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Hrblock com myreturnstatus 9. Hrblock com myreturnstatus   Worksheets Table of Contents When Should I Figure MAC?Checking the Previous Year's Contributions Available Worksheets Chapter 2 introduced you to the term maximum amount contributable (MAC). Hrblock com myreturnstatus Generally, your MAC is the lesser of your: Limit on annual additions (chapter 3), or Limit on elective deferrals (chapter 4). Hrblock com myreturnstatus The worksheets in this chapter can help you figure the cost of incidental life insurance, your includible compensation, your limit on annual additions, your limit on elective deferrals, your limit on catch-up contributions, and your MAC. Hrblock com myreturnstatus After completing the worksheets, you should maintain them with your 403(b) records for that year. Hrblock com myreturnstatus Do not attach them to your tax return. Hrblock com myreturnstatus At the end of the year or the beginning of the next year, you should compare your estimated compensation figures with your actual figures. Hrblock com myreturnstatus If your compensation is the same as, or more than, the projected amounts and the calculations are correct, then you should simply file these worksheets with your other tax records for the year. Hrblock com myreturnstatus If your compensation was lower than your estimated figures, you will need to check the amount contributed during the year to determine if contributions are more than your MAC. Hrblock com myreturnstatus When Should I Figure MAC? At the beginning of each year, you should figure your MAC using a conservative estimate of your compensation. Hrblock com myreturnstatus Should your income change during the year, you should refigure your MAC based on a revised conservative estimate. Hrblock com myreturnstatus By doing this, you will be able to determine if contributions to your 403(b) account should be increased or decreased for the year. Hrblock com myreturnstatus Checking the Previous Year's Contributions At the beginning of the following year, you should refigure your MAC based on your actual earned income. Hrblock com myreturnstatus At the end of the current year or the beginning of the next year, you should check your contributions to be sure you did not exceed your MAC. Hrblock com myreturnstatus This means refiguring your limit based on your actual compensation figures for the year. Hrblock com myreturnstatus This will allow you to determine if the amount contributed is more than the allowable amounts, and possibly avoid additional taxes. Hrblock com myreturnstatus Available Worksheets The following worksheets have been provided to help you figure your MAC. Hrblock com myreturnstatus Worksheet A. Hrblock com myreturnstatus Cost of Incidental Life Insurance. Hrblock com myreturnstatus Worksheet B. Hrblock com myreturnstatus Includible Compensation for Your Most Recent Year of Service Worksheet C. Hrblock com myreturnstatus Limit on Catch-Up Contributions. Hrblock com myreturnstatus ??? Worksheet 1. Hrblock com myreturnstatus Maximum Amount Contributable (MAC). Hrblock com myreturnstatus Worksheet A. Hrblock com myreturnstatus Cost of Incidental Life Insurance Note. Hrblock com myreturnstatus Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. Hrblock com myreturnstatus This amount will be used to figure includible compensation for your most recent year of service. Hrblock com myreturnstatus 1. Hrblock com myreturnstatus Enter the value of the contract (amount payable upon your death) 1. Hrblock com myreturnstatus   2. Hrblock com myreturnstatus Enter the cash value in the contract at the end of the year 2. Hrblock com myreturnstatus   3. Hrblock com myreturnstatus Subtract line 2 from line 1. Hrblock com myreturnstatus This is the value of your current life insurance protection 3. Hrblock com myreturnstatus   4. Hrblock com myreturnstatus Enter your age on your birthday nearest the beginning of the policy year 4. Hrblock com myreturnstatus   5. Hrblock com myreturnstatus Enter the 1-year term premium for $1,000 of life insurance based on your age. Hrblock com myreturnstatus (From Figure 3-1) 5. Hrblock com myreturnstatus   6. Hrblock com myreturnstatus Divide line 3 by $1,000 6. Hrblock com myreturnstatus   7. Hrblock com myreturnstatus Multiply line 6 by line 5. Hrblock com myreturnstatus This is the cost of your incidental life insurance 7. Hrblock com myreturnstatus   Worksheet B. Hrblock com myreturnstatus Includible Compensation for Your Most Recent Year of Service1 Note. Hrblock com myreturnstatus Use this worksheet to figure includible compensation for your most recent year of service. Hrblock com myreturnstatus 1. Hrblock com myreturnstatus Enter your includible wages from the employer maintaining your 403(b) account for your most recent year of service 1. Hrblock com myreturnstatus   2. Hrblock com myreturnstatus Enter elective deferrals excluded from your gross income for your most recent year of service2 2. Hrblock com myreturnstatus   3. Hrblock com myreturnstatus Enter amounts contributed or deferred by your employer under a cafeteria plan for your most recent year of service 3. Hrblock com myreturnstatus   4. Hrblock com myreturnstatus Enter amounts contributed or deferred by your employer according to your election to your 457 account (a nonqualified plan of a state or local government or of a tax-exempt organization) for your most recent year of service 4. Hrblock com myreturnstatus   5. Hrblock com myreturnstatus Enter pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan for your most recent year of service 5. Hrblock com myreturnstatus   6. Hrblock com myreturnstatus Enter your foreign earned income exclusion for your most recent year of service 6. Hrblock com myreturnstatus   7. Hrblock com myreturnstatus Add lines 1, 2, 3, 4, 5, and 6 7. Hrblock com myreturnstatus   8. Hrblock com myreturnstatus Enter the cost of incidental life insurance that is part of your annuity contract for your most recent year of service 8. Hrblock com myreturnstatus   9. Hrblock com myreturnstatus Enter compensation that was both: Earned during your most recent year of service, and Earned while your employer was not qualified to maintain a 403(b) plan 9. Hrblock com myreturnstatus   10. Hrblock com myreturnstatus Add lines 8 and 9 10. Hrblock com myreturnstatus   11. Hrblock com myreturnstatus Subtract line 10 from line 7. Hrblock com myreturnstatus This is your includible compensation for your most recent year of service 11. Hrblock com myreturnstatus   1Use estimated amounts if figuring includible compensation before the end of the year. Hrblock com myreturnstatus  2Elective deferrals made to a designated Roth account are not excluded from your gross income and should not be included on this line. Hrblock com myreturnstatus Worksheet C. Hrblock com myreturnstatus Limit on Catch-Up Contributions Note. Hrblock com myreturnstatus If you will be age 50 or older by the end of the year, use this worksheet to figure your limit on catch-up contributions. Hrblock com myreturnstatus 1. Hrblock com myreturnstatus Maximum catch-up contributions 1. Hrblock com myreturnstatus $5,500 2. Hrblock com myreturnstatus Enter your includible compensation for your most recent year of service 2. Hrblock com myreturnstatus   3. Hrblock com myreturnstatus Enter your elective deferrals 3. Hrblock com myreturnstatus   4. Hrblock com myreturnstatus Subtract line 3 from line 2 4. Hrblock com myreturnstatus   5. Hrblock com myreturnstatus Enter the lesser of line 1 or line 4. Hrblock com myreturnstatus This is your limit on catch-up contributions 5. Hrblock com myreturnstatus   Worksheet 1. Hrblock com myreturnstatus Maximum Amount Contributable (MAC) Note. Hrblock com myreturnstatus Use this worksheet to figure your MAC. Hrblock com myreturnstatus Part I. Hrblock com myreturnstatus Limit on Annual Additions     1. Hrblock com myreturnstatus Enter your includible compensation for your most recent year of service 1. Hrblock com myreturnstatus   2. Hrblock com myreturnstatus Maximum1: For 2013, enter $51,000 For 2014, enter $52,000 2. Hrblock com myreturnstatus   3. Hrblock com myreturnstatus Enter the lesser of line 1 or line 2. Hrblock com myreturnstatus This is your limit on annual additions 3. Hrblock com myreturnstatus     Caution: If you had only nonelective contributions, skip Part II and enter the amount from line 3 on line 18. Hrblock com myreturnstatus     Part II. Hrblock com myreturnstatus Limit on Elective Deferrals     4. Hrblock com myreturnstatus Maximum contribution: For 2013, enter $17,500 For 2014, enter $17,500 4. Hrblock com myreturnstatus     Note. Hrblock com myreturnstatus If you have at least 15 years of service with a qualifying organization, complete lines 5 through 17. Hrblock com myreturnstatus If not, enter zero (-0-) on line 16 and go to line 17. Hrblock com myreturnstatus     5. Hrblock com myreturnstatus Amount per year of service 5. Hrblock com myreturnstatus $ 5,000 6. Hrblock com myreturnstatus Enter your years of service 6. Hrblock com myreturnstatus   7. Hrblock com myreturnstatus Multiply line 5 by line 6 7. Hrblock com myreturnstatus   8. Hrblock com myreturnstatus Enter the total of all elective deferrals made for you by the qualifying organization for prior years 8. Hrblock com myreturnstatus   9. Hrblock com myreturnstatus Subtract line 8 from line 7. Hrblock com myreturnstatus If zero or less, enter zero (-0-) 9. Hrblock com myreturnstatus   10. Hrblock com myreturnstatus Maximum increase in limit for long service 10. Hrblock com myreturnstatus $15,000 11. Hrblock com myreturnstatus Enter the total of additional pre-tax elective deferrals made in prior years under the 15-year rule 11. Hrblock com myreturnstatus   12. Hrblock com myreturnstatus Enter the aggregate amount of all designated Roth contributions permitted for prior years under the 15-year rule 12. Hrblock com myreturnstatus   13. Hrblock com myreturnstatus Add line 11 and line 12 13. Hrblock com myreturnstatus   14. Hrblock com myreturnstatus Subtract line 13 from line 10 14. Hrblock com myreturnstatus   15. Hrblock com myreturnstatus Maximum additional contributions 15. Hrblock com myreturnstatus $ 3,000 16. Hrblock com myreturnstatus Enter the least of lines 9, 14, or 15. Hrblock com myreturnstatus This is your increase in the limit for long service 16. Hrblock com myreturnstatus   17. Hrblock com myreturnstatus Add lines 4 and 16. Hrblock com myreturnstatus This is your limit on elective deferrals 17. Hrblock com myreturnstatus     Part III. Hrblock com myreturnstatus Maximum Amount Contributable     18. Hrblock com myreturnstatus If you had only nonelective contributions, enter the amount from line 3. Hrblock com myreturnstatus This is your MAC. Hrblock com myreturnstatus    If you had only elective deferrals, enter the lesser of lines 3 or 17. Hrblock com myreturnstatus This is your MAC. Hrblock com myreturnstatus    If you had both elective deferrals and nonelective contributions, enter the amount from line 3. Hrblock com myreturnstatus This is your MAC. Hrblock com myreturnstatus (Use the amount on line 17 to determine if you have excess elective deferrals as explained in chapter 7. Hrblock com myreturnstatus ) 18. Hrblock com myreturnstatus   1If you participate in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pension plans of all corporations, partnerships, and sole proprietorships in which you have more than 50% control. Hrblock com myreturnstatus You must also combine the contributions made to all 403(b) accounts on your behalf by your employer. Hrblock com myreturnstatus Prev  Up  Next   Home   More Online Publications
