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Tax Forms Online 2012

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Tax Forms Online 2012

Tax forms online 2012 Publication 1212 - Main Content Table of Contents Definitions Debt Instruments on the OID List Debt Instruments Not on the OID List Information for Brokers and Other MiddlemenShort-Term Obligations Redeemed at Maturity Long-Term Debt Instruments Certificates of Deposit Bearer Bonds and Coupons Backup Withholding Information for Owners of OID Debt InstrumentsExceptions. Tax forms online 2012 Adjustment for premium. Tax forms online 2012 Adjustment for acquisition premium. Tax forms online 2012 Adjustment for market discount. Tax forms online 2012 Form 1099-OID How To Report OID Figuring OID on Long-Term Debt Instruments Figuring OID on Stripped Bonds and Coupons How To Get Tax HelpLow Income Taxpayer Clinics Definitions The following terms are used throughout this publication. Tax forms online 2012 “Original issue discount” is defined first. Tax forms online 2012 The other terms are listed alphabetically. Tax forms online 2012 Original issue discount (OID). Tax forms online 2012   OID is a form of interest. Tax forms online 2012 It is the excess of a debt instrument's stated redemption price at maturity over its issue price (acquisition price for a stripped bond or coupon). Tax forms online 2012 Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID. Tax forms online 2012 Accrual period. Tax forms online 2012   An accrual period is an interval of time used to measure OID. Tax forms online 2012 The length of an accrual period can be 6 months, a year, or some other period, depending on when the debt instrument was issued. Tax forms online 2012 Acquisition premium. Tax forms online 2012   Acquisition premium is the excess of a debt instrument's adjusted basis immediately after purchase, including purchase at original issue, over the debt instrument's adjusted issue price at that time. Tax forms online 2012 A debt instrument does not have acquisition premium, however, if the debt instrument was purchased at a premium. Tax forms online 2012 See Premium, later. Tax forms online 2012 Adjusted issue price. Tax forms online 2012   The adjusted issue price of a debt instrument at the beginning of an accrual period is used to figure the OID allocable to that period. Tax forms online 2012 In general, the adjusted issue price at the beginning of the debt instrument's first accrual period is its issue price. Tax forms online 2012 The adjusted issue price at the beginning of any subsequent accrual period is the sum of the issue price and all the OID includible in income before that accrual period minus any payment previously made on the debt instrument, other than a payment of qualified stated interest. Tax forms online 2012 Debt instrument. Tax forms online 2012   The term “debt instrument” means any instrument or contractual arrangement that constitutes indebtedness under general principles of federal income tax law (including, for example, a bond, debenture, note, certificate, or other evidence of indebtedness). Tax forms online 2012 It generally does not include an annuity contract. Tax forms online 2012 Issue price. Tax forms online 2012   For debt instruments listed in Section I-A and Section I-B, the issue price generally is the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of these instruments was sold. Tax forms online 2012 Market discount. Tax forms online 2012   Market discount arises when a debt instrument purchased in the secondary market has decreased in value since its issue date, generally because of an increase in interest rates. Tax forms online 2012 An OID debt instrument has market discount if your adjusted basis in the debt instrument immediately after you acquired it (usually its purchase price) was less than the debt instrument's issue price plus the total OID that accrued before you acquired it. Tax forms online 2012 The market discount is the difference between the issue price plus accrued OID and your adjusted basis. Tax forms online 2012 Premium. Tax forms online 2012   A debt instrument is purchased at a premium if its adjusted basis immediately after purchase is greater than the total of all amounts payable on the debt instrument after the purchase date, other than qualified stated interest. Tax forms online 2012 The premium is the excess of the adjusted basis over the payable amounts. Tax forms online 2012 See Publication 550 for information on the tax treatment of bond premium. Tax forms online 2012 Qualified stated interest. Tax forms online 2012   In general, qualified stated interest is stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually over the term of the debt instrument at a single fixed rate. Tax forms online 2012 Stated redemption price at maturity. Tax forms online 2012   A debt instrument's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on the debt instrument other than qualified stated interest. Tax forms online 2012 Yield to maturity (YTM). Tax forms online 2012   In general, the YTM is the discount rate that, when used in figuring the present value of all principal and interest payments, produces an amount equal to the issue price of the debt instrument. Tax forms online 2012 The YTM is generally shown on the face of the debt instrument or in the literature you receive from your broker. Tax forms online 2012 If you do not have this information, consult your broker, tax advisor, or the issuer. Tax forms online 2012 Debt Instruments on the OID List The OID list on the IRS website can be used by brokers and other middlemen to prepare information returns. Tax forms online 2012 If you own a listed debt instrument, you generally should not rely on the information in the OID list to determine (or compare) the OID to be reported on your tax return. Tax forms online 2012 The OID amounts listed are figured without reference to the price or date at which you acquired the debt instrument. Tax forms online 2012 For information about determining the OID to be reported on your tax return, see the instructions for figuring OID under Information for Owners of OID Debt Instruments, later. Tax forms online 2012 The following discussions explain what information is contained in each section of the list. Tax forms online 2012 Section I. Tax forms online 2012   This section contains publicly offered, long-term debt instruments. Tax forms online 2012 Section I-A: Corporate Debt Instruments Issued Before 1985. Tax forms online 2012 Section I-B: Corporate Debt Instruments Issued After 1984. Tax forms online 2012 Section I-C: Inflation-Indexed Debt Instruments. Tax forms online 2012 For each publicly offered debt instrument in Section I, the list contains the following information. Tax forms online 2012 The name of the issuer. Tax forms online 2012 The Committee on Uniform Security Identification Procedures (CUSIP) number. Tax forms online 2012 The issue date. Tax forms online 2012 The maturity date. Tax forms online 2012 The issue price expressed as a percent of principal or of stated redemption price at maturity. Tax forms online 2012 The annual stated or coupon interest rate. Tax forms online 2012 (This rate is shown as 0. Tax forms online 2012 00 if no annual interest payments are provided. Tax forms online 2012 ) The yield to maturity will be added to Section I-B for bonds issued after December 31, 2006. Tax forms online 2012 The total OID accrued up to January 1 of a calendar year. Tax forms online 2012 (This information is not available for every instrument. Tax forms online 2012 ) For long-term debt instruments issued after July 1, 1982, the daily OID for the accrual periods falling in a calendar year and a subsequent year. Tax forms online 2012 The total OID per $1,000 of principal or maturity value for a calendar year and a subsequent year. Tax forms online 2012 Section II. Tax forms online 2012   This section contains stripped coupons and principal components of U. Tax forms online 2012 S. Tax forms online 2012 Treasury and Government-Sponsored Enterprise debt instruments. Tax forms online 2012 These stripped components are available through the Department of the Treasury's Separate Trading of Registered Interest and Principal of Securities (STRIPS) program and government-sponsored enterprises such as the Resolution Funding Corporation. Tax forms online 2012 This section also includes debt instruments backed by U. Tax forms online 2012 S. Tax forms online 2012 Treasury securities that represent ownership interests in those securities. Tax forms online 2012   The obligations listed in Section II are arranged by maturity date. Tax forms online 2012 The amounts listed are the total OID for a calendar year per $1,000 of redemption price. Tax forms online 2012 Section III. Tax forms online 2012   This section contains short-term discount obligations. Tax forms online 2012 Section III-A: Short-Term U. Tax forms online 2012 S. Tax forms online 2012 Treasury Bills. Tax forms online 2012 Section III-B: Federal Home Loan Banks. Tax forms online 2012 Section III-C: Federal National Mortgage Association. Tax forms online 2012 Section III-D: Federal Farm Credit Banks. Tax forms online 2012 Section III-E: Federal Home Loan Mortgage Corporation. Tax forms online 2012 Section III-F: Federal Agricultural Mortgage Corporation. Tax forms online 2012    Information that supplements Section III-A is available on the Internet at http://www. Tax forms online 2012 treasurydirect. Tax forms online 2012 gov/tdhome. Tax forms online 2012 htm. Tax forms online 2012   The short-term obligations listed in this section are arranged by maturity date. Tax forms online 2012 For each obligation, the list contains the CUSIP number, maturity date, issue date, issue price (expressed as a percent of principal), and discount to be reported as interest for a calendar year per $1,000 of redemption price. Tax forms online 2012 Brokers and other middlemen should rely on the issue price information in Section III only if they are unable to determine the price actually paid by the owner. Tax forms online 2012 Debt Instruments Not on the OID List The list of debt instruments discussed earlier does not contain the following items. Tax forms online 2012 U. Tax forms online 2012 S. Tax forms online 2012 savings bonds. Tax forms online 2012 Certificates of deposit and other face-amount certificates issued at a discount, including syndicated certificates of deposit. Tax forms online 2012 Obligations issued by tax-exempt organizations. Tax forms online 2012 OID debt instruments that matured or were entirely called by the issuer before the tables were posted on the IRS website. Tax forms online 2012 Mortgage-backed securities and mortgage participation certificates. Tax forms online 2012 Long-term OID debt instruments issued before May 28, 1969. Tax forms online 2012 Short-term obligations, other than the obligations listed in Section III. Tax forms online 2012 Debt instruments issued at a discount by states or their political subdivisions. Tax forms online 2012 REMIC regular interests and CDOs. Tax forms online 2012 Commercial paper and banker's acceptances issued at a discount. Tax forms online 2012 Obligations issued at a discount by individuals. Tax forms online 2012 Foreign obligations not traded in the United States and obligations not issued in the United States. Tax forms online 2012 Information for Brokers and Other Middlemen The following discussions contain specific instructions for brokers and middlemen who hold or redeem a debt instrument for the owner. Tax forms online 2012 In general, you must file a Form 1099 for the debt instrument if the interest or OID to be included in the owner's income for a calendar year totals $10 or more. Tax forms online 2012 You also must file a Form 1099 if you were required to deduct and withhold tax, even if the interest or OID is less than $10. Tax forms online 2012 See Backup Withholding, later. Tax forms online 2012 If you must file a Form 1099, furnish a copy to the owner of the debt instrument by January 31 in the year it is due. Tax forms online 2012 File all your Forms 1099 with the IRS, accompanied by Form 1096, by February 28 in the year it is due (March 31 if you file electronically). Tax forms online 2012 Electronic payee statements. Tax forms online 2012   You can issue Form 1099-OID electronically with the consent of the recipient. Tax forms online 2012 More information. Tax forms online 2012   For more information, including penalties for failure to file (or furnish) required information returns or statements, see the General Instructions for Certain Information Returns (Forms 1098, 1099, 3921, 3922, 5498, and W-2G) for the appropriate calendar year. Tax forms online 2012 Short-Term Obligations Redeemed at Maturity If you redeem a short-term discount obligation for the owner at maturity, you must report the discount as interest on Form 1099-INT. Tax forms online 2012 To figure the discount, use the purchase price shown on the owner's copy of the purchase confirmation receipt or similar record, or the price shown in your transaction records. Tax forms online 2012 If you sell the obligation for the owner before maturity, you must file Form 1099-B to reflect the gross proceeds to the seller. Tax forms online 2012 Do not report the accrued discount to the date of sale on either Form 1099-INT or Form 1099-OID. Tax forms online 2012 If the owner's purchase price cannot be determined, figure the discount as if the owner had purchased the obligation at its original issue price. Tax forms online 2012 A special rule is used to determine the original issue price for information reporting on U. Tax forms online 2012 S. Tax forms online 2012 Treasury bills (T-bills) listed in Section III-A. Tax forms online 2012 Under this rule, you treat as the original issue price of the T-bill the noncompetitive (weighted average of accepted auction bids) discount price for the longest-maturity T-bill maturing on the same date