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Filing Taxes 2014

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Filing Taxes 2014

Filing taxes 2014 4. Filing taxes 2014   Interest Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Allocation of InterestOrder of funds spent. Filing taxes 2014 Payments from checking accounts. Filing taxes 2014 Amounts paid within 30 days. Filing taxes 2014 Optional method for determining date of reallocation. Filing taxes 2014 Interest on a segregated account. Filing taxes 2014 How to report. Filing taxes 2014 Interest You Can DeductStatement. Filing taxes 2014 Expenses paid to obtain a mortgage. Filing taxes 2014 Prepayment penalty. Filing taxes 2014 De minimis OID. Filing taxes 2014 Constant-yield method. Filing taxes 2014 Loan or mortgage ends. Filing taxes 2014 Interest You Cannot DeductPenalties. Filing taxes 2014 Who is a key person? Exceptions for pre-June 1997 contracts. Filing taxes 2014 Interest allocated to unborrowed policy cash value. Filing taxes 2014 Capitalization of Interest When To Deduct InterestPrepaid interest. Filing taxes 2014 Discounted loan. Filing taxes 2014 Refunds of interest. Filing taxes 2014 Prepaid interest. Filing taxes 2014 Discounted loan. Filing taxes 2014 Tax deficiency. Filing taxes 2014 Related person. Filing taxes 2014 Below-Market LoansLimit on forgone interest for gift loans of $100,000 or less. Filing taxes 2014 Introduction This chapter discusses the tax treatment of business interest expense. Filing taxes 2014 Business interest expense is an amount charged for the use of money you borrowed for business activities. Filing taxes 2014 Topics - This chapter discusses: Allocation of interest Interest you can deduct Interest you cannot deduct Capitalization of interest When to deduct interest Below-market loans Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch E (Form 1040) Supplemental Income and Loss Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Filing taxes 2014 Sch K-1 (Form 1120S) Shareholder's Share of Income, Deductions, Credits, etc. Filing taxes 2014 1098 Mortgage Interest Statement 3115 Application for Change in Accounting Method 4952 Investment Interest Expense Deduction 8582 Passive Activity Loss Limitations See chapter 12 for information about getting publications and forms. Filing taxes 2014 Allocation of Interest The rules for deducting interest vary, depending on whether the loan proceeds are used for business, personal, or investment activities. Filing taxes 2014 If you use the proceeds of a loan for more than one type of expense, you must allocate the interest based on the use of the loan's proceeds. Filing taxes 2014 Allocate your interest expense to the following categories. Filing taxes 2014 Nonpassive trade or business activity interest Passive trade or business activity interest Investment interest Portfolio interest Personal interest In general, you allocate interest on a loan the same way you allocate the loan proceeds. Filing taxes 2014 You allocate loan proceeds by tracing disbursements to specific uses. Filing taxes 2014 The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. Filing taxes 2014 Secured loan. Filing taxes 2014   The allocation of loan proceeds and the related interest is not generally affected by the use of property that secures the loan. Filing taxes 2014 Example. Filing taxes 2014 You secure a loan with property used in your business. Filing taxes 2014 You use the loan proceeds to buy an automobile for personal use. Filing taxes 2014 You must allocate interest expense on the loan to personal use (purchase of the automobile) even though the loan is secured by business property. Filing taxes 2014    If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. Filing taxes 2014 The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. Filing taxes 2014 For more information, see Publication 936. Filing taxes 2014 Allocation period. Filing taxes 2014   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. Filing taxes 2014 The date the loan is repaid. Filing taxes 2014 The date the loan is reallocated to another use. Filing taxes 2014 Proceeds not disbursed to borrower. Filing taxes 2014   Even if the lender disburses the loan proceeds to a third party, the allocation of the loan is still based on your use of the funds. Filing taxes 2014 This applies whether you pay for property, services, or anything else by incurring a loan, or you take property subject to a debt. Filing taxes 2014 Proceeds deposited in borrower's account. Filing taxes 2014   Treat loan proceeds deposited in an account as property held for investment. Filing taxes 2014 It does not matter whether the account pays interest. Filing taxes 2014 Any interest you pay on the loan is investment interest expense. Filing taxes 2014 If you withdraw the proceeds of the loan, you must reallocate the loan based on the use of the funds. Filing taxes 2014 Example. Filing taxes 2014 Celina, a calendar-year taxpayer, borrows $100,000 on January 4 and immediately uses the proceeds to open a checking account. Filing taxes 2014 No other amounts are deposited in the account during the year and no part of the loan principal is repaid during the year. Filing taxes 2014 On April 2, Celina uses $20,000 from the checking account for a passive activity expenditure. Filing taxes 2014 On September 4, Celina uses an additional $40,000 from the account for personal purposes. Filing taxes 2014 Under the interest allocation rules, the entire $100,000 loan is treated as property held for investment for the period from January 4 through April 1. Filing taxes 2014 From April 2 through September 3, Celina must treat $20,000 of the loan as used in the passive activity and $80,000 of the loan as property held for investment. Filing taxes 2014 From September 4 through December 31, she must treat $40,000 of the loan as used for personal purposes, $20,000 as used in the passive activity, and $40,000 as property held for investment. Filing taxes 2014 Order of funds spent. Filing taxes 2014   Generally, you treat loan proceeds deposited in an account as used (spent) before either of the following amounts. Filing taxes 2014 Any unborrowed amounts held in the same account. Filing taxes 2014 Any amounts deposited after these loan proceeds. Filing taxes 2014 Example. Filing taxes 2014 On January 9, Olena opened a checking account, depositing $500 of the proceeds of Loan A and $1,000 of unborrowed funds. Filing taxes 2014 The following table shows the transactions in her account during the tax year. Filing taxes 2014 Date Transaction January 9 $500 proceeds of Loan A and $1,000 unborrowed funds deposited January 14 $500 proceeds of Loan B  deposited February 19 $800 used for personal purposes February 27 $700 used for passive activity June 19 $1,000 proceeds of Loan C  deposited November 20 $800 used for an investment December 18 $600 used for personal purposes Olena treats the $800 used for personal purposes as made from the $500 proceeds of Loan A and $300 of the proceeds of Loan B. Filing taxes 2014 She treats the $700 used for a passive activity as made from the remaining $200 proceeds of Loan B and $500 of unborrowed funds. Filing taxes 2014 She treats the $800 used for an investment as made entirely from the proceeds of Loan C. Filing taxes 2014 She treats the $600 used for personal purposes as made from the remaining $200 proceeds of Loan C and $400 of unborrowed funds. Filing taxes 2014 For the periods during which loan proceeds are held in the account, Olena treats them as property held for investment. Filing taxes 2014 Payments from checking accounts. Filing taxes 2014   Generally, you treat a payment from a checking or similar account as made at the time the check is written if you mail or deliver it to the payee within a reasonable period after you write it. Filing taxes 2014 You can treat checks written on the same day as written in any order. Filing taxes 2014 Amounts paid within 30 days. Filing taxes 2014   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. Filing taxes 2014 This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. Filing taxes 2014   If the loan proceeds are deposited in an account, you can apply this rule even if the rules stated earlier under Order of funds spent would otherwise require you to treat the proceeds as used for other purposes. Filing taxes 2014 If you apply this rule to any payments, disregard those payments (and the proceeds from which they are made) when applying the rules stated under Order of funds spent. Filing taxes 2014   