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Hrblock com myreturnstatus 4. Hrblock com myreturnstatus   Sales and Trades of Investment Property Table of Contents IntroductionNominees. Hrblock com myreturnstatus Topics - This chapter discusses: Useful Items - You may want to see: What Is a Sale or Trade?Dividend versus sale or trade. Hrblock com myreturnstatus Worthless Securities Constructive Sales of Appreciated Financial Positions Section 1256 Contracts Marked to Market Basis of Investment PropertyCost Basis Basis Other Than Cost Adjusted Basis Stocks and Bonds How To Figure Gain or LossFair market value. Hrblock com myreturnstatus Debt paid off. Hrblock com myreturnstatus Payment of cash. Hrblock com myreturnstatus Special Rules for Mutual Funds Nontaxable TradesLike-Kind Exchanges Corporate Stocks Exchange of Shares In One Mutual Fund For Shares In Another Mutual Fund Insurance Policies and Annuities U. Hrblock com myreturnstatus S. Hrblock com myreturnstatus Treasury Notes or Bonds Transfers Between Spouses Related Party TransactionsGain on Sale or Trade of Depreciable Property Capital Gains and LossesCapital or Ordinary Gain or Loss Holding Period Nonbusiness Bad Debts Short Sales Wash Sales Options Straddles Sales of Stock to ESOPs or Certain Cooperatives Rollover of Gain From Publicly Traded Securities Gains on Qualified Small Business Stock Exclusion of Gain From DC Zone Assets Reporting Capital Gains and LossesException 1. Hrblock com myreturnstatus Exception 2. Hrblock com myreturnstatus Section 1256 contracts and straddles. Hrblock com myreturnstatus Market discount bonds. Hrblock com myreturnstatus File Form 1099-B or Form 1099-S with the IRS. Hrblock com myreturnstatus Capital Losses Capital Gain Tax Rates Special Rules for Traders in SecuritiesHow To Report Introduction This chapter explains the tax treatment of sales and trades of investment property. Hrblock com myreturnstatus Investment property. Hrblock com myreturnstatus   This is property that produces investment income. Hrblock com myreturnstatus Examples include stocks, bonds, and Treasury bills and notes. Hrblock com myreturnstatus Property used in a trade or business is not investment property. Hrblock com myreturnstatus Form 1099-B. Hrblock com myreturnstatus   If you sold property such as stocks, bonds, mutual funds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. Hrblock com myreturnstatus You should receive the statement by February 15 of the next year. Hrblock com myreturnstatus It will show the gross proceeds from the sale. Hrblock com myreturnstatus The IRS will also get a copy of Form 1099-B from the broker. Hrblock com myreturnstatus   Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. Hrblock com myreturnstatus If you sold a covered security in 2013, your broker will send you a Form 1099-B (or substitute statement) that shows your basis. Hrblock com myreturnstatus This will help you complete Form 8949. Hrblock com myreturnstatus Generally, a covered security is a security you acquired after 2010, with certain exceptions explained in the Instructions for Form 8949. Hrblock com myreturnstatus    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in this chapter. Hrblock com myreturnstatus Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). Hrblock com myreturnstatus Nominees. Hrblock com myreturnstatus   If someone receives gross proceeds as a nominee for you, that person will give you a Form 1099-B, which will show gross proceeds received on your behalf. Hrblock com myreturnstatus   If you receive a Form 1099-B that includes gross proceeds belonging to another person, see Nominees , later under Reporting Capital Gains and Losses for more information. Hrblock com myreturnstatus Other property transactions. Hrblock com myreturnstatus   Certain transfers of property are discussed in other IRS publications. Hrblock com myreturnstatus These include: Sale of your main home, discussed in Publication 523, Selling Your Home; Installment sales, covered in Publication 537; Various types of transactions involving business property, discussed in Publication 544, Sales and Other Dispositions of Assets; Transfers of property at death, covered in Publication 559; and Disposition of an interest in a passive activity, discussed in Publication 925. Hrblock com myreturnstatus Topics - This chapter discusses: What Is a Sale or Trade? , Basis of Investment Property , Adjusted Basis , How To Figure Gain or Loss , Nontaxable trades , Transfers Between Spouses , Related Party Transactions , Capital Gains and Losses , Reporting Capital Gains and Losses , and Special Rules for Traders in Securities . Hrblock com myreturnstatus Useful Items - You may want to see: Publication 551 Basis of Assets Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 6781 Gains and Losses From Section 1256 Contracts and Straddles 8582 Passive Activity Loss Limitations 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Hrblock com myreturnstatus What Is a Sale or Trade? This section explains what is a sale or trade. Hrblock com myreturnstatus It also explains certain transactions and events that are treated as sales or trades. Hrblock com myreturnstatus A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. Hrblock com myreturnstatus A trade is a transfer of property for other property or services, and may be taxed in the same way as a sale. Hrblock com myreturnstatus Sale and purchase. Hrblock com myreturnstatus   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. Hrblock com myreturnstatus The sale and purchase are two separate transactions. Hrblock com myreturnstatus But see Like-Kind Exchanges under Nontaxable Trades, later. Hrblock com myreturnstatus Redemption of stock. Hrblock com myreturnstatus   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. Hrblock com myreturnstatus Dividend versus sale or trade. Hrblock com myreturnstatus   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. Hrblock com myreturnstatus Both direct and indirect ownership of stock will be considered. Hrblock com myreturnstatus The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend — see Dividends and Other Distributions in chapter 1, There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. Hrblock com myreturnstatus Redemption or retirement of bonds. Hrblock com myreturnstatus   A redemption or retirement of bonds or notes at their maturity generally is treated as a sale or trade. Hrblock com myreturnstatus See Stocks, stock rights, and bonds and Discounted Debt Instruments under Capital or Ordinary Gain or Loss, later. Hrblock com myreturnstatus   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. Hrblock com myreturnstatus For details, see Regulations section 1. Hrblock com myreturnstatus 1001-3. Hrblock com myreturnstatus Surrender of stock. Hrblock com myreturnstatus   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. Hrblock com myreturnstatus The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. Hrblock com myreturnstatus Trade of investment property for an annuity. Hrblock com myreturnstatus   The transfer of investment property to a corporation, trust, fund, foundation, or other organization, in exchange for a fixed annuity contract that will make guaranteed annual payments to you for life, is a taxable trade. Hrblock com myreturnstatus If the present value of the annuity is more than your basis in the property traded, you have a taxable gain in the year of the trade. Hrblock com myreturnstatus Figure the present value of the annuity according to factors used by commercial insurance companies issuing annuities. Hrblock com myreturnstatus Transfer by inheritance. Hrblock com myreturnstatus   The transfer of property of a decedent to the executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or other disposition. Hrblock com myreturnstatus No taxable gain or deductible loss results from the transfer. Hrblock com myreturnstatus Termination of certain rights and obligations. Hrblock com myreturnstatus   The cancellation, lapse, expiration, or other termination of a right or obligation (other than a securities futures contract) with respect to property that is a capital asset (or that would be a capital asset if you acquired it) is treated as a sale. Hrblock com myreturnstatus Any gain or loss is treated as a capital gain or loss. Hrblock com myreturnstatus   This rule does not apply to the retirement of a debt instrument. Hrblock com myreturnstatus See Redemption or retirement of bonds , earlier. Hrblock com myreturnstatus Worthless Securities Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. Hrblock com myreturnstatus This affects whether your capital loss is long term or short term. Hrblock com myreturnstatus See Holding Period , later. Hrblock com myreturnstatus Worthless securities also include securities that you abandon after March 12, 2008. Hrblock com myreturnstatus To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. Hrblock com myreturnstatus All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. Hrblock com myreturnstatus If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. Hrblock com myreturnstatus Do not deduct them in the year the stock became worthless. Hrblock com myreturnstatus How to report loss. Hrblock com myreturnstatus   Report worthless securities in Form 8949, Part I or Part II, whichever applies. Hrblock com myreturnstatus    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. Hrblock com myreturnstatus See Form 8949 and the Instructions for Form 8949. Hrblock com myreturnstatus Filing a claim for refund. Hrblock com myreturnstatus   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. Hrblock com myreturnstatus You must use Form 1040X, Amended U. Hrblock com myreturnstatus S. Hrblock com myreturnstatus Individual Income Tax Return, to amend your return for the year the security became worthless. Hrblock com myreturnstatus You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. Hrblock com myreturnstatus (Claims not due to worthless securities or bad debts generally must