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Tax Planning Us 2007 Taxes

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Tax Planning Us 2007 Taxes

Tax planning us 2007 taxes Publication 551 - Main Content Table of Contents Cost BasisStocks and Bonds Real Property Business Assets Allocating the Basis Adjusted BasisIncreases to Basis Decreases to Basis Adjustments to Basis Example Basis Other Than CostProperty Received for Services Taxable Exchanges Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed to Business or Rental Use How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Tax planning us 2007 taxes Cost Basis The basis of property you buy is usually its cost. Tax planning us 2007 taxes The cost is the amount you pay in cash, debt obligations, other property, or services. Tax planning us 2007 taxes Your cost also includes amounts you pay for the following items. Tax planning us 2007 taxes Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if assumed for the seller). Tax planning us 2007 taxes  You may also have to capitalize (add to basis) certain other costs related to buying or producing property. Tax planning us 2007 taxes Loans with low or no interest. Tax planning us 2007 taxes   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 planning us 2007 taxes You generally have unstated interest if your interest rate is less than the applicable federal rate. Tax planning us 2007 taxes For more information, see Unstated Interest and Original Issue Discount in Publication 537. Tax planning us 2007 taxes Purchase of a business. Tax planning us 2007 taxes   When you purchase a trade or business, you generally purchase all assets used in the business operations, such as land, buildings, and machinery. Tax planning us 2007 taxes Allocate the price among the various assets, including any section 197 intangibles. Tax planning us 2007 taxes See Allocating the Basis, later. Tax planning us 2007 taxes Stocks and Bonds The basis of stocks or bonds you buy is generally the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. Tax planning us 2007 taxes If you get stocks or bonds other than by purchase, your basis is usually determined by the fair market value (FMV) or the previous owner's adjusted basis of the stock. Tax planning us 2007 taxes You must adjust the basis of stocks for certain events that occur after purchase. Tax planning us 2007 taxes See Stocks and Bonds in chapter 4 of Publication 550 for more information on the basis of stock. Tax planning us 2007 taxes Identifying stock or bonds sold. Tax planning us 2007 taxes   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. Tax planning us 2007 taxes If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Tax planning us 2007 taxes For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Tax planning us 2007 taxes Mutual fund shares. Tax planning us 2007 taxes   If you sell mutual fund shares acquired at different times and prices, you can choose to use an average basis. Tax planning us 2007 taxes For more information, see Publication 550. Tax planning us 2007 taxes Real Property Real property, also called real estate, is land and generally anything built on or attached to it. Tax planning us 2007 taxes If you buy real property, certain fees and other expenses become part of your cost basis in the property. Tax planning us 2007 taxes Real estate taxes. Tax planning us 2007 taxes   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Tax planning us 2007 taxes You cannot deduct them as taxes. Tax planning us 2007 taxes   If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. Tax planning us 2007 taxes Do not include that amount in the basis of the property. Tax planning us 2007 taxes If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Tax planning us 2007 taxes Settlement costs. Tax planning us 2007 taxes   Your basis includes the settlement fees and closing costs for buying property. Tax planning us 2007 taxes You cannot include in your basis the fees and costs for getting a loan on property. Tax planning us 2007 taxes A fee for buying property is a cost that must be paid even if you bought the property for cash. Tax planning us 2007 taxes   The following items are some of the settlement fees or closing costs you can include in the basis of your property. Tax planning us 2007 taxes Abstract fees (abstract of title fees); Charges for installing utility services; Legal fees (including title search and preparation of the sales contract and deed); Recording fees; Surveys; Transfer taxes; Owner's title insurance; and Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Tax planning us 2007 taxes   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Tax planning us 2007 taxes   The following items are some settlement fees and closing costs you cannot include in the basis of the property. Tax planning us 2007 taxes Casualty insurance premiums. Tax planning us 2007 taxes Rent for occupancy of the property before closing. Tax planning us 2007 taxes Charges for utilities or other services related to occupancy of the property before closing. Tax planning us 2007 taxes Charges connected with getting a loan. Tax planning us 2007 taxes The following are examples of these charges. Tax planning us 2007 taxes Points (discount points, loan origination fees). Tax planning us 2007 taxes Mortgage insurance premiums. Tax planning us 2007 taxes Loan assumption fees. Tax planning us 2007 taxes Cost of a credit report. Tax planning us 2007 taxes Fees for an appraisal required by a lender. Tax planning us 2007 taxes Fees for refinancing a mortgage. Tax planning us 2007 taxes If these costs relate to business property, items (1) through (3) are deductible as business expenses. Tax planning us 2007 taxes Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan. Tax planning us 2007 taxes Points. Tax planning us 2007 taxes   If you pay points to obtain a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. Tax planning us 2007 taxes Generally, you deduct the points over the term of the loan. Tax planning us 2007 taxes For more information on how to deduct points, see Points in chapter 4 of Publication 535. Tax planning us 2007 taxes Points on home mortgage. Tax planning us 2007 taxes   Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. Tax planning us 2007 taxes If certain requirements are met, you can deduct the points in full for the year in which they are paid. Tax planning us 2007 taxes Reduce the basis of your home by any seller-paid points. Tax planning us 2007 taxes For more information, see Points in Publication 936, Home Mortgage Interest Deduction. Tax planning us 2007 taxes Assumption of mortgage. Tax planning us 2007 taxes   If you buy property and assume (or buy subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes If you buy a building for $20,000 cash and assume a mortgage of $80,000 on it, your basis is $100,000. Tax planning us 2007 taxes Constructing assets. Tax planning us 2007 taxes   If you build property or have assets built for you, your expenses for this construction are part of your basis. Tax planning us 2007 taxes Some of these expenses include the following costs. Tax planning us 2007 taxes Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. Tax planning us 2007 taxes In addition, if you own a business and use your employees, material, and equipment to build an asset, do not deduct the following expenses. Tax planning us 2007 taxes You must include them in the asset's basis. Tax planning us 2007 taxes Employee wages paid for the construction work, reduced by any employment credits allowed; Depreciation on equipment you own while it is used in the construction; Operating and maintenance costs for equipment used in the construction; and The cost of business supplies and materials used in the construction. Tax planning us 2007 taxes    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 planning us 2007 taxes Business Assets If you purchase property to use in your business, your basis is usually its actual cost to you. Tax planning us 2007 taxes If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. Tax planning us 2007 taxes In certain circumstances, you may be subject to the uniform capitalization rules, next. Tax planning us 2007 taxes Uniform Capitalization Rules The uniform capitalization rules specify the costs you add to basis in certain circumstances. Tax planning us 2007 taxes Activities subject to the rules. Tax planning us 2007 taxes   You must use the uniform capitalization rules if you do any of the following in your trade or business or activity carried on for profit. Tax planning us 2007 taxes Produce real or tangible personal property for use in the business or activity, Produce real or tangible personal property for sale to customers, or Acquire property for resale. Tax planning us 2007 taxes However, this rule does not apply to personal property if your average annual gross receipts for the 3 previous tax years are $10 million or less. Tax planning us 2007 taxes   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. Tax planning us 2007 taxes Treat property produced for you under a contract as produced by you up to the amount you pay or costs you otherwise incur for the property. Tax planning us 2007 taxes Tangible personal property includes films, sound recordings, video tapes, books, or similar property. Tax planning us 2007 taxes    Under the uniform capitalization rules, you must capitalize all direct costs and an allocable part of most indirect costs you incur due to your production or resale activities. Tax planning us 2007 taxes To capitalize means to include certain expenses in the basis of property you produce or in your inventory costs rather than deduct them as a current expense. Tax planning us 2007 taxes You recover these costs through deductions for depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Tax planning us 2007 taxes   Any cost you cannot use to figure your taxable income for any tax year is not subject to the uniform capitalization rules. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes If you incur a business meal expense for which your deduction would be limited to 50% of the cost of the meal, that amount is subject to the uniform capitalization rules. Tax planning us 2007 taxes The nondeductible part of the cost is not subject to the uniform capitalization rules. Tax planning us 2007 taxes More information. Tax planning us 2007 taxes   For more information about these rules, see the regulations under section 263A of the Internal Revenue Code and Publication 538, Accounting Periods and Methods. Tax planning us 2007 taxes Exceptions. Tax planning us 2007 taxes   The following are not subject to the uniform capitalization rules. Tax planning us 2007 taxes Property you produce that you do not use in your trade, business, or activity conducted for profit; Qualified creative expenses you pay or incur as a free-lance (self-employed) writer, photographer, or artist that are otherwise deductible on your tax return; Property you produce under a long-term contract, except for certain home construction contracts; Research and experimental expenses deductible under section 174 of the Internal Revenue Code; and Costs for personal property acquired for resale if your (or your predecessor's) average annual gross receipts for the 3 previous tax years do not exceed $10 million. Tax planning us 2007 taxes For other exceptions to the uniform capitalization rules, see section 1. Tax planning us 2007 taxes 263A-1(b) of the regulations. Tax planning us 2007 taxes   For information on the special rules that apply to costs incurred in the business of farming, see chapter 6 of Publication 225, Farmer's Tax Guide. Tax planning us 2007 taxes Intangible Assets Intangible assets include goodwill, patents, copyrights, trademarks, trade names, and franchises. Tax planning us 2007 taxes The basis of an intangible asset is usually the cost to buy or create it. Tax planning us 2007 taxes If you acquire multiple assets, for example a going business for a lump sum, see Allocating the Basis below to figure the basis of the individual assets. Tax planning us 2007 taxes The basis of certain intangibles can be amortized. Tax planning us 2007 taxes See chapter 8 of Publication 535 for information on the amortization of these costs. Tax planning us 2007 taxes Patents. Tax planning us 2007 taxes   The basis of a patent you get for an invention is the cost of development, such as research and experimental expenditures, drawings, working models, and attorneys' and governmental fees. Tax planning us 2007 taxes If you deduct the research and experimental expenditures as current business expenses, you cannot include them in the basis of the patent. Tax planning us 2007 taxes The value of the inventor's time spent on an invention is not part of the basis. Tax planning us 2007 taxes Copyrights. Tax planning us 2007 taxes   If you are an author, the basis of a copyright will usually be the cost of getting the copyright plus copyright fees, attorneys' fees, clerical assistance, and the cost of plates that remain in your possession. Tax planning us 2007 taxes Do not include the value of your time as the author, or any other person's time you did not pay for. Tax planning us 2007 taxes Franchises, trademarks, and trade names. Tax planning us 2007 taxes   If you buy a franchise, trademark, or trade name, the basis is its cost, unless you can deduct your payments as a business expense. Tax planning us 2007 taxes Allocating the Basis If you buy multiple assets for a lump sum, allocate the amount you pay among the assets you receive. Tax planning us 2007 taxes You must make this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. Tax planning us 2007 taxes See Trade or Business Acquired below. Tax planning us 2007 taxes Group of Assets Acquired If you buy multiple assets for a lump sum, you and the seller may agree to a specific allocation of the purchase price among the assets in the sales contract. Tax planning us 2007 taxes 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 planning us 2007 taxes However, see Trade or Business Acquired, next. Tax planning us 2007 taxes Trade or Business Acquired If you acquire a trade or business, allocate the consideration paid to the various assets acquired. Tax planning us 2007 taxes Generally, reduce the consideration paid by any cash and general deposit accounts (including checking and savings accounts) received. Tax planning us 2007 taxes Allocate the remaining consideration to the other business assets received in proportion to (but not more than) their fair market value in the following order. Tax planning us 2007 taxes Certificates of deposit, U. Tax planning us 2007 taxes S. Tax planning us 2007 taxes Government securities, foreign currency, and actively traded personal property, including stock and securities. Tax planning us 2007 taxes Accounts receivable, other debt instruments, and assets you mark to market at least annually for federal income tax purposes. Tax planning us 2007 taxes Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held primarily for sale to customers in the ordinary course of business. Tax planning us 2007 taxes All other assets except section 197 intangibles, goodwill, and going concern value. Tax planning us 2007 taxes Section 197 intangibles except goodwill and going concern value. Tax planning us 2007 taxes Goodwill and going concern value (whether or not they qualify as section 197 intangibles). Tax planning us 2007 taxes Agreement. Tax planning us 2007 taxes   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value (FMV) of any of the assets. Tax planning us 2007 taxes This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Tax planning us 2007 taxes Reporting requirement. Tax planning us 2007 taxes   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Tax planning us 2007 taxes Use Form 8594 to provide this information. Tax planning us 2007 taxes The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Tax planning us 2007 taxes More information. Tax planning us 2007 taxes   See Sale of a Business in chapter 2 of Publication 544 for more information. Tax planning us 2007 taxes Land and Buildings If you buy buildings and the land on which they stand for a lump sum, allocate the basis of the property among the land and the buildings so you can figure the depreciation allowable on the buildings. Tax planning us 2007 taxes Figure the basis of each asset by multiplying the lump sum by a fraction. Tax planning us 2007 taxes The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Tax planning us 2007 taxes If you are not certain of the FMV of the land and buildings, you can allocate the basis based on their assessed values for real estate tax purposes. Tax planning us 2007 taxes Demolition of building. Tax planning us 2007 taxes   Add demolition costs and other losses incurred for the demolition of any building to the basis of the land on which the demolished building was located. Tax planning us 2007 taxes Do not claim the costs as a current deduction. Tax planning us 2007 taxes Modification of building. Tax planning us 2007 taxes   A modification of a building will not be treated as a demolition if the following conditions are satisfied. Tax planning us 2007 taxes 75 percent or more of the existing external walls of the building are retained in place as internal or external walls, and 75 percent or more of the existing internal structural framework of the building is retained in place. Tax planning us 2007 taxes   If the building is a certified historic structure, the modification must also be part of a certified rehabilitation. Tax planning us 2007 taxes   If these conditions are met, add the costs of the modifications to the basis of the building. Tax planning us 2007 taxes Subdivided lots. Tax planning us 2007 taxes   If you buy a tract of land and subdivide it, you must determine the basis of each lot. Tax planning us 2007 taxes This is necessary because you must figure the gain or loss on the sale of each individual lot. Tax planning us 2007 taxes As a result, you do not recover your entire cost in the tract until you have sold all of the lots. Tax planning us 2007 taxes   To determine the basis of an individual lot, multiply the total cost of the tract by a fraction. Tax planning us 2007 taxes The numerator is the FMV of the lot and the denominator is the FMV of the entire tract. Tax planning us 2007 taxes Future improvement costs. Tax planning us 2007 taxes   If you are a developer and sell subdivided lots before the development work is completed, you can (with IRS consent) include in the basis of the properties sold an allocation of the estimated future cost for common improvements. Tax planning us 2007 taxes See Revenue Procedure 92–29 for more information, including an explanation of the procedures for getting consent from the IRS. Tax planning us 2007 taxes Use of erroneous cost basis. Tax planning us 2007 taxes   If you made a mistake in figuring the cost basis of subdivided lots sold in previous years, you cannot correct the mistake for years for which the statute of limitations (generally 3 tax years) has expired. Tax planning us 2007 taxes Figure the basis of any remaining lots by allocating the correct original cost basis of the entire tract among the original lots. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes You bought a tract of land to which you assigned a cost of $15,000. Tax planning us 2007 taxes You subdivided the land into 15 building lots of equal size and equitably divided your basis so that each lot had a basis of $1,000. Tax planning us 2007 taxes You treated the sale of each lot as a separate transaction and figured gain or loss separately on each sale. Tax planning us 2007 taxes Several years later you determine that your original basis in the tract was $22,500 and not $15,000. Tax planning us 2007 taxes You sold eight lots using $8,000 of basis in years for which the statute of limitations has expired. Tax planning us 2007 taxes You now can take $1,500 of basis into account for figuring gain or loss only on the sale of each of the remaining seven lots ($22,500 basis divided among all 15 lots). Tax planning us 2007 taxes You cannot refigure the basis of the eight lots sold in tax years barred by the statute of limitations. Tax planning us 2007 taxes Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the basis of the property. Tax planning us 2007 taxes The result of these adjustments to the basis is the adjusted basis. Tax planning us 2007 taxes Increases to Basis Increase the basis of any property by all items properly added to a capital account. Tax planning us 2007 taxes These include the cost of any improvements having a useful life of more than 1 year. Tax planning us 2007 taxes Rehabilitation expenses also increase basis. Tax planning us 2007 taxes However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis. Tax planning us 2007 taxes If you have to recapture any of the credit, increase your basis by the recaptured amount. Tax planning us 2007 taxes If you make additions or improvements to business property, keep separate accounts for them. Tax planning us 2007 taxes Also, you must depreciate the basis of each according to the depreciation rules that would apply to the underlying property if you had placed it in service at the same time you placed the addition or improvement in service. Tax planning us 2007 taxes For more information, see Publication 946. Tax planning us 2007 taxes The following items increase the basis of property. Tax planning us 2007 taxes The cost of extending utility service lines to the property; Impact fees; Legal fees, such as the cost of defending and perfecting title; Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements; Zoning costs; and The capitalized value of a redeemable ground rent. Tax planning us 2007 taxes Assessments for Local Improvements Increase the basis of property by assessments for items such as paving roads and building ditches that increase the value of the property assessed. Tax planning us 2007 taxes Do not deduct them as taxes. Tax planning us 2007 taxes However, you can deduct as taxes charges for maintenance, repairs, or interest charges related to the improvements. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected landowners for the cost of the conversion. Tax planning us 2007 taxes Add the assessment to your property's basis. Tax planning us 2007 taxes In this example, the assessment is a depreciable asset. Tax planning us 2007 taxes Deducting vs. Tax planning us 2007 taxes Capitalizing Costs Do not add to your basis costs you can deduct as current expenses. Tax planning us 2007 taxes For example, amounts paid for incidental repairs or maintenance that are deductible as business expenses cannot be added to basis. Tax planning us 2007 taxes However, you can choose either to deduct or to capitalize certain other costs. Tax planning us 2007 taxes If you capitalize these costs, include them in your basis. Tax planning us 2007 taxes If you deduct them, do not include them in your basis. Tax planning us 2007 taxes See Uniform Capitalization Rules earlier. Tax planning us 2007 taxes The costs you can choose to deduct or to capitalize include the following. Tax planning us 2007 taxes Carrying charges, such as interest and taxes, that you pay to own property, except carrying charges that must be capitalized under the uniform capitalization rules; Research and experimentation costs; Intangible drilling and development costs for oil, gas, and geothermal wells; Exploration costs for new mineral deposits; Mining development costs for a new mineral deposit; Costs of establishing, maintaining, or increasing the circulation of a newspaper or other periodical; and Costs of removing architectural and transportation barriers to people with disabilities and the elderly. Tax planning us 2007 taxes If you claim the disabled access credit, you must reduce the amount you deduct or capitalize by the amount of the credit. Tax planning us 2007 taxes For more information about deducting or capitalizing costs, see chapter 7 in Publication 535. Tax planning us 2007 taxes Table 1. Tax planning us 2007 taxes Examples of Increases and Decreases to Basis Increases to Basis Decreases to Basis Capital improvements:   Putting an addition on your home   Replacing an entire roof  Paving your driveway  Installing central air conditioning Rewiring your home Exclusion from income of subsidies for energy conservation measures  Casualty or theft loss deductions and insurance reimbursements  Vehicle credits Assessments for local improvements: Water connections Sidewalks Roads Section 179 deduction  Casualty losses: Restoring damaged property Depreciation  Nontaxable corporate distributions Legal fees:  Cost of defending and perfecting a title   Zoning costs   Decreases to Basis The following are some items that reduce the basis of property. Tax planning us 2007 taxes Section 179 deduction; Nontaxable corporate distributions; Deductions previously allowed (or allowable) for amortization, depreciation, and depletion; Exclusion of subsidies for energy conservation measures; Vehicle credits; Residential energy credits; Postponed gain from sale of home; Investment credit (part or all) taken; Casualty and theft losses and insurance reimbursement; Certain canceled debt excluded from income; Rebates from a manufacturer or seller; Easements; Gas-guzzler tax; Adoption tax benefits; and Credit for employer-provided child care. Tax planning us 2007 taxes Some of these items are discussed next. Tax planning us 2007 taxes Casualties and Thefts If you have a casualty or theft loss, decrease the basis in your property by any insurance or other reimbursement and by any deductible loss not covered by insurance. Tax planning us 2007 taxes You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use. Tax planning us 2007 taxes To make this determination, compare the repaired property to the property before the casualty. Tax planning us 2007 taxes For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts. Tax planning us 2007 taxes Easements The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. Tax planning us 2007 taxes It reduces the basis of the affected part of the property. Tax planning us 2007 taxes 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 planning us 2007 taxes Vehicle Credits Unless you elect not to claim the qualified plug-in electric vehicle credit, the alternative motor vehicle credit, or the qualified plug-in electric drive motor vehicle credit, you may have to reduce the basis of each qualified vehicle by certain amounts reported. Tax planning us 2007 taxes For more information, see Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit; Form 8910, Alternative Motor Vehicle Credit; Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit;and the related instructions. Tax planning us 2007 taxes Gas-Guzzler Tax Decrease the basis in your car by the gas-guzzler (fuel economy) tax if you begin using the car within 1 year of the date of its first sale for ultimate use. Tax planning us 2007 taxes This rule also applies to someone who later buys the car and begins using it not more than 1 year after the original sale for ultimate use. Tax planning us 2007 taxes If the car is imported, the one-year period begins on the date of entry or withdrawal of the car from the warehouse if that date is later than the date of the first sale for ultimate use. Tax planning us 2007 taxes Section 179 Deduction If you take the section 179 deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. Tax planning us 2007 taxes For more information about the section 179 deduction, see Publication 946. Tax planning us 2007 taxes Exclusion of Subsidies for Energy Conservation Measures You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of any energy conservation measure for a dwelling unit. Tax planning us 2007 taxes Reduce the basis of the property for which you received the subsidy by the excluded amount. Tax planning us 2007 taxes For more information on this subsidy, see Publication 525. Tax planning us 2007 taxes Depreciation Decrease the basis of property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. Tax planning us 2007 taxes 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 planning us 2007 taxes If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. Tax planning us 2007 taxes Unless a timely election is made not to deduct the special depreciation allowance for property placed in service after September 10, 2001, decrease the property's basis by the special depreciation allowance you deducted or could have deducted. Tax planning us 2007 taxes If you deducted more depreciation than you should have, decrease your basis by the amount equal to the depreciation you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for the year. Tax planning us 2007 taxes In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation capitalized under the uniform capitalization rules. Tax planning us 2007 taxes For information on figuring depreciation, see Publication 946. Tax planning us 2007 taxes If you are claiming depreciation on a business vehicle, see Publication 463. Tax planning us 2007 taxes If the car is not used more than 50% for business during the tax year, you may have to recapture excess depreciation. Tax planning us 2007 taxes Include the excess depreciation in your gross income and add it to your basis in the property. Tax planning us 2007 taxes For information on the computation of excess depreciation, see chapter 4 in Publication 463. Tax planning us 2007 taxes Canceled Debt Excluded From Income If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. Tax planning us 2007 taxes A debt includes any indebtedness for which you are liable or which attaches to property you hold. Tax planning us 2007 taxes You can exclude canceled debt from income in the following situations. Tax planning us 2007 taxes Debt canceled in a bankruptcy