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. Filing taxes 2014 Example. Filing taxes 2014 Giovanni gets a loan of $1,000 on August 4 and receives the proceeds in cash. Filing taxes 2014 Giovanni deposits $1,500 in an account on August 18 and on August 28 writes a check on the account for a passive activity expense. Filing taxes 2014 Also, Giovanni deposits his paycheck, deposits other loan proceeds, and pays his bills during the same period. Filing taxes 2014 Regardless of these other transactions, Giovanni can treat $1,000 of the deposit he made on August 18 as being paid on August 4 from the loan proceeds. Filing taxes 2014 In addition, Giovanni can treat the passive activity expense he paid on August 28 as made from the $1,000 loan proceeds treated as deposited in the account. Filing taxes 2014 Optional method for determining date of reallocation. Filing taxes 2014   You can use the following method to determine the date loan proceeds are reallocated to another use. Filing taxes 2014 You can treat all payments from loan proceeds in the account during any month as taking place on the later of the following dates. Filing taxes 2014 The first day of that month. Filing taxes 2014 The date the loan proceeds are deposited in the account. Filing taxes 2014 However, you can use this optional method only if you treat all payments from the account during the same calendar month in the same way. Filing taxes 2014 Interest on a segregated account. Filing taxes 2014   If you have an account that contains only loan proceeds and interest earned on the account, you can treat any payment from that account as being made first from the interest. Filing taxes 2014 When the interest earned is used up, any remaining payments are from loan proceeds. Filing taxes 2014 Example. Filing taxes 2014 You borrowed $20,000 and used the proceeds of this loan to open a new savings account. Filing taxes 2014 When the account had earned interest of $867, you withdrew $20,000 for personal purposes. Filing taxes 2014 You can treat the withdrawal as coming first from the interest earned on the account, $867, and then from the loan proceeds, $19,133 ($20,000 − $867). Filing taxes 2014 All the interest charged on the loan from the time it was deposited in the account until the time of the withdrawal is investment interest expense. Filing taxes 2014 The interest charged on the part of the proceeds used for personal purposes ($19,133) from the time you withdrew it until you either repay it or reallocate it to another use is personal interest expense. Filing taxes 2014 The interest charged on the loan proceeds you left in the account ($867) continues to be investment interest expense until you either repay it or reallocate it to another use. Filing taxes 2014 Loan repayment. Filing taxes 2014   When you repay any part of a loan allocated to more than one use, treat it as being repaid in the following order. Filing taxes 2014 Personal use. Filing taxes 2014 Investments and passive activities (other than those included in (3)). Filing taxes 2014 Passive activities in connection with a rental real estate activity in which you actively participate. Filing taxes 2014 Former passive activities. Filing taxes 2014 Trade or business use and expenses for certain low-income housing projects. Filing taxes 2014 Line of credit (continuous borrowings). Filing taxes 2014   The following rules apply if you have a line of credit or similar arrangement. Filing taxes 2014 Treat all borrowed funds on which interest accrues at the same fixed or variable rate as a single loan. Filing taxes 2014 Treat borrowed funds or parts of borrowed funds on which interest accrues at different fixed or variable rates as different loans. Filing taxes 2014 Treat these loans as repaid in the order shown on the loan agreement. Filing taxes 2014 Loan refinancing. Filing taxes 2014   Allocate the replacement loan to the same uses to which the repaid loan was allocated. Filing taxes 2014 Make the allocation only to the extent you use the proceeds of the new loan to repay any part of the original loan. Filing taxes 2014 Debt-financed distribution. Filing taxes 2014   A debt-financed distribution occurs when a partnership or S corporation borrows funds and allocates those funds to distributions made to partners or shareholders. Filing taxes 2014 The manner in which you report the interest expense associated with the distributed debt proceeds depends on your use of those proceeds. Filing taxes 2014 How to report. Filing taxes 2014   If the proceeds were used in a nonpassive trade or business activity, report the interest on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership or S corporation in column (a) and the amount in column (h). Filing taxes 2014 If the proceeds were used in a passive activity, follow the Instructions for Form 8582, Passive Activity Loss Limitations, to determine the amount of interest expense that can be reported on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership in column (a) and the amount in column (f). Filing taxes 2014 If the proceeds were used in an investment activity, enter the interest on Form 4952. Filing taxes 2014 If the proceeds are used for personal purposes, the interest is generally not deductible. Filing taxes 2014 Interest You Can Deduct You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your trade or business. Filing taxes 2014 Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. Filing taxes 2014 It does not matter what type of property secures the loan. Filing taxes 2014 You can deduct interest on a debt only if you meet all the following requirements. Filing taxes 2014 You are legally liable for that debt. Filing taxes 2014 Both you and the lender intend that the debt be repaid. Filing taxes 2014 You and the lender have a true debtor-creditor relationship. Filing taxes 2014 Partial liability. Filing taxes 2014   If you are liable for part of a business debt, you can deduct only your share of the total interest paid or accrued. Filing taxes 2014 Example. Filing taxes 2014 You and your brother borrow money. Filing taxes 2014 You are liable for 50% of the note. Filing taxes 2014 You use your half of the loan in your business, and you make one-half of the loan payments. Filing taxes 2014 You can deduct your half of the total interest payments as a business deduction. Filing taxes 2014 Mortgage. Filing taxes 2014   Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible. Filing taxes 2014 However, rather than deducting the interest currently, you may have to add it to the cost basis of the property as explained later under Capitalization of Interest. Filing taxes 2014 Statement. Filing taxes 2014   If you paid $600 or more of mortgage interest (including certain points) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement. Filing taxes 2014 You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. Filing taxes 2014 A governmental unit is a person for purposes of furnishing the statement. Filing taxes 2014   If you receive a refund of interest you overpaid in an earlier year, this amount will be reported in box 3 of Form 1098. Filing taxes 2014 You cannot deduct this amount. Filing taxes 2014 For information on how to report this refund, see Refunds of interest, later in this chapter. Filing taxes 2014 Expenses paid to obtain a mortgage. Filing taxes 2014   Certain expenses you pay to obtain a mortgage cannot be deducted as interest. Filing taxes 2014 These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. Filing taxes 2014 If the property mortgaged is business or income-producing property, you can amortize the costs over the life of the mortgage. Filing taxes 2014 Prepayment penalty. Filing taxes 2014   If you pay off your mortgage early and pay the lender a penalty for doing this, you can deduct the penalty as interest. Filing taxes 2014 Interest on employment tax deficiency. Filing taxes 2014   Interest charged on employment taxes assessed on your business is deductible. Filing taxes 2014 Original issue discount (OID). Filing taxes 2014   OID is a form of interest. Filing taxes 2014 A loan (mortgage or other debt) generally has OID when its proceeds are less than its principal amount. Filing taxes 2014 The OID is the difference between the stated redemption price at maturity and the issue price of the loan. Filing taxes 2014   A loan's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on it other than qualified stated interest. Filing taxes 2014 Qualified stated interest is stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a single fixed rate. Filing taxes 2014 You generally deduct