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Send Federal Income Tax Form 1040ez

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Send Federal Income Tax Form 1040ez

Send federal income tax form 1040ez IRAs and Other Retirement Plans Table of Contents 2002 ChangesSimplified Employee Pensions (SEPs) 403(b) Plans Later ChangeDeemed IRAs 2002 Changes Simplified Employee Pensions (SEPs) Contribution limit increased. Send federal income tax form 1040ez   For plan years beginning after December 31, 2001, the annual limit on the amount of employer contributions to a SEP increases to the lesser of the following amounts. Send federal income tax form 1040ez 25% of an eligible employee's compensation. Send federal income tax form 1040ez $40,000 (subject to cost-of-living adjustments after 2002). Send federal income tax form 1040ez Deduction limit. Send federal income tax form 1040ez   For years beginning after 2001, the following changes apply to the SEP deduction limit. Send federal income tax form 1040ez Elective deferrals (SARSEPs). Send federal income tax form 1040ez   Elective deferrals under a SARSEP are not subject to the deduction limit that applies to employer contributions. Send federal income tax form 1040ez Also, elective deferrals are not taken into account when figuring the amount you can deduct for employer contributions that are not elective deferrals. Send federal income tax form 1040ez Definition of compensation. Send federal income tax form 1040ez    Compensation for figuring the deduction for employer contributions includes elective deferrals under a SARSEP. Send federal income tax form 1040ez More information. Send federal income tax form 1040ez   For more information about SEPs, see Publication 560, Retirement Plans for Small Business. Send federal income tax form 1040ez 403(b) Plans Figuring catch-up contributions. Send federal income tax form 1040ez   When figuring allowable catch-up contributions, combine all contributions made by your employer on your behalf to the following plans. Send federal income tax form 1040ez Qualified retirement plans. Send federal income tax form 1040ez 403(b) plans. Send federal income tax form 1040ez Simplified employee pensions (SEP). Send federal income tax form 1040ez SIMPLE plans. Send federal income tax form 1040ez   The total amount of the catch-up contributions to all plans maintained by your employer cannot exceed the annual limit. Send federal income tax form 1040ez For 2002, the limit is $1,000. Send federal income tax form 1040ez Rollovers to and from 403(b) plans. Send federal income tax form 1040ez   If a distribution includes both pre-tax contributions and after-tax contributions, the portion of the distribution that is rolled over is treated as consisting first of pre-tax amounts (contributions and earnings that would be includible in income if no rollover occurred). Send federal income tax form 1040ez This means that if you roll over an amount that is at least as much as the pre-tax portion of the distribution, you do not have to include any of the distribution in income. Send federal income tax form 1040ez Years of service for church employees and ministers. Send federal income tax form 1040ez   If you are a minister or church employee, treat all of your years of service as an employee of a church or a convention or association of churches as years of service with one employer. Send federal income tax form 1040ez Prior law required church employees and ministers to figure years of service separately for each employer. Send federal income tax form 1040ez   As a minister or church employee, all contributions made to 403(b) plans on your behalf, as an employee of a church or a convention or association of churches, are considered made by one employer. Send federal income tax form 1040ez Foreign missionaries. Send federal income tax form 1040ez   If you are a foreign missionary, contributions to your 403(b) account will not be treated as exceeding the limit on annual additions if the contributions are not more than the greater of: $3,000, or Your includible compensation. Send federal income tax form 1040ez More information. Send federal income tax form 1040ez   For more information about 403(b) plans, see Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans). Send federal income tax form 1040ez Later Change Deemed IRAs For plan years beginning after 2002, a qualified employer plan can provide for voluntary employee contributions to a separate account or annuity that is deemed to be an IRA. Send federal income tax form 1040ez For this purpose, a qualified employer plan includes a deferred compensation plan (section 457(b) plan) maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state. Send federal income tax form 1040ez The term qualified employer plan also includes: A qualified pension, profit-sharing, or stock bonus plan (section 401(a) plan), A qualified employee annuity plan (section 403(a) plan), and A tax-sheltered annuity plan (section 403(b) plan). Send federal income tax form 1040ez More information about IRAs can be found in Publication 590, Individual Retirement Arrangements (IRAs). Send federal income tax form 1040ez Prev  Up  Next   Home   More Online Publications
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The Send Federal Income Tax Form 1040ez

Send federal income tax form 1040ez 6. Send federal income tax form 1040ez   Basis of Assets Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Cost BasisReal Property Allocating the Basis Uniform Capitalization Rules Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostTaxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Received as a Gift Property Transferred From a Spouse Inherited Property Property Distributed From a Partnership or Corporation Introduction Your basis is the amount of your investment in property for tax purposes. Send federal income tax form 1040ez Use basis to figure the gain or loss on the sale, exchange, or other disposition of property. Send federal income tax form 1040ez Also use basis to figure depreciation, amortization, depletion, and casualty losses. Send federal income tax form 1040ez If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Send federal income tax form 1040ez Only the basis allocated to the business or investment use of the property can be depreciated. Send federal income tax form 1040ez Your original basis in property is adjusted (increased or decreased) by certain events. Send federal income tax form 1040ez For example, if you make improvements to the property, increase your basis. Send federal income tax form 1040ez If you