be filed within 3 years from the date a return is filed, or 2 years from the date the tax is paid, whichever is later. Hrblock com myreturnstatus ) For more information about filing a claim, see Publication 556. Hrblock com myreturnstatus Constructive Sales of Appreciated Financial Positions You are treated as having made a constructive sale when you enter into certain transactions involving an appreciated financial position (defined later) in stock, a partnership interest, or certain debt instruments. Hrblock com myreturnstatus You must recognize gain as if the position were disposed of at its fair market value on the date of the constructive sale. Hrblock com myreturnstatus This gives you a new holding period for the position that begins on the date of the constructive sale. Hrblock com myreturnstatus Then, when you close the transaction, you reduce your gain (or increase your loss) by the gain recognized on the constructive sale. Hrblock com myreturnstatus Constructive sale. Hrblock com myreturnstatus   You are treated as having made a constructive sale of an appreciated financial position if you: Enter into a short sale of the same or substantially identical property, Enter into an offsetting notional principal contract relating to the same or substantially identical property, Enter into a futures or forward contract to deliver the same or substantially identical property (including a forward contract that provides for cash settlement), or Acquire the same or substantially identical property (if the appreciated financial position is a short sale, an offsetting notional principal contract, or a futures or forward contract). Hrblock com myreturnstatus   You are also treated as having made a constructive sale of an appreciated financial position if a person related to you enters into a transaction described above with a view toward avoiding the constructive sale treatment. Hrblock com myreturnstatus For this purpose, a related person is any related party described under Related Party Transactions , later in this chapter. Hrblock com myreturnstatus Exception for nonmarketable securities. Hrblock com myreturnstatus   You are not treated as having made a constructive sale solely because you entered into a contract for sale of any stock, debt instrument, or partnership interest that is not a marketable security if it settles within 1 year of the date you enter into it. Hrblock com myreturnstatus Exception for certain closed transactions. Hrblock com myreturnstatus   Do not treat a transaction as a constructive sale if all of the following are true. Hrblock com myreturnstatus You closed the transaction on or before the 30th day after the end of your tax year. Hrblock com myreturnstatus You held the appreciated financial position throughout the 60-day period beginning on the date you closed the transaction. Hrblock com myreturnstatus Your risk of loss was not reduced at any time during that 60-day period by holding certain other positions. Hrblock com myreturnstatus   If a closed transaction is reestablished in a substantially similar position during the 60-day period beginning on the date the first transaction was closed, this exception still applies if the reestablished position is closed before the 30th day after the end of your tax year in which the first transaction was closed and, after that closing, (2) and (3) above are true. Hrblock com myreturnstatus   This exception also applies to successive short sales of an entire appreciated financial position. Hrblock com myreturnstatus For more information, see Revenue Ruling 2003-1 in Internal Revenue Bulletin 2003-3. Hrblock com myreturnstatus This bulletin is available at www. Hrblock com myreturnstatus irs. Hrblock com myreturnstatus gov/pub/irs-irbs/irb03-03. Hrblock com myreturnstatus pdf. Hrblock com myreturnstatus Appreciated financial position. Hrblock com myreturnstatus   This is any interest in stock, a partnership interest, or a debt instrument (including a futures or forward contract, a short sale, or an option) if disposing of the interest would result in a gain. Hrblock com myreturnstatus Exceptions. Hrblock com myreturnstatus   An appreciated financial position does not include the following. Hrblock com myreturnstatus Any position from which all of the appreciation is accounted for under marked-to-market rules, including section 1256 contracts (described later under Section 1256 Contracts Marked to Market ). Hrblock com myreturnstatus Any position in a debt instrument if: The position unconditionally entitles the holder to receive a specified principal amount, The interest payments (or other similar amounts) with respect to the position are payable at a fixed rate or a variable rate described in Regulations section 1. Hrblock com myreturnstatus 860G-1(a)(3), and The position is not convertible, either directly or indirectly, into stock of the issuer (or any related person). Hrblock com myreturnstatus Any hedge with respect to a position described in (2). Hrblock com myreturnstatus Certain trust instruments treated as stock. Hrblock com myreturnstatus   For the constructive sale rules, an interest in an actively traded trust is treated as stock unless substantially all of the value of the property held by the trust is debt that qualifies for the exception to the definition of an appreciated financial position (explained in (2) above). Hrblock com myreturnstatus Sale of appreciated financial position. Hrblock com myreturnstatus   A transaction treated as a constructive sale of an appreciated financial position is not treated as a constructive sale of any other appreciated financial position, as long as you continue to hold the original position. Hrblock com myreturnstatus However, if you hold another appreciated financial position and dispose of the original position before closing the transaction that resulted in the constructive sale, you are treated as if, at the same time, you constructively sold the other appreciated financial position. Hrblock com myreturnstatus Section 1256 Contracts Marked to Market If you hold a section 1256 contract at the end of the tax year, you generally must treat it as sold at its fair market value on the last business day of the tax year. Hrblock com myreturnstatus Section 1256 Contract A section 1256 contract is any: Regulated futures contract, Foreign currency contract, Nonequity option, Dealer equity option, or Dealer securities futures contract. Hrblock com myreturnstatus Exceptions. Hrblock com myreturnstatus   A section 1256 contract does not include: Interest rate swaps, Currency swaps, Basis swaps, Interest rate caps, Interest rate floors, Commodity swaps, Equity swaps, Equity index swaps, Credit default swaps, or Similar agreements. Hrblock com myreturnstatus For more details, including definitions of these terms, see section 1256. Hrblock com myreturnstatus Regulated futures contract. Hrblock com myreturnstatus   This is a contract that: Provides that amounts which must be deposited to, or can be withdrawn from, your margin account depend on daily market conditions (a system of marking to market), and Is traded on, or subject to the rules of, a qualified board of exchange. Hrblock com myreturnstatus A qualified board of exchange is a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission, any board of trade or exchange approved by the Secretary of the Treasury, or a national securities exchange registered with the Securities and Exchange Commission. Hrblock com myreturnstatus Foreign currency contract. Hrblock com myreturnstatus   This is a contract that: Requires delivery of a foreign currency that has positions traded through regulated futures contracts (or settlement of which depends on the value of that type of foreign currency), Is traded in the interbank market, and Is entered into at arm's length at a price determined by reference to the price in the interbank market. Hrblock com myreturnstatus   Bank forward contracts with maturity dates longer than the maturities ordinarily available for regulated futures contracts are considered to meet the definition of a foreign currency contract if the above three conditions are satisfied. Hrblock com myreturnstatus   Special rules apply to certain foreign currency transactions. Hrblock com myreturnstatus These transactions may result in ordinary gain or loss treatment. Hrblock com myreturnstatus For details, see Internal Revenue Code section 988 and Regulations sections 1. Hrblock com myreturnstatus 988-1(a)(7) and 1. Hrblock com myreturnstatus 988-3. Hrblock com myreturnstatus Nonequity option. Hrblock com myreturnstatus   This is any listed option (defined later) that is not an equity option. Hrblock com myreturnstatus Nonequity options include debt options, commodity futures options, currency options, and broad-based stock index options. Hrblock com myreturnstatus A broad-based stock index is based on the value of a group of diversified stocks or securities (such as the Standard and Poor's 500 index). Hrblock com myreturnstatus Warrants based on a stock index that are economically, substantially identical in all material respects to options based on a stock index are treated as options based on a stock index. Hrblock com myreturnstatus Cash-settled options. Hrblock com myreturnstatus   Cash-settled options based on a stock index and either traded on or subject to the rules of a qualified board of exchange are nonequity options if the Securities and Exchange Commission (SEC) determines that the stock index is broad based. Hrblock com myreturnstatus   This rule does not apply to options established before the SEC determines that the stock index is broad based. Hrblock com myreturnstatus Listed option. Hrblock com myreturnstatus   This is any option traded on, or subject to the rules of, a qualified board or exchange (as discussed earlier under Regulated futures contract). Hrblock com myreturnstatus A listed option, however, does not include an option that is a right to acquire stock from the issuer. Hrblock com myreturnstatus Dealer equity option. Hrblock com myreturnstatus   This is any listed option that, for an options dealer: Is an equity option, Is bought or granted by that dealer in the normal course of the dealer's business activity of dealing in options, and Is listed on the qualified board of exchange where that dealer is registered. Hrblock com myreturnstatus   An “options dealer” is any person registered with an appropriate national securities exchange as a market maker or specialist in listed options. Hrblock com myreturnstatus Equity option. Hrblock com myreturnstatus   This is any option: To buy or sell stock, or That is valued directly or indirectly by reference to any stock or narrow-based security index. Hrblock com myreturnstatus  Equity options include options on a group of stocks only if the group is a narrow-based stock