OID over the term of the loan. Filing taxes 2014 Figure the amount to deduct each year using the constant-yield method, unless the OID on the loan is de minimis. Filing taxes 2014 De minimis OID. Filing taxes 2014   The OID is de minimis if it is less than one-fourth of 1% (. Filing taxes 2014 0025) of the stated redemption price of the loan at maturity multiplied by the number of full years from the date of original issue to maturity (the term of the loan). Filing taxes 2014   If the OID is de minimis, you can choose one of the following ways to figure the amount you can deduct each year. Filing taxes 2014 On a constant-yield basis over the term of the loan. Filing taxes 2014 On a straight-line basis over the term of the loan. Filing taxes 2014 In proportion to stated interest payments. Filing taxes 2014 In its entirety at maturity of the loan. Filing taxes 2014 You make this choice by deducting the OID in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. Filing taxes 2014 Example. Filing taxes 2014 On January 1, 2013, you took out a $100,000 discounted loan and received $98,500 in proceeds. Filing taxes 2014 The loan will mature on January 1, 2023 (a 10-year term), and the $100,000 principal is payable on that date. Filing taxes 2014 Interest of $10,000 is payable on January 1 of each year, beginning January 1, 2014. Filing taxes 2014 The $1,500 OID on the loan is de minimis because it is less than $2,500 ($100,000 × . Filing taxes 2014 0025 × 10). Filing taxes 2014 You choose to deduct the OID on a straight-line basis over the term of the loan. Filing taxes 2014 Beginning in 2013, you can deduct $150 each year for 10 years. Filing taxes 2014 Constant-yield method. Filing taxes 2014   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Filing taxes 2014 You figure your deduction for the first year using the following steps. Filing taxes 2014 Determine the issue price of the loan. Filing taxes 2014 Generally, this equals the proceeds of the loan. Filing taxes 2014 If you paid points on the loan (as discussed later), the issue price generally is the difference between the proceeds and the points. Filing taxes 2014 Multiply the result in (1) by the yield to maturity. Filing taxes 2014 Subtract any qualified stated interest payments from the result in (2). Filing taxes 2014 This is the OID you can deduct in the first year. Filing taxes 2014   To figure your deduction in any subsequent year, follow the above steps, except determine the adjusted issue price in step (1). Filing taxes 2014 To get the adjusted issue price, add to the issue price any OID previously deducted. Filing taxes 2014 Then follow steps (2) and (3) above. Filing taxes 2014   The yield to maturity is generally shown in the literature you receive from your lender. Filing taxes 2014 If you do not have this information, consult your lender or tax advisor. Filing taxes 2014 In general, the yield to maturity is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. Filing taxes 2014 Example. Filing taxes 2014 The facts are the same as in the previous example, except that you deduct the OID on a constant yield basis over the term of the loan. Filing taxes 2014 The yield to maturity on your loan is 10. Filing taxes 2014 2467%, compounded annually. Filing taxes 2014 For 2013, you can deduct $93 [($98,500 × . Filing taxes 2014 102467) − $10,000]. Filing taxes 2014 For 2014, you can deduct $103 [($98,593 × . Filing taxes 2014 102467) − $10,000]. Filing taxes 2014 Loan or mortgage ends. Filing taxes 2014   If your loan or mortgage ends, you may be able to deduct any remaining OID in the tax year in which the loan or mortgage ends. Filing taxes 2014 A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Filing taxes 2014 If you refinance with the original lender, you generally cannot deduct the remaining OID in the year in which the refinancing occurs, but you may be able to deduct it over the term of the new mortgage or loan. Filing taxes 2014 See Interest paid with funds borrowed from original lender under Interest You Cannot Deduct, later. Filing taxes 2014 Points. Filing taxes 2014   The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a loan or a mortgage. Filing taxes 2014 These charges are also called loan origination fees, maximum loan charges, discount points, or premium charges. Filing taxes 2014 If any of these charges (points) are solely for the use of money, they are interest. Filing taxes 2014   Because points are prepaid interest, you generally cannot deduct the full amount in the year paid. Filing taxes 2014 However, you can choose to fully deduct points in the year paid if you meet certain tests. Filing taxes 2014 For exceptions to the general rule, see Publication 936. Filing taxes 2014 The points reduce the issue price of the loan and result in original issue discount (OID), deductible as explained in the preceding discussion. Filing taxes 2014 Partial payments on a nontax debt. Filing taxes 2014   If you make partial payments on a debt (other than a debt owed the IRS), the payments are applied, in general, first to interest and any remainder to principal. Filing taxes 2014 You can deduct only the interest. Filing taxes 2014 This rule does not apply when it can be inferred that the borrower and lender understood that a different allocation of the payments would be made. Filing taxes 2014 Installment purchase. Filing taxes 2014   If you make an installment purchase of business property, the contract between you and the seller generally provides for the payment of interest. Filing taxes 2014 If no interest or a low rate of interest is charged under the contract, a portion of the stated principal amount payable under the contract may be recharacterized as interest (unstated interest). Filing taxes 2014 The amount recharacterized as interest reduces your basis in the property and increases your interest expense. Filing taxes 2014 For more information on installment sales and unstated interest, see Publication 537. Filing taxes 2014 Interest You Cannot Deduct Certain interest payments cannot be deducted. Filing taxes 2014 In addition, certain other expenses that may seem to be interest but are not, cannot be deducted as interest. Filing taxes 2014 You cannot currently deduct interest that must be capitalized, and you generally cannot deduct personal interest. Filing taxes 2014 Interest paid with funds borrowed from original lender. Filing taxes 2014   If you use the cash method of accounting, you cannot deduct interest you pay with funds borrowed from the original lender through a second loan, an advance, or any other arrangement similar to a loan. Filing taxes 2014 You can deduct the interest expense once you start making payments on the new loan. Filing taxes 2014   When you make a payment on the new loan, you first apply the payment to interest and then to the principal. Filing taxes 2014 All amounts you apply to the interest on the first loan are deductible, along with any interest you pay on the second loan, subject to any limits that apply. Filing taxes 2014 Capitalized interest. Filing taxes 2014   You cannot currently deduct interest you are required to capitalize under the uniform capitalization rules. Filing taxes 2014 See Capitalization of Interest, later. Filing taxes 2014 In addition, if you buy property and pay interest owed by the seller (for example, by assuming the debt and any interest accrued on the property), you cannot deduct the interest. Filing taxes 2014 Add this interest to the basis of the property. Filing taxes 2014 Commitment fees or standby charges. Filing taxes 2014   Fees you incur to have business funds available on a standby basis, but not for the actual use of the funds, are not deductible as interest payments. Filing taxes 2014 You may be able to deduct them as business expenses. Filing taxes 2014   If the funds are for inventory or certain property used in your business, the fees are indirect costs and you generally must capitalize them under the uniform capitalization rules. Filing taxes 2014 See Capitalization of Interest, later. Filing taxes 2014 Interest on income tax. Filing taxes 2014   Interest charged on income tax assessed on your individual income tax return is not a business deduction even though the tax due is related to income from your trade or business. Filing taxes 2014 Treat this interest as a business deduction only in figuring a net operating loss deduction. Filing taxes 2014 Penalties. Filing taxes 2014   Penalties on underpaid deficiencies and underpaid estimated tax are not interest. Filing taxes 2014 You cannot deduct them. Filing taxes 2014 Generally, you cannot deduct any fines or penalties. Filing taxes 2014 Interest on loans with respect to life insurance policies. Filing taxes 2014   You generally cannot deduct interest on a debt incurred with respect to any life insurance, annuity, or endowment contract that covers any individual unless that individual is a key person. Filing taxes 2014   If the policy or contract covers a key person, you can deduct the interest on up to $50,000 of debt for that person. Filing taxes 2014 However, the deduction for any month cannot be more than the interest figured using Moody's Composite Yield on Seasoned Corporate Bonds (formerly known as Moody's Corporate Bond Yield Average-Monthly Average Corporates) (Moody's rate) for that month. Filing taxes 2014 Who is a key person?   