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Fillable Form 1040x

How Do I File Taxes For 20122012 Tax Return Form 1040Free H R Block 20111040x Amended ReturnFederal Tax Tables 2011Irs Ez Tax FormI Need To File My 2012 TaxesH&r Block Free Tax Prep2006 Tax Return Software Free1040ez Form PrintableFiling An Amended Tax ReturnTurbotax Military DiscountArmy One Source TaxesCan College Students File For TaxesHow To File Back TaxCan I Efile 1040xTax Preparer SoftwareAmendment Return1040-x1040ez Forms 2013Can I File A Amended Tax Return OnlineWhere Do I Send My Federal Tax Return 2012Tax Act 2011File My Federal And State Taxes For FreeFree Online TaxHow Can I File My 2011 TaxesEarned Income Tax Credit CalculatorFile Taxes FreeHow Much Do Students Get Back In Taxes2005 Tax Return OnlineIncome Tax DeadlineFederal Tax Form 1040ezCan I Still File 2012 Tax Return1040 Ez Tax Form1040nr FreeHow Do I File My Taxes For 2011File State Taxes Only Online Free2010 Amended Tax Return1040nr Tax SoftwareFile State Tax Online

Fillable Form 1040x

Fillable form 1040x Index A Application for enrollment, Form 23 and Form 23-EP. Fillable form 1040x , Form 5434. Fillable form 1040x Assistance (see Tax help) Associations, Corporations, associations, partnerships, and other persons that are not individuals. Fillable form 1040x Attorneys, Attorneys. Fillable form 1040x Authorization letter, Authorization for Special Appearances C CAF number, Authorization for Special Appearances Certified public accountants (CPAs), Certified public accountants (CPAs). Fillable form 1040x Comments, Comments and suggestions. Fillable form 1040x Corporations, Corporations, associations, partnerships, and other persons that are not individuals. Fillable form 1040x CPAs (see Certified public accountants (CPAs)) D Disbarment, Suspension and disbarment. Fillable form 1040x , Censure, Disbarments, and Suspensions Disreputable conduct, Incompetence and Disreputable Conduct E Enrolled actuaries, Enrolled actuaries. Fillable form 1040x Enrolled agent:, Enrolled agents. Fillable form 1040x , How Does an Individual Become Enrolled? Enrolled retirement plan agent:, Enrolled retirement plan agents. Fillable form 1040x F FAX copies, FAX copies. Fillable form 1040x Form 23 and Form 23-EP, Form 23 and Form 23-EP. Fillable form 1040x Form 2587, Form 2587. Fillable form 1040x Form 2848, Form Required, Preparation of Form — Helpful Hints, How Do I Fill Out Form 2848? Form 5434, Form 5434. Fillable form 1040x Free tax services, How To Get Tax Help G Glossary, Practice Before the IRS, Authorizing a Representative H Help (see Tax help) I Inactive retirement status, Inactive retirement status. Fillable form 1040x Inactive roster, Inactive roster. Fillable form 1040x Incapacity or incompetency, Incapacity or incompetency. Fillable form 1040x L Loss of eligibility Failure to meet requirements, Failure to meet requirements. Fillable form 1040x Loss of eligibility:, Loss of Eligibility M More information (see Tax help) N Non-IRS power of attorney, Non-IRS powers of attorney. Fillable form 1040x O Office of Professional Responsibility, Practice Before the IRS P Partnerships, Corporations, associations, partnerships, and other persons that are not individuals. Fillable form 1040x Power of attorney Processing and handling, Processing and Handling Representative, Dealing With the Representative Power of attorney:, What Is a Power of Attorney?, When Is a Power of Attorney Required?, Where To File a Power of Attorney, When Is a Power of Attorney Not Required?, What Happens to the Power of Attorney When Filed? Practice before the IRS, What Is Practice Before the IRS?, Who Can Practice Before the IRS?, Who Cannot Practice Before the IRS? Processing a non-IRS power of attorney, Processing a non-IRS power of attorney. Fillable form 1040x Protected communication Tax shelters, Communications regarding corporate tax shelters. Fillable form 1040x Publications (see Tax help) R Registered tax return preparers and unenrolled return preparers, Registered tax return preparers and unenrolled return preparers. Fillable form 1040x Representation outside the United States, Representation Outside the United States Restrictions, Restrictions Rules of practice Due diligence, Due diligence. Fillable form 1040x Duties, Duties Duty to advise, Duty to advise. Fillable form 1040x Restrictions, Restrictions Rules of practice:, What Are the Rules of Practice? S Special appearances, Authorization for Special Appearances Students. Fillable form 1040x , Student. Fillable form 1040x , Students in LITCs and the STCP. Fillable form 1040x Suggestions, Comments and suggestions. Fillable form 1040x Suspension, Suspension and disbarment. Fillable form 1040x , Censure, Disbarments, and Suspensions T Tax help, How To Get Tax Help Taxpayer advocate, Taxpayer Advocate Service. Fillable form 1040x Termination, Incapacity or incompetency. Fillable form 1040x TTY/TDD information, How To Get Tax Help U Unenrolled individuals Employee, Other individuals who may serve as representatives. Fillable form 1040x Family member, Other individuals who may serve as representatives. Fillable form 1040x Fiduciary, Other individuals who may serve as representatives. Fillable form 1040x Individual, Other individuals who may serve as representatives. Fillable form 1040x Officer, Other individuals who may serve as representatives. Fillable form 1040x Partner, Other individuals who may serve as representatives. Fillable form 1040x Unenrolled individuals:, Other individuals who may serve as representatives. Fillable form 1040x W Where to file:, Where To File a Power of Attorney Prev  Up     Home   More Online Publications
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Understanding your CP566 Notice

