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How To File Tax Return

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How To File Tax Return

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

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

City Street Address Days/Hours of Service Telephone*
Bloomington 2017 S. Liberty Dr.
Bloomington, IN 47403

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 11:30 a.m. - 12:30 p.m.)

 

**This office will be open 9:00 a.m. - 3:30 p.m. on 4/2**

 

Services Provided

(812) 337-7600
Columbus 2425 Northpark Dr.
Columbus, IN 47203

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 11:30 a.m. - 12:30 p.m.)
 

Services Provided

(812) 379-7400
Evansville 7409 Eagle Crest Blvd.
Evansville, IN 47715

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(812) 474-4800
Ft. Wayne 201 E. Rudisill Blvd.
Fort Wayne, IN 46806

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:30 p.m. - 1:30 p.m.)

 

Services Provided

(260) 458-5000
Indianapolis 575 N. Pennsylvania St.
Indianapolis, IN 46204

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(317) 685-7500 
Lafayette  955 Mezzanine Drive
Suite B
Lafayette, IN 47905 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 11:30 a.m. - 12:30 p.m.)

 

Services Provided

(765) 449-3880 
Merrillville  233 E. 84th Dr.
Merrillville, IN 46410 

Monday-Friday - 8:30 a.m.-4:30 p.m.


Services Provided

(219) 736-4378
 
Muncie  225 N. High St.
Muncie, IN 47305 

Monday-Friday 8:30 a.m.- 4:30 p.m. 
(Closed for lunch 12:30 p.m.- 1:30 p.m.)
 

Services Provided

(765) 747-5533 
South Bend  100 E Wayne St
South Bend, IN 46601 

Monday-Friday - 8:30 a.m.-4:30 p.m.  
 

Services Provided

(574) 236-8149 
Terre Haute  801 Wabash Ave. 
Terre Haute, IN 47807 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 11:30 a.m. - 12:30 p.m.)

 

Services Provided

(812) 231-6521 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

For information on where to file your tax return please see Where to File Addresses.

The Taxpayer Advocate Service: Call (317) 685-7840 in Indianapolis or 1-877-777-4778 elsewhere, or see  Publication 1546, The Taxpayer Advocate Service of the IRS. For further information, see  Tax Topic 104.

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
575 N. Pennsylvania St.
Room 573, Stop WI-665
Indianapolis, IN 46204