A key person is an officer or 20% owner. Filing taxes 2014 However, the number of individuals you can treat as key persons is limited to the greater of the following. Filing taxes 2014 Five individuals. Filing taxes 2014 The lesser of 5% of the total officers and employees of the company or 20 individuals. Filing taxes 2014 Exceptions for pre-June 1997 contracts. Filing taxes 2014   You can generally deduct the interest if the contract was issued before June 9, 1997, and the covered individual is someone other than an employee, officer, or someone financially interested in your business. Filing taxes 2014 If the contract was purchased before June 21, 1986, you can generally deduct the interest no matter who is covered by the contract. Filing taxes 2014 Interest allocated to unborrowed policy cash value. Filing taxes 2014   Corporations and partnerships generally cannot deduct any interest expense allocable to unborrowed cash values of life insurance, annuity, or endowment contracts. Filing taxes 2014 This rule applies to contracts issued after June 8, 1997, that cover someone other than an officer, director, employee, or 20% owner. Filing taxes 2014 For more information, see section 264(f) of the Internal Revenue Code. Filing taxes 2014 Capitalization of Interest Under the uniform capitalization rules, you generally must capitalize interest on debt equal to your expenditures to produce real property or certain tangible personal property. Filing taxes 2014 The property must be produced by you for use in your trade or business or for sale to customers. Filing taxes 2014 You cannot capitalize interest related to property that you acquire in any other manner. Filing taxes 2014 Interest you paid or incurred during the production period must be capitalized if the property produced is designated property. Filing taxes 2014 Designated property is any of the following. Filing taxes 2014 Real property. Filing taxes 2014 Tangible personal property with a class life of 20 years or more. Filing taxes 2014 Tangible personal property with an estimated production period of more than 2 years. Filing taxes 2014 Tangible personal property with an estimated production period of more than 1 year if the estimated cost of production is more than $1 million. Filing taxes 2014 Property you produce. Filing taxes 2014   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow it. Filing taxes 2014 Treat property produced for you under a contract as produced by you up to the amount you pay or incur for the property. Filing taxes 2014 Carrying charges. Filing taxes 2014   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. Filing taxes 2014 You can choose to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. Filing taxes 2014 For more information, see chapter 7. Filing taxes 2014 Capitalized interest. Filing taxes 2014   Treat capitalized interest as a cost of the property produced. Filing taxes 2014 You recover your interest when you sell or use the property. Filing taxes 2014 If the property is inventory, recover capitalized interest through cost of goods sold. Filing taxes 2014 If the property is used in your trade or business, recover capitalized interest through an adjustment to basis, depreciation, amortization, or other method. Filing taxes 2014 Partnerships and S corporations. Filing taxes 2014   The interest capitalization rules are applied first at the partnership or S corporation level. Filing taxes 2014 The rules are then applied at the partners' or shareholders' level to the extent the partnership or S corporation has insufficient debt to support the production or construction costs. Filing taxes 2014   If you are a partner or a shareholder, you may have to capitalize interest you incur during the tax year for the production costs of the partnership or S corporation. Filing taxes 2014 You may also have to capitalize interest incurred by the partnership or S corporation for your own production costs. Filing taxes 2014 To properly capitalize interest under these rules, you must be given the required information in an attachment to the Schedule K-1 you receive from the partnership or S corporation. Filing taxes 2014 Additional information. Filing taxes 2014   The procedures for applying the uniform capitalization rules are beyond the scope of this publication. Filing taxes 2014 For more information, see sections 1. Filing taxes 2014 263A-8 through 1. Filing taxes 2014 263A-15 of the regulations and Notice 88-99. Filing taxes 2014 Notice 88-99 is in Cumulative Bulletin 1988-2. Filing taxes 2014 When To Deduct Interest If the uniform capitalization rules, discussed under Capitalization of Interest, earlier, do not apply to you, deduct interest as follows. Filing taxes 2014 Cash method. Filing taxes 2014   Under the cash method, you can generally deduct only the interest you actually paid during the tax year. Filing taxes 2014 You cannot deduct a promissory note you gave as payment because it is a promise to pay and not an actual payment. Filing taxes 2014 Prepaid interest. Filing taxes 2014   You generally cannot deduct any interest paid before the year it is due. Filing taxes 2014 Interest paid in advance can be deducted only in the tax year in which it is due. Filing taxes 2014 Discounted loan. Filing taxes 2014   If interest or a discount is subtracted from your loan proceeds, it is not a payment of interest and you cannot deduct it when you get the loan. Filing taxes 2014 For more information, see Original issue discount (OID) under Interest You Can Deduct, earlier. Filing taxes 2014 Refunds of interest. Filing taxes 2014   If you pay interest and then receive a refund in the same tax year of any part of the interest, reduce your interest deduction by the refund. Filing taxes 2014 If you receive the refund in a later tax year, include the refund in your income to the extent the deduction for the interest reduced your tax. Filing taxes 2014 Accrual method. Filing taxes 2014   Under an accrual method, you can deduct only interest that has accrued during the tax year. Filing taxes 2014 Prepaid interest. Filing taxes 2014   See Prepaid interest, earlier. Filing taxes 2014 Discounted loan. Filing taxes 2014   See Discounted loan, earlier. Filing taxes 2014 Tax deficiency. Filing taxes 2014   If you contest a federal income tax deficiency, interest does not accrue until the tax year the final determination of liability is made. Filing taxes 2014 If you do not contest the deficiency, then the interest accrues in the year the tax was asserted and agreed to by you. Filing taxes 2014   However, if you contest but pay the proposed tax deficiency and interest, and you do not designate the payment as a cash bond, then the interest is deductible in the year paid. Filing taxes 2014 Related person. Filing taxes 2014   If you use an accrual method, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. Filing taxes 2014 The relationship is determined as of the end of the tax year for which the interest would otherwise be deductible. Filing taxes 2014 See section 267 of the Internal Revenue Code for more information. Filing taxes 2014 Below-Market Loans If you receive a below-market gift or demand loan and use the proceeds in your trade or business, you may be able to deduct the forgone interest. Filing taxes 2014 See Treatment of gift and demand loans, later, in this discussion. Filing taxes 2014 A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Filing taxes 2014 A gift or demand loan that is a below-market loan generally is considered an arm's-length transaction in which you, the borrower, are considered as having received both the following. Filing taxes 2014 A loan in exchange for a note that requires the payment of interest at the applicable federal rate. Filing taxes 2014 An additional payment in an