index. Hrblock com myreturnstatus Dealer securities futures contract. Hrblock com myreturnstatus   For any dealer in securities futures contracts or options on those contracts, this is a securities futures contract (or option on such a contract) that: Is entered into by the dealer (or, in the case of an option, is purchased or granted by the dealer) in the normal course of the dealer's activity of dealing in this type of contract (or option), and Is traded on a qualified board or exchange (as defined under Regulated futures contract , earlier). Hrblock com myreturnstatus A securities futures contract that is not a dealer securities futures contract is treated as described later under Securities Futures Contracts . Hrblock com myreturnstatus Marked-to-Market Rules A section 1256 contract that you hold at the end of the tax year will generally be treated as sold at its fair market value on the last business day of the tax year, and you must recognize any gain or loss that results. Hrblock com myreturnstatus That gain or loss is taken into account in figuring your gain or loss when you later dispose of the contract, as shown in the example under 60/40 rule, below. Hrblock com myreturnstatus Hedging exception. Hrblock com myreturnstatus   The marked-to-market rules do not apply to hedging transactions. Hrblock com myreturnstatus See Hedging Transactions , later. Hrblock com myreturnstatus 60/40 rule. Hrblock com myreturnstatus   Under the marked-to-market system, 60% of your capital gain or loss will be treated as a long-term capital gain or loss, and 40% will be treated as a short-term capital gain or loss. Hrblock com myreturnstatus This is true regardless of how long you actually held the property. Hrblock com myreturnstatus Example. Hrblock com myreturnstatus On June 22, 2012, you bought a regulated futures contract for $50,000. Hrblock com myreturnstatus On December 31, 2012 (the last business day of your tax year), the fair market value of the contract was $57,000. Hrblock com myreturnstatus You recognized a $7,000 gain on your 2012 tax return, treated as 60% long-term and 40% short-term capital gain. Hrblock com myreturnstatus On February 1, 2013, you sold the contract for $56,000. Hrblock com myreturnstatus Because you recognized a $7,000 gain on your 2012 return, you recognize a $1,000 loss ($57,000 − $56,000) on your 2013 tax return, treated as 60% long-term and 40% short-term capital loss. Hrblock com myreturnstatus Limited partners or entrepreneurs. Hrblock com myreturnstatus   The 60/40 rule does not apply to dealer equity options or dealer securities futures contracts that result in capital gain or loss allocable to limited partners or limited entrepreneurs (defined later under Hedging Transactions ). Hrblock com myreturnstatus Instead, these gains or losses are treated as short term. Hrblock com myreturnstatus Terminations and transfers. Hrblock com myreturnstatus   The marked-to-market rules also apply if your obligation or rights under section 1256 contracts are terminated or transferred during the tax year. Hrblock com myreturnstatus In this case, use the fair market value of each section 1256 contract at the time of termination or transfer to determine the gain or loss. Hrblock com myreturnstatus Terminations or transfers may result from any offsetting, delivery, exercise, assignment, or lapse of your obligation or rights under section 1256 contracts. Hrblock com myreturnstatus Loss carryback election. Hrblock com myreturnstatus   An individual having a net section 1256 contracts loss (defined later), generally can elect to carry this loss back 3 years instead of carrying it over to the next year. Hrblock com myreturnstatus See How To Report , later, for information about reporting this election on your return. Hrblock com myreturnstatus   The loss carried back to any year under this election cannot be more than the net section 1256 contracts gain in that year. Hrblock com myreturnstatus In addition, the amount of loss carried back to an earlier tax year cannot increase or produce a net operating loss for that year. Hrblock com myreturnstatus   The loss is carried to the earliest carryback year first, and any unabsorbed loss amount can then be carried to each of the next 2 tax years. Hrblock com myreturnstatus In each carryback year, treat 60% of the carryback amount as a long-term capital loss and 40% as a short-term capital loss from section 1256 contracts. Hrblock com myreturnstatus   If only a portion of the net section 1256 contracts loss is absorbed by carrying the loss back, the unabsorbed portion can be carried forward, under the capital loss carryover rules, to the year following the loss. Hrblock com myreturnstatus (See Capital Losses under Reporting Capital Gains and Losses, later. Hrblock com myreturnstatus ) Figure your capital loss carryover as if, for the loss year, you had an additional short-term capital gain of 40% of the amount of net section 1256 contracts loss absorbed in the carryback years and an additional long-term capital gain of 60% of the absorbed loss. Hrblock com myreturnstatus In the carryover year, treat any capital loss carryover from losses on section 1256 contracts as if it were a loss from section 1256 contracts for that year. Hrblock com myreturnstatus Net section 1256 contracts loss. Hrblock com myreturnstatus   This loss is the lesser of: The net capital loss for your tax year determined by taking into account only the gains and losses from section 1256 contracts, or The capital loss carryover to the next tax year determined without this election. Hrblock com myreturnstatus Net section 1256 contracts gain. Hrblock com myreturnstatus   This gain is the lesser of: The capital gain net income for the carryback year determined by taking into account only gains and losses from section 1256 contracts, or The capital gain net income for that year. Hrblock com myreturnstatus  Figure your net section 1256 contracts gain for any carryback year without regard to the net section 1256 contracts loss for the loss year or any later tax year. Hrblock com myreturnstatus Traders in section 1256 contracts. Hrblock com myreturnstatus   Gain or loss from the trading of section 1256 contracts is capital gain or loss subject to the marked-to-market rules. Hrblock com myreturnstatus However, this does not apply to contracts held for purposes of hedging property if any loss from the property would be an ordinary loss. Hrblock com myreturnstatus Treatment of underlying property. Hrblock com myreturnstatus   The determination of whether an individual's gain or loss from any property is ordinary or capital gain or loss is made without regard to the fact that the individual is actively engaged in dealing in or trading section 1256 contracts related to that property. Hrblock com myreturnstatus How To Report If you disposed of regulated futures or foreign currency contracts in 2013 (or had unrealized profit or loss on these contracts that were open at the end of 2012 or 2013), you should receive Form 1099-B, or substitute statement, from your broker. Hrblock com myreturnstatus Form 6781. Hrblock com myreturnstatus   Use Part I of Form 6781 to report your gains and losses from all section 1256 contracts that are open at the end of the year or that were closed out during the year. Hrblock com myreturnstatus This includes the amount shown in box 10 of Form 1099-B. Hrblock com myreturnstatus Then enter the net amount of these gains and losses on Schedule D (Form 1040), line 4 or line 11, as appropriate. Hrblock com myreturnstatus Include a copy of Form 6781 with your income tax return. Hrblock com myreturnstatus   If the Form 1099-B you receive includes a straddle or hedging transaction, defined later, it may be necessary to show certain adjustments on Form 6781. Hrblock com myreturnstatus Follow the Form 6781 instructions for completing Part I. Hrblock com myreturnstatus Loss carryback election. Hrblock com myreturnstatus   To carry back your loss under the election procedures described earlier, file Form 1040X or Form 1045, Application for Tentative Refund, for the year to which you are carrying the loss with an amended Form 6781 and an amended Schedule D (Form 1040) attached. Hrblock com myreturnstatus Follow the instructions for completing Form 6781 for the loss year to make this election. Hrblock com myreturnstatus Hedging Transactions The marked-to-market rules, described earlier, do not apply to hedging transactions. Hrblock com myreturnstatus A transaction is a hedging transaction if both of the following conditions are met. Hrblock com myreturnstatus You entered into the transaction in the normal course of your trade or business primarily to manage the risk of: Price changes or currency fluctuations on ordinary property you hold (or will hold), or Interest rate or price changes, or currency fluctuations, on your current or future borrowings or ordinary obligations. Hrblock com myreturnstatus You clearly identified the transaction as being a hedging transaction before the close of the day on which you entered into it. Hrblock com myreturnstatus This hedging transaction exception does not apply to transactions entered into by or for any syndicate. Hrblock com myreturnstatus A syndicate is a partnership, S corporation, or other entity (other than a regular corporation) that allocates more than 35% of its losses to limited partners or limited entrepreneurs. Hrblock com myreturnstatus A limited entrepreneur is a person who has an interest in an enterprise (but not as a limited partner) and who does not actively participate in its management. Hrblock com myreturnstatus However, an interest is not considered held by a limited partner or entrepreneur if the interest holder actively participates (or did so for at least 5 full years) in the management of the entity, or is the spouse, child (including a legally adopted child), grandchild, or parent of an individual who actively participates in the management of the entity. Hrblock com myreturnstatus Hedging loss limit. Hrblock com myreturnstatus   If you are a limited partner or entrepreneur in a syndicate, the amount of a hedging loss you can claim is limited. Hrblock com myreturnstatus A “hedging loss” is the amount by which the allowable deductions in a tax year that resulted from a hedging transaction (determined without regard to the limit) are more than the income received or accrued during the tax year from this transaction. Hrblock com myreturnstatus   Any hedging loss allocated to you for the tax year is limited to your taxable income for that year from the trade or business in which the hedging transaction occurred. Hrblock com myreturnstatus Ignore any hedging transaction items in determining this taxable income. Hrblock com myreturnstatus If you have a hedging loss that is disallowed because of this limit, you can carry it over to