case or when you are insolvent, Qualified farm debt, and Qualified real property business debt (provided you are not a C corporation). Tax planning us 2007 taxes If you exclude from income canceled debt under situation (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. Tax planning us 2007 taxes However, in situation (3), you must reduce the basis of your depreciable property by the excluded amount. Tax planning us 2007 taxes For more information about canceled debt in a bankruptcy case or during insolvency, see Publication 908, Bankruptcy Tax Guide. Tax planning us 2007 taxes For more information about canceled debt that is qualified farm debt, see chapter 3 in Publication 225. Tax planning us 2007 taxes For more information about qualified real property business debt, see chapter 5 in Publication 334, Tax Guide for Small Business. Tax planning us 2007 taxes Postponed Gain From Sale of Home If you postponed gain from the sale of your main home before May 7, 1997, you must reduce the basis of your new home by the postponed gain. Tax planning us 2007 taxes For more information on the rules for the sale of a home, see Publication 523. Tax planning us 2007 taxes Adoption Tax Benefits If you claim an adoption credit for the cost of improvements you added to the basis of your home, decrease the basis of your home by the credit allowed. Tax planning us 2007 taxes This also applies to amounts you received under an employer's adoption assistance program and excluded from income. Tax planning us 2007 taxes For more information Form 8839, Qualified Adoption Expenses. Tax planning us 2007 taxes Employer-Provided Child Care If you are an employer, you can claim the employer-provided child care credit on amounts you paid or incurred to acquire, construct, rehabilitate, or expand property used as part of your qualified child care facility. Tax planning us 2007 taxes You must reduce your basis in that property by the credit claimed. Tax planning us 2007 taxes For more information, see Form 8882, Credit for Employer-Provided Child Care Facilities and Services. Tax planning us 2007 taxes Adjustments to Basis Example In January 2005, you paid $80,000 for real property to be used as a factory. Tax planning us 2007 taxes You also paid commissions of $2,000 and title search and legal fees of $600. Tax planning us 2007 taxes You allocated the total cost of $82,600 between the land and the building—$10,325 for the land and $72,275 for the building. Tax planning us 2007 taxes Immediately you spent $20,000 in remodeling the building before you placed it in service. Tax planning us 2007 taxes You were allowed depreciation of $14,526 for the years 2005 through 2009. Tax planning us 2007 taxes In 2008 you had a $5,000 casualty loss from a that was not covered by insurance on the building. Tax planning us 2007 taxes You claimed a deduction for this loss. Tax planning us 2007 taxes You spent $5,500 to repair the damages and extend the useful life of the building. Tax planning us 2007 taxes The adjusted basis of the building on January 1, 2010, is figured as follows: Original cost of building including fees and commissions $72,275 Adjustments to basis:     Add:         Improvements 20,000   Repair of damages 5,500       $97,775 Subtract:       Depreciation $14,526     Deducted casualty loss 5,000 19,526 Adjusted basis on January 1, 2010 $78,249 The basis of the land, $10,325, remains unchanged. Tax planning us 2007 taxes It is not affected by any of the above adjustments. Tax planning us 2007 taxes Basis Other Than Cost There are many times when you cannot use cost as basis. Tax planning us 2007 taxes In these cases, the fair market value or the adjusted basis of property may be used. Tax planning us 2007 taxes Adjusted basis is discussed earlier. Tax planning us 2007 taxes Fair market value (FMV). Tax planning us 2007 taxes   FMV is the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Tax planning us 2007 taxes Sales of similar property on or about the same date may be helpful in figuring the property's FMV. Tax planning us 2007 taxes Property Received for Services If you receive property for services, include the property's FMV in income. Tax planning us 2007 taxes The amount you include in income becomes your basis. Tax planning us 2007 taxes 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 planning us 2007 taxes Bargain Purchases A bargain purchase is a purchase of an item for less than its FMV. Tax planning us 2007 taxes If, as compensation for services, you purchase goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. Tax planning us 2007 taxes Your basis in the property is its FMV (your purchase price plus the amount you include in income). Tax planning us 2007 taxes If the difference between your purchase price and the FMV represents a qualified employee discount, do not include the difference in income. Tax planning us 2007 taxes However, your basis in the property is still its FMV. Tax planning us 2007 taxes See Employee Discounts in Publication 15-B. Tax planning us 2007 taxes Restricted Property If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested unless you make the election discussed later. Tax planning us 2007 taxes Property becomes substantially vested when your rights in the property or the rights of any person to whom you transfer the property are not subject to a substantial risk of forfeiture. Tax planning us 2007 taxes There is substantial risk of forfeiture when the rights to full enjoyment of the property depend on the future performance of substantial services by any person. Tax planning us 2007 taxes When the property becomes substantially vested, include the FMV, less any amount you paid for the property, in income. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes Your employer gives you stock for services performed under the condition that you will have to return the stock unless you complete 5 years of service. Tax planning us 2007 taxes The stock is under a substantial risk of forfeiture and is not substantially vested when you receive it. Tax planning us 2007 taxes You do not report any income until you have completed the 5 years of service that satisfy the condition. Tax planning us 2007 taxes Fair market value. Tax planning us 2007 taxes   Figure the FMV of property you received without considering any restriction except one that by its terms will never end. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes You received stock from your employer for services you performed. Tax planning us 2007 taxes If you want to sell the stock while you are still employed, you must sell the stock to your employer at book value. Tax planning us 2007 taxes At your retirement or death, you or your estate must offer to sell the stock to your employer at its book value. Tax planning us 2007 taxes This is a restriction that by its terms will never end and you must consider it when you figure the FMV. Tax planning us 2007 taxes Election. Tax planning us 2007 taxes   You can choose to include in your gross income the FMV of the property at the time of transfer, less any amount you paid for it. Tax planning us 2007 taxes If you make this choice, the substantially vested rules do not apply. Tax planning us 2007 taxes Your basis is the amount you paid plus the amount you included in income. Tax planning us 2007 taxes   See the discussion of Restricted Property in Publication 525 for more information. Tax planning us 2007 taxes Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Tax planning us 2007 taxes A taxable gain or deductible loss is also known as a recognized gain or loss. Tax planning us 2007 taxes If you receive property in exchange for other property in a taxable exchange, the basis of property you receive is usually its FMV at the time of the exchange. Tax planning us 2007 taxes A taxable exchange occurs when you receive cash or property not similar or related in use to the property exchanged. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes You trade a tract of farm land with an adjusted basis of $3,000 for a tractor that has an FMV of $6,000. Tax planning us 2007 taxes You must report a taxable gain of $3,000 for the land. Tax planning us 2007 taxes The tractor has a basis of $6,000. Tax planning us 2007 taxes Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, you can figure the basis of the replacement property you receive using the basis of the converted property. Tax planning us 2007 taxes Similar or related property. Tax planning us 2007 taxes   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the old property's basis on the date of the conversion. Tax planning us 2007 taxes However, make the following adjustments. Tax planning us 2007 taxes Decrease the basis by the following. Tax planning us 2007 taxes Any loss you recognize on the conversion, and Any money you receive that you do not spend on similar property. Tax planning us 2007 taxes Increase the basis by the following. Tax planning us 2007 taxes Any gain you recognize on the conversion, and Any cost of acquiring the replacement property. Tax planning us 2007 taxes Money or property not similar or related. Tax planning us 2007 taxes   If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the new property is its cost decreased by the gain not recognized on the conversion. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes The state condemned your property. Tax planning us 2007 taxes The property had an adjusted basis of $26,000 and the state paid you $31,000 for it. Tax planning us 2007 taxes You realized a gain of $5,000 ($31,000 − $26,000). Tax planning us 2007 taxes You bought replacement property similar in use to the converted property for $29,000. Tax planning us 2007 taxes You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Tax planning us 2007 taxes Your gain not recognized is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Tax planning us 2007 taxes The basis of the new property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of the replacement property $26,000 Allocating the basis. Tax planning us 2007 taxes   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes The state in the previous example condemned your unimproved real property and the replacement property you bought was improved real property with both land and buildings. Tax planning us 2007 taxes Allocate the replacement property's $26,000 basis between land and buildings based on their respective costs. Tax planning us 2007 taxes More information. Tax planning us 2007 taxes   For more information about condemnations, see Involuntary Conversions in Publication 544. Tax planning us 2007 taxes For more information about casualty and theft losses, see Publication 547. Tax planning us 2007 taxes Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Tax planning us 2007 taxes If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. Tax planning us 2007 taxes A nontaxable gain or loss is also known as an unrecognized gain or loss. Tax planning us 2007 taxes Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Tax planning us 2007 taxes 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 planning us 2007 taxes There must also be an exchange of like-kind property. Tax planning us 2007 taxes For more information, see Like-Kind Exchanges in Publication 544. Tax planning us 2007 taxes The basis of the property you receive is the same as the basis of the property you gave up. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes You exchange real estate (adjusted basis $50,000, FMV $80,000) held for investment for other real estate (FMV $80,000) held for investment. Tax planning us 2007 taxes Your basis in the new property is the same as the basis of the old ($50,000). Tax planning us 2007 taxes Exchange expenses. Tax planning us 2007 taxes   Exchange expenses are generally the closing costs you pay. Tax planning us 2007 taxes They include such items as brokerage commissions, attorney fees, deed preparation fees, etc. Tax planning us 2007 taxes Add them to the basis of the like-kind property received. Tax planning us 2007 taxes Property plus cash. Tax planning us 2007 taxes   If you trade property in a like-kind exchange and also pay money, the basis of the property received is the basis of the property you gave up increased by the money you paid. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes You trade in a truck (adjusted basis $3,000) for another truck (FMV $7,500) and pay $4,000. Tax planning us 2007 taxes Your basis in the new truck is $7,000 (the $3,000 basis of the old truck plus the $4,000 paid). Tax planning us 2007 taxes Special rules for related persons. Tax planning us 2007 taxes   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 planning us 2007 taxes Each person must report any gain or loss not recognized on the original exchange. Tax planning us 2007 taxes Each person reports it on the tax return filed for the year in which the later disposition occurs. Tax planning us 2007 taxes If this rule applies, the basis of the property received in the original exchange will be its fair market value. Tax planning us 2007 taxes   These rules generally do not apply to the following kinds of property dispositions. Tax planning us 2007 taxes Dispositions due to the death of either related person, Involuntary conversions, and Dispositions in which neither the original exchange nor the subsequent disposition had as a main purpose the avoidance of federal income tax. Tax planning us 2007 taxes Related persons. Tax planning us 2007 taxes   Generally, related persons are ancestors, lineal descendants, brothers and sisters (whole or half), and a spouse. Tax planning us 2007 taxes   For other related persons (for example, two corporations, an individual and a corporation, a grantor and fiduciary, etc. Tax planning us 2007 taxes ), see Nondeductible Loss in chapter 2 of Publication 544. Tax planning us 2007 taxes Exchange of business property. Tax planning us 2007 taxes   Exchanging the assets of one business for the assets of another business is a multiple property exchange. Tax planning us 2007 taxes For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. Tax planning us 2007 taxes Partially Nontaxable Exchange A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like property. Tax planning us 2007 taxes The basis of the property you receive is the same as the basis of the property you gave up, with the following adjustments. Tax planning us 2007 taxes Decrease the basis by the following amounts. Tax planning us 2007 taxes Any money you receive, and Any loss you recognize on the exchange. Tax planning us 2007 taxes Increase the basis by the following amounts. Tax planning us 2007 taxes Any additional costs you incur, and Any gain you recognize on the exchange. Tax planning us 2007 taxes If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes You traded a truck (adjusted basis $6,000) for a new truck (FMV $5,200) and $1,000 cash. Tax planning us 2007 taxes You realized a gain of $200 ($6,200 − $6,000). Tax planning us 2007 taxes This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($5,200 + $1,000 – $6,000). Tax planning us 2007 taxes You include all the gain in income (recognized gain) because the gain is less than the cash received. Tax planning us 2007 taxes Your basis in the new truck is: Adjusted basis of old truck $6,000 Minus: Cash received (adjustment 1(a)) 1,000   $5,000 Plus: Gain recognized (adjustment 2(b)) 200 Basis of new truck $5,200 Allocation of basis. Tax planning us 2007 taxes   Allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Tax planning us 2007 taxes The rest is the basis of the like property. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes You had an adjusted basis of $15,000 in real estate you held for investment. Tax planning us 2007 taxes You exchanged it for other real estate to be held for investment with an FMV of $12,500, a truck with an FMV of $3,000, and $1,000 cash. Tax planning us 2007 taxes The truck is unlike property. Tax planning us 2007 taxes You realized a gain of $1,500 ($16,500 − $15,000). Tax planning us 2007 taxes This is the FMV of the real estate received plus the FMV of the truck received plus the cash minus the adjusted basis of the real estate you traded ($12,500 + $3,000 + $1,000 – $15,000). Tax planning us 2007 taxes 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 planning us 2007 taxes Your basis in the properties you received is figured as follows. Tax planning us 2007 taxes Adjusted basis of real estate transferred $15,000 Minus: Cash received (adjustment 1(a)) 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property — the truck ($3,000). Tax planning us 2007 taxes This is the truck's FMV. Tax planning us 2007 taxes The rest ($12,500) is the basis of the real estate. Tax planning us 2007 taxes 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 planning us 2007 taxes Example. Tax planning us 2007 taxes You are a salesperson and you use one of your cars 100% for business. Tax planning us 2007 taxes You have used this car in your sales activities for 2 years and have depreciated it. Tax planning us 2007 taxes Your adjusted basis in the car is $22,600 and its FMV is $23,100. Tax planning us 2007 taxes You are interested in a new car, which sells for $28,000. Tax planning us 2007 taxes If you trade your old car and pay $4,900 for the new one, your basis for depreciation for the new car would be $27,500 ($4,900 plus the $22,600 basis of your old car). Tax planning us 2007 taxes However, you want a higher basis for depreciating the new car, so you agree to pay the dealer $28,000 for the new car if he will pay you $23,100 for your old car. Tax planning us 2007 taxes Because the two transactions are dependent on each other, you are treated as having exchanged your old car for the new one and paid $4,900 ($28,000 − $23,100). Tax planning us 2007 taxes Your basis for depreciating the new car is $27,500, the same as if you traded the old car. Tax planning us 2007 taxes Partial Business Use of Property If you have property used partly for business and partly for personal use, and you exchange it in a nontaxable exchange for property to be used wholly or partly in your business, the basis of the property you receive is figured as if you had exchanged two properties. Tax planning us 2007 taxes The first is an exchange of like-kind property. Tax planning us 2007 taxes The second is personal-use property on which gain is recognized and loss is not recognized. Tax planning us 2007 taxes First, figure your adjusted basis in the property as if you transferred two separate properties. Tax planning us 2007 taxes Figure the adjusted basis of each part of the property by taking into account any adjustments to basis. Tax planning us 2007 taxes Deduct the depreciation you took or could have taken from the adjusted basis of the business part. Tax planning us 2007 taxes Then figure the amount realized for your property and allocate it to the business and nonbusiness parts of the property. Tax planning us 2007 taxes The business part of the property is permitted to be exchanged tax free. Tax planning us 2007 taxes However, you must recognize any gain from the exchange of the nonbusiness part. Tax planning us 2007 taxes You are deemed to have received, in exchange for the nonbusiness part, an amount equal to its FMV on the date of the exchange. Tax planning us 2007 taxes The basis of the property you acquired is the total basis of the property transferred (adjusted to the date of the exchange), increased by any gain recognized on the nonbusiness part. Tax planning us 2007 taxes If the nonbusiness part of the property transferred is your main home, you may qualify to exclude from income all or part of the gain on that part. Tax planning us 2007 taxes For more information, see Publication 523. Tax planning us 2007 taxes Trade of car used partly in business. Tax planning us 2007 taxes   If you trade in a car you used partly in your business for another car you will