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Irs Amended Returns

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Irs Amended Returns

Irs amended returns Publication 970 - Additional Material Table of Contents AppendicesAppendix A. Irs amended returns Illustrated Example of Education Credits Glossary Appendices The following appendices are provided to help you claim the education benefits that will give you the lowest tax. Irs amended returns Appendix A—An illustrated example of education credits, including a filled-in Form 8863 showing how to claim both the American opportunity credit and lifetime learning credit for 2013. Irs amended returns Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. Irs amended returns It is intended only as a guide. Irs amended returns Look in this publication for more complete information. Irs amended returns   Appendix A. Irs amended returns Illustrated Example of Education Credits Dave and Valerie Jones are married and on their 2013 joint tax return they claim exemptions for their two dependent children, Sean (age 21, social security number: 000-00-0001) and Carey (age 18, social security number: 000–00–0002). Irs amended returns Their modified adjusted gross income (MAGI) on Form 1040, line 38 is $110,000. Irs amended returns Because Dave and Valerie have unusually high itemized deductions, their taxable income is $10,000 and their tax before credits is $1,000. Irs amended returns Sean enrolled as a full-time graduate student in August 2013 at California State College. Irs amended returns He graduated with his bachelor's degree in 2012 and did not attend school from January 2013 through July 2013. Irs amended returns His parents claimed the Hope Scholarship Credit for Sean for 2008 and the American opportunity credit for Sean for 2010, 2011, and 2012. Irs amended returns Carey enrolled full time as a freshman at the same college in January 2013 to begin working on her bachelor's degree. Irs amended returns In 2013, Dave and Valerie paid $7,000 in tuition for Sean and $8,500 in tuition for Carey. Irs amended returns California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Joneses' residence. Irs amended returns California State College reports amounts billed in 2013 instead of amounts paid during 2013. Irs amended returns In completing Form 8863, the Joneses use the amounts they paid. Irs amended returns Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2013. Irs amended returns Dave and Valerie figure their education credits by completing Form 8863. Irs amended returns They begin Form 8863 on page 2 before completing Part I on page 1. Irs amended returns Because the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey. Irs amended returns The Joneses decide to complete Part III for Carey first, as shown later. Irs amended returns They carry over the amount of $2,500 entered on Part III, line 30, to Part I, line 1. Irs amended returns The Joneses complete a separate Part III for their son Sean. Irs amended returns They check the “Yes” box on line 23, determine that Sean is not eligible for the American opportunity credit, and go to line 31 as instructed. Irs amended returns They figure their line 31 adjusted qualified education expenses for Sean to be $7,000. Irs amended returns Once they have completed Part III for each student, they figure their credits. Irs amended returns The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. Irs amended returns They enter the amount from line 8, $1,000, on line 66 of their Form 1040. Irs amended returns The Joneses enter $7,000 on Part II, line 10, of Form 8863 and figure their tentative lifetime learning credit for 2013 to be $1,400 (line 12). Irs amended returns They cannot claim the full amount because their MAGI of $110,000 is greater than $107,000. Irs amended returns They enter the reduced amount of $1,190 (figured on Part II, line 18) on the Credit Limit Worksheet, line 1. Irs amended returns The $1,190 is added to their nonrefundable American opportunity credit ($1,500 on line 2 of the Credit Limit Worksheet) for a total nonrefundable credit of $2,690. Irs amended returns The Joneses enter $1,000 on line 7 of the Credit Limit Worksheet, which is the smaller of their tax from line 46 of their Form 1040 (which is $1,000) or the $2,690 on line 3 of the Credit Limit Worksheet. Irs amended returns They enter $1,000 on line 19, Part II of Form 8863 and on line 49 of Form 1040. Irs amended returns This image is too large to be displayed in the current screen. Irs amended returns Please click the link to view the image. Irs amended returns Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Irs amended returns Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 8,500 2. Irs amended returns Less adjustments:     a. Irs amended returns Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Irs amended returns Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Irs amended returns Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Irs amended returns Total adjustments (add lines 2a, 2b, and 2c) 0 4. Irs amended returns Adjusted qualified education expenses. Irs amended returns Subtract line 3 from line 1. Irs amended returns If zero or less, enter -0- 8,500 This image is too large to