amount equal to the forgone interest. Filing taxes 2014 The additional payment is treated as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. Filing taxes 2014 Forgone interest. Filing taxes 2014   For any period, forgone interest is The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. Filing taxes 2014 Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. Filing taxes 2014 Internal Revenue Bulletins are available on the IRS web site at www. Filing taxes 2014 irs. Filing taxes 2014 gov/irb. Filing taxes 2014 You can also contact an IRS office to get these rates. Filing taxes 2014 Loans subject to the rules. Filing taxes 2014   The rules for below-market loans apply to the following. Filing taxes 2014 Gift loans (below-market loans where the forgone interest is in the nature of a gift). Filing taxes 2014 Compensation-related loans (below-market loans between an employer and an employee or between an independent contractor and a person for whom the contractor provides services). Filing taxes 2014 Corporation-shareholder loans. Filing taxes 2014 Tax avoidance loans (below-market loans where the avoidance of federal tax is one of the main purposes of the interest arrangement). Filing taxes 2014 Loans to qualified continuing care facilities under a continuing care contract (made after October 11, 1985). Filing taxes 2014   Except as noted in (5) above, these rules apply to demand loans (loans payable in full at any time upon the lender's demand) outstanding after June 6, 1984, and to term loans (loans that are not demand loans) made after that date. Filing taxes 2014 Treatment of gift and demand loans. Filing taxes 2014   If you receive a below-market gift loan or demand loan, you are treated as receiving an additional payment (as a gift, dividend, etc. Filing taxes 2014 ) equal to the forgone interest on the loan. Filing taxes 2014 You are then treated as transferring this amount back to the lender as interest. Filing taxes 2014 These transfers are considered to occur annually, generally on December 31. Filing taxes 2014 If you use the loan proceeds in your trade or business, you can deduct the forgone interest each year as a business interest expense. Filing taxes 2014 The lender must report it as interest income. Filing taxes 2014 Limit on forgone interest for gift loans of $100,000 or less. Filing taxes 2014   For gift loans between individuals, forgone interest treated as transferred back to the lender is limited to the borrower's net investment income for the year. Filing taxes 2014 This limit applies if the outstanding loans between the lender and borrower total $100,000 or less. Filing taxes 2014 If the borrower's net investment income is $1,000 or less, it is treated as zero. Filing taxes 2014 This limit does not apply to a loan if the avoidance of any federal tax is one of the main purposes of the interest arrangement. Filing taxes 2014 Treatment of term loans. Filing taxes 2014   If you receive a below-market term loan other than a gift or demand loan, you are treated as receiving an additional cash payment (as a dividend, etc. Filing taxes 2014 ) on the date the loan is made. Filing taxes 2014 This payment is equal to the loan amount minus the present value, at the applicable federal rate, of all payments due under the loan. Filing taxes 2014 The same amount is treated as original issue discount on the loan. Filing taxes 2014 See Original issue discount (OID) under Interest You Can Deduct, earlier. Filing taxes 2014 Exceptions for loans of $10,000 or less. Filing taxes 2014   The rules for below-market loans do not apply to any day on which the total outstanding loans between the borrower and lender is $10,000 or less. Filing taxes 2014 This exception applies only to the following. Filing taxes 2014 Gift loans between individuals if the loan is not directly used to buy or carry income-producing assets. Filing taxes 2014 Compensation-related loans or corporation-shareholder loans if the avoidance of any federal tax is not a principal purpose of the interest arrangement. Filing taxes 2014 This exception does not apply to a term loan described in (2) above that was previously subject to the below-market loan rules. Filing taxes 2014 Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. Filing taxes 2014 Exceptions for loans without significant tax effect. Filing taxes 2014   The following loans are specifically exempted from the rules for below-market loans because their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. Filing taxes 2014 Loans made available by lenders to the general public on the same terms and conditions that are consistent with the lender's customary business practices. Filing taxes 2014 Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public. Filing taxes 2014 Certain employee-relocation loans. Filing taxes 2014 Certain loans to or from a foreign person, unless the interest income would be effectively connected with the conduct of a U. Filing taxes 2014 S. Filing taxes 2014 trade or business and not exempt from U. Filing taxes 2014 S. Filing taxes 2014 tax under an income tax treaty. Filing taxes 2014 Any other loan if the taxpayer can show that the interest arrangement has no significant effect on the federal tax liability of the lender or the borrower. Filing taxes 2014 Whether an interest arrangement has a significant effect on the federal tax liability of the lender or the borrower will be determined by all the facts and circumstances. Filing taxes 2014 Consider all the following factors. Filing taxes 2014 Whether items of income and deduction generated by the loan offset each other. Filing taxes 2014 The amount of the items. Filing taxes 2014 The cost of complying with the below-market loan provisions if they were to apply. Filing taxes 2014 Any reasons, other than taxes, for structuring the transaction as a below-market loan. Filing taxes 2014 Exception for loans to qualified continuing care facilities. Filing taxes 2014   The below-market interest rules do not apply to a loan owed by a qualified continuing care facility under a continuing care contract if the lender or lender's spouse is age 62 or older by the end of the calendar year. Filing taxes 2014 A qualified continuing care facility is one or more facilities (excluding nursing homes) meeting the requirements listed below. Filing taxes 2014 Designed to provide services under continuing care contracts (defined below). Filing taxes 2014 Includes an independent living unit, and either an assisted living or nursing facility, or both. Filing taxes 2014 Substantially all of the independent living unit residents are covered by continuing care contracts. Filing taxes 2014 A continuing care contract is a written contract between an individual and a qualified continuing care facility that includes all of the following conditions. Filing taxes 2014 The individual or individual's spouse must be entitled to use the facility for the rest of their life or lives. Filing taxes 2014 The individual or individual's spouse will be provided with housing, as appropriate for the health of the individual or individual's spouse in an: independent living unit (which has additional available facilities outside the unit for the provision of meals and other personal care), and assisted living or nursing facility available in the continuing care facility. Filing taxes 2014 The individual or individual's spouse will be provided with assisted living or nursing care available in the continuing care facility, as required for the health of the individual or the individual's spouse. Filing taxes 2014 For more information, see section 7872(h) of the Internal Revenue Code. Filing taxes 2014 Sale or exchange of property. Filing taxes 2014   Different rules generally apply to a loan connected with the sale or exchange of property. Filing taxes 2014 If the loan does not provide adequate stated interest, part of the principal payment may be considered interest. Filing taxes 2014 However, there are exceptions that may require you to apply the below-market interest rate rules to these loans. Filing taxes 2014 See Unstated Interest and Original Issue Discount (OID) in Publication 537. Filing taxes 2014 More information. Filing taxes 2014   For more information on below-market loans, see section 7872 of the Internal Revenue Code and section 1. Filing taxes 2014 7872-5 of the regulations. Filing taxes 2014 Prev  Up  Next   Home   More Online Publications
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IRS Tiene $760 Millones para Personas Que No Han Presentado Declaraciones de Impuestos del 2010

