 15, 2003, with an updated Form 2106 (revised March 2002) attached, increasing his total depreciation deduction to $5,745, as figured in the earlier example. File 1040ez online Bob's new filled-in Form 2106 is shown later. File 1040ez online Election Not To Claim Special Allowance You can elect not to claim the special depreciation allowance for a car by making a statement attached to, or written on, your return indicating that you are electing not to claim the special depreciation allowance for 5-year property. File 1040ez online As a general rule, you must make this election by the due date (including extensions) of your return. File 1040ez online You can have an automatic extension of 6 months from the due date of your return (excluding extensions) to make the election with an amended return. File 1040ez online To get this extension, you must have filed your original return by the due date (including extensions). File 1040ez online At the top of the statement, print “Filed pursuant to section 301. File 1040ez online 9100–2. File 1040ez online ” If you elect not to claim the special depreciation allowance for a car, you cannot claim it for any other 5-year property placed in service during the same year. File 1040ez online Unless you elect (or are treated as electing) not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. File 1040ez online Deemed election for return filed before June 1, 2002. File 1040ez online   If you did not make the election not to claim the special depreciation allowance in the time and manner described above, you will still be treated as electing not to claim it if all of the following apply. File 1040ez online You filed your 2001 return before June 1, 2002. File 1040ez online You claimed depreciation on your return but did not claim the special depreciation allowance. File 1040ez online You did not file an amended 2001 return by April 15, 2003, or a Form 3115 with your 2002 return, to claim the special depreciation allowance. File 1040ez online Form 2106, Page 1, for Bob Smith Form 2106, Page 2, for Bob Smith Prev  Up  Next   Home   More Online Publications