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Prior Year Tax Returns

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Prior Year Tax Returns

Prior year tax returns Publication 15-B - Introductory Material Table of Contents Future Developments What's New Reminders Introduction Future Developments For the latest information about developments related to Publication 15-B, such as legislation enacted after it was published, go to www. Prior year tax returns irs. Prior year tax returns gov/pub15b. Prior year tax returns What's New Cents-per-mile rule. Prior year tax returns  The business mileage rate for 2014 is 56 cents per mile. Prior year tax returns You may use this rate to reimburse an employee for business use of a personal vehicle, and under certain conditions, you may use the rate under the cents-per-mile rule to value the personal use of a vehicle you provide to an employee. Prior year tax returns See Cents-Per-Mile Rule in section 3. Prior year tax returns Qualified parking exclusion and commuter transportation benefit. Prior year tax returns . Prior year tax returns  For 2014, the monthly exclusion for qualified parking is $250 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $130. Prior year tax returns See Qualified Transportation Benefits in section 2. Prior year tax returns Same-sex Marriage. Prior year tax returns  For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. Prior year tax returns For more information, see Revenue Ruling 2013-17, 2013-38 I. Prior year tax returns R. Prior year tax returns B. Prior year tax returns 201, available at www. Prior year tax returns irs. Prior year tax returns gov/irb/2013-38_IRB/ar07. Prior year tax returns html. Prior year tax returns Notice 2013-61 provides special administrative procedures for employers to make claims for refund or adjustments of overpayments of social security and Medicare taxes with respect to certain same-sex spouse benefits before expiration of the period of limitations. Prior year tax returns Notice 2013-61, 2013-44 I. Prior year tax returns R. Prior year tax returns B. Prior year tax returns 432, is available at www. Prior year tax returns irs. Prior year tax returns gov/irb/2013-44_IRB/ar10. Prior year tax returns html. Prior year tax returns Recent changes to certain rules for cafeteria plans. Prior year tax returns  Notice 2013-71, 2013-47 I. Prior year tax returns R. Prior year tax returns B. Prior year tax returns 532, available at www. Prior year tax returns irs. Prior year tax returns gov/irb/2013-47_IRB/ar10. Prior year tax returns html, discusses recent changes to the “use-or-lose” rule for health flexible spending arrangements (FSAs) and clarifies the transitional rule for 2013-2014 non-calendar year salary reduction elections. Prior year tax returns See Notice 2013-71 for details on these changes. Prior year tax returns Reminders $2,500 limit on a health flexible spending arrangement (FSA). Prior year tax returns  For plan years beginning after December 31, 2012, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,500. Prior year tax returns For plan years beginning after December 31, 2013, the limit is unchanged at $2,500. Prior year tax returns For more information, see Cafeteria Plans in section 1. Prior year tax returns Additional Medicare Tax withholding. Prior year tax returns  In addition to withholding Medicare tax at 1. Prior year tax returns 45%, you must withhold a 0. Prior year tax returns 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Prior year tax returns You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Prior year tax returns Additional Medicare Tax is only imposed on the employee. Prior year tax returns There is no employer share of Additional Medicare Tax. Prior year tax returns All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. Prior year tax returns Unless otherwise noted, references to Medicare tax include Additional Medicare Tax. Prior year tax returns For more information on what wages are subject to Medicare tax, see Table 2-1, later, and the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15, (Circular E), Employer's Tax Guide. Prior year tax returns For more information on Additional Medicare Tax, visit IRS. Prior year tax returns gov and enter “Additional Medicare Tax” in the search box. Prior year tax returns Photographs of missing children. Prior year tax returns  The IRS is a proud partner with the National Center for Missing and Exploited Children. Prior year tax returns Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Prior year tax returns You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Prior year tax returns Introduction This publication supplements Publication 15 (Circular E), Employer's Tax Guide, and Publication 15-A, Employer's Supplemental Tax Guide. Prior year tax returns It contains information for employers on the employment tax treatment of fringe benefits. Prior year tax returns Comments and suggestions. Prior year tax returns   We welcome your comments about this publication and your suggestions for future editions. Prior year tax returns   You can write to us at the following address:  Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Prior year tax returns NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Prior year tax returns Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Prior year tax returns   You can also send us comments from www. Prior year tax returns irs. Prior year tax returns gov/formspubs. Prior year tax returns Click on More Information and then click on Comment on Tax Forms and Publications. Prior year tax returns   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Prior year tax returns Prev  Up  Next   Home   More Online Publications
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The Prior Year Tax Returns

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