the next tax year as a deduction resulting from a hedging transaction. Hrblock com myreturnstatus   If the hedging transaction relates to property other than stock or securities, the limit on hedging losses applies if the limited partner or entrepreneur is an individual. Hrblock com myreturnstatus   The limit on hedging losses does not apply to any hedging loss to the extent that it is more than all your unrecognized gains from hedging transactions at the end of the tax year that are from the trade or business in which the hedging transaction occurred. Hrblock com myreturnstatus The term “unrecognized gain” has the same meaning as defined under Loss Deferral Rules in Straddles, later. Hrblock com myreturnstatus Sale of property used in a hedge. Hrblock com myreturnstatus   Once you identify personal property as being part of a hedging transaction, you must treat gain from its sale or exchange as ordinary income, not capital gain. Hrblock com myreturnstatus Self-Employment Income Gains and losses derived in the ordinary course of a commodity or option dealer's trading in section 1256 contracts and property related to these contracts are included in net earnings from self-employment. Hrblock com myreturnstatus See the Instructions for Schedule SE (Form 1040). Hrblock com myreturnstatus In addition, the rules relating to contributions to self-employment retirement plans apply. Hrblock com myreturnstatus For information on retirement plan contributions, see Publication 560 and Publication 590. Hrblock com myreturnstatus Basis of Investment Property Basis is a way of measuring your investment in property for tax purposes. Hrblock com myreturnstatus You must know the basis of your property to determine whether you have a gain or loss on its sale or other disposition. Hrblock com myreturnstatus Investment property you buy normally has an original basis equal to its cost. Hrblock com myreturnstatus If you get property in some way other than buying it, such as by gift or inheritance, its fair market value may be important in figuring the basis. Hrblock com myreturnstatus Cost Basis The basis of property you buy is usually its cost. Hrblock com myreturnstatus The cost is the amount you pay in cash, debt obligations, or other property or services. Hrblock com myreturnstatus Unstated interest. Hrblock com myreturnstatus   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. Hrblock com myreturnstatus You generally have unstated interest if your interest rate is less than the applicable federal rate. Hrblock com myreturnstatus For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Hrblock com myreturnstatus Basis Other Than Cost There are times when you must use a basis other than cost. Hrblock com myreturnstatus In these cases, you may need to know the property's fair market value or the adjusted basis of the previous owner. Hrblock com myreturnstatus Fair market value. Hrblock com myreturnstatus   This is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Hrblock com myreturnstatus Sales of similar property, around the same date, may be helpful in figuring fair market value. Hrblock com myreturnstatus Property Received for Services If you receive investment property for services, you must include the property's fair market value in income. Hrblock com myreturnstatus The amount you include in income then becomes your basis in the property. Hrblock com myreturnstatus If the services were performed for a price that was agreed to beforehand, this price will be accepted as the fair market value of the property if there is no evidence to the contrary. Hrblock com myreturnstatus Restricted property. Hrblock com myreturnstatus   If you receive, as payment for services, property that is subject to certain restrictions, your basis in the property generally is its fair market value when it becomes substantially vested. Hrblock com myreturnstatus Property becomes substantially vested when it is transferable or is no longer subject to substantial risk of forfeiture, whichever happens first. Hrblock com myreturnstatus See Restricted Property in Publication 525 for more information. Hrblock com myreturnstatus Bargain purchases. Hrblock com myreturnstatus   If you buy investment property at less than fair market value, as payment for services, you must include the difference in income. Hrblock com myreturnstatus Your basis in the property is the price you pay plus the amount you include in income. Hrblock com myreturnstatus Property Received in Taxable Trades If you received investment property in trade for other property, the basis of the new property is its fair market value at the time of the trade unless you received the property in a nontaxable trade. Hrblock com myreturnstatus Example. Hrblock com myreturnstatus You trade A Company stock for B Company stock having a fair market value of $1,200. Hrblock com myreturnstatus If the adjusted basis of the A Company stock is less than $1,200, you have a taxable gain on the trade. Hrblock com myreturnstatus If the adjusted basis of the A Company stock is more than $1,200, you have a deductible loss on the trade. Hrblock com myreturnstatus The basis of your B Company stock is $1,200. Hrblock com myreturnstatus If you later sell the B Company stock for $1,300, you will have a gain of $100. Hrblock com myreturnstatus Property Received in Nontaxable Trades If you have a nontaxable trade, you do not recognize gain or loss until you dispose of the property you received in the trade. Hrblock com myreturnstatus See Nontaxable Trades , later. Hrblock com myreturnstatus The basis of property you received in a nontaxable or partly nontaxable trade is generally the same as the adjusted basis of the property you gave up. Hrblock com myreturnstatus Increase this amount by any cash you paid, additional costs you had, and any gain recognized. Hrblock com myreturnstatus Reduce this amount by any cash or unlike property you received, any loss recognized, and any liability of yours that was assumed or treated as assumed. Hrblock com myreturnstatus Property Received From Your Spouse If property is transferred to you from your spouse (or former spouse, if the transfer is incident to your divorce), your basis is the same as your spouse's or former spouse's adjusted basis just before the transfer. Hrblock com myreturnstatus See Transfers Between Spouses , later. Hrblock com myreturnstatus Recordkeeping. Hrblock com myreturnstatus The transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of the transfer. Hrblock com myreturnstatus Property Received as a Gift To figure your basis in property that you received as a gift, you must know its adjusted basis to the donor just before it was given to you, its fair market value at the time it was given to you, the amount of any gift tax paid on it, and the date it was given to you. Hrblock com myreturnstatus Fair market value less than donor's adjusted basis. Hrblock com myreturnstatus   If the fair market value of the property at the time of the gift was less than the donor's adjusted basis just before the gift, your basis for gain on its sale or other disposition is the same as the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. Hrblock com myreturnstatus Your basis for loss is its fair market value at the time of the gift plus or minus any required adjustments to basis during the period you hold the property. Hrblock com myreturnstatus No gain or loss. Hrblock com myreturnstatus   If you use the basis for figuring a gain and the result is a loss, and then use the basis for figuring a loss and the result is a gain, you will have neither a gain nor a loss. Hrblock com myreturnstatus Example. Hrblock com myreturnstatus You receive a gift of investment property having an adjusted basis of $10,000 at the time of the gift. Hrblock com myreturnstatus The fair market value at the time of the gift is $9,000. Hrblock com myreturnstatus You later sell the property for $9,500. Hrblock com myreturnstatus You have neither gain nor loss. Hrblock com myreturnstatus Your basis for figuring gain is $10,000, and $9,500 minus $10,000 results in a $500 loss. Hrblock com myreturnstatus Your basis for figuring loss is $9,000, and $9,500 minus $9,000 results in a $500 gain. Hrblock com myreturnstatus Fair market value equal to or more than donor's adjusted basis. Hrblock com myreturnstatus   If the fair market value of the property at the time of the gift was equal to or more than the donor's adjusted basis just before the gift, your basis for gain or loss on its sale or other disposition is the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. Hrblock com myreturnstatus Also, you may be allowed to add to the donor's adjusted basis all or part of any gift tax paid, depending on the date of the gift. Hrblock com myreturnstatus Gift received before 1977. Hrblock com myreturnstatus   If you received property as a gift before 1977, your basis in the property is the donor's adjusted basis increased by the total gift tax paid on the gift. Hrblock com myreturnstatus However, your basis cannot be more than the fair market value of the gift at the time it was given to you. Hrblock com myreturnstatus Example 1. Hrblock com myreturnstatus You were given XYZ Company stock in 1976. Hrblock com myreturnstatus At the time of the gift, the stock had a fair market value of $21,000. Hrblock com myreturnstatus The donor's adjusted basis was $20,000. Hrblock com myreturnstatus The donor paid a gift tax of $500 on the gift. Hrblock com myreturnstatus Your basis for gain or loss is $20,500, the donor's adjusted basis plus the amount of gift tax paid. Hrblock com myreturnstatus Example 2. Hrblock com myreturnstatus The facts are the same as in Example 1 except that the gift tax paid was $1,500. Hrblock com myreturnstatus Your basis is $21,000, the donor's adjusted basis plus the gift tax paid, but limited to the fair market value of the stock at the time of the gift. Hrblock com myreturnstatus Gift received after 1976. Hrblock com myreturnstatus   If you received property as a gift after 1976, your basis is the donor's adjusted basis increased by the part of the gift tax paid that was for the net increase in value of the gift. Hrblock com myreturnstatus You figure this part by multiplying the gift tax paid on the gift by a fraction. Hrblock com myreturnstatus The numerator (top part) is the net increase in value of the gift and the denominator (bottom part) is the amount of the gift. Hrblock com myreturnstatus   The net increase in value of the gift is the fair market value of the gift minus the donor's adjusted basis. Hrblock com myreturnstatus The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Hrblock com myreturnstatus Example. Hrblock com myreturnstatus In 2013, you received a gift of property from your mother. Hrblock com myreturnstatus At the time of the gift, the property had a