as the T-bill being redeemed. Tax forms online 2012 This noncompetitive discount price is the issue price (expressed as a percent of principal) shown in Section III-A. Tax forms online 2012 A similar rule is used to figure the discount on short-term discount obligations issued by the organizations listed in Section III-B through Section III-F. Tax forms online 2012 Example 1. Tax forms online 2012 There are 13-week and 26-week T-bills maturing on the same date as the T-bill being redeemed. Tax forms online 2012 The price actually paid by the owner cannot be established by owner or middleman records. Tax forms online 2012 You treat as the issue price of the T-bill the noncompetitive discount price (expressed as a percent of principal) shown in Section III-A for a 26-week bill maturing on the same date as the T-bill redeemed. Tax forms online 2012 The interest you report on Form 1099-INT is the OID (per $1,000 of principal) shown in Section III-A for that obligation. Tax forms online 2012 Long-Term Debt Instruments If you hold a long-term OID debt instrument as a nominee for the true owner, you generally must file Form 1099-OID. Tax forms online 2012 For this purpose, you can rely on Section I of the OID list to determine the following information. Tax forms online 2012 Whether a debt instrument has OID. Tax forms online 2012 The OID to be reported on the Form 1099-OID. Tax forms online 2012 In general, you must report OID on publicly offered, long-term debt instruments listed in Section I. Tax forms online 2012 You also can report OID on other long-term debt instruments. Tax forms online 2012 Form 1099-OID. Tax forms online 2012   On Form 1099-OID for a calendar year show the following information. Tax forms online 2012 Box 1. Tax forms online 2012 The OID for the actual dates the owner held the debt instruments during a calendar year. Tax forms online 2012 To determine this amount, see Figuring OID, next. Tax forms online 2012 Box 2. Tax forms online 2012 The qualified stated interest paid or credited during the calendar year. Tax forms online 2012 Interest reported here is not reported on Form 1099-INT. Tax forms online 2012 The qualified stated interest on Treasury inflation-protected securities may be reported on Form 1099-INT in box 3 instead. Tax forms online 2012 Box 3. Tax forms online 2012 Any interest or principal forfeited because of an early withdrawal that the owner can deduct from gross income. Tax forms online 2012 Do not reduce the amounts in boxes 1 and 2 by the forfeiture. Tax forms online 2012 Box 4. Tax forms online 2012 Any backup withholding for this debt instrument. Tax forms online 2012 Box 7. Tax forms online 2012 The CUSIP number, if any. Tax forms online 2012 If there is no CUSIP number, give a description of the debt instrument, including the abbreviation for the stock exchange, the abbreviation used by the stock exchange for the issuer, the coupon rate, and the year of maturity (for example, NYSE XYZ 12. Tax forms online 2012 50 2006). Tax forms online 2012 If the issuer of the debt instrument is other than the payer, show the name of the issuer in this box. Tax forms online 2012 Box 8. Tax forms online 2012 The OID on a U. Tax forms online 2012 S. Tax forms online 2012 Treasury obligation for the part of the year the owner held the debt instrument. Tax forms online 2012 Box 9. Tax forms online 2012 Investment expenses passed on to holders of a single-class REMIC. Tax forms online 2012 Boxes 10-12. Tax forms online 2012 Use to report any state income tax withheld for this debt instrument. Tax forms online 2012 Figuring OID. Tax forms online 2012   You can determine the OID on a long-term debt instrument by using either of the following. Tax forms online 2012 Section I of the OID list. Tax forms online 2012 The income tax regulations. Tax forms online 2012 Using Section I. Tax forms online 2012   If the owner held the debt instrument for the entire calendar year, report the OID shown in Section I for the calendar year. Tax forms online 2012 Because OID is listed for each $1,000 of stated redemption price at maturity, you must adjust the listed amount to reflect the debt instrument's actual stated redemption price at maturity. Tax forms online 2012 For example, if the debt instrument's stated redemption price at maturity is $500, report one-half the listed OID. Tax forms online 2012   If the owner held the debt instrument for less than the entire calendar year, figure the OID to report as follows. Tax forms online 2012 Look up the daily OID for the first accrual period in the calendar year during which the owner held the debt instrument. Tax forms online 2012 Multiply the daily OID by the number of days the owner held the debt instrument during that accrual period. Tax forms online 2012 Repeat steps (1) and (2) for any remaining accrual periods for the year during which the owner held the debt instrument. Tax forms online 2012 Add the results in steps (2) and (3) to determine the owner's OID per $1,000 of stated redemption price at maturity. Tax forms online 2012 If necessary, adjust the OID in (4) to reflect the debt instrument's stated redemption price at maturity. Tax forms online 2012 Report the result on Form 1099-OID in box 1. Tax forms online 2012 Using the income tax regulations. Tax forms online 2012   Instead of using Section I to figure OID, you can use the regulations under sections 1272 through 1275 of the Internal Revenue Code. Tax forms online 2012 For example, under the regulations, you can use monthly accrual periods in figuring OID for a debt instrument issued after April 3, 1994, that provides for monthly payments. Tax forms online 2012 (If you use Section I-B, the OID is figured using 6-month accrual periods. Tax forms online 2012 )   For a general explanation of the rules for figuring OID under the regulations, see Figuring OID on Long-Term Debt Instruments under Information for Owners of OID Debt Instruments, later. Tax forms online 2012 Certificates of Deposit If you hold a bank certificate of deposit (CD) as a nominee, you must determine whether the CD has OID and any OID includible in the income of the owner. Tax forms online 2012 You must file an information return showing the reportable interest and OID, if any, on the CD. Tax forms online 2012 These rules apply whether or not you sold the CD to the owner. Tax forms online 2012 Report OID on a CD in the same way as OID on other debt instruments. Tax forms online 2012 See Short-Term Obligations Redeemed at Maturity and Long-Term Debt Instruments, earlier. Tax forms online 2012 Bearer Bonds and Coupons If a coupon from a bearer bond is presented to you for collection before the bond matures, you generally must report the interest on Form 1099-INT. Tax forms online 2012 However, do not report the interest if either of the following apply. Tax forms online 2012 You hold the bond as a nominee for the true owner. Tax forms online 2012 The payee is a foreign person. Tax forms online 2012 See Payments to foreign person under Backup Withholding, later. Tax forms online 2012 Because you cannot assume the presenter of the coupon also owns the bond, you should not report OID on the bond on Form 1099-OID. Tax forms online 2012 The coupon may have been “stripped” (separated) from the bond and separately purchased. Tax forms online 2012 However, if a long-term bearer bond on the OID list is presented to you for redemption upon call or maturity, you should prepare a Form 1099-OID showing the OID for that calendar year, as well as any coupon interest payments collected at the time of redemption. Tax forms online 2012 Backup Withholding If you report OID on Form 1099-OID or interest on Form 1099-INT for a calendar year, you may be required to apply backup withholding to the reportable payment at a rate of 28%. Tax forms online 2012 The backup withholding is deducted at the time a cash payment is made. Tax forms online 2012 See Pub. Tax forms online 2012 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), for more information. Tax forms online 2012 Backup withholding generally applies in the following situations. Tax forms online 2012 The payee does not give you a taxpayer identification number (TIN). Tax forms online 2012 The IRS notifies you that the payee gave an incorrect TIN. Tax forms online 2012 The IRS notifies you that the payee is subject to backup withholding due to payee underreporting. Tax forms online 2012 For debt instruments acquired after 1983: The payee does not certify, under penalties of perjury, that he or she is not subject to backup withholding under (3), or The payee does not certify, under penalties of perjury, that the TIN given is correct. Tax forms online 2012 However, for short-term discount obligations (other than government obligations), bearer bonds and coupons, and U. Tax forms online 2012 S. Tax forms online 2012 savings bonds, backup withholding applies only if the payee does not give you a TIN or gives you an obviously incorrect number for a TIN. Tax forms online 2012 Short-term obligations. Tax forms online 2012   Backup withholding applies to OID on a short-term obligation only when the OID is paid at maturity. Tax forms online 2012 However, backup withholding applies to any interest payable before maturity when the interest is paid or credited. Tax forms online 2012   If the owner of a short-term obligation at maturity is not the original owner and can establish the purchase price of the obligation, the amount subject to backup withholding must be determined by treating the purchase price as the issue price. Tax forms online 2012 However, you can choose to disregard that price if it would require significant manual intervention in the computer or recordkeeping system used for the obligation. Tax forms online 2012 If the purchase price of a listed obligation is not established or is disregarded, you must use the issue price shown in Section III. Tax forms online 2012 Long-term obligations. Tax forms online 2012   If no cash payments are made on a long-term obligation before maturity, backup withholding applies only at maturity. Tax forms online 2012 The amount subject to backup withholding is the OID includible in the owner's gross income for the calendar year when the obligation matures. Tax forms online 2012 The amount to be withheld is limited to the cash paid. Tax forms online 2012 Registered long-term obligations with cash payments. Tax forms online 2012   If a registered long-term obligation has cash payments before maturity, backup withholding applies when a cash payment is made. Tax forms online 2012 The amount subject to backup withholding is the total of the qualified stated interest (defined earlier under Definitions) and OID includible in the owner's gross income for the calendar year when the payment is made. Tax forms online 2012 If more than one cash payment is made during the year, the OID subject to withholding for the year must be allocated among the expected cash payments in the ratio that each bears to the total of the expected cash payments. Tax forms online 2012 For any payment, the required withholding is limited to the cash paid. Tax forms online 2012 Payee not the original owner. Tax forms online 2012   If the payee is not the original owner of the obligation, the OID subject to backup withholding is the OID includible in the gross income of all owners during the calendar year (without regard to any amount paid by the new owner at the time of transfer). Tax forms online 2012 The amount subject to backup withholding at maturity of a listed obligation must be determined using the issue price shown in Section I. Tax forms online 2012 Bearer long-term obligations with cash payments. Tax forms online 2012   If a bearer long-term obligation has cash payments before maturity, backup withholding applies when the cash payments are made. Tax forms online 2012 For payments before maturity, the amount subject to withholding is the qualified stated interest (defined earlier under Definitions) includible in the owner's gross income for the calendar year. Tax forms online 2012 For a payment at maturity, the amount subject to withholding is only the total of any qualified stated interest paid at maturity and the OID includible in the owner's gross income for the calendar year when the obligation matures. Tax forms online 2012 The required withholding at maturity is limited to the cash paid. Tax forms online 2012 Sales and redemptions. Tax forms online 2012   If you report the gross proceeds from a sale, exchange, or redemption of a debt instrument on Form 1099-B for a calendar year, you may be required to withhold 28% of the amount reported. Tax forms online 2012 Backup withholding applies in the following situations. Tax forms online 2012 The payee does not give you a TIN. Tax forms online 2012 The IRS notifies you that the payee gave an incorrect TIN. Tax forms online 2012 For debt instruments held in an account opened after 1983, the payee does not certify, under penalties of perjury, that the TIN given is correct. Tax forms online 2012 Payments outside the United States to U. Tax forms online 2012 S. Tax forms online 2012 person. Tax forms online 2012   The requirements for backup withholding and information reporting apply to payments of OID and interest made outside the United States to a U. Tax forms online 2012 S. Tax forms online 2012 person, a controlled foreign corporation, or a foreign person at least 50% of whose income for the preceding 3-year period is effectively connected with the conduct of a U. Tax forms online 2012 S. Tax forms online 2012 trade or business. Tax forms online 2012 Payments to foreign person. Tax forms online 2012   The following discussions explain the rules for backup withholding and information reporting on payments to foreign persons. Tax forms online 2012 U. Tax forms online 2012 S. Tax forms online 2012 -source amount. Tax forms online 2012   Backup withholding and information reporting are not required for payments of U. Tax forms online 