IR-2014-30SP, 19 de marzo de 2014

WASHINGTON — Reembolsos que llegan a un total de casi $760 millones pueden estar esperando aproximadamente 918,600 contribuyentes que no presentaron una declaración federal de impuestos por ingresos para el año 2010, anunció hoy el Servicio de Impuestos Internos. Sin embargo, para recolectar el dinero, deberá presentarse al IRS una declaración para el año 2010 a más tardar el martes, 15 de abril de 2014.

"La ventana se está cerrando rápidamente para las personas a quienes se adeudan reembolsos del 2010 que no han presentado una declaración de impuestos", dijo el Comisionado del IRS John Koskinen. "Animamos a los estudiantes, trabajadores a tiempo parcial y otros que no han presentado declaraciones del 2010 a fijarse en esto antes de venza el plazo el 15 de abril".

El IRS calcula que la mitad de estos reembolsos potenciales para el año 2010 serían de más de $571 dólares.

Es posible que algunas personas no presentaron una declaración de impuestos porque tuvieron muy poco ingreso y el requisito de presentar una declaración no obligaba aunque tuvieran impuestos retenidos de sus salarios o hicieran pagos estimados trimestrales. En casos donde no se haya presentado una declaración, la ley establece para la mayoría de los contribuyentes una ventana de tres años para la oportunidad de reclamar un reembolso. Si no se presenta una declaración para reclamar un reembolso dentro del plazo de tres años, el dinero se convierte en propiedad del Tesoro de EE.UU.

Para declaraciones del 2010, la ventana se cierra el 15 de abril de 2014. La ley requiere que la declaración esté remitida correctamente, puesta al correo y sellada para esa fecha. No hay penalidad por presentar una declaración retrasada que califica para un reembolso.

El IRS recuerda a los contribuyentes que buscan un reembolso de 2010 que sus cheques pudieran ser retenidos si no han presentado declaraciones de impuestos para 2011 y 2012. Además, el reembolso será aplicado a cualquier monto que aún se deba al IRS o a su agencia tributaria estatal y puede utilizarse para compensar la manutención de menores que esté sin pagar o deudas federales pasadas tales como los préstamos estudiantiles.