use in your business, your basis for depreciation of the new car is not the same as your basis for figuring a gain or loss on its sale. Tax planning us 2007 taxes   For information on figuring your basis for depreciation, see Publication 463. Tax planning us 2007 taxes Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse (or former spouse if the transfer is incident to divorce), is the same as your spouse's adjusted basis. Tax planning us 2007 taxes However, adjust your basis for any gain recognized by your spouse or former spouse on property transferred in trust. Tax planning us 2007 taxes This rule applies only to a transfer of property in trust in which the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. Tax planning us 2007 taxes If the property transferred to you is a series E, series EE, or series I United States savings bond, the transferor must include in income the interest accrued to the date of transfer. Tax planning us 2007 taxes Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. Tax planning us 2007 taxes For more information on these bonds, see Publication 550. Tax planning us 2007 taxes At the time of the transfer, the transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of transfer. Tax planning us 2007 taxes For more information, see Publication 504, Divorced or Separated Individuals. Tax planning us 2007 taxes Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. Tax planning us 2007 taxes FMV Less Than Donor's Adjusted Basis If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Tax planning us 2007 taxes Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustment to basis while you held the property. Tax planning us 2007 taxes Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property (see Adjusted Basis earlier). Tax planning us 2007 taxes If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and have a gain, you have neither gain nor loss on the sale or disposition of the property. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes You received an acre of land as a gift. Tax planning us 2007 taxes At the time of the gift, the land had an FMV of $8,000. Tax planning us 2007 taxes The donor's adjusted basis was $10,000. Tax planning us 2007 taxes After you received the land, no events occurred to increase or decrease your basis. Tax planning us 2007 taxes If you sell the land for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis ($10,000) at the time of the gift as your basis to figure gain. Tax planning us 2007 taxes If you sell the land for $7,000, you will have a $1,000 loss because you must use the FMV ($8,000) at the time of the gift as your basis to figure a loss. Tax planning us 2007 taxes If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Tax planning us 2007 taxes For instance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis ($10,000), you would get a $1,000 loss. Tax planning us 2007 taxes If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain. Tax planning us 2007 taxes Business property. Tax planning us 2007 taxes   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduction is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Tax planning us 2007 taxes FMV Equal to or More Than Donor's Adjusted Basis If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Tax planning us 2007 taxes Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Tax planning us 2007 taxes Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis by any required adjustments to basis while you held the property. Tax planning us 2007 taxes See Adjusted Basis earlier. Tax planning us 2007 taxes Gift received before 1977. Tax planning us 2007 taxes   If you received a gift before 1977, increase your basis in the gift (the donor's adjusted basis) by any gift tax paid on it. Tax planning us 2007 taxes However, do not increase your basis above the FMV of the gift at the time it was given to you. Tax planning us 2007 taxes Example 1. Tax planning us 2007 taxes You were given a house in 1976 with an FMV of $21,000. Tax planning us 2007 taxes The donor's adjusted basis was $20,000. Tax planning us 2007 taxes The donor paid a gift tax of $500. Tax planning us 2007 taxes Your basis is $20,500, the donor's adjusted basis plus the gift tax paid. Tax planning us 2007 taxes Example 2. Tax planning us 2007 taxes If, in Example 1, the gift tax paid had been $1,500, your basis would be $21,000. Tax planning us 2007 taxes This is the donor's adjusted basis plus the gift tax paid, limited to the FMV of the house at the time you received the gift. Tax planning us 2007 taxes Gift received after 1976. Tax planning us 2007 taxes   If you received a gift after 1976, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. Tax planning us 2007 taxes Figure the increase by multiplying the gift tax paid by a fraction. Tax planning us 2007 taxes The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Tax planning us 2007 taxes   The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. Tax planning us 2007 taxes 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 planning us 2007 taxes For information on the gift tax, see Publication 950, Introduction to Estate and Gift Taxes. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes In 2010, you received a gift of property from your mother that had an FMV of $50,000. Tax planning us 2007 taxes Her adjusted basis was $20,000. Tax planning us 2007 taxes The amount of the gift for gift tax purposes was $37,000 ($50,000 minus the $13,000 annual exclusion). Tax planning us 2007 taxes She paid a gift tax of $9,000. Tax planning us 2007 taxes Your basis, $27,290, is figured as follows: Fair market value $50,000 Minus: Adjusted basis 20,000 Net increase in value $30,000 Gift tax paid $9,000 Multiplied by ($30,000 ÷ $37,000) . Tax planning us 2007 taxes 81 Gift tax due to net increase in value $7,290 Adjusted basis of property to your mother 20,000 Your basis in the property $27,290 Inherited Property Special rules apply to property acquired from a decedent who died in 2010. Tax planning us 2007 taxes See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Tax planning us 2007 taxes If you inherited property from a decedent who died before 2010, your basis in property you inherit from a decedent is generally one of the following. Tax planning us 2007 taxes The FMV of the property at the date of the individual's death. Tax planning us 2007 taxes The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. Tax planning us 2007 taxes For information on the alternate valuation date, see the Instructions for Form 706. Tax planning us 2007 taxes The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. Tax planning us 2007 taxes This method is discussed later. Tax planning us 2007 taxes The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. Tax planning us 2007 taxes For information on a qualified conservation easement, see the Instructions for Form 706. Tax planning us 2007 taxes 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 planning us 2007 taxes For more information, see the Instructions for Form 706. Tax planning us 2007 taxes Appreciated property. Tax planning us 2007 taxes   The above rule does not apply to appreciated property you receive from a decedent if you or your spouse originally gave the property to the decedent within 1 year before the decedent's death. Tax planning us 2007 taxes Your basis in this property is the same as the decedent's adjusted basis in the property immediately before his or her death, rather than its FMV. Tax planning us 2007 taxes Appreciated property is any property whose FMV on the day it was given to the decedent is more than its adjusted basis. Tax planning us 2007 taxes Community Property In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. Tax planning us 2007 taxes When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. Tax planning us 2007 taxes For this rule to apply, at least half the value of the community property interest must be includable in the decedent's gross estate, whether or not the estate must file a return. Tax planning us 2007 taxes For example, you and your spouse owned community property that had a basis of $80,000. Tax planning us 2007 taxes When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Tax planning us 2007 taxes The FMV of the community interest was $100,000. Tax planning us 2007 taxes The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Tax planning us 2007 taxes The basis of the other half to your spouse's heirs is also $50,000. Tax planning us 2007 taxes For more information on community property, see Publication 555, Community Property. Tax planning us 2007 taxes Property Held by Surviving Tenant The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes John and Jim owned, as joint tenants with right of survivorship, business property they purchased for $30,000. Tax planning us 2007 taxes John furnished two-thirds of the purchase price and Jim furnished one-third. Tax planning us 2007 taxes Depreciation deductions allowed before John's death were $12,000. Tax planning us 2007 taxes Under local law, each had a half interest in the income from the property. Tax planning us 2007 taxes At the date of John's death, the property had an FMV of $60,000, two-thirds of which is includable in John's estate. Tax planning us 2007 taxes Jim figures his basis in the property at the date of John's death as follows: Interest Jim bought with his own funds—1/3 of $30,000 cost $10,000   Interest Jim received on John's death—2/3 of $60,000 FMV 40,000 $50,000 Minus: ½ of $12,000 depreciation before John's death 6,000 Jim's basis at the date of John's death $44,000 If Jim had not contributed any part of the purchase price, his basis at the date of John's death would be $54,000. Tax planning us 2007 taxes This is figured by subtracting from the $60,000 FMV, the $6,000 depreciation allocated to Jim's half interest before the date of death. Tax planning us 2007 taxes If under local law Jim had no interest in the income from the property and