2012 S. Tax forms online 2012 -source OID, interest, or proceeds from a sale or redemption of an OID instrument if the payee has given you proof (generally the appropriate Form W-8 or an acceptable substitute) that the payee is a foreign person. Tax forms online 2012 A U. Tax forms online 2012 S. Tax forms online 2012 resident is not a foreign person. Tax forms online 2012 For proof of the payee's foreign status, you can rely on the appropriate Form W-8 or on documentary evidence for payments made outside the United States to an offshore account or, in case of broker proceeds, a sale effected outside the United States. Tax forms online 2012 Receipt of the appropriate Form W-8 does not relieve you from information reporting and backup withholding if you actually know the payee is a U. Tax forms online 2012 S. Tax forms online 2012 person. Tax forms online 2012   For information about the 28% withholding tax that may apply to payments of U. Tax forms online 2012 S. Tax forms online 2012 -source OID or interest to foreign persons, see Publication 515. Tax forms online 2012 Foreign-source amount. Tax forms online 2012   Backup withholding and information reporting are not required for payments of foreign-source OID and interest made outside the United States. Tax forms online 2012 However, if the payments are made inside the United States, the requirements for backup withholding and information reporting will apply unless the payee has given you the appropriate Form W-8 or acceptable substitute as proof that the payee is a foreign person. Tax forms online 2012 More information. Tax forms online 2012   For more information about backup withholding and information reporting on foreign-source amounts or payments to foreign persons, see Regulations section 1. Tax forms online 2012 6049-5. Tax forms online 2012 Information for Owners of OID Debt Instruments This section is for persons who prepare their own tax returns. Tax forms online 2012 It discusses the income tax rules for figuring and reporting OID on long-term debt instruments. Tax forms online 2012 It also includes a similar discussion for stripped bonds and coupons, such as zero coupon bonds available through the Department of the Treasury's STRIPS program and government-sponsored enterprises such as the Resolution Funding Corporation. Tax forms online 2012 However, the information provided does not cover every situation. Tax forms online 2012 More information can be found in the regulations under sections 1271 through 1275 of the Internal Revenue Code. Tax forms online 2012 Including OID in income. Tax forms online 2012   Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer. Tax forms online 2012 Exceptions. Tax forms online 2012   The rules for including OID in income as it accrues generally do not apply to the following debt instruments. Tax forms online 2012 U. Tax forms online 2012 S. Tax forms online 2012 savings bonds. Tax forms online 2012 Tax-exempt obligations. Tax forms online 2012 (However, see Tax-Exempt Bonds and Coupons, later. Tax forms online 2012 ) Obligations issued by individuals before March 2, 1984. Tax forms online 2012 Loans of $10,000 or less between individuals who are not in the business of lending money. Tax forms online 2012 (The dollar limit includes outstanding prior loans by the lender to the borrower. Tax forms online 2012 ) This exception does not apply if a principal purpose of the loan is to avoid any federal tax. Tax forms online 2012   See chapter 1 of Publication 550 for information about the rules for these and other types of discounted debt instruments, such as short-term and market discount obligations. Tax forms online 2012 Publication 550 also discusses rules for holders of REMIC interests and CDOs. Tax forms online 2012 De minimis rule. Tax forms online 2012   You can treat OID as zero if the total OID on a debt instrument is less than one-fourth of 1% (. Tax forms online 2012 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Tax forms online 2012 Debt instruments with de minimis OID are not listed in this publication. Tax forms online 2012 There are special rules to determine the de minimis amount in the case of debt instruments that provide for more than one payment of principal. Tax forms online 2012 Also, the de minimis rules generally do not apply to tax-exempt obligations. Tax forms online 2012 Example 2. Tax forms online 2012 You bought at issuance a 10-year debt instrument with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Tax forms online 2012 One-fourth of 1% of $1,000 (the stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Tax forms online 2012 Under the de minimis rule, you can treat the OID as zero because the $20 discount is less than $25. Tax forms online 2012 Example 3. Tax forms online 2012 Assume the same facts as Example 2, except the debt instrument was issued at $950. Tax forms online 2012 You must report part of the $50 OID each year because it is more than $25. Tax forms online 2012 Choice to report all interest as OID. Tax forms online 2012   Generally, you can choose to treat all interest on a debt instrument acquired after April 3, 1994, as OID and include it in gross income by using the constant yield method. Tax forms online 2012 See Constant yield method under Debt Instruments Issued After 1984, later, for more information. Tax forms online 2012   For this choice, interest includes stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. Tax forms online 2012 For more information, see Regulations section 1. Tax forms online 2012 1272-3. Tax forms online 2012 Purchase after date of original issue. Tax forms online 2012   A debt instrument you purchased after the date of original issue may have premium, acquisition premium, or market discount. Tax forms online 2012 If so, the OID reported to you on Form 1099-OID may have to be adjusted. Tax forms online 2012 For more information, see Showing an OID adjustment under How To Report OID, later. Tax forms online 2012 The following rules generally do not apply to contingent payment debt instruments. Tax forms online 2012 Adjustment for premium. Tax forms online 2012   If your debt instrument (other than an inflation-indexed debt instrument) has premium, do not report any OID as ordinary income. Tax forms online 2012 Your adjustment is the total OID shown on your Form 1099-OID. Tax forms online 2012 Adjustment for acquisition premium. Tax forms online 2012   If your debt instrument has acquisition premium, reduce the OID you report. Tax forms online 2012 Your adjustment is the difference between the OID shown on your Form 1099-OID and the reduced OID amount figured using the rules explained later under Figuring OID on Long-Term Debt Instruments. Tax forms online 2012 Adjustment for market discount. Tax forms online 2012   If your debt instrument has market discount that you choose to include in income currently, increase the OID you report. Tax forms online 2012 Your adjustment is the accrued market discount for the year. Tax forms online 2012 See Market Discount Bonds in chapter 1 of Publication 550 for information on how to figure accrued market discount and include it in your income currently and for other information about market discount bonds. Tax forms online 2012 If you choose to use the constant yield method to figure accrued market discount, also see Figuring OID on Long-Term Debt Instruments, later. Tax forms online 2012 The constant yield method of figuring accrued OID, explained in those discussions under Constant yield method, is also used to figure accrued market discount. Tax forms online 2012 For more information concerning premium or market discount on an inflation-indexed debt instrument, see Regulations section 1. Tax forms online 2012 1275-7. Tax forms online 2012 Sale, exchange, or redemption. Tax forms online 2012   Generally, you treat your gain or loss from the sale, exchange, or redemption of a discounted debt instrument as a capital gain or loss if you held the debt instrument as a capital asset. Tax forms online 2012 If you sold the debt instrument through a broker, you should receive Form 1099-B or an equivalent statement from the broker. Tax forms online 2012 Use the Form 1099-B or other statement and your brokerage statements to complete Form 8949, and Schedule D (Form 1040). Tax forms online 2012   Your gain or loss is the difference between the amount you realized on the sale, exchange, or redemption and your basis in the debt instrument. Tax forms online 2012 Your basis, generally, is your cost increased by the OID you have included in income each year you held it. Tax forms online 2012 In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Tax forms online 2012   See chapter 4 of Publication 550 for more information about the tax treatment of the sale or redemption of discounted debt instruments. Tax forms online 2012 Example 4. Tax forms online 2012 Larry, a calendar year taxpayer, bought a corporate debt instrument at original issue for $86,235. Tax forms online 2012 00 on November 1 of Year 1. Tax forms online 2012 The 15-year debt instrument matures on October 31 of Year 16 at a stated redemption price of $100,000. Tax forms online 2012 The debt instrument provides for semiannual payments of interest at 10%. Tax forms online 2012 Assume the debt instrument is a capital asset in Larry's hands. Tax forms online 2012 The debt instrument has $13,765. Tax forms online 2012 00 of OID ($100,000 stated redemption price at maturity minus $86,235. Tax forms online 2012 00 issue price). Tax forms online 2012 Larry sold the debt instrument for $90,000 on November 1 of Year 4. Tax forms online 2012 Including the OID he will report for the period he held the debt instrument in Year 4, Larry has included $4,556. Tax forms online 2012 00 of OID in income and has increased his basis by that amount to $90,791. Tax forms online 2012 00. Tax forms online 2012 Larry has realized a loss of $791. Tax forms online 2012 00. Tax forms online 2012 All of Larry's loss is capital loss. Tax forms online 2012 Form 1099-OID The issuer of the debt instrument (or your broker, if you purchased or held the debt instrument through a broker) should give you a copy of Form 1099-OID or a similar statement if the accrued OID for the calendar year is $10 or more and the term of the debt instrument is more than 1 year. Tax forms online 2012 Form 1099-OID shows all OID income in box 1 except OID on a U. Tax forms online 2012 S. Tax forms online 2012 Treasury obligation, which is shown in box 8. Tax forms online 2012 It also shows, in box 2, any qualified stated interest you must include in income. Tax forms online 2012 (However, any qualified stated interest on Treasury inflation-protected securities can be reported on Form 1099-INT in box 3. Tax forms online 2012 ) A copy of Form 1099-OID will be sent to the IRS. Tax forms online 2012 Do not attach your copy to your tax return. Tax forms online 2012 Keep it for your records. Tax forms online 2012 If you are required to file a tax return and you receive Form 1099-OID showing taxable amounts, you must report these amounts on your return. Tax forms online 2012 A 20% accuracy-related penalty may be charged for underpayment of tax due to either negligence or disregard of rules and regulations or substantial understatement of tax. Tax forms online 2012 Form 1099-OID not received. Tax forms online 2012   If you held an OID debt instrument for a calendar year but did not receive a Form 1099-OID, refer to the discussions under Figuring OID on Long-Term Debt Instruments, later, for information on the OID you must report. Tax forms online 2012 Refiguring OID. Tax forms online 2012   You must refigure the OID shown on Form 1099-OID, in box 1 or box 8, to determine the proper amount to include in income if one of the following applies. Tax forms online 2012 You bought the debt instrument at a premium or at an acquisition premium. Tax forms online 2012 The debt instrument is a stripped bond or coupon (including zero coupon bonds backed by U. Tax forms online 2012 S. Tax forms online 2012 Treasury securities). Tax forms online 2012 The debt instrument is a contingent payment or inflation-indexed debt instrument. Tax forms online 2012 See the discussions under Figuring OID on Long-Term Debt Instruments or Figuring OID on Stripped Bonds and Coupons, later, for the specific computations. Tax forms online 2012 Refiguring interest. Tax forms online 2012   If you disposed of a debt instrument or acquired it from another holder between interest dates, see the discussion under Bonds Sold Between Interest Dates in chapter 1 of Publication 550 for information about refiguring the interest shown on Form 1099-OID in box 2. Tax forms online 2012 Nominee. Tax forms online 2012   If you are the holder of an OID debt instrument and you receive a Form 1099-OID that shows your taxpayer identification number and includes amounts belonging to another person, you are considered a “nominee. Tax forms online 2012 ” You must file another Form 1099-OID for each actual owner, showing the OID for the owner. Tax forms online 2012 Show the owner of the debt instrument as the “recipient” and you as the “payer. Tax forms online 2012 ”   Complete Form 1099-OID and Form 1096 and file the forms with the Internal Revenue Service Center for your area. Tax forms online 2012 You must also give a copy of the Form 1099-OID to the actual owner. Tax forms online 2012 However, you are not required to file a nominee return to show amounts belonging to your spouse. Tax forms online 2012 See the Form 1099 instructions for more information. Tax forms online 2012   When preparing your tax return, follow the instructions under Showing an OID adjustment in the next discussion. Tax forms online 2012 How To Report OID Generally, you report your taxable interest and OID income on the interest line of Form 1040EZ, Form 1040A, or Form 1040. Tax forms online 2012 Form 1040 or Form 1040A required. Tax forms online 2012   You must use Form 1040 or Form 