fair market value of $101,000 and an adjusted basis to her of $40,000. Hrblock com myreturnstatus The amount of the gift for gift tax purposes was $87,000 ($101,000 minus the $14,000 annual exclusion), and your mother paid a gift tax of $21,000. Hrblock com myreturnstatus You figure your basis in the following way: Fair market value $101,000 Minus: Adjusted basis 40,000 Net increase in value of gift $61,000 Gift tax paid $21,000 Multiplied by . Hrblock com myreturnstatus 701 ($61,000 ÷ $87,000) . Hrblock com myreturnstatus 701 Gift tax due to net increase in value $14,721 Plus: Adjusted basis of property to  your mother 40,000 Your basis in the property $54,721 Part sale, part gift. Hrblock com myreturnstatus   If you get property in a transfer that is partly a sale and partly a gift, your basis is the larger of the amount you paid for the property or the transferor's adjusted basis in the property at the time of the transfer. Hrblock com myreturnstatus Add to that amount the amount of any gift tax paid on the gift, as described in the preceding discussion. Hrblock com myreturnstatus For figuring loss, your basis is limited to the property's fair market value at the time of the transfer. Hrblock com myreturnstatus Gift tax information. Hrblock com myreturnstatus   For information on gift tax, see Publication 950, Introduction to Estate and Gift Taxes. Hrblock com myreturnstatus For information on figuring the amount of gift tax to add to your basis, see Property Received as a Gift in Publication 551. Hrblock com myreturnstatus Property Received as Inheritance Before or after 2010. Hrblock com myreturnstatus   If you inherited property from a decedent who died before or after 2010, or who died in 2010 and the executor of the decedent's estate elected not to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, your basis in that property generally is its fair market value (its appraised value on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return) on: The date of the decedent's death, or The later alternate valuation date if the estate qualifies for, and elects to use, alternate valuation. Hrblock com myreturnstatus If no Form 706 was filed, use the appraised value on the date of death for state inheritance or transmission taxes. Hrblock com myreturnstatus For stocks and bonds, if no Form 706 was filed and there are no state inheritance or transmission taxes, see the Form 706 instructions for figuring the fair market value of the stocks and bonds on the date of the decedent's death. Hrblock com myreturnstatus Appreciated property you gave the decedent. Hrblock com myreturnstatus   Your basis in certain appreciated property that you inherited is the decedent's adjusted basis in the property immediately before death rather than its fair market value. Hrblock com myreturnstatus This applies to appreciated property that you or your spouse gave the decedent as a gift during the 1-year period ending on the date of death. Hrblock com myreturnstatus Appreciated property is any property whose fair market value on the day you gave it to the decedent was more than its adjusted basis. Hrblock com myreturnstatus More information. Hrblock com myreturnstatus   See Publication 551 for more information on the basis of inherited property, including community property, property held by a surviving tenant in a joint tenancy or tenancy by the entirety, a qualified joint interest, and a farm or closely held business. Hrblock com myreturnstatus Inherited in 2010 and executor elected to file Form 8939. Hrblock com myreturnstatus   If you inherited property from a decedent who died in 2010 and the executor made the election to file Form 8939, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to figure your basis. Hrblock com myreturnstatus Adjusted Basis Before you can figure any gain or loss on a sale, exchange, or other disposition of property or figure allowable depreciation, depletion, or amortization, you usually must make certain adjustments (increases and decreases) to the basis of the property. Hrblock com myreturnstatus The result of these adjustments to the basis is the adjusted basis. Hrblock com myreturnstatus Adjustments to the basis of stocks and bonds are explained in the following discussion. Hrblock com myreturnstatus For information about other adjustments to basis, see Publication 551. Hrblock com myreturnstatus Stocks and Bonds The basis of stocks or bonds you own generally is the purchase price plus the costs of purchase, such as commissions and recording or transfer fees. Hrblock com myreturnstatus If you acquired stock or bonds other than by purchase, your basis is usually determined by fair market value or the previous owner's adjusted basis as discussed earlier under Basis Other Than Cost . Hrblock com myreturnstatus The basis of stock must be adjusted for certain events that occur after purchase. Hrblock com myreturnstatus For example, if you receive more stock from nontaxable stock dividends or stock splits, you must reduce the basis of your original stock. Hrblock com myreturnstatus You must also reduce your basis when you receive nondividend distributions (discussed in chapter 1). Hrblock com myreturnstatus These distributions, up to the amount of your basis, are a nontaxable return of capital. Hrblock com myreturnstatus The IRS partners with companies that offer Form 8949 and Schedule D (Form 1040) software that can import trades from many brokerage firms and accounting software to help you keep track of your adjusted basis in securities. Hrblock com myreturnstatus To find out more, go to www. Hrblock com myreturnstatus irs. Hrblock com myreturnstatus gov/Filing/Filing-Options. Hrblock com myreturnstatus Identifying stock or bonds sold. Hrblock com myreturnstatus   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. Hrblock com myreturnstatus Adequate identification. Hrblock com myreturnstatus   You will make an adequate identification if you show that certificates representing shares of stock from a lot that you bought on a certain date or for a certain price were delivered to your broker or other agent. Hrblock com myreturnstatus Broker holds stock. Hrblock com myreturnstatus   If you have left the stock certificates with your broker or other agent, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred at the time of the sale or transfer, and Receive a written confirmation of this from your broker or other agent within a reasonable time. Hrblock com myreturnstatus  Stock identified this way is the stock sold or transferred even if stock certificates from a different lot are delivered to the broker or other agent. Hrblock com myreturnstatus Single stock certificate. Hrblock com myreturnstatus   If you bought stock in different lots at different times and you hold a single stock certificate for this stock, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred when you deliver the certificate to your broker or other agent, and Receive a written confirmation of this from your broker or other agent within a reasonable time. Hrblock com myreturnstatus   If you sell part of the stock represented by a single certificate directly to the buyer instead of through a broker, you will make an adequate identification if you keep a written record of the particular stock that you intend to sell. Hrblock com myreturnstatus Bonds. Hrblock com myreturnstatus   These methods of identification also apply to bonds sold or transferred. Hrblock com myreturnstatus Identification not possible. Hrblock com myreturnstatus   If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Hrblock com myreturnstatus Except for certain mutual fund shares, discussed later, you cannot use the average price per share to figure gain or loss on the sale of the shares. Hrblock com myreturnstatus Example. Hrblock com myreturnstatus You bought 100 shares of stock of XYZ Corporation in 1998 for $10 a share. Hrblock com myreturnstatus In January 1999 you bought another 200 shares for $11 a share. Hrblock com myreturnstatus In July 1999 you gave your son 50 shares. Hrblock com myreturnstatus In December 2001 you bought 100 shares for $9 a share. Hrblock com myreturnstatus In April 2013 you sold 130 shares. Hrblock com myreturnstatus You cannot identify the shares you disposed of, so you must use the stock you acquired first to figure the basis. Hrblock com myreturnstatus The shares of stock you gave your son had a basis of $500 (50 × $10). Hrblock com myreturnstatus You figure the basis of the 130 shares of stock you sold in 2013 as follows: 50 shares (50 × $10) balance of stock bought in 1998 $ 500 80 shares (80 × $11) stock bought in January 1999 880 Total basis of stock sold in 2013 $1,380 Shares in a mutual fund or REIT. Hrblock com myreturnstatus    The basis of shares in a mutual fund (or other regulated investment company) or a real estate investment trust (REIT) is generally figured in the same way as the basis of other stock and usually includes any commissions or load charges paid for the purchase. Hrblock com myreturnstatus Example. Hrblock com myreturnstatus You bought 100 shares of Fund A for $10 a share. Hrblock com myreturnstatus You paid a $50 commission to the broker for the purchase. Hrblock com myreturnstatus Your cost basis for each share is $10. Hrblock com myreturnstatus 50 ($1,050 ÷ 100). Hrblock com myreturnstatus Commissions and load charges. Hrblock com myreturnstatus   The fees and charges you pay to acquire or redeem shares of a mutual fund are not deductible. Hrblock com myreturnstatus You can usually add acquisition fees and charges to your cost of the shares and thereby increase your basis. Hrblock com myreturnstatus A fee paid to redeem the shares is usually a reduction in the redemption price (sales price). Hrblock com myreturnstatus   You cannot add your entire acquisition fee or load charge to the cost of the mutual fund shares acquired if all of the following conditions apply. Hrblock com myreturnstatus You get a reinvestment right because of the purchase of the shares or the payment of the fee or charge. Hrblock com myreturnstatus You dispose of the shares within 90 days of the purchase date. Hrblock com myreturnstatus You acquire new shares in the same mutual fund or another mutual fund, for which the fee or charge is reduced or waived because of the reinvestment right you got when you acquired the original shares. Hrblock com myreturnstatus   The amount of the original fee or charge in excess of the reduction in (3) is added to the cost of the original shares. Hrblock com myreturnstatus The rest of the original fee or charge is added to the cost basis of the new shares (unless all three conditions above also apply to the purchase of the new shares). Hrblock com myreturnstatus Choosing average basis for mutual fund shares. Hrblock com myreturnstatus   You can choose to use the average basis of