Al no presentar una declaración, las personas se arriesgan a perder más que su reembolso de impuestos retenidos o pagados durante el año 2010. Además, muchos trabajadores de ingresos bajos y moderados quizá no reclamaron el Crédito Tributario por Ingreso del Trabajo (EITC). Para el año 2010, el crédito tiene un valor de hasta $5,666. El EITC ayuda a individuos y familias cuyos ingresos están por debajo de ciertos límites. Los límites para el año 2010 fueron:

  • $43,352 ($48,362 si casado declarando juntos) para aquellos con tres niños calificados o más,
  • $40,363 ($45,373 si casado declarando juntos) para aquellos con dos niños calificados,
  • $35,535 ($40,545 si casado declarando juntos) para aquellos con un niño calificado, y
  • $13,460 ($18,470 si casado declarando juntos) para aquellos sin niños calificados.

Los formularios e instrucciones de impuestos del IRS para este año tributario y años anteriores están disponibles en la página Forms and Publications (en inglés) de IRS.gov o llamando gratis al 800-829-3676. Los contribuyentes a quienes les faltan los formularios W-2, 1098, 1099 ó 5498 para 2010, 2011 ó 2012 deberían solicitar copias de su empleador, banco u otro pagador.

Si estos esfuerzos no dan resultado, los contribuyentes pueden obtener una transcripción gratuita mostrando información de estos documentos visitando IRS.gov. Los contribuyentes también pueden presentar el Formulario 4506-T (en inglés) para solicitar una transcripción de su declaración de impuestos.

Personas que no presentaron una declaración del 2010 con posible reembolso:

 

Estado o Distrito

Número Estimado de Individuos

Medio Potencial de Reembolso

Total Potencial de Reembolso*

 

Alabama

15,700

$574

$12,473,000

Alaska

4,700

$649

$4,810,000

Arizona

23,800

$508

$17,517,000

Arkansas

8,400

$562

$6,667,000

California

86,500

$519

$69,752,000

Colorado

17,100

$567

$14,061,000

Connecticut

11,700

$620

$10,304,000

Delaware

3,800

$573

$3,126,000

District of Columbia

3,500

$604

$3,080,000

Florida

56,800

$593

$48,407,000

Georgia

28,400

$539

$22,504,000

Hawaii

6,200

$586

$5,413,000

Idaho

3,500

$490

$2,604,000

Illinois

37,900

$626

$32,696,000

Indiana

19,600

$570

$15,478,000

Iowa

9,200

$576

$7,050,000

Kansas

9,300

$522

$6,986,000

Kentucky

11,500

$576

$8,975,000

Louisiana

17,500

$603

$15,579,000

Maine

3,500

$502

$2,373,000

Maryland

20,700

$575

$18,002,000

Massachusetts

21,000

$560

$17,856,000

Michigan

29,200

$597

$24,259,000

Minnesota

12,700

$516

$9,582,000

Mississippi

8,500

$556

$6,769,000

Missouri

17,900

$514

$13,153,000

Montana

2,900

$534

$2,338,000

Nebraska

4,500

$528

$3,368,000

Nevada

11,400

$570

$9,156,000

New Hampshire

3,800

$602

$3,245,000

New Jersey

29,500

$639

$26,712,000

New Mexico

7,200

$572

$5,915,000

New York

57,400

$623

$50,543,000

North Carolina

24,300

$494

$17,538,000

North Dakota

1,900

$600

$1,551,000

Ohio

32,100

$560

$24,508,000

Oklahoma

15,100

$585

$12,246,000

Oregon

14,300

$519

$10,359,000

Pennsylvania

37,400

$614

$31,009,000

Rhode Island

3,000

$598

$2,472,000

South Carolina

10,200

$532

$7,756,000

South Dakota

2,100

$558

$1,605,000

Tennessee

16,300

$559

$12,839,000

Texas

80,600

$588

$71,998,000

Utah

6,100

$518

$4,705,000

Vermont

1,600

$519

$1,136,000

Virginia

26,300

$568

$22,376,000

Washington

24,800

$640

$23,033,000

West Virginia

4,100

$626

$3,534,000

Wisconsin

10,900

$516

$8,423,000

Wyoming

2,200

$648

$2,045,000

Totals

918,600

$571

$759,889,000

               

    * Excluyendo el Crédito Tributario por Ingreso del Trabajo (EITC) y otros créditos.