1040A (you cannot use Form 1040EZ) under either of the following conditions. Tax forms online 2012 You received a Form 1099-OID as a nominee for the actual owner. Tax forms online 2012 Your total interest and OID income for the year was more than $1,500. Tax forms online 2012 Form 1040 required. Tax forms online 2012   You must use Form 1040 (you cannot use Form 1040A or Form 1040EZ) if you are reporting more or less OID than the amount shown on Form 1099-OID, other than because you are a nominee. Tax forms online 2012 For example, if you paid a premium or an acquisition premium when you purchased the debt instrument, you must use Form 1040 because you will report less OID than shown on Form 1099-OID. Tax forms online 2012 Also, you must use Form 1040 if you were charged an early withdrawal penalty. Tax forms online 2012 Where to report. Tax forms online 2012   List each payer's name (if a brokerage firm gave you a Form 1099, list the brokerage firm as the payer) and the amount received from each payer on Form 1040A, Schedule B, Part I, line 1, or Form 1040, Schedule B, line 1. Tax forms online 2012 Include all OID and periodic interest shown on any Form 1099-OID, boxes 1, 2, and 8, you received for the tax year. Tax forms online 2012 Also include any other OID and interest income for which you did not receive a Form 1099. Tax forms online 2012 Showing an OID adjustment. Tax forms online 2012   If you use Form 1040 to report more or less OID than shown on Form 1099-OID, list the full OID on Schedule B, Part I, line 1, and follow the instructions under 1 or 2, next. Tax forms online 2012   If you use Form 1040A to report the OID shown on a Form 1099-OID you received as a nominee for the actual owner, list the full OID on Schedule B, Part I, line 1 and follow the instructions under 1. Tax forms online 2012 If the OID, as adjusted, is less than the amount shown on Form 1099-OID, show the adjustment as follows. Tax forms online 2012 Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Tax forms online 2012 Below the subtotal, write “Nominee Distribution” or “OID Adjustment” and show the OID you are not required to report. Tax forms online 2012 Subtract that OID from the subtotal and enter the result on line 2. Tax forms online 2012 If the OID, as adjusted, is more than the amount shown on Form 1099-OID, show the adjustment as follows. Tax forms online 2012 Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Tax forms online 2012 Below the subtotal, write “OID Adjustment” and show the additional OID. Tax forms online 2012 Add that OID to the subtotal and enter the result on line 2. Tax forms online 2012 Figuring OID on Long-Term Debt Instruments How you figure the OID on a long-term debt instrument depends on the date it was issued. Tax forms online 2012 It also may depend on the type of the debt instrument. Tax forms online 2012 There are different rules for each of the following debt instruments. Tax forms online 2012 Corporate debt instruments issued after 1954 and before May 28, 1969, and government debt instruments issued after 1954 and before July 2, 1982. Tax forms online 2012 Corporate debt instruments issued after May 27, 1969, and before July 2, 1982. Tax forms online 2012 Debt instruments issued after July 1, 1982, and before 1985. Tax forms online 2012 Debt instruments issued after 1984 (other than debt instruments described in (5) and (6)). Tax forms online 2012 Contingent payment debt instruments issued after August 12, 1996. Tax forms online 2012 Inflation-indexed debt instruments (including Treasury inflation-protected securities) issued after January 5, 1997. Tax forms online 2012 Zero coupon bonds. Tax forms online 2012   The rules for figuring OID on zero coupon bonds backed by U. Tax forms online 2012 S. Tax forms online 2012 Treasury securities are discussed under Figuring OID on Stripped Bonds and Coupons, later. Tax forms online 2012 Corporate Debt Instruments Issued After 1954 and Before May 28, 1969, and Government Debt Instruments Issued After 1954 and Before July 2, 1982 If you hold these debt instruments as capital assets, you include OID in income only in the year the debt instrument is sold, exchanged, or redeemed, and only if you have a gain. Tax forms online 2012 The OID, which is taxed as ordinary income, generally equals the following amount. Tax forms online 2012   number of full months you held the debt instrument  number of full months from date of original issue to date of maturity X original issue discount The balance of the gain is capital gain. Tax forms online 2012 If there is a loss on the sale of the debt instrument, the entire loss is a capital loss and no OID is reported. Tax forms online 2012 Corporate Debt Instruments Issued After May 27, 1969, and Before July 2, 1982 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments. Tax forms online 2012 For information about showing the correct OID on your tax return, see the discussion under How To Report OID, earlier. Tax forms online 2012 Your basis in the debt instrument is increased by the OID you include in income. Tax forms online 2012 Form 1099-OID. Tax forms online 2012   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Tax forms online 2012 However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Tax forms online 2012 See Reduction for acquisition premium, later. Tax forms online 2012 If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Tax forms online 2012 irs. Tax forms online 2012 gov/pub1212 by clicking the link under Recent Developments. Tax forms online 2012 Form 1099-OID not received. Tax forms online 2012    The OID listed is for each $1,000 of redemption price. Tax forms online 2012 You must adjust the listed amount if your debt instrument has a different principal amount. Tax forms online 2012 For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Tax forms online 2012   If you held the debt instrument the entire year, use the OID shown in Section I-A for a calendar year. Tax forms online 2012 (If your debt instrument is not listed in Section I-A, consult the issuer for information about the issue price and the OID that accrued for that year. Tax forms online 2012 ) If you did not hold the debt instrument the entire year, figure your OID using the following method. Tax forms online 2012 Divide the OID shown by 12. Tax forms online 2012 Multiply the result in (1) by the number of complete and partial months (for example, 6½ months) you held the debt instrument during a calendar year. Tax forms online 2012 This is the OID to include in income unless you paid an acquisition premium. Tax forms online 2012 The reduction for acquisition premium is discussed next. Tax forms online 2012 Reduction for acquisition premium. Tax forms online 2012   If you bought the debt instrument at an acquisition premium, figure the OID to include in income as follows. Tax forms online 2012 Divide the total OID on the debt instrument by the number of complete months, and any part of a month, from the date of original issue to the maturity date. Tax forms online 2012 This is the monthly OID. Tax forms online 2012 Subtract from your cost the issue price and the accumulated OID from the date of issue to the date of purchase. Tax forms online 2012 (If the result is zero or less, stop here. Tax forms online 2012 You did not pay an acquisition premium. Tax forms online 2012 ) Divide the amount figured in (2) by the number of complete months, and any part of a month, from the date of your purchase to the maturity date. Tax forms online 2012 Subtract the amount figured in (3) from the amount figured in (1). Tax forms online 2012 This is the OID to include in income for each month you hold the debt instrument during the year. Tax forms online 2012 Transfers during the month. Tax forms online 2012   If you buy or sell a debt instrument on any day other than the same day of the month as the date of original issue, the ratable monthly portion of OID for the month of sale is divided between the seller and the buyer according to the number of days each held the debt instrument. Tax forms online 2012 Your holding period for this purpose begins the day you acquire the debt instrument and ends the day before you dispose of it. Tax forms online 2012 Debt Instruments Issued After July 1, 1982, and Before 1985 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments and increase your basis by the amount included. Tax forms online 2012 For information about showing the correct OID on your tax return, see How To Report OID, earlier. Tax forms online 2012 Form 1099-OID. Tax forms online 2012   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Tax forms online 2012 However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Tax forms online 2012 See Constant yield method and the discussions on acquisition premium that follow, later. Tax forms online 2012 If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Tax forms online 2012 irs. Tax forms online 2012 gov/pub1212 by clicking the link under Recent Developments. Tax forms online 2012 Form 1099-OID not received. Tax forms online 2012    The OID listed is for each $1,000 of redemption price. Tax forms online 2012 You must adjust the listed amount if your debt instrument has a different principal amount. Tax forms online 2012 For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Tax forms online 2012   If you held the debt instrument the entire year, use the OID shown in Section I-A. Tax forms online 2012 (If your instrument is not listed in Section I-A, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Tax forms online 2012 ) If you did not hold the debt instrument the entire year, figure your OID using either of the following methods. Tax forms online 2012 Method 1. Tax forms online 2012    Divide the total OID for a calendar year by 365 (366 for leap years). Tax forms online 2012 Multiply the result in (1) by the number of days you held the debt instrument during that particular year. Tax forms online 2012  This computation is an approximation and may result in a slightly higher OID than Method 2. Tax forms online 2012 Method 2. Tax forms online 2012    Look up the daily OID for the first accrual period you held the debt instrument during a calendar year. Tax forms online 2012 (See Accrual period under Constant yield method, next. Tax forms online 2012 ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Tax forms online 2012 If you held the debt instrument for part of both accrual periods, repeat (1) and (2) for the second accrual period. Tax forms online 2012 Add the results of (2) and (3). Tax forms online 2012 This is the OID to include in income, unless you paid an acquisition premium. Tax forms online 2012 (The reduction for acquisition premium is discussed later. Tax forms online 2012 ) Constant yield method. Tax forms online 2012   This discussion shows how to figure OID on debt instruments issued after July 1, 1982, and before 1985, using a constant yield method. Tax forms online 2012 OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Tax forms online 2012   Figure the OID allocable to any accrual period as follows. Tax forms online 2012 Multiply the adjusted issue price at the beginning of the accrual period by the debt instrument's yield to maturity. Tax forms online 2012 Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Tax forms online 2012 Accrual period. Tax forms online 2012   An accrual period for any OID debt instrument issued after July 1, 1982, and before 1985 is each 1-year period beginning on the date of the issue of the obligation and each anniversary thereafter, or the shorter period to maturity for the last accrual period. Tax forms online 2012 Your tax year will usually include parts of two accrual periods. Tax forms online 2012 Daily OID. Tax forms online 2012   The OID for any accrual period is allocated equally to each day in the accrual period. Tax forms online 2012 You must include in income the sum of the OID amounts for each day you hold the debt instrument during the year. Tax forms online 2012 If your tax year includes parts of two or more accrual periods, you must include the proper daily OID amounts for each accrual period. Tax forms online 2012 Figuring daily OID. Tax forms online 2012   The daily OID for the initial accrual period is figured using the following formula. Tax forms online 2012   (ip × ytm) − qsi     p   ip = issue price ytm = yield to maturity qsi = qualified stated interest p = number of days in accrual period         The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Tax forms online 2012 Reduction for acquisition premium on debt instruments purchased before July 19, 1984. Tax forms online 2012   If you bought the debt instrument at an acquisition premium before July 19, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Tax forms online 2012 Figure the daily acquisition premium by dividing the total acquisition premium by the number of days in the period beginning on your purchase date and ending on the day before the date of maturity. Tax forms online 2012 Reduction for acquisition premium on debt instruments purchased after July 18, 1984. Tax forms online 2012   If you bought the debt instrument at an acquisition premium after July 18, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Tax forms online 2012 However, the method of figuring the daily acquisition premium is different from the method described in the preceding discussion. Tax forms online 2012 To figure the daily acquisition premium under this method, multiply the daily OID by the following fraction. Tax forms online 2012 The numerator is the acquisition premium. Tax forms online 2012 The denominator is the total OID remaining for the debt instrument after your purchase date. Tax forms online 2012 Section I-A is available at www. Tax forms online 2012 irs. Tax forms online 2012 gov/pub1212 and clicking the link under Recent Developments. Tax forms online 2012 Using Section I-A to figure accumulated OID. Tax forms online 2012   If you bought your