We need more information to process your application for an Individual Taxpayer Identification Number (ITIN). You may have sent us an incomplete form. You may have sent us the wrong documents.

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Effective June 22, 2012, the IRS has made interim changes that affect the Individual Taxpayer Identification Number (ITIN) application process. Some of the information below, including the documentation requirements for individuals seeking an ITIN, has been superseded by these changes. Taxpayers and their representatives should review these changes, which are further explained in these Frequently Asked Questions, before requesting an ITIN.


What you need to do

  • Go over the instructions for your application.
  • Make sure you don't qualify for a Social Security number (SSN) and you need an ITIN.
  • Go over your application to make sure you’ve answered all the questions.
  • Make sure your documents are correct.
  • Send us the documents we've asked for when you reply.
  • Make sure the documents are translated into English if we've requested a translation. Use a certified translator.
  • Complete and sign the response form at the end of your notice. Mail it to us with any documents we've requested.

You may want to...


Answers to Common Questions

What is an ITIN?
It is a number for you to use on federal tax documents.

Who needs an ITIN?
A non-citizen who has to file a federal tax return or a tax reporting document and does not qualify for an SSN needs an ITIN.

What is correct documentation?
In general, correct documentation is unexpired and has your photograph. It has the same name on it as on your application and tax return. It is from an organization authorized to issue it. The following documents can meet these conditions:

  • a passport
  • a visa (issued by the U.S. Department of State)
  • a civil birth certificate
  • a national, U.S. state, or military identification document
  • a U.S. or foreign driver’s license
  • a U.S. Citizenship and Immigration Services Photo ID
  • a foreign voter registration document or military card
  • U.S. school records (for dependents only)
  • U.S. medical records (for dependents only)

Foreign records must be from a country recognized by the U.S. State Department.

What are the special requirements for school and medical records?
They must be less than one year old. They must be for dependents younger than 18.

How much time do I have to reply?
You have 45 days from the date of your notice to reply.

What happens if I don't reply?
We will reject your application. You'll have to submit a new application for an ITIN.

Should I call you with my reply or mail it to you?
Mail your reply to us at the address on the notice.

What happens to my tax return if you reject my application?
We'll process your return without an ITIN. You'll need to reapply for an ITIN and attach a copy of the return to your application to get a refund.

I sent you documents when I applied for an ITIN. When will you return them?
We'll return your documents within 60 days after we've processed your application.

Whom can I talk to with my questions?
You can call the telephone number on the top right corner of the notice with your questions.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.


Understanding your notice

Reading your notice
Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

Notice CP566, Page 1

Notice CP566, Page 2

Notice CP566, Page 3

Notice CP566, Page 4

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 

Page Last Reviewed or Updated: 14-Mar-2014

The Fillable Form 1040x

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