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

The How To File Tax Return

How to file tax return Index Symbols 28% rate gain, Collectibles (28% rate) gain. How to file tax return , Figuring 28% rate gain (line 11). How to file tax return A Adjustments to income, defined, Adjustment to income. How to file tax return Age 65 or older dependents, Both Earned and Unearned Income Aliens Individual taxpayer identification number (ITIN), Reminders Standard deduction, Standard Deduction of Zero Alternative minimum tax (AMT), Other Filing Requirements, Alternative minimum tax. How to file tax return , Alternative Minimum Tax Assistance (see Tax help) B Blind dependents, filing requirements, Both Earned and Unearned Income C Capital gain distributions, Capital gain distributions. How to file tax return Capital losses, Capital loss. How to file tax return Child's earnings, Child's earnings. How to file tax return Child's expenses, Child's expenses. How to file tax return Child's return Responsibility for, Should a Return Be Filed Even If Not Required?, Child's expenses. How to file tax return Child's unearned income Tax on, Renewing an exemption from withholding. How to file tax return Church, wages from, Other Filing Requirements Credits, reduced, Reduced deductions or credits. How to file tax return D Deductible investment interest, Deductible investment interest. How to file tax return Deductions, Deductions you cannot take. How to file tax return Deductions, reduced, Reduced deductions or credits. How to file tax return Dependents Exemption for, Standard Deduction of Zero Own exemption, Standard Deduction of Zero Social security numbers (SSNs) of, Reminders Divorced parents, reporting child's unearned income, Parents are divorced. How to file tax return E Earned income, Earned Income Only, Both Earned and Unearned Income Education credit, recaptured, Other Filing Requirements Election to include child's income on parent's return, Parent's Election To Report Child's Interest and Dividends, How to make the election. How to file tax return , Estimated tax, penalty, Penalty for underpayment of estimated tax. How to file tax return Exemption Own exemption — dependent, Dependent's Own Exemption Exemption from withholding, Claiming exemption from withholding. How to file tax return Extension of time to file, Extension of time to file. How to file tax return F Figures (see Tables and figures) Figuring child's income, Penalty for underpayment of estimated tax. How to file tax return Filing requirements, Part 1. How to file tax return Rules for All Dependents, Should a Return Be Filed Even If Not Required? Form 1040 Schedule A, Directly connected. How to file tax return Schedule J, Using Schedule J (Form 1040), for line 9 tax. How to file tax return , Using Schedule J for line 15 tax. How to file tax return Form 1040A Filled in example, Form 1099-DIV, Collectibles (28% rate) gain. How to file tax return Form 2555, Child files Form 2555 or 2555-EZ. How to file tax return , Parent files Form 2555 or 2555-EZ. How to file tax return , Child files Form 2555 or 2555-EZ. How to file tax return , Child files Form 2555 or 2555-EZ. How to file tax return , Child files Form 2555 or 2555-EZ. How to file tax return , Child files Form 2555 or 2555-EZ. How to file tax return Form 2555-EZ, Child files Form 2555 or 2555-EZ. How to file tax return , Parent files Form 2555 or 2555-EZ. How to file tax return , Child files Form 2555 or 2555-EZ. How to file tax return , Child files Form 2555 or 2555-EZ. How to file tax return , Child files Form 2555 or 2555-EZ. How to file tax return , Child files Form 2555 or 2555-EZ. How to file tax return Form 2848, Designated as representative. How to file tax return , How to request. How to file tax return Form 6251, Alternative minimum tax. How to file tax return , Limit on exemption amount (AMT). How to file tax return Form 8615, Providing Parental Information (Form 8615, Lines A–C), Line 18 (Tax) Filled in example, Form 8814, How to make the election. How to file tax return , Figuring Child's Income, Figuring Additional Tax Form W-4, Claiming exemption from withholding. How to file tax return Free tax services, Free help with your tax return. How to file tax return G Gift, income from property received as, Income from property received as a gift. How to file tax return H Help (see Tax help) I Individual taxpayer identification numbers (ITINs), Reminders Investment interest, Deductible investment interest. How to file tax return IRS notice sent to child, IRS notice. How to file tax return Itemized deductions Directly connected, Directly connected. How to file tax return J Joint return of parents, Which Parent's Return To Use L Life insurance, Other Filing Requirements Limit on exemption amount (AMT) Alternative Minimum Tax — Limit on exemption amount, Limit on exemption amount (AMT). How to file tax return M Married parents filing separately, Parents are married. How to file tax return Medicare tax, Other Filing Requirements Missing children, photographs of, Reminders N Net capital gain, Net capital gain. How to file tax return Net unearned income, Line 5 (Net Unearned Income) P Parents Election (see Election to include child's income on parent's return) Which parent's return to use, Which Parent's Return To Use Penalty, estimated tax, Penalty for underpayment of estimated tax. How to file tax return Publications (see Tax help) Q Qualified dividends, Qualified dividends. How to file tax return , Qualified dividends. How to file tax return R Recapture taxes, Other Filing Requirements Remarried custodial parent, reporting child's unearned income, Custodial parent remarried. How to file tax return Remarried widowed parent, reporting child's unearned income, Widowed parent remarried. How to file tax return Returns Filing even if not required, Should a Return Be Filed Even If Not Required? Parent's election to include child's income (see Election to include child's income on parent's return) Responsibility for child's return, Responsibility for Child's Return, Child's expenses. How to file tax return Signing child's return, Signing the child's return. How to file tax return Who must file, Filing Requirements, Should a Return Be Filed Even If Not Required? S Schedule D Tax Worksheet, Using the Schedule D Tax Worksheet for line 9 tax. How to file tax return , Figuring 28% rate gain (line 11). How to file tax return , Using the Schedule D Tax Worksheet for line 15 tax. How to file tax return Section 1202 gain, Section 1202 gain. How to file tax return Self-employed, filing requirements, Other Filing Requirements Separated parents, reporting child's unearned income, Parents not living together. How to file tax return Signing child's return, Signing the child's return. How to file tax return Social security numbers (SSNs) of dependents, Reminders Social security tax, Other Filing Requirements Standard deduction, Standard Deduction, Standard Deduction of Zero Worksheet for dependents (Worksheet 1), Worksheet 1. How to file tax return Zero, Standard Deduction of Zero T Tables and figures Determining whether Form 8615 is required (Figure 2), Election to include child's income on parent's return (Figure 1), Filing requirements for dependents (Table 1), Table 1. How to file tax return 2013 Filing Requirements for Dependents Tax help, How to request. How to file tax return , How To Get Tax Help Tax on child's unearned income, Renewing an exemption from withholding. How to file tax return Age requirement, Certain January 1 birthdays. How to file tax return Figured on Form 8615, Tax for Certain Children Who Have Unearned Income Third party designee, Third party designee. How to file tax return Tips not reported to employer, Other Filing Requirements Trust income, Trust income. How to file tax return TTY/TDD information, How To Get Tax Help U Unearned income, Unearned Income Only, Both Earned and Unearned Income Defined, Unearned income defined. How to file tax return Election to include child's income on parent's return (see Election to include child's income on parent's return) Tax on, Part 2. How to file tax return Tax on Unearned Income of Certain Children Unrecaptured section 1250 gain, Unrecaptured section 1250 gain. How to file tax return , Figuring unrecaptured section 1250 gain (line 11). How to file tax return W Withholding, Withholding From Wages Worksheets Dependent's filing requirement, Both Earned and Unearned Income Form 8615 alternate worksheet, Line 1 (Unearned Income) Qualified dividends and capital gain tax, Line 9 (Tax on Parent's Taxable Income Plus Children's Net Unearned Income) Schedule D Tax, Figuring 28% rate gain (line 11). How to file tax return Standard deduction worksheet for dependents (Worksheet 1), Worksheet 1. How to file tax return Unrecaptured section 1250 gain, Figuring unrecaptured section 1250 gain (line 11). How to file tax return Prev  Up     Home   More Online Publications