corporate debt instrument in a calendar year or the subsequent year, you can figure the accumulated OID to the date of purchase by adding the following amounts. Tax forms online 2012 The amount from the “Total OID to January 1, YYYY” column for your debt instrument. Tax forms online 2012 The OID from January 1 of a calendar year to the date of purchase, figured as follows. Tax forms online 2012 Multiply the daily OID for the first accrual period in the calendar year by the number of days from January 1 to the date of purchase, or the end of the accrual period if the debt instrument was purchased in the second or third accrual period. Tax forms online 2012 Multiply the daily OID for each subsequent accrual period by the number of days in the period to the date of purchase or the end of the accrual period, whichever applies. Tax forms online 2012 Add the amounts figured in (2a) and (2b). Tax forms online 2012 Debt Instruments Issued After 1984 If you hold debt instruments issued after 1984, you must report part of the OID in gross income each year that you own the debt instruments. Tax forms online 2012 You must include the OID in gross income whether or not you hold the debt instrument as a capital asset. Tax forms online 2012 Your basis in the debt instrument is increased by the OID you include in income. Tax forms online 2012 For information about showing the correct OID on your tax return, see How To Report OID, earlier. Tax forms online 2012 Form 1099-OID. Tax forms online 2012   You should receive a Form 1099-OID showing OID for the part of a calendar year you held the debt instrument. Tax forms online 2012 However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Tax forms online 2012 See Constant yield method and Reduction for acquisition premium, later. Tax forms online 2012   You may also need to refigure the OID for a contingent payment or inflation-indexed debt instrument on which the amount reported on Form 1099-OID is inaccurate. Tax forms online 2012 See Contingent Payment Debt Instruments or Inflation-Indexed Debt Instruments, later. Tax forms online 2012 If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-B available at www. Tax forms online 2012 irs. Tax forms online 2012 gov/pub1212 by clicking the link under Recent Developments. Tax forms online 2012 Form 1099-OID not received. Tax forms online 2012   The OID listed is for each $1,000 of redemption price. Tax forms online 2012 You must adjust the listed amount if your debt instrument has a different principal amount. Tax forms online 2012 For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Tax forms online 2012   Use the OID shown in Section I-B for a calendar year if you held the debt instrument the entire year. Tax forms online 2012 (If your debt instrument is not listed in Section I-B, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Tax forms online 2012 ) If you did not hold the debt instrument the entire year, figure your OID as follows. Tax forms online 2012 Look up the daily OID for the first accrual period in which you held the debt instrument during a calendar year. Tax forms online 2012 (See Accrual period under Constant yield method, later. Tax forms online 2012 ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Tax forms online 2012 Repeat (1) and (2) for any remaining accrual periods in which you held the debt instrument. Tax forms online 2012 Add the results of (2) and (3). Tax forms online 2012 This is the OID to include in income for that year, unless you paid an acquisition premium. Tax forms online 2012 (The reduction for acquisition premium is discussed later. Tax forms online 2012 ) Tax-exempt bond. Tax forms online 2012   If you own a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Tax forms online 2012 You need to make this adjustment to determine if you have a gain or loss on a later disposition of the bond. Tax forms online 2012 In general, use the rules that follow to determine your OID. Tax forms online 2012 Constant yield method. Tax forms online 2012   This discussion shows how to figure OID on debt instruments issued after 1984 using a constant yield method. Tax forms online 2012 (The special rules that apply to contingent payment debt instruments and inflation-indexed debt instruments are explained later. Tax forms online 2012 ) OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Tax forms online 2012   Figure the OID allocable to any accrual period as follows. Tax forms online 2012 Multiply the adjusted issue price at the beginning of the accrual period by a fraction. Tax forms online 2012 The numerator of the fraction is the debt instrument's yield to maturity and the denominator is the number of accrual periods per year. Tax forms online 2012 The yield must be stated appropriately taking into account the length of the particular accrual period. Tax forms online 2012 Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Tax forms online 2012 Accrual period. Tax forms online 2012   For debt instruments issued after 1984 and before April 4, 1994, an accrual period is each 6-month period that ends on the day that corresponds to the stated maturity date of the debt instrument or the date 6 months before that date. Tax forms online 2012 For example, a debt instrument maturing on March 31 has accrual periods that end on September 30 and March 31 of each calendar year. Tax forms online 2012 Any short period is included as the first accrual period. Tax forms online 2012   For debt instruments issued after April 3, 1994, accrual periods may be of any length and may vary in length over the term of the debt instrument, as long as each accrual period is no longer than 1 year and all payments are made on the first or last day of an accrual period. Tax forms online 2012 However, the OID listed for these debt instruments in Section I-B has been figured using 6-month accrual periods. Tax forms online 2012 Daily OID. Tax forms online 2012   The OID for any accrual period is allocated equally to each day in the accrual period. Tax forms online 2012 Figure the amount to include in income by adding the OID for each day you hold the debt instrument during the year. Tax forms online 2012 Since your tax year will usually include parts of two or more accrual periods, you must include the proper daily OID for each accrual period. Tax forms online 2012 If your debt instrument has 6-month accrual periods, your tax year will usually include one full 6-month accrual period and parts of two other 6-month periods. Tax forms online 2012 Figuring daily OID. Tax forms online 2012   The daily OID for the initial accrual period is figured using the following formula. Tax forms online 2012   (ip × ytm/n) − qsi     p   ip = issue price ytm = yield to maturity n = number of accrual periods in 1 year qsi = qualified stated interest p = number of days in accrual period       The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Tax forms online 2012 Example 5. Tax forms online 2012 On January 1 of Year 1, you bought a 15-year, 10% debt instrument of A Corporation at original issue for $86,235. Tax forms online 2012 17. Tax forms online 2012 According to the prospectus, the debt instrument matures on December 31 of Year 15 at a stated redemption price of $100,000. Tax forms online 2012 The yield to maturity is 12%, compounded semiannually. Tax forms online 2012 The debt instrument provides for qualified stated interest payments of $5,000 on June 30 and December 31 of each calendar year. Tax forms online 2012 The accrual periods are the 6-month periods ending on each of these dates. Tax forms online 2012 The number of days for the first accrual period (January 1 through June 30) is 181 days (182 for leap years). Tax forms online 2012 The daily OID for the first accrual period is figured as follows. Tax forms online 2012   ($86,235. Tax forms online 2012 17 x . Tax forms online 2012 12/2) – $5,000     181 days     = $174. Tax forms online 2012 11020 = $. Tax forms online 2012 96193   181           The adjusted issue price at the beginning of the second accrual period is the issue price plus the OID previously includible in income ($86,235. Tax forms online 2012 17 + $174. Tax forms online 2012 11), or $86,409. Tax forms online 2012 28. Tax forms online 2012 The number of days for the second accrual period (July 1 through December 31) is 184 days. Tax forms online 2012 The daily OID for the second accrual period is figured as follows. Tax forms online 2012   ($86,409. Tax forms online 2012 28 x . Tax forms online 2012 12/2) – $5,000     184 days     = $184. Tax forms online 2012 55681 = $1. Tax forms online 2012 00303   184 Since the first and second accrual periods coincide exactly with your tax year, you include in income for Year 1 the OID allocable to the first two accrual periods, $174. Tax forms online 2012 11 ($. Tax forms online 2012 95665 × 182 days) plus $184. Tax forms online 2012 56 ($1. Tax forms online 2012 00303 × 184 days), or $358. Tax forms online 2012 67. Tax forms online 2012 Add the OID to the $10,000 interest you report on your income tax return for Year 1. Tax forms online 2012 Example 6. Tax forms online 2012 Assume the same facts as in Example 5, except that you bought the debt instrument at original issue on May 1 of Year 1, with a maturity date of April 30, Year 16. Tax forms online 2012 Also, the interest payment dates are October 31 and April 30 of each calendar year. Tax forms online 2012 The accrual periods are the 6-month periods ending on each of these dates. Tax forms online 2012 The number of days for the first accrual period (May 1 through October 31) is 184 days. Tax forms online 2012 The daily OID for the first accrual period is figured as follows. Tax forms online 2012   ($86,235. Tax forms online 2012 17 x . Tax forms online 2012 12/2) – $5,000     184 days     = $174. Tax forms online 2012 11020 = $. Tax forms online 2012 94625   184           The number of days for the second accrual period (November 1 through April 30) is 181 days (182 for leap years). Tax forms online 2012 The daily OID for the second accrual period is figured as follows. Tax forms online 2012   ($86,409. Tax forms online 2012 28 x . Tax forms online 2012 12/2) – $5,000     181 days     = $184. Tax forms online 2012 55681 = $1. Tax forms online 2012 01965   181 If you hold the debt instrument through the end of Year 1, you must include $236. Tax forms online 2012 31 of OID in income. Tax forms online 2012 This is $174. Tax forms online 2012 11 ($. Tax forms online 2012 94625 × 184 days) for the period May 1 through October 31 plus $62. Tax forms online 2012 20 ($1. Tax forms online 2012 01965 × 61 days) for the period November 1 through December 31. Tax forms online 2012 The OID is added to the $5,000 interest income paid on October 31 of Year 1. Tax forms online 2012 Your basis in the debt instrument is increased by the OID you include in income. Tax forms online 2012 On January 1 of Year 2, your basis in the A Corporation debt instrument is $86,471. Tax forms online 2012 48 ($86,235. Tax forms online 2012 17 + $236. Tax forms online 2012 31). Tax forms online 2012 Short first accrual period. Tax forms online 2012   You may have to make adjustments if a debt instrument has a short first accrual period. Tax forms online 2012 For example, a debt instrument with 6-month accrual periods that is issued on February 15 and matures on October 31 has a short first accrual period that ends April 30. Tax forms online 2012 (The remaining accrual periods begin on May 1 and November 1. Tax forms online 2012 ) For this short period, figure the daily OID as described earlier, but adjust the yield for the length of the short accrual period. Tax forms online 2012 You may use any reasonable compounding method in determining OID for a short period. Tax forms online 2012 Examples of reasonable compounding methods include continuous compounding and monthly compounding (that is, simple interest within a month). Tax forms online 2012 Consult your tax advisor for more information about making this computation. Tax forms online 2012   The OID for the final accrual period is the difference between the amount payable at maturity (other than a payment of qualified stated interest) and the adjusted issue price at the beginning of the final accrual period. Tax forms online 2012 Reduction for acquisition premium. Tax forms online 2012   If you bought the debt instrument at an acquisition premium, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Tax forms online 2012 To figure the daily acquisition premium, multiply the daily OID by the following fraction. Tax forms online 2012 The numerator is the acquisition premium. Tax forms online 2012 The denominator is the total OID remaining for the debt instrument after your purchase date. Tax forms online 2012 Example 7. Tax forms online 2012 Assume the same facts as in Example 6, except that you bought the debt instrument on November 1 of Year 1 for $87,000, after its original issue on May 1 of Year 1. Tax forms online 2012 The adjusted issue price on November 1 of Year 1 is $86,409. Tax forms online 2012 28 ($86,235. Tax forms online 2012 17 + $174. Tax forms online 2012 11). Tax forms online 2012 In this case, you paid an acquisition premium of $590. Tax forms online 2012 72 ($87,000 − $86,409. Tax forms online 2012 28). Tax forms online 2012 The daily OID for the accrual period November 1 through April 30, reduced for the acquisition premium, is figured as follows. Tax forms online 2012 1) Daily OID on date of purchase (2nd accrual period) $1. Tax forms online 2012 01965*  2)  Acquisition premium $590. Tax forms online 2012 72    3)  Total OID remaining after purchase date ($13,764. Tax forms online 2012 83 − $174. Tax forms online 2012 11) 13,590. Tax forms online 2012 72   4) Line 2 ÷ line 3 . Tax forms online 2012 04346  5)  Line 1 × line 4 . Tax forms online 2012 04432  6)  Daily OID reduced for the acquisition premium. Tax forms online 2012 Line 1 − line 5 $0. Tax forms online 2012 97533  * As shown in