take deductions for depreciation, or casualty losses, or claim certain credits, reduce your basis. Send federal income tax form 1040ez Keep accurate records of all items that affect the basis of your assets. Send federal income tax form 1040ez For information on keeping records, see chapter 1. Send federal income tax form 1040ez Topics - This chapter discusses: Cost basis Adjusted basis Basis other than cost Useful Items - You may want to see: Publication 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property See chapter 16 for information about getting publications and forms. Send federal income tax form 1040ez Cost Basis The basis of property you buy is usually its cost. Send federal income tax form 1040ez Cost is the amount you pay in cash, debt obligations, other property, or services. Send federal income tax form 1040ez Your cost includes amounts you pay for sales tax, freight, installation, and testing. Send federal income tax form 1040ez The basis of real estate and business assets will include other items, discussed later. Send federal income tax form 1040ez Basis generally does not include interest payments. Send federal income tax form 1040ez However, see Carrying charges and Capitalized interest in chapter 4 of Publication 535. Send federal income tax form 1040ez You also may have to capitalize (add to basis) certain other costs related to buying or producing property. Send federal income tax form 1040ez Under the uniform capitalization rules, discussed later, you may have to capitalize direct costs and certain indirect costs of producing property. Send federal income tax form 1040ez Loans with low or no interest. Send federal income tax form 1040ez   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. Send federal income tax form 1040ez You generally have unstated interest if your interest rate is less than the applicable federal rate. Send federal income tax form 1040ez See the discussion of unstated interest in Publication 537, Installment Sales. Send federal income tax form 1040ez Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Send federal income tax form 1040ez If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Send federal income tax form 1040ez Some of these expenses are discussed next. Send federal income tax form 1040ez Lump sum purchase. Send federal income tax form 1040ez   If you buy improvements, such as buildings, and the land on which they stand for a lump sum, allocate your cost basis between the land and improvements. Send federal income tax form 1040ez Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. Send federal income tax form 1040ez Figure the basis of each asset by multiplying the lump sum by a fraction. Send federal income tax form 1040ez The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Send federal income tax form 1040ez Fair market value (FMV). Send federal income tax form 1040ez   FMV is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Send federal income tax form 1040ez Sales of similar property on or about the same date may help in figuring the FMV of the property. Send federal income tax form 1040ez If you are not certain of the FMV of the land and improvements, you can allocate the basis according to their assessed values for real estate tax purposes. Send federal income tax form 1040ez Real estate taxes. Send federal income tax form 1040ez   If you pay the 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. Send federal income tax form 1040ez   If you reimburse the seller for taxes the seller paid for you, you generally can deduct that amount as a tax expense. Send federal income tax form 1040ez Whether or not you reimburse the seller, do not include that amount in the basis of your property. Send federal income tax form 1040ez Settlement costs. Send federal income tax form 1040ez   Your basis includes the settlement fees and closing costs for buying the property. Send federal income tax form 1040ez See Publication 551 for a detailed list of items you can and cannot include in basis. Send federal income tax form 1040ez   Do not include fees and costs for getting a loan on the property. Send federal income tax form 1040ez Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Send federal income tax form 1040ez Points. Send federal income tax form 1040ez   If you pay points to get a loan (including a mortgage, second mortgage, or line-of-credit), do not add the points to the basis of the related property. Send federal income tax form 1040ez You may be able to deduct the points currently or over the term of the loan. Send federal income tax form 1040ez For more information about deducting points, see Points in chapter 4 of Publication 535. Send federal income tax form 1040ez Assumption of a mortgage. Send federal income tax form 1040ez   If you buy property and assume (or buy the property subject to) an existing mortgage, your basis includes the amount you pay for the property plus the amount you owe on the mortgage. Send federal income tax form 1040ez Example. Send federal income tax form 1040ez If you buy a farm for $100,000 cash and assume a mortgage of $400,000, your basis is $500,000. Send federal income tax form 1040ez Constructing assets. Send federal income tax form 1040ez   If you build property or have assets built for you, your expenses for this construction are part of your basis. Send federal income tax form 1040ez Some of these expenses include the following costs: Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. Send federal income tax form 1040ez   In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses. Send federal income tax form 1040ez You must capitalize them (include them in the asset's basis). Send federal income tax form 1040ez Employee wages paid for the construction work, reduced by any employment credits allowed. Send federal income tax form 1040ez Depreciation on equipment you own while it is used in the construction. Send federal income tax form 1040ez Operating and maintenance costs for equipment used in the construction. Send federal income tax form 1040ez The cost of business supplies and materials used in the construction. Send federal income tax form 1040ez    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. Send federal income tax form 1040ez Allocating the Basis In some instances, the rules for determining basis apply to a group of assets acquired in the same transaction or to property that consists of separate items. Send federal income tax form 1040ez To determine the basis of these assets or separate items, there must be an allocation of basis. Send federal income tax form 1040ez Group of