mutual fund shares if you acquired the identical shares at various times and prices, or you acquired the shares after 2010 in connection with a dividend reinvestment plan, and left them on deposit in an account kept by a custodian or agent. Hrblock com myreturnstatus The methods you can use to figure average basis are explained later. Hrblock com myreturnstatus Undistributed capital gains. Hrblock com myreturnstatus   If you had to include in your income any undistributed capital gains of the mutual fund or REIT, increase your basis in the stock by the difference between the amount you included and the amount of tax paid for you by the fund or REIT. Hrblock com myreturnstatus See Undistributed capital gains of mutual funds and REITs under Capital Gain Distributions in chapter 1. Hrblock com myreturnstatus Reinvestment right. Hrblock com myreturnstatus   This is the right to acquire mutual fund shares in the same or another mutual fund without paying a fee or load charge, or by paying a reduced fee or load charge. Hrblock com myreturnstatus      The original cost basis of mutual fund shares you acquire by reinvesting your distributions is the amount of the distributions used to purchase each full or fractional share. Hrblock com myreturnstatus This rule applies even if the distribution is an exempt-interest dividend that you do not report as income. Hrblock com myreturnstatus Table 4-1. Hrblock com myreturnstatus This is a worksheet you can use to keep track of the adjusted basis of your mutual fund shares. Hrblock com myreturnstatus Enter the cost per share when you acquire new shares and any adjustments to their basis when the adjustment occurs. Hrblock com myreturnstatus This worksheet will help you figure the adjusted basis when you sell or redeem shares. Hrblock com myreturnstatus Table 4-1. Hrblock com myreturnstatus Mutual Fund Record Mutual Fund Acquired1 Adjustment to Basis Per Share Adjusted2 Basis Per Share Sold or redeemed Date Number of Shares Cost Per Share Date Number of Shares                                                                                                                                                                                                                                                                         1 Include share received from reinvestment of distributions. Hrblock com myreturnstatus 2 Cost plus or minus adjustments. Hrblock com myreturnstatus Automatic investment service. Hrblock com myreturnstatus   If you participate in an automatic investment service, your basis for each share of stock, including fractional shares, bought by the bank or other agent is the purchase price plus a share of the broker's commission. Hrblock com myreturnstatus Dividend reinvestment plans. Hrblock com myreturnstatus   If you participate in a dividend reinvestment plan and receive stock from the corporation at a discount, your basis is the full fair market value of the stock on the dividend payment date. Hrblock com myreturnstatus You must include the amount of the discount in your income. Hrblock com myreturnstatus Public utilities. Hrblock com myreturnstatus   If, before 1986, you excluded from income the value of stock you had received under a qualified public utility reinvestment plan, your basis in that stock is zero. Hrblock com myreturnstatus Stock dividends. Hrblock com myreturnstatus   Stock dividends are distributions made by a corporation of its own stock. Hrblock com myreturnstatus Generally, stock dividends are not taxable to you. Hrblock com myreturnstatus However, see Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1 for some exceptions. Hrblock com myreturnstatus If the stock dividends are not taxable, you must divide your basis for the old stock between the old and new stock. Hrblock com myreturnstatus New and old stock identical. Hrblock com myreturnstatus   If the new stock you received as a nontaxable dividend is identical to the old stock on which the dividend was declared, divide the adjusted basis of the old stock by the number of shares of old and new stock. Hrblock com myreturnstatus The result is your basis for each share of stock. Hrblock com myreturnstatus Example 1. Hrblock com myreturnstatus You owned one share of common stock that you bought for $45. Hrblock com myreturnstatus The corporation distributed two new shares of common stock for each share held. Hrblock com myreturnstatus You then had three shares of common stock. Hrblock com myreturnstatus Your basis in each share is $15 ($45 ÷ 3). Hrblock com myreturnstatus Example 2. Hrblock com myreturnstatus You owned two shares of common stock. Hrblock com myreturnstatus You bought one for $30 and the other for $45. Hrblock com myreturnstatus The corporation distributed two new shares of common stock for each share held. Hrblock com myreturnstatus You had six shares after the distribution—three with a basis of $10 each ($30 ÷ 3) and three with a basis of $15 each ($45 ÷ 3). Hrblock com myreturnstatus New and old stock not identical. Hrblock com myreturnstatus   If the new stock you received as a nontaxable dividend is not identical to the old stock on which it was declared, the basis of the new stock is calculated differently. Hrblock com myreturnstatus Divide the adjusted basis of the old stock between the old and the new stock in the ratio of the fair market value of each lot of stock to the total fair market value of both lots on the date of distribution of the new stock. Hrblock com myreturnstatus Example. Hrblock com myreturnstatus You bought a share of common stock for $100. Hrblock com myreturnstatus Later, the corporation distributed a share of preferred stock for each share of common stock held. Hrblock com myreturnstatus At the date of distribution, your common stock had a fair market value of $150 and the preferred stock had a fair market value of $50. Hrblock com myreturnstatus You figure the basis of the old and new stock by dividing your $100 basis between them. Hrblock com myreturnstatus The basis of your common stock is $75 (($150 ÷ $200) × $100), and the basis of the new preferred stock is $25 (($50 ÷ $200) × $100). Hrblock com myreturnstatus Stock bought at various times. Hrblock com myreturnstatus   Figure the basis of stock dividends received on stock you bought at various times and at different prices by allocating to each lot of stock the share of the stock dividends due to it. Hrblock com myreturnstatus Taxable stock dividends. Hrblock com myreturnstatus   If your stock dividend is taxable when you receive it, the basis of your new stock is its fair market value on the date of distribution. Hrblock com myreturnstatus The basis of your old stock does not change. Hrblock com myreturnstatus Stock splits. Hrblock com myreturnstatus   Figure the basis of stock splits in the same way as stock dividends if identical stock is distributed on the stock held. Hrblock com myreturnstatus Stock rights. Hrblock com myreturnstatus   A stock right is a right to acquire a corporation's stock. Hrblock com myreturnstatus It may be exercised, it may be sold if it has a market value, or it may expire. Hrblock com myreturnstatus Stock rights are rarely taxable when you receive them. Hrblock com myreturnstatus See Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1. Hrblock com myreturnstatus Taxable stock rights. Hrblock com myreturnstatus   If you receive stock rights that are taxable, the basis of the rights is their fair market value at the time of distribution. Hrblock com myreturnstatus The basis of the old stock does not change. Hrblock com myreturnstatus Nontaxable stock rights. Hrblock com myreturnstatus   If you receive nontaxable stock rights and allow them to expire, they have no basis. Hrblock com myreturnstatus   If you exercise or sell the nontaxable stock rights and if, at the time of distribution, the stock rights had a fair market value of 15% or more of the fair market value of the old stock, you must divide the adjusted basis of the old stock between the old stock and the stock rights. Hrblock com myreturnstatus Use a ratio of the fair market value of each to the total fair market value of both at the time of distribution. Hrblock com myreturnstatus   If the fair market value of the stock rights was less than 15%, their basis is zero. Hrblock com myreturnstatus However, you can choose to divide the basis of the old stock between the old stock and the stock rights. Hrblock com myreturnstatus To make the choice, attach a statement to your return for the year in which you received the rights, stating that you choose to divide the basis of the stock. Hrblock com myreturnstatus Basis of new stock. Hrblock com myreturnstatus   If you exercise the stock rights, the basis of the new stock is its cost plus the basis of the stock rights exercised. Hrblock com myreturnstatus Example. Hrblock com myreturnstatus You own 100 shares of ABC Company stock, which cost you $22 per share. Hrblock com myreturnstatus The ABC Company gave you 10 nontaxable stock rights that would allow you to buy 10 more shares at $26 per share. Hrblock com myreturnstatus At the time the stock rights were distributed, the stock had a market value of $30, not including the stock rights. Hrblock com myreturnstatus Each stock right had a market value of $3. Hrblock com myreturnstatus The market value of the stock rights was less than 15% of the market value of the stock, but you chose to divide the basis of your stock between the stock and the rights. Hrblock com myreturnstatus You figure the basis of the rights and the basis of the old stock as follows: 100 shares × $22 = $2,200, basis of old stock   100 shares × $30 = $3,000, market value of old stock   10 rights × $3 = $30, market value of rights   ($3,000 ÷ $3,030) × $2,200 = $2,178. Hrblock com myreturnstatus 22, new basis of old stock   ($30 ÷ $3,030) × $2,200 = $21. Hrblock com myreturnstatus 78, basis of rights   If you sell the rights, the basis for figuring gain or loss is $2. Hrblock com myreturnstatus 18 ($21. Hrblock com myreturnstatus 78 ÷ 10) per right. Hrblock com myreturnstatus If you exercise the rights, the basis of the stock you acquire is the price you pay ($26) plus the basis of the right exercised ($2. Hrblock com myreturnstatus 18), or $28. Hrblock com myreturnstatus 18 per share. Hrblock com myreturnstatus The remaining basis of the old stock is $21. Hrblock com myreturnstatus 78 per share. Hrblock com myreturnstatus Investment property received in liquidation. Hrblock com myreturnstatus   In general, if you receive investment property as a distribution in partial or complete liquidation of a corporation and if you recognize gain or loss when you acquire the property, your basis in the property is its fair market value at the time of the distribution. Hrblock com myreturnstatus S corporation stock. Hrblock com myreturnstatus   You must