Example 6. Tax forms online 2012 The total OID to include in income for Year 1 is $59. Tax forms online 2012 50 ($. Tax forms online 2012 97533 × 61 days). Tax forms online 2012 Contingent Payment Debt Instruments This discussion shows how to figure OID on a contingent payment debt instrument issued after August 12, 1996, that was issued for cash or publicly traded property. Tax forms online 2012 In general, a contingent payment debt instrument provides for one or more payments that are contingent as to timing or amount. Tax forms online 2012 If you hold a contingent payment bond, you must report OID as it accrues each year. Tax forms online 2012 Because the actual payments on a contingent payment debt instrument cannot be known in advance, issuers and holders cannot use the constant yield method (discussed earlier under Debt Instruments Issued After 1984) without making certain assumptions about the payments on the debt instrument. Tax forms online 2012 To figure OID accruals on contingent payment debt instruments, holders and issuers must use the noncontingent bond method. Tax forms online 2012 Noncontingent bond method. Tax forms online 2012    Under this method, the issuer must compute a comparable yield for the debt instrument and, based on this yield, construct a projected payment schedule for the instrument, which includes a projected fixed amount for each contingent payment. Tax forms online 2012 In general, holders and issuers accrue OID on this projected payment schedule using the constant yield method that applies to fixed payment debt instruments. Tax forms online 2012 When a contingent payment differs from the projected fixed amount, the holders and issuers make adjustments to their OID accruals. Tax forms online 2012 If the actual contingent payment is larger than expected, both the issuer and the holder increase their OID accruals. Tax forms online 2012 If the actual contingent payment is smaller than expected, holders and issuers generally decrease their OID accruals. Tax forms online 2012 Form 1099-OID. Tax forms online 2012   The amount shown on Form 1099-OID in box 1 you receive for a contingent payment debt instrument may not be the correct amount to include in income. Tax forms online 2012 For example, the amount may not be correct if the contingent payment was different from the projected amount. Tax forms online 2012 If the amount in box 1 is not correct, you must figure the OID to report on your return under the following rules. Tax forms online 2012 For information on showing an OID adjustment on your tax return, see How To Report OID, earlier. Tax forms online 2012 Figuring OID. Tax forms online 2012   To figure OID on a contingent payment debt instrument, you need to know the “comparable yield” and “projected payment schedule” of the debt instrument. Tax forms online 2012 The issuer must make these available to you. Tax forms online 2012 Comparable yield. Tax forms online 2012   The comparable yield generally is the yield at which the issuer would issue a fixed rate debt instrument with terms and conditions similar to those of the contingent payment debt instrument. Tax forms online 2012 The comparable yield is determined as of the debt instrument's issue date. Tax forms online 2012 Projected payment schedule. Tax forms online 2012   The projected payment schedule for a contingent payment debt instrument includes all fixed payments due under the instrument and a projected fixed amount for each contingent payment. Tax forms online 2012 The projected payment schedule is created by the issuer as of the debt instrument's issue date. Tax forms online 2012 It is used to determine the issuer's and holder's interest accruals and adjustments. Tax forms online 2012 Steps for figuring OID. Tax forms online 2012   Figure the OID on a contingent payment debt instrument in two steps. Tax forms online 2012 Figure the OID using the constant yield method (discussed earlier under Debt Instruments Issued After 1984 ) that applies to fixed payment debt instruments. Tax forms online 2012 Use the comparable yield as the yield to maturity. Tax forms online 2012 In general, use the projected payment schedule to determine the instrument's adjusted issue price at the beginning of each accrual period (other than the initial period). Tax forms online 2012 Do not treat any amount payable as qualified stated interest. Tax forms online 2012 Adjust the OID in (1) to account for actual contingent payments. Tax forms online 2012 If the contingent payment is greater than the projected fixed amount, you have a positive adjustment. Tax forms online 2012 If the contingent payment is less than the projected fixed amount, you have a negative adjustment. Tax forms online 2012 Net positive adjustment. Tax forms online 2012   A net positive adjustment exists for a tax year when the total of any positive adjustments described in (2) above for the tax year is more than the total of any negative adjustments for the tax year. Tax forms online 2012 Treat a net positive adjustment as additional OID for the tax year. Tax forms online 2012 Net negative adjustment. Tax forms online 2012   A net negative adjustment exists for a tax year when the total of any negative adjustments described in (2) above for the tax year is more than the total of any positive adjustments for the tax year. Tax forms online 2012 Use a net negative adjustment to offset OID on the debt instrument for the tax year. Tax forms online 2012 If the net negative adjustment is more than the OID on the debt instrument for the tax year, you can claim the difference as an ordinary loss. Tax forms online 2012 However, the amount you can claim as an ordinary loss is limited to the OID on the debt instrument you included in income in prior tax years. Tax forms online 2012 You must carry forward any net negative adjustment that is more than the total OID for the tax year and prior tax years and treat it as a negative adjustment in the next tax year. Tax forms online 2012 Basis adjustments. Tax forms online 2012   In general, increase your basis in a contingent payment debt instrument by the OID included in income. Tax forms online 2012 Your basis, however, is not affected by any negative or positive adjustments. Tax forms online 2012 Decrease your basis by any noncontingent payment received and the projected contingent payment scheduled to be received. Tax forms online 2012 Treatment of gain or loss on sale or exchange. Tax forms online 2012   If you sell a contingent payment debt instrument at a gain, your gain is ordinary income (interest income), even if you hold the debt instrument as a capital asset. Tax forms online 2012 If you sell a contingent payment debt instrument at a loss, your loss is an ordinary loss to the extent of your prior OID accruals on the debt instrument. Tax forms online 2012 If the debt instrument is a capital asset, treat any loss that is more than your prior OID accruals as a capital loss. Tax forms online 2012 See Regulations section 1. Tax forms online 2012 1275-4 for exceptions to these rules. Tax forms online 2012 Premium, acquisition premium, and market discount. Tax forms online 2012   The rules for accruing premium, acquisition premium, and market discount do not apply to a contingent payment debt instrument. Tax forms online 2012 See Regulations section 1. Tax forms online 2012 1275-4 to determine how to account for these items. Tax forms online 2012 Inflation-Indexed Debt Instruments This discussion shows how you figure OID on certain inflation-indexed debt instruments issued after January 5, 1997. Tax forms online 2012 An inflation-indexed debt instrument is generally a debt instrument on which the payments are adjusted for inflation and d
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The Tax Forms Online 2012

Tax forms online 2012 6. Tax forms online 2012   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. Tax forms online 2012 Use basis to figure the gain or loss on the sale, exchange, or other disposition of property. Tax forms online 2012 Also use basis to figure depreciation, amortization, depletion, and casualty losses. Tax forms online 2012 If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Tax forms online 2012 Only the basis allocated to the business or investment use of the property can be depreciated. Tax forms online 2012 Your original basis in property is adjusted (increased or decreased) by certain events. Tax forms online 2012 For example, if you make improvements to the property, increase your basis. Tax forms online 2012 If you take deductions for depreciation, or casualty losses, or claim certain credits, reduce your basis. Tax forms online 2012 Keep accurate records of all items that affect the basis of your assets. Tax forms online 2012 For information on keeping records, see chapter 1. Tax forms online 2012 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. Tax forms online 2012 Cost Basis The basis of property you buy is usually its cost. Tax forms online 2012 Cost is the amount you pay in cash, debt obligations, other property, or services. Tax forms online 2012 Your cost includes amounts you pay for sales tax, freight, installation, and testing. Tax forms online 2012 The basis of real estate and business assets will include other items, discussed later. Tax forms online 2012 Basis generally does not include interest payments. Tax forms online 2012 However, see Carrying charges and Capitalized interest in chapter 4 of Publication 535. Tax forms online 2012 You also may have to capitalize (add to basis) certain other costs related to buying or producing property. Tax forms online 2012 Under the uniform capitalization rules, discussed later, you may have to capitalize direct costs and certain indirect costs of producing property. Tax forms online 2012 Loans with low or no interest. Tax forms online 2012   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. Tax forms online 2012 You generally have unstated interest if your interest rate is less than the applicable federal rate. Tax forms online 2012 See the discussion of unstated interest in Publication 537, Installment Sales. Tax forms online 2012 Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Tax forms online 2012 If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Tax forms online 2012 Some of these expenses are discussed next. Tax forms online 2012 Lump sum purchase. Tax forms online 2012   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. Tax forms online 2012 Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. Tax forms online 2012 Figure the basis of each asset by multiplying the lump sum by a fraction. Tax forms online 2012 The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Tax forms online 2012 Fair market value (FMV). Tax forms online 2012   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. Tax forms online 2012 Sales of similar property on or about the same date may help in figuring the FMV of the property. Tax forms online 2012 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. Tax forms online 2012 Real estate taxes. Tax forms online 2012   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. Tax forms online 2012   If you reimburse the seller for taxes the seller paid for you, you generally can deduct that amount as a tax expense. Tax forms online 2012 Whether or not you reimburse the seller, do not include that amount in the basis of your property. Tax forms online 2012 Settlement costs. Tax forms online 2012   Your basis includes the settlement fees and closing costs for buying the property. Tax forms online 2012 See Publication 551 for a detailed list of items you can and cannot include in basis. Tax forms online 2012   Do not include fees and costs for getting a loan on the property. Tax forms online 2012 Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Tax forms online 2012 Points. Tax forms online 2012   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. Tax forms online 2012 You may be able to deduct the points currently or over the term of the loan. Tax forms online 2012 For more information about deducting points, see Points in chapter 4 of Publication 535. Tax forms online 2012 Assumption of a mortgage. Tax forms online 2012   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. Tax forms online 2012 Example. Tax forms online 2012 If you buy a farm for $100,000 cash and assume a mortgage of $400,000, your basis is $500,000. Tax forms online 2012 Constructing assets. Tax forms online 2012   If you build property or have assets built for you, your expenses for this construction are part of your basis. Tax forms online 2012 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. Tax forms online 2012   In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses. Tax forms online 2012 You must capitalize them (include them in the asset's basis). Tax forms online 2012 Employee wages paid for the construction work, reduced by any employment credits allowed. Tax forms online 2012 Depreciation on equipment you own while it is used in the construction. Tax forms online 2012 Operating and maintenance costs for equipment used in the construction. Tax forms online 2012 The cost of business supplies and materials used in the construction. Tax forms online 2012    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. Tax forms online 2012 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. Tax forms online 2012 To determine the basis of these assets or separate items, there must be an allocation of basis. Tax forms online 2012 Group of assets acquired. Tax forms online 2012   If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. Tax forms online 2012 Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. Tax forms online 2012 You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. Tax forms online 2012 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. Tax forms online 2012 Farming business acquired. Tax forms online 2012   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. Tax