assets acquired. Send federal income tax form 1040ez   If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. Send federal income tax form 1040ez Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. Send federal income tax form 1040ez You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. Send federal income tax form 1040ez 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. Send federal income tax form 1040ez Farming business acquired. Send federal income tax form 1040ez   If you buy a group of assets that makes up a farming business, there are special rules you must use to allocate the purchase price among the assets. Send federal income tax form 1040ez Generally, reduce the purchase price by any cash received. Send federal income tax form 1040ez Allocate the remaining purchase price to the other business assets received in proportion to (but not more than) their FMV and in a certain order. Send federal income tax form 1040ez See Trade or Business Acquired under Allocating the Basis in Publication 551 for more information. Send federal income tax form 1040ez Transplanted embryo. Send federal income tax form 1040ez   If you buy a cow that is pregnant with a transplanted embryo, allocate to the basis of the cow the part of the purchase price equal to the FMV of the cow without the implant. Send federal income tax form 1040ez Allocate the rest of the purchase price to the basis of the calf. Send federal income tax form 1040ez Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense. Send federal income tax form 1040ez Uniform Capitalization Rules Under the uniform capitalization rules, you must include certain direct and indirect costs in the basis of property you produce or in your inventory costs, rather than claim them as a current deduction. Send federal income tax form 1040ez You recover these costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Send federal income tax form 1040ez Generally, you are subject to the uniform capitalization rules if you do any of the following: Produce real or tangible personal property, or Acquire property for resale. Send federal income tax form 1040ez However, this rule does not apply to personal property if your average annual gross receipts for the 3-tax-year period ending with the year preceding the current tax year are $10 million or less. Send federal income tax form 1040ez You produce property if you construct, build, install, manufacture, develop, improve, or create the property. Send federal income tax form 1040ez You are not subject to the uniform capitalization rules if the property is produced for personal use. Send federal income tax form 1040ez In a farming business, you produce property if you raise or grow any agricultural or horticultural commodity, including plants and animals. Send federal income tax form 1040ez Plants. Send federal income tax form 1040ez   A plant produced in a farming business includes the following items: A fruit, nut, or other crop-bearing tree; An ornamental tree; A vine; A bush; Sod; and The crop or yield of a plant that will have more than one crop or yield. Send federal income tax form 1040ez Animals. Send federal income tax form 1040ez   An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life. Send federal income tax form 1040ez The direct and indirect costs of producing plants or animals include preparatory costs and preproductive period costs. Send federal income tax form 1040ez Preparatory costs include the acquisition costs of the seed, seedling, plant, or animal. Send federal income tax form 1040ez For plants, preproductive period costs include the costs of items such as irrigation, pruning, frost protection, spraying, and harvesting. Send federal income tax form 1040ez For animals, preproductive period costs include the costs of items such as feed, maintaining pasture or pen areas, breeding, veterinary services, and bedding. Send federal income tax form 1040ez Exceptions. Send federal income tax form 1040ez   In a farming business, the uniform capitalization rules do not apply to: Any animal, Any plant with a preproductive period of 2 years or less, or Any costs of replanting certain plants lost or damaged due to casualty. Send federal income tax form 1040ez   Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. Send federal income tax form 1040ez See Accrual Method Required under Accounting Methods in chapter 2. Send federal income tax form 1040ez   In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. Send federal income tax form 1040ez If you make this election, special rules apply. Send federal income tax form 1040ez This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. Send federal income tax form 1040ez This election also does not apply to any costs incurred for the planting, cultivation, maintenance, or development of any citrus or almond grove (or any part thereof) within the first 4 years the trees were planted. Send federal income tax form 1040ez    If you elect not to use the uniform capitalization rules, you must use the alternative depreciation system for all property used in any of your farming businesses and placed in service in any tax year during which the election is in effect. Send federal income tax form 1040ez See chapter 7, for additional information on depreciation. Send federal income tax form 1040ez Example. Send federal income tax form 1040ez You grow trees that have a preproductive period of more than 2 years. Send federal income tax form 1040ez The trees produce an annual crop. Send federal income tax form 1040ez You are an individual and the uniform capitalization rules apply to your farming business. Send federal income tax form 1040ez You must capitalize the direct costs and an allocable part of indirect costs incurred due to the production of the trees. Send federal income tax form 1040ez You are not required to capitalize the costs of producing the annual crop because its preproductive period is 2 years or less. Send federal income tax form 1040ez Preproductive period of more than 2 years. Send federal income tax form 1040ez   The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. Send federal income tax form 1040ez Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. Send federal income tax form 1040ez Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years. Send federal income tax form 1040ez More information. Send federal income tax form 1040ez   For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1. Send federal income tax form 1040ez 263A-4. Send federal income tax form 1040ez Table 6-1. Send federal income tax form 1040ez Plants With a Preproductive Period