be displayed in the current screen. Irs amended returns Please click the link to view the image. Irs amended returns Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Irs amended returns Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 7,000 2. Irs amended returns Less adjustments:     a. Irs amended returns Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Irs amended returns Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Irs amended returns Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Irs amended returns Total adjustments (add lines 2a, 2b, and 2c) 0 4. Irs amended returns Adjusted qualified education expenses. Irs amended returns Subtract line 3 from line 1. Irs amended returns If zero or less, enter -0- 7,000 Credit Limit Worksheet (Form 8863 instructions) Nonrefundable Credit Worksheet 1. Irs amended returns Enter the amount from Form 8863, line 18 1. Irs amended returns 1,190 2. Irs amended returns Enter the amount from Form 8863, line 9 2. Irs amended returns 1,500 3. Irs amended returns Add lines 1 and 2 3. Irs amended returns 2,690 4. Irs amended returns Enter the amount from: Form 1040, line 46; or Form 1040A, line 28 4. Irs amended returns 1,000 5. Irs amended returns Enter the amount from either: Form 1040, lines 47 and 48, and the amount from Schedule R included on Form 1040, line 53; or Form 1040A, lines 29 and 30 5. Irs amended returns 0 6. Irs amended returns Subtract line 5 from line 4 6. Irs amended returns 1,000 7. Irs amended returns   Enter the smaller of line 3 or line 6 here and on Form 8863, line 19 7. Irs amended returns 1,000 This image is too large to be displayed in the current screen. Irs amended returns Please click the link to view the image. Irs amended returns Form 8863 for Dave and Valerie Jones This image is too large to be displayed in the current screen. Irs amended returns Please click the link to view the image. Irs amended returns Carey Jones page 2 This image is too large to be displayed in the current screen. Irs amended returns Please click the link to view the image. Irs amended returns Filled-in Form 8863 Jones page 2 Appendix B. Irs amended returns Highlights of Education Tax Benefits for Tax Year 2013 This chart highlights some differences among the benefits discussed in this publication. Irs amended returns See the text for definitions and details. Irs amended returns Do not rely on this chart alone. Irs amended returns    Caution:You generally cannot claim more than one benefit for the same education expense. Irs amended returns   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What is your  benefit? Amounts received may not be taxable   Credits can reduce the amount of tax you have to pay. Irs amended returns    40% of the credit may be refundable (limited to $1,000 per student). Irs amended returns Credits can reduce amount of tax you must pay Can deduct interest paid Can deduct expenses Earnings not  taxed Earnings not taxed No 10%  additional tax on early distribution Interest not taxed Employer benefits not taxed Can deduct expenses What is the annual limit? None $2,500 credit per student $2,000 credit per tax return     $2,500 deduction $4,000 deduction $2,000 contribution per beneficiary None Amount of qualified  education expenses Amount of qualified  education expenses $5,250 exclusion Amount of qualifying work-related education expenses What expenses  qualify besides  tuition and required enrollment fees? Course-related expenses such as fees, books, supplies, and equipment Course-related books, supplies, and equipment Amounts paid for required books, etc. Irs amended returns , that must be paid to the educational institution, etc. Irs amended returns , are required fees Books Supplies Equipment  Room & board  Transportation  Other necessary expenses  None Books Supplies Equipment  Expenses for special needs services  Payments to QTP  Higher education: Room & board if  at least half-time  student  Elem/sec (K–12) education: Tutoring Room & board Uniforms Transportation Computer  access Supplementary expenses Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Payments to Coverdell ESA  Payments to QTP Books Supplies Equipment Transportation  Travel  Other necessary expenses   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What education qualifies? Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate  Courses to acquire or improve job skills    Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Required by employer or law to keep present job, salary, status  Maintain or improve job skills What are some of the other  conditions that  apply? Must be in degree or vocational program  Payment of tuition and required fees must be allowed under the grant Can be claimed for only 4 tax years (which includes years Hope Scholarship Credit claimed)  Must be enrolled at least half-time in degree program  No felony drug conviction(s)  Must not have completed first 4 years of postsecondary education before end of preceding tax year. Irs amended returns   No other conditions Must have been at least half-time  student in degree program Cannot claim both deduction & education credit for same student in same year Assets must be distributed at age 30 unless special  needs beneficiary No other conditions No