he contributed no part of the purchase price, his basis at John's death would be $60,000, the FMV of the property. Tax planning us 2007 taxes Qualified Joint Interest Include one-half of the value of a qualified joint interest in the decedent's gross estate. Tax planning us 2007 taxes It does not matter how much each spouse contributed to the purchase price. Tax planning us 2007 taxes Also, it does not matter which spouse dies first. Tax planning us 2007 taxes A qualified joint interest is any interest in property held by husband and wife as either of the following. Tax planning us 2007 taxes Tenants by the entirety, or Joint tenants with right of survivorship if husband and wife are the only joint tenants. Tax planning us 2007 taxes Basis. Tax planning us 2007 taxes   As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of your half of the property with certain adjustments. Tax planning us 2007 taxes Decrease the cost by any deductions allowed to you for depreciation and depletion. Tax planning us 2007 taxes Increase the reduced cost by your basis in the half you inherited. Tax planning us 2007 taxes Farm or Closely Held Business Under certain conditions, when a person dies the executor or personal representative of that person's estate can choose to value the qualified real property on other than its FMV. Tax planning us 2007 taxes If so, the executor or personal representative values the qualified real property based on its use as a farm or its use in a closely held business. Tax planning us 2007 taxes If the executor or personal representative chooses this method of valuation for estate tax purposes, that value is the basis of the property for the heirs. Tax planning us 2007 taxes Qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. Tax planning us 2007 taxes Special-use valuation. Tax planning us 2007 taxes   If you are a qualified heir who received special-use valuation property, your basis in the property is the estate's or trust's basis in that property immediately before the distribution. Tax planning us 2007 taxes Increase your basis by any gain recognized by the estate or trust because of post-death appreciation. Tax planning us 2007 taxes Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or the alternate valuation date. Tax planning us 2007 taxes Figure all FMVs without regard to the special-use valuation. Tax planning us 2007 taxes   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. Tax planning us 2007 taxes This tax is assessed if, within 10 years after the death of the decedent, you transfer the property to a person who is not a member of your family or the property stops being used as a farm or in a closely held business. Tax planning us 2007 taxes   To increase your basis in the property, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of the payment of the additional estate tax. Tax planning us 2007 taxes 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 planning us 2007 taxes The increase in your basis is considered to have occurred immediately before the event that results in the additional estate tax. Tax planning us 2007 taxes   You make the election by filing with Form 706-A a statement that does all of the following. Tax planning us 2007 taxes Contains your name, address, and taxpayer identification number and those of the estate; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which the election is made; and Provides any additional information required by the Instructions for Form 706-A. Tax planning us 2007 taxes   For more information, see the Instructions for Form 706 and the Instructions for Form 706-A. Tax planning us 2007 taxes Property Changed to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. Tax planning us 2007 taxes An example of changing property held for personal use to business use would be renting out your former main home. Tax planning us 2007 taxes Basis for depreciation. Tax planning us 2007 taxes   The basis for depreciation is the lesser of the following amounts. Tax planning us 2007 taxes The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes Several years ago you paid $160,000 to have your home built on a lot that cost $25,000. Tax planning us 2007 taxes You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. Tax planning us 2007 taxes Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Tax planning us 2007 taxes Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Tax planning us 2007 taxes On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Tax planning us 2007 taxes The basis for figuring depreciation on the house is its FMV on the date of change ($165,000) because it is less than your adjusted basis ($178,000). Tax planning us 2007 taxes Sale of property. Tax planning us 2007 taxes   If you later sell or dispose of property changed to business or rental use, the basis of the property you use will depend on whether you are figuring gain or loss. Tax planning us 2007 taxes Gain. Tax planning us 2007 taxes   The basis for figuring a gain is your adjusted basis when you sell the property. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. Tax planning us 2007 taxes Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Tax planning us 2007 taxes Loss. Tax planning us 2007 taxes   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 planning us 2007 taxes Then adjust this amount for the period after the change in the property's use, as discussed earlier under Adjusted Basis, to arrive at a basis for loss. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. Tax planning us 2007 taxes In this case, you would start with the FMV on the date of the change to rental use ($180,000) because it is less than the adjusted basis of $203,000 ($178,000 + $25,000) on that date. Tax planning us 2007 taxes Reduce that amount ($180,000) by the depreciation deductions to arrive at a basis for loss of $142,500 ($180,000 − $37,500). Tax planning us 2007 taxes How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. Tax planning us 2007 taxes By selecting the method that is best for you, you will have quick and easy access to tax help. Tax planning us 2007 taxes Contacting your Taxpayer Advocate. Tax planning us 2007 taxes   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. Tax planning us 2007 taxes We help taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving tax problems with the IRS; and those who believe that an IRS system or procedure is not working as it should. Tax planning us 2007 taxes Here are seven things every taxpayer should know about TAS. Tax planning us 2007 taxes TAS is your voice at the IRS. Tax planning us 2007 taxes Our service is free, confidential, and tailored to meet your needs. Tax planning us 2007 taxes You may be eligible for our help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should. Tax planning us 2007 taxes We help taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. Tax planning us 2007 taxes This includes businesses as well as individuals. Tax planning us 2007 taxes Our employees know the IRS and how to navigate it. Tax planning us 2007 taxes If you qualify for our help, we'll assign your case to an advocate who will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved. Tax planning us 2007 taxes We have at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. Tax planning us 2007 taxes You can call your local advocate, whose number is in your phone book, in Publication 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www. Tax planning us 2007 taxes irs. Tax planning us 2007 taxes gov/advocate. Tax planning us 2007 taxes You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059. Tax planning us 2007 taxes You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www. Tax planning us 2007 taxes taxtoolkit. Tax planning us 2007 taxes irs. Tax planning us 2007 taxes gov. Tax planning us 2007 taxes You can get updates on hot tax topics by visiting our YouTube channel at www. Tax planning us 2007 taxes youtube. Tax planning us 2007 taxes com/tasnta and our Facebook page at www. Tax planning us 2007 taxes facebook. Tax planning us 2007 taxes com/YourVoiceAtIRS, or by following our tweets at www. Tax planning us 2007 taxes twitter. Tax planning us 2007 taxes com/YourVoiceAtIRS. Tax planning us 2007 taxes Low Income Taxpayer Clinics (LITCs). Tax planning us 2007 taxes   The Low Income Taxpayer Clinic program serves individuals who have a problem with the IRS and whose income is below a certain level. Tax planning us 2007 taxes LITCs are independent from the IRS. Tax planning us 2007 taxes Most LITCs can provide representation before the IRS or in court on audits, tax collection disputes, and other issues for free or a small fee. Tax planning us 2007 taxes If an individual's native language is not English, some clinics can provide multilingual information about taxpayer rights and responsibilities. Tax planning us 2007 taxes For more information, see Publication 4134, Low Income Taxpayer Clinic List. Tax planning us 2007 taxes This publication is available at IRS. Tax planning us 2007 taxes gov, by calling 1-800-TAX-FORM (1-800-829-3676), or at your local IRS office. Tax planning us 2007 taxes Free tax services. Tax planning us 2007 taxes   Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. Tax planning us 2007 taxes Learn about free tax information from the IRS, including publications, services, and education and assistance programs. Tax planning us 2007 taxes The publication also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on the telephone. Tax planning us 2007 taxes The majority of the information and services listed in this publication are available to you free of charge. Tax planning us 2007 taxes If there is a fee associated with a resource or service, it is listed in the publication. Tax planning us 2007 taxes   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with d
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2014 Standard Mileage Rates

IR-2013-95, Dec. 6, 2013