of More Than 2 Years Plants producing the following crops or yields have a nationwide weighted average preproductive period of more than 2 years. Send federal income tax form 1040ez Almonds Apples Apricots Avocados Blueberries Cherries Chestnuts Coffee beans Currants Dates Figs Grapefruit Grapes Guavas Kiwifruit Kumquats Lemons Limes Macadamia nuts Mangoes Nectarines Olives Oranges Peaches Pears Pecans Persimmons Pistachio nuts Plums Pomegranates Prunes Tangelos Tangerines Tangors Walnuts 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 cost basis or basis other than cost (discussed later) of the property. Send federal income tax form 1040ez The adjustments to the original basis are increases or decreases to the cost basis or other basis which result in the adjusted basis of the property. Send federal income tax form 1040ez Increases to Basis Increase the basis of any property by all items properly added to a capital account. Send federal income tax form 1040ez These include the cost of any improvements having a useful life of more than 1 year. Send federal income tax form 1040ez The following costs increase the basis of property. Send federal income tax form 1040ez The cost of extending utility service lines to property. Send federal income tax form 1040ez Legal fees, such as the cost of defending and perfecting title. Send federal income tax form 1040ez Legal fees for seeking a decrease in an assessment levied against property to pay for local improvements. Send federal income tax form 1040ez Assessments for items such as paving roads and building ditches that increase the value of the property assessed. Send federal income tax form 1040ez Do not deduct these expenses as taxes. Send federal income tax form 1040ez However, you can deduct as taxes amounts assessed for maintenance or repairs, or for meeting interest charges related to the improvements. Send federal income tax form 1040ez If you make additions or improvements to business property, depreciate the basis of each addition or improvement as separate depreciable property using the rules that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. Send federal income tax form 1040ez See chapter 7. Send federal income tax form 1040ez Deducting vs. Send federal income tax form 1040ez capitalizing costs. Send federal income tax form 1040ez   Do not add to your basis costs you can deduct as current expenses. Send federal income tax form 1040ez For example, amounts paid for incidental repairs or maintenance are deductible as business expenses and are not added to basis. Send federal income tax form 1040ez However, you can elect either to deduct or to capitalize certain other costs. Send federal income tax form 1040ez See chapter 7 in Publication 535. Send federal income tax form 1040ez Decreases to Basis The following are some items that reduce the basis of property. Send federal income tax form 1040ez Section 179 deduction. Send federal income tax form 1040ez Deductions previously allowed or allowable for amortization, depreciation, and depletion. Send federal income tax form 1040ez Alternative motor vehicle credit. Send federal income tax form 1040ez See Form 8910. Send federal income tax form 1040ez Alternative fuel vehicle refueling property credit. Send federal income tax form 1040ez See Form 8911. Send federal income tax form 1040ez Residential energy efficient property credits. Send federal income tax form 1040ez See Form 5695. Send federal income tax form 1040ez Investment credit (part or all) taken. Send federal income tax form 1040ez Casualty and theft losses and insurance reimbursements. Send federal income tax form 1040ez Payments you receive for granting an easement. Send federal income tax form 1040ez Exclusion from income of subsidies for energy conservation measures. Send federal income tax form 1040ez Certain canceled debt excluded from income. Send federal income tax form 1040ez Rebates from a manufacturer or seller. Send federal income tax form 1040ez Patronage dividends received from a cooperative association as a result of a purchase of property. Send federal income tax form 1040ez See Patronage Dividends in chapter 3. Send federal income tax form 1040ez Gas-guzzler tax. Send federal income tax form 1040ez See Form 6197. Send federal income tax form 1040ez Some of these items are discussed next. Send federal income tax form 1040ez For a more detailed list of items that decrease basis, see section 1016 of the Internal Revenue Code and Publication 551. Send federal income tax form 1040ez Depreciation and section 179 deduction. Send federal income tax form 1040ez   The adjustments you must make to the basis of the property if you take the section 179 deduction or depreciate the property are explained next. Send federal income tax form 1040ez For more information on these deductions, see chapter 7. Send federal income tax form 1040ez Section 179 deduction. Send federal income tax form 1040ez   If you take the section 179 expense deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. Send federal income tax form 1040ez Depreciation. Send federal income tax form 1040ez   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. Send federal income tax form 1040ez 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. Send federal income tax form 1040ez If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. Send federal income tax form 1040ez   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for any year. Send federal income tax form 1040ez   See chapter 7 for information on figuring the depreciation you should have claimed. Send federal income tax form 1040ez   In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation you must capitalize under the uniform capitalization rules. Send federal income tax form 1040ez Casualty and theft losses. Send federal income tax form 1040ez   If you have a casualty or theft loss, decrease the basis of the property by any insurance or other reimbursement. Send federal income tax form 1040ez Also, decrease it by any deductible loss not covered by insurance. Send federal income tax form 1040ez See chapter 11 for information about figuring your casualty or theft loss. Send federal income tax form 1040ez   You must increase your basis in the property by the amount you spend on clean-up costs (such as debris removal) and repairs that restore the property to its pre-casualty condition. Send federal income tax form 1040ez To make this determination, compare the repaired property to the property before the casualty. Send federal income tax form 1040ez Easements. Send federal income tax form 1040ez   The amount