other conditions Applies only to qualified series  EE bonds issued after 1989 or series I bonds No other conditions Cannot be to  meet minimum educational requirements of present trade/business  Cannot qualify  you for new trade/business   In what income  range do benefits  phase out? No phaseout $80,000 – $90,000  $160,000 – $180,000 for joint returns $53,000 – $63,000  $107,000 – $127,000 for joint returns $60,000 – $75,000  $125,000 –  $155,000 for  joint returns  $60,000 – $80,000  $130,000 –  $160,000 for  joint returns  $95,000 – $110,000  $190,000 – $220,000 for  joint returns No phaseout No phaseout   No phaseout No phaseout † Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses. Irs amended returns Glossary The education benefits included in this publication were enacted over many years, leading to a number of common terms being defined differently from one benefit to the next. Irs amended returns For example, an eligible educational institution means one thing when determining if earnings from a Coverdell education savings account are not taxable and something else when determining if a scholarship or fellowship is not taxable. Irs amended returns For each term listed below that has more than one definition, the definition for each education benefit is listed. Irs amended returns Academic period:   A semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Irs amended returns If an educational institution uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Irs amended returns Adjusted qualified education expenses (AQEE):    Qualified education expenses (defined later) reduced by any tax-free educational assistance, such as a tax-free scholarship or employer-provided educational assistance. Irs amended returns They must also be reduced by any qualified education expenses deducted elsewhere on your return, used to determine an education credit or other benefit, or used to determine a tax-free distribution. Irs amended returns For information on a specific benefit, see the appropriate chapter in this publication. Irs amended returns Candidate for a degree:   A student who meets either of the following requirements. Irs amended returns Attends a primary or secondary school or pursues a degree at a college or university, or Attends an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. Irs amended returns Designated beneficiary:   The individual named in the document creating the account/plan who is to receive the benefit of the funds in the account/plan. Irs amended returns Eligible educational institution:    American opportunity credit. Irs amended returns Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Irs amended returns It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Irs amended returns Coverdell education savings account (ESA). Irs amended returns Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Irs amended returns It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Irs amended returns Also included is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. Irs amended returns Education savings bond program. Irs amended returns Same as American opportunity credit in this category. Irs amended returns IRA, early distributions from. Irs amended returns Same as American opportunity credit in this category. Irs amended returns Lifetime learning credit. Irs amended returns Same as American opportunity credit in this category. Irs amended returns Qualified tuition program (QTP). Irs amended returns Same as American opportunity credit in this category. Irs amended returns Scholarships and fellowships. Irs amended returns An institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Irs amended returns Student loan, cancellation of. Irs amended returns Same as Scholarships and fellowships in this category. Irs amended returns Student loan interest deduction. Irs amended returns Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Irs amended returns It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Irs amended returns Also included is an institution that conducts an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Irs amended returns Tuition and fees deduction. Irs amended returns Same as American opportunity credit in this category. Irs amended returns Eligible student:    American opportunity credit. Irs amended returns A student who meets all of the following requirements for the tax year for which the credit is being determined. Irs amended returns Did not have expenses that were used to figure an American opportunity or Hope Scholarship Credit in any 4 earlier tax years. Irs amended returns Had not completed the first 4 years of postsecondary education (generally the freshman through senior years). Irs amended returns For at least one academic period beginning in the tax year, was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution. Irs amended returns Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. Irs amended returns Lifetime learning credit. Irs amended returns A student who is enrolled in one or more courses at an eligible educational institution. Irs amended returns Student loan interest deduction. Irs amended returns A student who was enrolled at least half-time in a program leading to a postsecondary degree, certificate, or