forms online 2012 Generally, reduce the purchase price by any cash received. Tax forms online 2012 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. Tax forms online 2012 See Trade or Business Acquired under Allocating the Basis in Publication 551 for more information. Tax forms online 2012 Transplanted embryo. Tax forms online 2012   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. Tax forms online 2012 Allocate the rest of the purchase price to the basis of the calf. Tax forms online 2012 Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense. Tax forms online 2012 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. Tax forms online 2012 You recover these costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Tax forms online 2012 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. Tax forms online 2012 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. Tax forms online 2012 You produce property if you construct, build, install, manufacture, develop, improve, or create the property. Tax forms online 2012 You are not subject to the uniform capitalization rules if the property is produced for personal use. Tax forms online 2012 In a farming business, you produce property if you raise or grow any agricultural or horticultural commodity, including plants and animals. Tax forms online 2012 Plants. Tax forms online 2012   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. Tax forms online 2012 Animals. Tax forms online 2012   An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life. Tax forms online 2012 The direct and indirect costs of producing plants or animals include preparatory costs and preproductive period costs. Tax forms online 2012 Preparatory costs include the acquisition costs of the seed, seedling, plant, or animal. Tax forms online 2012 For plants, preproductive period costs include the costs of items such as irrigation, pruning, frost protection, spraying, and harvesting. Tax forms online 2012 For animals, preproductive period costs include the costs of items such as feed, maintaining pasture or pen areas, breeding, veterinary services, and bedding. Tax forms online 2012 Exceptions. Tax forms online 2012   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. Tax forms online 2012   Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. Tax forms online 2012 See Accrual Method Required under Accounting Methods in chapter 2. Tax forms online 2012   In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. Tax forms online 2012 If you make this election, special rules apply. Tax forms online 2012 This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. Tax forms online 2012 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. Tax forms online 2012    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. Tax forms online 2012 See chapter 7, for additional information on depreciation. Tax forms online 2012 Example. Tax forms online 2012 You grow trees that have a preproductive period of more than 2 years. Tax forms online 2012 The trees produce an annual crop. Tax forms online 2012 You are an individual and the uniform capitalization rules apply to your farming business. Tax forms online 2012 You must capitalize the direct costs and an allocable part of indirect costs incurred due to the production of the trees. Tax forms online 2012 You are not required to capitalize the costs of producing the annual crop because its preproductive period is 2 years or less. Tax forms online 2012 Preproductive period of more than 2 years. Tax forms online 2012   The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. Tax forms online 2012 Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. Tax forms online 2012 Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years. Tax forms online 2012 More information. Tax forms online 2012   For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1. Tax forms online 2012 263A-4. Tax forms online 2012 Table 6-1. Tax forms online 2012 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. Tax forms online 2012 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. Tax forms online 2012 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. Tax forms online 2012 Increases to Basis Increase the basis of any property by all items properly added to a capital account. Tax forms online 2012 These include the cost of any improvements having a useful life of more than 1 year. Tax forms online 2012 The following costs increase the basis of property. Tax forms online 2012 The cost of extending utility service lines to property. Tax forms online 2012 Legal fees, such as the cost of defending and perfecting title. Tax forms online 2012 Legal fees for seeking a decrease in an assessment levied against property to pay for local improvements. Tax forms online 2012 Assessments for items such as paving roads and building ditches that increase the value of the property assessed. Tax forms online 2012 Do not deduct these expenses as taxes. Tax forms online 2012 However, you can deduct as taxes amounts assessed for maintenance or repairs, or for meeting interest charges related to the improvements. Tax forms online 2012 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. Tax forms online 2012 See chapter 7. Tax forms online 2012 Deducting vs. Tax forms online 2012 capitalizing costs. Tax forms online 2012   Do not add to your basis costs you can deduct as current expenses. Tax forms online 2012 For example, amounts paid for incidental repairs or maintenance are deductible as business expenses and are not added to basis. Tax forms online 2012 However, you can elect either to deduct or to capitalize certain other costs. Tax forms online 2012 See chapter 7 in Publication 535. Tax forms online 2012 Decreases to Basis The following are some items that reduce the basis of property. Tax forms online 2012 Section 179 deduction. Tax forms online 2012 Deductions previously allowed or allowable for amortization, depreciation, and depletion. Tax forms online 2012 Alternative motor vehicle credit. Tax forms online 2012 See Form 8910. Tax forms online 2012 Alternative fuel vehicle refueling property credit. Tax forms online 2012 See Form 8911. Tax forms online 2012 Residential energy efficient property credits. Tax forms online 2012 See Form 5695. Tax forms online 2012 Investment credit (part or all) taken. Tax forms online 2012 Casualty and theft losses and insurance reimbursements. Tax forms online 2012 Payments you receive for granting an easement. Tax forms online 2012 Exclusion from income of subsidies for energy conservation measures. Tax forms online 2012 Certain canceled debt excluded from income. Tax forms online 2012 Rebates from a manufacturer or seller. Tax forms online 2012 Patronage dividends received from a cooperative association as a result of a purchase of property. Tax forms online 2012 See Patronage Dividends in chapter 3. Tax forms online 2012 Gas-guzzler tax. Tax forms online 2012 See Form 6197. Tax forms online 2012 Some of these items are discussed next. Tax forms online 2012 For a more detailed list of items that decrease basis, see section 1016 of the Internal Revenue Code and Publication 551. Tax forms online 2012 Depreciation and section 179 deduction. Tax forms online 2012   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. Tax forms online 2012 For more information on these deductions, see chapter 7. Tax forms online 2012 Section 179 deduction. Tax forms online 2012   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. Tax forms online 2012 Depreciation. Tax forms online 2012   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. Tax forms online 2012 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. Tax forms online 2012 If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. Tax forms online 2012   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. Tax forms online 2012   See chapter 7 for information on figuring the depreciation you should have claimed. Tax forms online 2012   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. Tax forms online 2012 Casualty and theft losses. Tax forms online 2012   If you have a casualty or theft loss, decrease the basis of the property by any insurance or other reimbursement. Tax forms online 2012 Also, decrease it by any deductible loss not covered by insurance. Tax forms online 2012 See chapter 11 for information about figuring your casualty or theft loss. Tax forms online 2012   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. Tax forms online 2012 To make this determination, compare the repaired property to the property before the casualty. Tax forms online 2012 Easements. Tax forms online 2012   The amount you receive for granting an easement is usually considered to be proceeds from the sale of an interest in the real property. Tax forms online 2012 It reduces the basis of the affected part of the property. Tax forms online 2012 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. Tax forms online 2012 See Easements and rights-of-way in chapter 3. Tax forms online 2012 Exclusion from income of subsidies for energy conservation measures. Tax forms online 2012   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. Tax forms online 2012 Reduce the basis of the property by the excluded amount. Tax forms online 2012 Canceled debt excluded from income. Tax forms online 2012   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. Tax forms online 2012 A debt includes any indebtedness for which you are liable or which attaches to property you hold. Tax forms online 2012   You can exclude your canceled debt from income if the debt is any of the following. Tax forms online 2012 Debt canceled in a bankruptcy case or when you are insolvent. Tax forms online 2012 Qualified farm debt. Tax forms online 2012 Qualified real property business debt (provided you are not a C corporation). Tax forms online 2012 Qualified principal residence indebtedness. Tax forms online 2012 Discharge of certain indebtedness of a qualified individual because of Midwestern disasters. Tax forms online 2012 If you exclude canceled debt described in (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. Tax forms online 2012 If you exclude canceled debt described in (3), you must only reduce the basis of your depreciable property by the excluded amount. Tax forms online 2012   For more information about canceled debt in a bankruptcy case, see Publication 908, Bankruptcy Tax Guide. Tax forms online 2012 For more information about insolvency and canceled debt that is qualified farm debt or qualified principal residence indebtedness, see chapter 3. Tax forms online 2012 For more information about qualified real property business debt, see Publication 334, Tax Guide for Small Business. Tax forms online 2012 For more information about canceled debt in Midwestern disaster areas, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Tax forms online 2012 Basis Other Than Cost There are times when you cannot use cost as basis. Tax forms online 2012 In these situations, the fair market value or the adjusted basis of property may be used. Tax forms online 2012 Examples are discussed next. Tax forms online 2012 Property changed from personal to business or rental use. Tax forms online 2012   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. Tax forms online 2012 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. Tax forms online 2012   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. Tax forms online 2012   If you later sell or dispose of this property, the basis you use will depend on whether you are figuring a gain or loss. Tax forms online 2012 The basis for figuring a gain is your adjusted basis in the property when you sell the property. Tax forms online 2012 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. Tax forms online 2012 Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Tax forms online 2012 Property received for services. Tax forms online 2012   If you receive property for services, include the property's FMV in income. Tax forms online 2012 The amount you include in income becomes your basis. Tax forms online 2012 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. Tax forms online 2012 Example. Tax forms online 2012 George Smith is an accountant and also operates a farming business. Tax forms online 2012 George agreed to do some accounting work for his neighbor in exchange for a dairy cow. Tax forms online 2012 The accounting work and the cow are each worth $1,500. Tax forms online 2012 George must include $1,500 in income for his accounting services. Tax forms online 2012 George's basis in the cow is $1,500. Tax forms online 2012 Taxable Exchanges A taxable exchange is one in which the gain is taxable, or the loss is deductible. Tax forms online 2012 A taxable gain or deductible loss also is known as a recognized gain or loss. Tax forms online 2012 A taxable exchange occurs when you receive cash or get property that is not similar or related in use to the property exchanged. Tax forms online 2012 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. Tax forms online 2012 Example. Tax forms online 2012 You trade a tract of farmland with an adjusted basis of $2,000 for a tractor that has an FMV of $6,000. Tax forms online 2012 You must report a taxable gain of $4,000 for the land. Tax forms online 2012 The tractor has a basis of $6,000. Tax forms online 2012 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. Tax forms online 2012 Similar or related property. Tax forms online 2012   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. Tax forms online 2012 However, make the following adjustments. Tax forms online 2012 Decrease the basis by the following amounts. Tax forms online 2012 Any loss you recognize on the involuntary conversion. Tax forms online 2012 Any money you receive that you do not spend on similar property. Tax forms online 2012 Increase the basis by the following amounts. Tax forms online 2012 Any gain you recognize on the involuntary conversion. Tax