you receive for granting an easement is usually considered to be proceeds from the sale of an interest in the real property. Send federal income tax form 1040ez It reduces the basis of the affected part of the property. Send federal income tax form 1040ez 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. Send federal income tax form 1040ez See Easements and rights-of-way in chapter 3. Send federal income tax form 1040ez Exclusion from income of subsidies for energy conservation measures. Send federal income tax form 1040ez   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. Send federal income tax form 1040ez Reduce the basis of the property by the excluded amount. Send federal income tax form 1040ez Canceled debt excluded from income. Send federal income tax form 1040ez   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. Send federal income tax form 1040ez A debt includes any indebtedness for which you are liable or which attaches to property you hold. Send federal income tax form 1040ez   You can exclude your canceled debt from income if the debt is any of the following. Send federal income tax form 1040ez Debt canceled in a bankruptcy case or when you are insolvent. Send federal income tax form 1040ez Qualified farm debt. Send federal income tax form 1040ez Qualified real property business debt (provided you are not a C corporation). Send federal income tax form 1040ez Qualified principal residence indebtedness. Send federal income tax form 1040ez Discharge of certain indebtedness of a qualified individual because of Midwestern disasters. Send federal income tax form 1040ez If you exclude canceled debt described in (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. Send federal income tax form 1040ez If you exclude canceled debt described in (3), you must only reduce the basis of your depreciable property by the excluded amount. Send federal income tax form 1040ez   For more information about canceled debt in a bankruptcy case, see Publication 908, Bankruptcy Tax Guide. Send federal income tax form 1040ez For more information about insolvency and canceled debt that is qualified farm debt or qualified principal residence indebtedness, see chapter 3. Send federal income tax form 1040ez For more information about qualified real property business debt, see Publication 334, Tax Guide for Small Business. Send federal income tax form 1040ez For more information about canceled debt in Midwestern disaster areas, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Send federal income tax form 1040ez Basis Other Than Cost There are times when you cannot use cost as basis. Send federal income tax form 1040ez In these situations, the fair market value or the adjusted basis of property may be used. Send federal income tax form 1040ez Examples are discussed next. Send federal income tax form 1040ez Property changed from personal to business or rental use. Send federal income tax form 1040ez   When 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. Send federal income tax form 1040ez An example of changing property from personal to business use would be changing the use of your pickup truck that you originally purchased for your personal use to use in your farming business. Send federal income tax form 1040ez   The basis for depreciation is the lesser of: The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. Send federal income tax form 1040ez   If you later sell or dispose of this property, the basis you use will depend on whether you are figuring a gain or loss. Send federal income tax form 1040ez The basis for figuring a gain is your adjusted basis in the property when you sell the property. Send federal income tax form 1040ez 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. Send federal income tax form 1040ez Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Send federal income tax form 1040ez Property received for services. Send federal income tax form 1040ez   If you receive property for services, include the property's FMV in income. Send federal income tax form 1040ez The amount you include in income becomes your basis. Send federal income tax form 1040ez 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. Send federal income tax form 1040ez Example. Send federal income tax form 1040ez George Smith is an accountant and also operates a farming business. Send federal income tax form 1040ez George agreed to do some accounting work for his neighbor in exchange for a dairy cow. Send federal income tax form 1040ez The accounting work and the cow are each worth $1,500. Send federal income tax form 1040ez George must include $1,500 in income for his accounting services. Send federal income tax form 1040ez George's basis in the cow is $1,500. Send federal income tax form 1040ez Taxable Exchanges A taxable exchange is one in which the gain is taxable, or the loss is deductible. Send federal income tax form 1040ez A taxable gain or deductible loss also is known as a recognized gain or loss. Send federal income tax form 1040ez A taxable exchange occurs when you receive cash or get property that is not similar or related in use to the property exchanged. Send federal income tax form 1040ez If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. Send federal income tax form 1040ez Example. Send federal income tax form 1040ez You trade a tract of farmland with an adjusted basis of $2,000 for a tractor that has an FMV of $6,000. Send federal income tax form 1040ez You must report a taxable gain of $4,000 for the land. Send federal income tax form 1040ez The tractor has a basis of $6,000. Send federal income tax form 1040ez Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property you receive using the basis of the converted property. Send federal income tax form 1040ez Similar or related property. Send federal income tax form 1040ez   If the replacement property is similar or related in service or use to the converted property, the replacement property's basis is the same as the old property's basis on the date of the conversion. Send federal income tax form 1040ez However, make the following adjustments. Send federal income tax form 1040ez Decrease the basis by the following amounts. Send federal income tax form 1040ez Any loss you recognize on the involuntary conversion. Send federal income tax form 1040ez Any money you receive that you do not spend on similar property. Send federal income tax form 1040ez Increase the basis by the following amounts. Send federal income tax form 1040ez Any gain you recognize on the involuntary conversion. Send federal income tax form 1040ez Any cost of acquiring