increase your basis in stock of an S corporation by your pro rata share of the following items. Hrblock com myreturnstatus All income items of the S corporation, including tax-exempt income, that are separately stated and passed through to you as a shareholder. Hrblock com myreturnstatus The nonseparately stated income of the S corporation. Hrblock com myreturnstatus The amount of the deduction for depletion (other than oil and gas depletion) that is more than the basis of the property being depleted. Hrblock com myreturnstatus   You must decrease your basis in stock of an S corporation by your pro rata share of the following items. Hrblock com myreturnstatus Distributions by the S corporation that were not included in your income. Hrblock com myreturnstatus All loss and deduction items of the S corporation that are separately stated and passed through to you. Hrblock com myreturnstatus Any nonseparately stated loss of the S corporation. Hrblock com myreturnstatus Any expense of the S corporation that is not deductible in figuring its taxable income and not properly chargeable to a capital account. Hrblock com myreturnstatus The amount of your deduction for depletion of oil and gas wells to the extent the deduction is not more than your share of the adjusted basis of the wells. Hrblock com myreturnstatus However, your basis in the stock cannot be reduced below zero. Hrblock com myreturnstatus Specialized small business investment company stock or partnership interest. Hrblock com myreturnstatus   If you bought this stock or interest as replacement property for publicly traded securities you sold at a gain, you must reduce the basis of the stock or interest by the amount of any postponed gain on that sale. Hrblock com myreturnstatus See Rollover of Gain From Publicly Traded Securities , later. Hrblock com myreturnstatus Qualified small business stock. Hrblock com myreturnstatus   If you bought this stock as replacement property for other qualified small business stock you sold at a gain, you must reduce the basis of this replacement stock by the amount of any postponed gain on the earlier sale. Hrblock com myreturnstatus See Gains on Qualified Small Business Stock , later. Hrblock com myreturnstatus Short sales. Hrblock com myreturnstatus   If you cannot deduct payments you make to a lender in lieu of dividends on stock used in a short sale, the amount you pay to the lender is a capital expense, and you must add it to the basis of the stock used to close the short sale. Hrblock com myreturnstatus   See Payments in lieu of dividends , later, for information about deducting payments in lieu of dividends. Hrblock com myreturnstatus Premiums on bonds. Hrblock com myreturnstatus   If you buy a bond at a premium, the premium is treated as part of your basis in the bond. Hrblock com myreturnstatus If you choose to amortize the premium paid on a taxable bond, you must reduce the basis of the bond by the amortized part of the premium each year over the life of the bond. Hrblock com myreturnstatus   Although you cannot deduct the premium on a tax-exempt bond, you must amortize it to determine your adjusted basis in the bond. Hrblock com myreturnstatus You must reduce the basis of the bond by the premium you amortized for the period you held the bond. Hrblock com myreturnstatus   See Bond Premium Amortization in chapter 3 for more information. Hrblock com myreturnstatus Market discount on bonds. Hrblock com myreturnstatus   If you include market discount on a bond in income currently, increase the basis of your bond by the amount of market discount you include in your income. Hrblock com myreturnstatus See Market Discount Bonds in chapter 1 for more information. Hrblock com myreturnstatus Bonds purchased at par value. Hrblock com myreturnstatus   A bond purchased at par value (face amount) has no premium or discount. Hrblock com myreturnstatus When you sell or otherwise dispose of the bond, you figure the gain or loss by comparing the bond proceeds to the purchase price of the bond. Hrblock com myreturnstatus Example. Hrblock com myreturnstatus You purchased a bond several years ago for its par value of $10,000. Hrblock com myreturnstatus You sold the bond this year for $10,100. Hrblock com myreturnstatus You have a gain of $100. Hrblock com myreturnstatus However, if you had sold the bond for $9,900, you would have a loss of $100. Hrblock com myreturnstatus Acquisition discount on short-term obligations. Hrblock com myreturnstatus   If you include acquisition discount on a short-term obligation in your income currently, increase the basis of the obligation by the amount of acquisition discount you include in your income. Hrblock com myreturnstatus See Discount on Short-Term Obligations in chapter 1 for more information. Hrblock com myreturnstatus Original issue discount (OID) on debt instruments. Hrblock com myreturnstatus   Increase the basis of a debt instrument by the OID you include in your income. Hrblock com myreturnstatus See Original Issue Discount (OID) in chapter 1. Hrblock com myreturnstatus Discounted tax-exempt obligations. Hrblock com myreturnstatus   OID on tax-exempt obligations is generally not taxable. Hrblock com myreturnstatus However, when you dispose of a tax-exempt obligation issued after September 3, 1982, that you acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. Hrblock com myreturnstatus The accrued OID is added to the basis of the obligation to determine your gain or loss. Hrblock com myreturnstatus   For information on determining OID on a long-term obligation, see Debt Instruments Issued After July 1, 1982, and Before 1985 or Debt Instruments Issued After 1984, whichever applies, in Publication 1212 under Figuring OID on Long-Term Debt Instruments. Hrblock com myreturnstatus   If the tax-exempt obligation has a maturity of 1 year or less, accrue OID under the rules for acquisition discount on short-term obligations. Hrblock com myreturnstatus See Discount on Short-Term Obligations in chapter 1. Hrblock com myreturnstatus Stripped tax-exempt obligation. Hrblock com myreturnstatus   If you acquired a stripped tax-exempt bond or coupon after October 22, 1986, you must accrue OID on it to determine its adjusted basis when you dispose of it. Hrblock com myreturnstatus For stripped tax-exempt bonds or coupons acquired after June 10, 1987, part of this OID may be taxable. Hrblock com myreturnstatus You accrue the OID on these obligations in the manner described in chapter 1 under Stripped Bonds and Coupons . Hrblock com myreturnstatus   Increase your basis in the stripped tax-exempt bond or coupon by the taxable and nontaxable accrued OID. Hrblock com myreturnstatus Also increase your basis by the interest that accrued (but was not paid and was not previously reflected in your basis) before the date you sold the bond or coupon. Hrblock com myreturnstatus In addition, for bonds acquired after June 10, 1987, add to your basis any accrued market discount not previously reflected in basis. Hrblock com myreturnstatus How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. Hrblock com myreturnstatus Gain. Hrblock com myreturnstatus   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. Hrblock com myreturnstatus Loss. Hrblock com myreturnstatus   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. Hrblock com myreturnstatus Amount realized. Hrblock com myreturnstatus   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). Hrblock com myreturnstatus Amount realized includes the money you receive plus the fair market value of any property or services you receive. Hrblock com myreturnstatus   If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. Hrblock com myreturnstatus For more information, see Publication 537. Hrblock com myreturnstatus   If a buyer of property issues a debt instrument to the seller of the property, the amount realized is determined by reference to the issue price of the debt instrument, which may or may not be the fair market value of the debt instrument. Hrblock com myreturnstatus See Regulations section 1. Hrblock com myreturnstatus 1001-1(g). Hrblock com myreturnstatus However, if the debt instrument was previously issued by a third party (one not part of the sale transaction), the fair market value of the debt instrument is used to determine the amount realized. Hrblock com myreturnstatus Fair market value. Hrblock com myreturnstatus   Fair market value is the price at which property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Hrblock com myreturnstatus Example. Hrblock com myreturnstatus You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. Hrblock com myreturnstatus Your gain is $3,000 ($10,000 – $7,000). Hrblock com myreturnstatus If you also receive a note for $6,000 that has an issue price of $6,000, your gain is $9,000 ($10,000 + $6,000 – $7,000). Hrblock com myreturnstatus Debt paid off. Hrblock com myreturnstatus   A debt against the property, or against you, that is paid off as a part of the transaction or that is assumed by the buyer must be included in the amount realized. Hrblock com myreturnstatus This is true even if neither you nor the buyer is personally liable for the debt. Hrblock com myreturnstatus For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. Hrblock com myreturnstatus Example. Hrblock com myreturnstatus You sell stock that you had pledged as security for a bank loan of $8,000. Hrblock com myreturnstatus Your basis in the stock is $6,000. Hrblock com myreturnstatus The buyer pays off your bank loan and pays you $20,000 in cash. Hrblock com myreturnstatus The amount realized is $28,000 ($20,000 + $8,000). Hrblock com myreturnstatus Your gain is $22,000 ($28,000 – $6,000). Hrblock com myreturnstatus Payment of cash. Hrblock com myreturnstatus   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. Hrblock com myreturnstatus Determine your gain or loss by subtracting the cash you pay and the adjusted basis of the property you trade in from the amount you realize. Hrblock com myreturnstatus If the result is a positive number, it is a gain. Hrblock com myreturnstatus If the result is a negative number, it is a loss. Hrblock com myreturnstatus No gain or loss. Hrblock com myreturnstatus   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. Hrblock com myreturnstatus In this case, you may have neither a gain nor a loss. Hrblock com myreturnstatus See No gain or loss in the discussion on the basis of property you received as a gift under Basis Other Than Cost, earlier. Hrblock com myreturnstatus Special Rules for Mutual Funds To figure your gain or loss when you dispose of mutual fund shares, you need to determine which shares were sold and the basis of those shares. Hrblock com myreturnstatus If your shares in a mutual fund were acquired all on the same day and for the same price, figuring their basis is not difficu