forms online 2012 Any cost of acquiring the replacement property. Tax forms online 2012 Money or property not similar or related. Tax forms online 2012   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. Tax forms online 2012 Allocating the basis. Tax forms online 2012   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Tax forms online 2012 Basis for depreciation. Tax forms online 2012   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Tax forms online 2012 For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Tax forms online 2012 For more information about involuntary conversions, see chapter 11. Tax forms online 2012 Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Tax forms online 2012 A nontaxable gain or loss also is known as an unrecognized gain or loss. Tax forms online 2012 If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. Tax forms online 2012 Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Tax forms online 2012 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. Tax forms online 2012 There must also be an exchange of like-kind property. Tax forms online 2012 For more information, see Like-Kind Exchanges in  chapter 8. Tax forms online 2012 The basis of the property you receive generally is the same as the adjusted basis of the property you gave up. Tax forms online 2012 Example 1. Tax forms online 2012 You traded a truck you used in your farming business for a new smaller truck to use in farming. Tax forms online 2012 The adjusted basis of the old truck was $10,000. Tax forms online 2012 The FMV of the new truck is $30,000. Tax forms online 2012 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. Tax forms online 2012 Example 2. Tax forms online 2012 You trade a field cultivator (adjusted basis of $8,000) for a planter (FMV of $9,000). Tax forms online 2012 You use both the field cultivator and the planter in your farming business. Tax forms online 2012 The basis of the planter you receive is $8,000, the same as the field cultivator traded Exchange expenses. Tax forms online 2012   Exchange expenses generally are the closing costs that you pay. Tax forms online 2012 They include such items as brokerage commissions, attorney fees, and deed preparation fees. Tax forms online 2012 Add them to the basis of the like-kind property you receive. Tax forms online 2012 Property plus cash. Tax forms online 2012   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. Tax forms online 2012 Example. Tax forms online 2012 You trade in a truck (adjusted basis of $3,000) for another truck (FMV of $7,500) and pay $4,000. Tax forms online 2012 Your basis in the new truck is $7,000 (the $3,000 adjusted basis of the old truck plus the $4,000 cash). Tax forms online 2012 Special rules for related persons. Tax forms online 2012   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. Tax forms online 2012 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. Tax forms online 2012 Each person reports it on the tax return filed for the year in which the later disposition occurred. Tax forms online 2012 If this rule applies, the basis of the property received in the original exchange will be its FMV. Tax forms online 2012 For more information, see chapter 8. Tax forms online 2012 Exchange of business property. Tax forms online 2012   Exchanging the property of one business for the property of another business generally is a multiple property exchange. Tax forms online 2012 For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. Tax forms online 2012 Basis for depreciation. Tax forms online 2012   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind transaction. Tax forms online 2012 For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Tax forms online 2012 Partially Nontaxable Exchanges A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Tax forms online 2012 The basis of the property you receive is the same as the adjusted basis of the property you gave up with the following adjustments. Tax forms online 2012 Decrease the basis by the following amounts. Tax forms online 2012 Any money you receive. Tax forms online 2012 Any loss you recognize on the exchange. Tax forms online 2012 Increase the basis by the following amounts. Tax forms online 2012 Any additional costs you incur. Tax forms online 2012 Any gain you recognize on the exchange. Tax forms online 2012 If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Tax forms online 2012 Example 1. Tax forms online 2012 You trade farmland (basis of $100,000) for another tract of farmland (FMV of $110,000) and $30,000 cash. Tax forms online 2012 You realize a gain of $40,000. Tax forms online 2012 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). Tax forms online 2012 Include your gain in income (recognize gain) only to the extent of the cash received. Tax forms online 2012 Your basis in the land you received is figured as follows. Tax forms online 2012 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. Tax forms online 2012 You trade a truck (adjusted basis of $22,750) for another truck (FMV of $20,000) and $10,000 cash. Tax forms online 2012 You realize a gain of $7,250. Tax forms online 2012 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). Tax forms online 2012 You include all the gain in your income (recognize gain) because the gain is less than the cash you received. Tax forms online 2012 Your basis in the truck you received is figured as follows. Tax forms online 2012 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. Tax forms online 2012   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. Tax forms online 2012 The rest is the basis of the like-kind property. Tax forms online 2012 Example. Tax forms online 2012 You traded a tractor with an adjusted basis of $15,000 for another tractor that had an FMV of $12,500. Tax forms online 2012 You also received $1,000 cash and a truck that had an FMV of $3,000. Tax forms online 2012 The truck is unlike property. Tax forms online 2012 You realized a gain of $1,500. Tax forms online 2012 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). Tax forms online 2012 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. Tax forms online 2012 Your basis in the properties you received is figured as follows. Tax forms online 2012 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). Tax forms online 2012 This is the truck's FMV. Tax forms online 2012 The rest ($12,500) is the basis of the tractor. Tax forms online 2012 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. Tax forms online 2012 Example. Tax forms online 2012 You used a tractor on your farm for 3 years. Tax forms online 2012 Its adjusted basis is $22,000 and its FMV is $40,000. Tax forms online 2012 You are interested in a new tractor, which sells for $60,000. Tax forms online 2012 Ordinarily, you would trade your old tractor for the new one and pay the dealer $20,000. Tax forms online 2012 Your basis for depreciating the new tractor would then be $42,000 ($20,000 + $22,000, the adjusted basis of your old tractor). Tax forms online 2012 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. Tax forms online 2012 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). Tax forms online 2012 Your basis for depreciating the new tractor is $42,000, the same as if you traded the old tractor. Tax forms online 2012 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. Tax forms online 2012 You also must know its FMV at the time it was given to you and any gift tax paid on it. Tax forms online 2012 FMV equal to or greater than donor's adjusted basis. Tax forms online 2012   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. Tax forms online 2012 Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Tax forms online 2012   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. Tax forms online 2012 See Adjusted Basis , earlier. Tax forms online 2012   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. Tax forms online 2012 Figure the increase by multiplying the gift tax paid by the following fraction. Tax forms online 2012 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. Tax forms online 2012 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. Tax forms online 2012 Example. Tax forms online 2012 In 2013, you received a gift of property from your mother that had an FMV of $50,000. Tax forms online 2012 Her adjusted basis was $20,000. Tax forms online 2012 The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Tax forms online 2012 She paid a gift tax of $7,320. Tax forms online 2012 Your basis, $26,076, is figured as follows. Tax forms online 2012 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) × . Tax forms online 2012 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. Tax forms online 2012 If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Tax forms online 2012 However, your basis cannot exceed the FMV of the gift when it was given to you. Tax forms online 2012 FMV less than donor's adjusted basis. Tax forms online 2012   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. Tax forms online 2012 Your basis for figuring gain is the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Tax forms online 2012 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. Tax forms online 2012 (See Adjusted Basis , earlier. Tax forms online 2012 )   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. Tax forms online 2012 Example. Tax forms online 2012 You received farmland as a gift from your parents when they retired from farming. Tax forms online 2012 At the time of the gift, the land had an FMV of $80,000. Tax forms online 2012 Your parents' adjusted basis was $100,000. Tax forms online 2012 After you received the land, no events occurred that would increase or decrease your basis. Tax forms online 2012 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. Tax forms online 2012 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. Tax forms online 2012 If the sales price is between $80,000 and $100,000, you have neither gain nor loss. Tax forms online 2012 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. Tax forms online 2012 If you then tried to figure a loss using the FMV ($80,000), you would get a $10,000 gain. Tax forms online 2012 Business property. Tax forms online 2012   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. Tax forms online 2012 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. Tax forms online 2012 The same rule applies to a transfer by your former spouse if the transfer is incident to divorce. Tax forms online 2012 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. Tax forms online 2012 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. Tax forms online 2012 For more information, see Property Settlements in Publication 504, Divorced or Separated Individuals. Tax forms online 2012 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. Tax forms online 2012 If a federal estate return is filed, you can use its appraised value. Tax forms online 2012 The FMV on the alternate valuation date, if the personal representative for the estate elects to use alternate valuation. Tax forms online 2012 For information on the alternate valuation, see the Instructions for Form 706. Tax forms online 2012 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. Tax forms online 2012 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. Tax forms online 2012 Special-use valuation method. Tax forms online 2012   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. Tax forms online 2012 If so, the executor or personal representative values the qualified real property based on its use as a farm or other closely held business. Tax forms online 2012 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. Tax forms online 2012 The qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. Tax forms online 2012   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. Tax forms online 2012 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. Tax forms online 2012 Figure all FMVs without regard to the special-use valuation. Tax forms online 2012   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. Tax forms online 2012 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. Tax forms online 2012 The tax also does not apply if you transfer the property to a member of your family and certain requirements are met. Tax forms online 2012   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. Tax forms online 2012 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. Tax forms online 2012 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. Tax forms online 2012 The increase in your basis is considered to have occurred immediately before the event that resulted in the additional estate tax. Tax forms online 2012   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. Tax forms online 2012   For more information, see Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706-A, and the related instructions. Tax forms online 2012 Property inherited from a decedent who died in 2010. Tax forms online 2012   If you inherited property from a decedent who died in 2010, different rules may apply. Tax forms online 2012 See Publication 4895, Tax Treatment of Property Acquired From a Decendent Dying in 2010, for details. Tax forms online 2012 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. Tax forms online 2012 Partner's basis. Tax forms online 2012   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. Tax forms online 2012 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. Tax forms online 2012 For more information, see Partner's Basis for Distributed Property in Publication 541, Partnerships. Tax forms online 2012 Shareholder's basis. Tax forms online 2012   The basis of property distributed by a corporation to a shareholder is its fair market value. Tax forms online 2012 For more information about corporate distributions, see Distributions to Shareholders in Publication 542, Corporations. Tax forms online 2012 Prev  Up  Next   Home   More Online Publications