the replacement property. Send federal income tax form 1040ez Money or property not similar or related. Send federal income tax form 1040ez   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 replacement property is its cost decreased by the gain not recognized on the involuntary conversion. Send federal income tax form 1040ez Allocating the basis. Send federal income tax form 1040ez   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Send federal income tax form 1040ez Basis for depreciation. Send federal income tax form 1040ez   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Send federal income tax form 1040ez For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Send federal income tax form 1040ez For more information about involuntary conversions, see chapter 11. Send federal income tax form 1040ez Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Send federal income tax form 1040ez A nontaxable gain or loss also is known as an unrecognized gain or loss. Send federal income tax form 1040ez If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. Send federal income tax form 1040ez Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Send federal income tax form 1040ez For an exchange 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. Send federal income tax form 1040ez There must also be an exchange of like-kind property. Send federal income tax form 1040ez For more information, see Like-Kind Exchanges in  chapter 8. Send federal income tax form 1040ez The basis of the property you receive generally is the same as the adjusted basis of the property you gave up. Send federal income tax form 1040ez Example 1. Send federal income tax form 1040ez You traded a truck you used in your farming business for a new smaller truck to use in farming. Send federal income tax form 1040ez The adjusted basis of the old truck was $10,000. Send federal income tax form 1040ez The FMV of the new truck is $30,000. Send federal income tax form 1040ez Because this is a nontaxable exchange, you do not recognize any gain, and your basis in the new truck is $10,000, the same as the adjusted basis of the truck you traded. Send federal income tax form 1040ez Example 2. Send federal income tax form 1040ez You trade a field cultivator (adjusted basis of $8,000) for a planter (FMV of $9,000). Send federal income tax form 1040ez You use both the field cultivator and the planter in your farming business. Send federal income tax form 1040ez The basis of the planter you receive is $8,000, the same as the field cultivator traded Exchange expenses. Send federal income tax form 1040ez   Exchange expenses generally are the closing costs that you pay. Send federal income tax form 1040ez They include such items as brokerage commissions, attorney fees, and deed preparation fees. Send federal income tax form 1040ez Add them to the basis of the like-kind property you receive. Send federal income tax form 1040ez Property plus cash. Send federal income tax form 1040ez   If you trade property in a like-kind exchange and also pay money, the basis of the property you receive is the adjusted basis of the property you gave up plus the money you paid. Send federal income tax form 1040ez Example. Send federal income tax form 1040ez You trade in a truck (adjusted basis of $3,000) for another truck (FMV of $7,500) and pay $4,000. Send federal income tax form 1040ez Your basis in the new truck is $7,000 (the $3,000 adjusted basis of the old truck plus the $4,000 cash). Send federal income tax form 1040ez Special rules for related persons. Send federal income tax form 1040ez   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. Send federal income tax form 1040ez Each person must report any gain or loss not recognized on the original exchange unless the loss is not deductible under the related party rules. Send federal income tax form 1040ez Each person reports it on the tax return filed for the year in which the later disposition occurred. Send federal income tax form 1040ez If this rule applies, the basis of the property received in the original exchange will be its FMV. Send federal income tax form 1040ez For more information, see chapter 8. Send federal income tax form 1040ez Exchange of business property. Send federal income tax form 1040ez   Exchanging the property of one business for the property of another business generally is a multiple property exchange. Send federal income tax form 1040ez For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. Send federal income tax form 1040ez Basis for depreciation. Send federal income tax form 1040ez   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind transaction. Send federal income tax form 1040ez For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Send federal income tax form 1040ez Partially Nontaxable Exchanges A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Send federal income tax form 1040ez The basis of the property you receive is the same as the adjusted basis of the property you gave up with the following adjustments. Send federal income tax form 1040ez Decrease the basis by the following amounts. Send federal income tax form 1040ez Any money you receive. Send federal income tax form 1040ez Any loss you recognize on the exchange. Send federal income tax form 1040ez Increase the basis by the following amounts. Send federal income tax form 1040ez Any additional costs you incur. Send federal income tax form 1040ez Any gain you recognize on the exchange. Send federal income tax form 1040ez If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Send federal income tax form 1040ez Example 1. Send federal income tax form 1040ez You trade farmland (basis of $100,000) for another tract of farmland (FMV of $110,000) and $30,000 cash. Send federal income tax form 1040ez You realize a gain of $40,000. Send federal income tax form 1040ez This is the FMV of the land received plus the cash minus the basis of the land you traded ($110,000 + $30,000 − $100,000). Send federal income tax form 1040ez Include your gain in income (recognize gain) only to the extent of the cash received. Send federal income tax form 1040ez Your basis in the land you received is figured as follows. Send federal income tax form 1040ez Basis of land traded $100,000 Minus: Cash received (adjustment 1(a)) − 30,000   $70,000 Plus: Gain recognized (adjustment 2(b)) + 30,000 Basis of land received $100,000 Example 2. Send federal income tax form 1040ez You trade a truck (adjusted basis of $22,750) for another truck (FMV of $20,000) and $10,000 cash. Send federal income tax form 1040ez You realize a gain of $7,250. Send federal income tax form 1040ez This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($20,000 + $10,000 − $22,750). Send federal income tax form 1040ez You include all the gain in your income (recognize gain) because the gain is less than the cash you received. Send federal income tax form 1040ez Your basis in the truck you received is figured as follows. Send federal income tax form 1040ez Adjusted basis of truck traded $22,750 Minus: Cash received (adjustment 1(a)) −10,000   $12,750 Plus: Gain recognized (adjustment 2(b)) + 7,250 Basis of truck received $20,000 Allocation of basis. Send federal income tax form 1040ez   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Send federal income tax form 1040ez The rest is the basis of the like-kind property. Send federal income tax form 1040ez Example. Send federal income tax form 1040ez You traded a tractor with an adjusted basis of $15,000 for another tractor that had an FMV of $12,500. Send federal income tax form 1040ez You also received $1,000 cash and a truck that had an FMV of $3,000. Send federal income tax form 1040ez The truck is unlike property. Send federal income tax form 1040ez You realized a gain of $1,500. Send federal income tax form 1040ez This is the FMV of the tractor received plus the FMV of the truck received plus the cash minus the adjusted basis of the tractor you traded ($12,500 + $3,000 + $1,000 − $15,000). Send federal income tax form 1040ez 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. Send federal income tax form 1040ez Your basis in the properties you received is figured as follows. Send federal income tax form 1040ez Adjusted basis of old tractor $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). Send federal income tax form 1040ez This is the truck's FMV. Send federal income tax form 1040ez The rest ($12,500) is the basis of the tractor. Send federal income tax form 1040ez 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. Send federal income tax form 1040ez Example. Send federal income tax form 1040ez You used a tractor on your farm for 3 years. Send federal income tax form 1040ez Its adjusted basis is $22,000 and its FMV is $40,000. Send federal income tax form 1040ez You are interested in a new tractor, which sells for $60,000. Send federal income tax form 1040ez Ordinarily, you would trade your old tractor for the new one and pay the dealer $20,000. Send federal income tax form 1040ez Your basis for depreciating the new tractor would then be $42,000 ($20,000 + $22,000, the adjusted basis of your old tractor). Send federal income tax form 1040ez However, you want a higher basis for depreciating the new tractor, so you agree to pay the dealer $60,000 for the new tractor if he will pay you $40,000 for your old tractor. Send federal income tax form 1040ez Because the two transactions are dependent on each other, you are treated as having exchanged your old tractor for the new one and paid $20,000 ($60,000 − $40,000). Send federal income tax form 1040ez Your basis for depreciating the new tractor is $42,000, the same as if you traded the old tractor. Send federal income tax form 1040ez 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. Send federal income tax form 1040ez You also must know its FMV at the time it was given to you and any gift tax paid on it. Send federal income tax form 1040ez FMV equal to or greater than donor's adjusted basis. Send federal income tax form 1040ez   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 when you received the gift. Send federal income tax form 1040ez Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Send federal income tax form 1040ez   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 (the donor's adjusted basis) by any required adjustments to basis while you held the property. Send federal income tax form 1040ez See Adjusted Basis , earlier. Send federal income tax form 1040ez   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. Send federal income tax form 1040ez Figure the increase by multiplying the gift tax paid by the following fraction. Send federal income tax form 1040ez Net increase in value of the gift Amount of the gift   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Send federal income tax form 1040ez 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. Send federal income tax form 1040ez Example. Send federal income tax form 1040ez In 2013, you received a gift of property from your mother that had an FMV of $50,000. Send federal income tax form 1040ez Her adjusted basis was $20,000. Send federal income tax form 1040ez The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Send federal income tax form 1040ez She paid a gift tax of $7,320. Send federal income tax form 1040ez Your basis, $26,076, is figured as follows. Send federal income tax form 1040ez Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000 Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . Send federal income tax form 1040ez 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. Send federal income tax form 1040ez If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Send federal income tax form 1040ez However, your basis cannot exceed the FMV of the gift when it was given to you. Send federal income tax form 1040ez FMV less than donor's adjusted basis. Send federal income tax form 1040ez   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. Send federal income tax form 1040ez Your basis for figuring gain is the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Send federal income tax form 1040ez Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. Send federal income tax form 1040ez (See Adjusted Basis , earlier. Send federal income tax form 1040ez )   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 get a gain, you have neither gain nor loss on the sale or other disposition of the property. Send federal income tax form 1040ez Example. Send federal income tax form 1040ez You received farmland as a gift from your parents when they retired from farming. Send federal income tax form 1040ez At the time of the gift, the land had an FMV of $80,000. Send federal income tax form 1040ez Your parents' adjusted basis was $100,000. Send federal income tax form 1040ez After you received the land, no events occurred that would increase or decrease your basis. Send federal income tax form 1040ez If you sell the land for $120,000, you will have a $20,000 gain because you must use the donor's adjusted basis at the time of the gift ($100,000) as your basis to figure a gain. Send federal income tax form 1040ez If you sell the land for $70,000, you will have