other recognized educational credential at an eligible educational institution. Irs amended returns Tuition and fees deduction. Irs amended returns A student who is enrolled in one or more courses at an eligible educational institution. Irs amended returns Half-time student:   A student who is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Irs amended returns Modified adjusted gross income (MAGI):    American opportunity credit. Irs amended returns Adjusted gross income (AGI) as figured on the federal income tax return, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Irs amended returns Coverdell education savings account (ESA). Irs amended returns Same as American opportunity credit in this category. Irs amended returns Education savings bond program. Irs amended returns Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. Irs amended returns Lifetime learning credit. Irs amended returns Same as American opportunity credit in this category. Irs amended returns Student loan interest deduction. Irs amended returns Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any student loan interest deduction, tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Irs amended returns Tuition and fees deduction. Irs amended returns Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Irs amended returns Phaseout:   The amount of credit or deduction allowed is reduced when modified adjusted gross income (MAGI) is greater than a specified amount of income. Irs amended returns Qualified education expenses:   See pertinent chapter for specific items. Irs amended returns    American opportunity credit. Irs amended returns Tuition and certain related expenses (including student activity fees) required for enrollment or attendance at an eligible educational institution. Irs amended returns Books, supplies, and equipment needed for a course of study are included even if not purchased from the educational institution. Irs amended returns Does not include expenses for room and board. Irs amended returns Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program. Irs amended returns Coverdell education savings account (ESA). Irs amended returns Expenses related to or required for enrollment or attendance of the designated beneficiary at an eligible elementary, secondary, or postsecondary school. Irs amended returns Many specialized expenses included for K–12. Irs amended returns Also includes expenses for special needs services and contribution to qualified tuition program (QTP). Irs amended returns Education savings bond program. Irs amended returns Tuition and fees required to enroll at or attend an eligible educational institution. Irs amended returns Also includes contributions to a qualified tuition program (QTP) or Coverdell education savings account (ESA). Irs amended returns Does not include expenses for room and board. Irs amended returns Does not include expenses for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Irs amended returns IRA, early distributions from. Irs amended returns Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Irs amended returns Also includes expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. Irs amended returns Lifetime learning credit. Irs amended returns Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Irs amended returns Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Irs amended returns Does not include expenses for room and board. Irs amended returns Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program, unless taken by the student to acquire or improve job skills. Irs amended returns Qualified tuition program (QTP). Irs amended returns Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Irs amended returns Includes expenses for special needs services and computer access. Irs amended returns Scholarships and fellowships. Irs amended returns Expenses for tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Irs amended returns Course-related items must be required of all students in the course of instruction. Irs amended returns Student loan interest deduction. Irs amended returns Total costs of attending an eligible educational institution, including graduate school (however, limitations may apply to the cost of room and board allowed). Irs amended returns Tuition and fees deduction. Irs amended returns Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Irs amended returns Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Irs amended returns Recapture:   To include as income on your current year's return an amount allowed as a deduction in a prior year. Irs amended returns To include as tax on your current year's return an amount allowed as a credit in a prior year. Irs amended returns Rollover:   A tax-free distribution to you of cash or other assets from a tax-favored plan that you contribute to another tax-favored plan. Irs amended returns Transfer:   A movement of funds in a tax-favored plan from one trustee directly to another, either at your request or at the trustee's request. Irs amended returns Prev  Up  Next   Home   More Online Publications
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Page Last Reviewed or Updated: 20-Mar-2014

The Irs Amended Returns

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