Page Last Reviewed or Updated: 19-Mar-2014

The Filing Taxes 2014

Filing taxes 2014 3. Filing taxes 2014   Dispositions of Business Property Table of Contents Introduction Useful Items - You may want to see: What Is a Disposition of Property?Like-kind exchanges. Filing taxes 2014 How Do I Figure a Gain or Loss?Is My Gain or Loss Ordinary or Capital? Is My Capital Gain or Loss Short Term or Long Term? Where Do I Report Gains and Losses? Introduction If you dispose of business property, you may have a gain or loss that you report on Form 1040. Filing taxes 2014 However, in some cases you may have a gain that is not taxable or a loss that is not deductible. Filing taxes 2014 This chapter discusses whether you have a disposition, how to figure the gain or loss, and where to report the gain or loss. Filing taxes 2014 Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property Sch D (Form 1040) Capital Gains and Losses See chapter 12 for information about getting publications and forms. Filing taxes 2014 What Is a Disposition of Property? A disposition of property includes the following transactions. Filing taxes 2014 You sell property for cash or other property. Filing taxes 2014 You exchange property for other property. Filing taxes 2014 You receive money as a tenant for the cancellation of a lease. Filing taxes 2014 You receive money for granting the exclusive use of a copyright throughout its life in a particular medium. Filing taxes 2014 You transfer property to satisfy a debt. Filing taxes 2014 You abandon property. Filing taxes 2014 Your bank or other financial institution forecloses on your mortgage or repossesses your property. Filing taxes 2014 Your property is damaged, destroyed, or stolen, and you receive property or money in payment. Filing taxes 2014 Your property is condemned, or disposed of under the threat of condemnation, and you receive property or money in payment. Filing taxes 2014 For details about damaged, destroyed, or stolen property, see Publication 547, Casualties, Disasters, and Thefts. Filing taxes 2014 For details about other dispositions, see chapter 1 in Publication 544. Filing taxes 2014 Nontaxable exchanges. Filing taxes 2014   Certain exchanges of property are not taxable. Filing taxes 2014 This means any gain from the exchange is not recognized and you cannot deduct any loss. Filing taxes 2014 Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Filing taxes 2014 Like-kind exchanges. Filing taxes 2014   A like-kind exchange is the exchange of property for the same kind of property. Filing taxes 2014 It is the most common type of nontaxable exchange. Filing taxes 2014 To be a like-kind exchange, the property traded and the property received must be both of the following. Filing taxes 2014 Business or investment property. Filing taxes 2014 Like property. Filing taxes 2014   Report the exchange of like-kind property on Form 8824, Like-Kind Exchanges. Filing taxes 2014 For more information about like-kind exchanges, see chapter 1 in Publication 544. Filing taxes 2014 Installment sales. Filing taxes 2014   An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. Filing taxes 2014 If you finance the buyer's purchase of your property, instead of having the buyer get a loan or mortgage from a third party, you probably have an installment sale. Filing taxes 2014   For more information about installment sales, see Publication 537, Installment Sales. Filing taxes 2014 Sale of a business. Filing taxes 2014   The sale of a business usually is not a sale of one asset. Filing taxes 2014 Instead, all the assets of the business are sold. Filing taxes 2014 Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss. Filing taxes 2014   Both the buyer and seller involved in the sale of a business must report to the IRS the allocation of the sales price among the business assets. Filing taxes 2014 Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. Filing taxes 2014 The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Filing taxes 2014   For more information about the sale of a business, see chapter 2 of Publication 544. Filing taxes 2014 How Do I Figure a Gain or Loss? Table 3-1. Filing taxes 2014 How To Figure a Gain or Loss IF your. Filing taxes 2014 . Filing taxes 2014 . Filing taxes 2014 THEN you have a. Filing taxes 2014 . Filing taxes 2014 . Filing taxes 2014 Adjusted basis is more than the amount realized Loss. Filing taxes 2014 Amount realized is more than the adjusted basis Gain. Filing taxes 2014 Basis, adjusted basis, amount realized, fair market value, and amount recognized are defined next. Filing taxes 2014 You need to know these definitions to figure your gain or loss. Filing taxes 2014 Basis. Filing taxes 2014   The cost or purchase price of property is usually its basis for figuring the gain or loss from its sale or other disposition. Filing taxes 2014 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. Filing taxes 2014 For more information about basis, see Publication 551, Basis of Assets. Filing taxes 2014 Adjusted basis. Filing taxes 2014   The adjusted basis of property is your original cost or other basis plus certain additions, and minus certain deductions such as depreciation and casualty losses. Filing taxes 2014 In determining gain or loss, the costs of transferring property to a new owner, such as selling expenses, are added to the adjusted basis of the property. Filing taxes 2014 Amount realized. Filing taxes 2014   The amount you realize from a disposition is the total of all money you receive plus the fair market value of all property or services you receive. Filing taxes 2014 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. Filing taxes 2014 Fair market value. Filing taxes 2014   Fair market value is the price at which the 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. Filing taxes 2014 Amount recognized. Filing taxes 2014   Your gain or loss realized from a disposition of property is usually a recognized gain or loss for tax purposes. Filing taxes 2014 Recognized gains must be included in gross income. Filing taxes 2014 Recognized losses are deductible from gross income. Filing taxes 2014 However, a gain or loss realized from certain exchanges of property is not recognized. Filing taxes 2014 See  Nontaxable exchanges, earlier. Filing taxes 2014 Also, you cannot deduct a loss from the disposition of property held for personal use. Filing taxes 2014 Is My Gain or Loss Ordinary or Capital? You must classify your gains and losses as either ordinary or capital gains or losses. Filing taxes 2014 You must do this to figure your net capital gain or loss. Filing taxes 2014 Generally, you will have a capital gain or loss if you dispose of a capital asset. Filing taxes 2014 For the most part, everything you own and use for personal purposes or investment is a capital asset. Filing taxes 2014 Certain property you use in your business is not a capital asset. Filing taxes 2014 A gain or loss from a disposition of this property is an ordinary gain or loss. Filing taxes 2014 However, if you held the property longer than 1 year, you may be able to treat the gain or loss as a capital gain or loss. Filing taxes 2014 These gains and losses are called section 1231 gains and losses. Filing taxes 2014 For more information about ordinary and capital gains and losses, see chapters 2 and 3 in Publication 544. Filing taxes 2014 Is My Capital Gain or Loss Short Term or Long Term? If you have a capital gain or loss, you must determine whether it is long term or short term. Filing taxes 2014 Whether a gain or loss is long or short term depends on how long you own the property before you dispose of it. Filing taxes 2014 The time you own property before disposing of it is called the holding period. Filing taxes 2014 Table 3-2. Filing taxes 2014 Do I Have a Short-Term or Long-Term Gain or Loss? IF you hold the property. Filing taxes 2014 . Filing taxes 2014 . Filing taxes 2014 THEN you have a. Filing taxes 2014 . Filing taxes 2014 . Filing taxes 2014 1 year or less Short-term capital gain or loss. Filing taxes 2014 More than 1 year Long-term capital gain or loss. Filing taxes 2014 For more information about short-term and long-term capital gains and losses, see chapter 4 of Publication 544. Filing taxes 2014 Where Do I Report Gains and Losses? Report gains and losses from the following dispositions on the forms indicated. Filing taxes 2014 The instructions for the forms explain how to fill them out. Filing taxes 2014 Dispositions of business property and depreciable property. Filing taxes 2014   Use Form 4797. Filing taxes 2014 If you have taxable gain, you may also have to use Schedule D (Form 1040). Filing taxes 2014 Like-kind exchanges. Filing taxes 2014   Use Form 8824, Like-Kind Exchanges. Filing taxes 2014 You may also have to use Form 4797 and Schedule D (Form 1040). Filing taxes 2014 Installment sales. Filing taxes 2014   Use Form 6252, Installment Sale Income. Filing taxes 2014 You may also have to use Form 4797 and Schedule D (Form 1040). Filing taxes 2014 Casualties and thefts. Filing taxes 2014   Use Form 4684, Casualties and Thefts. Filing taxes 2014 You may also have to use Form 4797. Filing taxes 2014 Condemned property. Filing taxes 2014   Use Form 4797. Filing taxes 2014 You may also have to use Schedule D (Form 1040). Filing taxes 2014 Prev  Up  Next   Home   More Online Publications