a $10,000 loss because you must use the FMV at the time of the gift ($80,000) as your basis to figure a loss. Send federal income tax form 1040ez If the sales price is between $80,000 and $100,000, you have neither gain nor loss. Send federal income tax form 1040ez For instance, if the sales price was $90,000 and you tried to figure a gain using the donor's adjusted basis ($100,000), you would get a $10,000 loss. Send federal income tax form 1040ez If you then tried to figure a loss using the FMV ($80,000), you would get a $10,000 gain. Send federal income tax form 1040ez Business property. Send federal income tax form 1040ez   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Send federal income tax form 1040ez Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. Send federal income tax form 1040ez The same rule applies to a transfer by your former spouse if the transfer is incident to divorce. Send federal income tax form 1040ez However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed plus the liabilities to which the property is subject are more than the adjusted basis of the property transferred. Send federal income tax form 1040ez The transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. Send federal income tax form 1040ez For more information, see Property Settlements in Publication 504, Divorced or Separated Individuals. Send federal income tax form 1040ez Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. Send federal income tax form 1040ez If a federal estate return is filed, you can use its appraised value. Send federal income tax form 1040ez The FMV on the alternate valuation date, if the personal representative for the estate elects to use alternate valuation. Send federal income tax form 1040ez For information on the alternate valuation, see the Instructions for Form 706. Send federal income tax form 1040ez The decedent's adjusted basis in land to the extent of the value that is excluded from the decedent's taxable estate as a qualified conservation easement. Send federal income tax form 1040ez 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. Send federal income tax form 1040ez Special-use valuation method. Send federal income tax form 1040ez   Under certain conditions, when a person dies, the executor or personal representative of that person's estate may elect to value qualified real property at other than its FMV. Send federal income tax form 1040ez If so, the executor or personal representative values the qualified real property based on its use as a farm or other closely held business. Send federal income tax form 1040ez If the executor or personal representative elects this method of valuation for estate tax purposes, this value is the basis of the property for the qualified heirs. Send federal income tax form 1040ez The qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. Send federal income tax form 1040ez   If you are a qualified heir who received special-use valuation property, increase your basis by any gain recognized by the estate or trust because of post-death appreciation. Send federal income tax form 1040ez 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 on the alternate valuation date. Send federal income tax form 1040ez Figure all FMVs without regard to the special-use valuation. Send federal income tax form 1040ez   You may be liable for an additional estate tax if, within 10 years after the death of the decedent, you transfer the property or the property stops being used as a farm. Send federal income tax form 1040ez This tax does not apply if you dispose of the property in a like-kind exchange or in an involuntary conversion in which all of the proceeds are reinvested in qualified replacement property. Send federal income tax form 1040ez The tax also does not apply if you transfer the property to a member of your family and certain requirements are met. Send federal income tax form 1040ez   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. Send federal income tax form 1040ez To increase your basis, 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 payment of the additional estate tax. Send federal income tax form 1040ez 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. Send federal income tax form 1040ez The increase in your basis is considered to have occurred immediately before the event that resulted in the additional estate tax. Send federal income tax form 1040ez   You make the election by filing, with Form 706-A, United States Additional Estate Tax Return, a statement that: Contains your (and the estate's) name, address, and taxpayer identification number; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which you are making the election; and Provides any additional information required by the Form 706-A instructions. Send federal income tax form 1040ez   For more information, see Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706-A, and the related instructions. Send federal income tax form 1040ez Property inherited from a decedent who died in 2010. Send federal income tax form 1040ez   If you inherited property from a decedent who died in 2010, different rules may apply. Send federal income tax form 1040ez See Publication 4895, Tax Treatment of Property Acquired From a Decendent Dying in 2010, for details. Send federal income tax form 1040ez Property Distributed From a Partnership or Corporation The following rules apply to determine a partner's basis and a shareholder's basis in property distributed respectively from a partnership to the partner with respect to the partner's interest in the partnership and from a corporation to the shareholder with respect to the shareholder's ownership of stock in the corporation. Send federal income tax form 1040ez Partner's basis. Send federal income tax form 1040ez   Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed by a partnership to the partner is its adjusted basis to the partnership immediately before the distribution. Send federal income tax form 1040ez However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. Send federal income tax form 1040ez For more information, see Partner's Basis for Distributed Property in Publication 541, Partnerships. Send federal income tax form 1040ez Shareholder's basis. Send federal income tax form 1040ez   The basis of property distributed by a corporation to a shareholder is its fair market value. Send federal income tax form 1040ez For more information about corporate distributions, see Distributions to Shareholders in Publication 542, Corporations. Send federal income tax form 1040ez Prev  Up  Next   Home   More Online Publications