WASHINGTON — The Internal Revenue Service today issued the 2014 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 56 cents per mile for business miles driven
  • 23.5 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The business, medical, and moving expense rates decrease one-half cent from the 2013 rates.  The charitable rate is based on statute.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.  Notice 2013-80 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

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Page Last Reviewed or Updated: 06-Dec-2013

The Tax Planning Us 2007 Taxes

Tax planning us 2007 taxes Publication 525 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionAssignment of income. Tax planning us 2007 taxes Ordering forms and publications. Tax planning us 2007 taxes Tax questions. Tax planning us 2007 taxes Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 525, such as legislation enacted after it was published, go to www. Tax planning us 2007 taxes irs. Tax planning us 2007 taxes gov/pub525. Tax planning us 2007 taxes What's New Health flexible spending arrangements (health FSAs) under cafeteria plans. Tax planning us 2007 taxes  For plan years beginning after 2012, health FSAs are subject to a $2,500 limit on salary reduction contributions. Tax planning us 2007 taxes For plan years beginning after 2013, the $2,500 limit is subject to an inflation adjustment. Tax planning us 2007 taxes Itemized deduction for medical expenses. Tax planning us 2007 taxes  Beginning in 2013, an itemized deduction is generally allowed for uncompensated medical expenses that exceed 10% of adjusted gross income (AGI). Tax planning us 2007 taxes If an individual or an individual’s spouse was born before January 2, 1949, the deduction is allowed for expenses that exceed 7. Tax planning us 2007 taxes 5% of AGI. Tax planning us 2007 taxes Additional Medicare Tax. Tax planning us 2007 taxes  Beginning in 2013, a 0. Tax planning us 2007 taxes 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 if single, head of household, or qualifying widow(er). Tax planning us 2007 taxes For more information, see Form 8959 and its instructions. Tax planning us 2007 taxes Net Investment Income Tax (NIIT). Tax planning us 2007 taxes  Beginning in 2013, the NIIT applies at a rate of 3. Tax planning us 2007 taxes 8% to certain net investment income of individuals, estates and trusts that have income above the threshold amounts. Tax planning us 2007 taxes Individuals will owe the tax if they have net investment income and also have modified adjusted gross income over the following thresholds for their filing status: Married filing jointly, $250,000; Married filing separately, $125,000; Single, $200,000; Head of household (with qualifying person), $200,000; Qualifying widow(er) with dependent child, $250,000. Tax planning us 2007 taxes For more information, see Form 8960 and its instructions. Tax planning us 2007 taxes Reminders Terrorist attacks. Tax planning us 2007 taxes  You can exclude from income certain disaster assistance, disability, and death payments received as a result of a terrorist or military action. Tax planning us 2007 taxes For more information, see Publication 3920, Tax Relief for Victims of Terrorist Attacks. Tax planning us 2007 taxes Gulf oil spill. Tax planning us 2007 taxes  You are required to include in your gross income payments you received for lost wages, lost business income, or lost profits. Tax planning us 2007 taxes See Gulf oil spill under Other Income, later. Tax planning us 2007 taxes Qualified settlement income. Tax planning us 2007 taxes . Tax planning us 2007 taxes  If you are a qualified taxpayer, you can contribute all or part of your qualified settlement income, up to $100,000, to an eligible retirement plan, including an IRA. Tax planning us 2007 taxes Contributions to eligible retirement plans, other than a Roth IRA or a designated Roth contribution, reduce the qualified settlement income that you must include in income. Tax planning us 2007 taxes See Exxon Valdez settlement income under Other Income, later. Tax planning us 2007 taxes Foreign income. Tax planning us 2007 taxes  If you are a U. Tax planning us 2007 taxes S. Tax planning us 2007 taxes citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U. Tax planning us 2007 taxes S. Tax planning us 2007 taxes law. Tax planning us 2007 taxes This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or Form 1099 from the foreign payer. Tax planning us 2007 taxes This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). Tax planning us 2007 taxes If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. Tax planning us 2007 taxes For details, see Publication 54, Tax Guide for U. Tax planning us 2007 taxes S. Tax planning us 2007 taxes Citizens and Resident Aliens Abroad. Tax planning us 2007 taxes Disaster mitigation payments. Tax planning us 2007 taxes . Tax planning us 2007 taxes  You can exclude from income grants you use to mitigate (reduce the severity of) potential damage from future natural disasters that are paid to you through state and local governments. Tax planning us 2007 taxes For more information, see Disaster mitigation payments under Welfare and Other Public Assistance Benefits, later. Tax planning us 2007 taxes Qualified joint venture. Tax planning us 2007 taxes  A qualified joint venture conducted by you and your spouse may not be treated as a partnership if you file a joint return for the tax year. Tax planning us 2007 taxes See Partnership Income under Business and Investment Income, later. Tax planning us 2007 taxes Photographs of missing children. Tax planning us 2007 taxes  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Tax planning us 2007 taxes Photographs of missing children selected by the Center may appear in this publication on pages that otherwise would be blank. Tax planning us 2007 taxes You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Tax planning us 2007 taxes Introduction You can receive income in the form of money, property, or services. Tax planning us 2007 taxes This publication discusses many kinds of income and explains whether they are taxable or nontaxable. Tax planning us 2007 taxes It includes discussions on employee wages and fringe benefits, and income from bartering, partnerships, S corporations, and royalties. Tax planning us 2007 taxes It also includes information on disability pensions, life insurance proceeds, and welfare and other public assistance benefits. Tax planning us 2007 taxes Check the index for the location of a specific subject. Tax planning us 2007 taxes In most cases, an amount included in your income is taxable unless it is specifically exempted by law. Tax planning us 2007 taxes Income that is taxable must be reported on your return and is subject to tax. Tax planning us 2007 taxes Income that is nontaxable may have to be shown on your tax return but is not taxable. Tax planning us 2007 taxes Constructively received income. Tax planning us 2007 taxes   You are generally taxed on income that is available to you, regardless of whether it is actually in your possession. Tax planning us 2007 taxes    A valid check that you received or that was made available to you before the end of the tax year is considered income constructively received in that year, even if you do not cash the check or deposit it to your account until the next year. Tax planning us 2007 taxes For example, if the postal service tries to deliver a check to you on the last day of the tax year but you are not at home to receive it, you must include the amount in your income for that tax year. Tax planning us 2007 taxes If the check was mailed so that it could not possibly reach you until after the end of the tax year, and you otherwise could not get the funds before the end of the year, you include the amount in your income for the next tax year. Tax planning us 2007 taxes Assignment of income. Tax planning us 2007 taxes   Income received by an agent for you is income you constructively received in the year the agent received it. Tax planning us 2007 taxes If you agree by contract that a third party is to receive income for you, you must include the amount in your income when the third party receives it. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes You and your employer agree that part of your salary is to be paid directly to one of your creditors. Tax planning us 2007 taxes You must include that amount in your income when your creditor receives it. Tax planning us 2007 taxes Prepaid income. Tax planning us 2007 taxes   In most cases, prepaid income, such as compensation for future services, is included in your income in the year you receive it. Tax planning us 2007 taxes However, if you use an accrual method of accounting, you can defer prepaid income you receive for services to be performed before the end of the next tax year. Tax planning us 2007 taxes In this case, you include the payment in your income as you earn it by performing the services. Tax planning us 2007 taxes Comments and suggestions. Tax planning us 2007 taxes   We welcome your comments about this publication and your suggestions for future editions. Tax planning us 2007 taxes   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Tax planning us 2007 taxes NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Tax planning us 2007 taxes Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Tax planning us 2007 taxes   You can send your comments from www. Tax planning us 2007 taxes irs. Tax planning us 2007 taxes gov/formspubs/. Tax planning us 2007 taxes Click on “More Information” and then on “Comment on Tax Forms and Publications. Tax planning us 2007 taxes ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Tax planning us 2007 taxes Ordering forms and publications. Tax planning us 2007 taxes   Visit www. Tax planning us 2007 taxes irs. Tax planning us 2007 taxes gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Tax planning us 2007 taxes Internal Revenue Service 1201 N. Tax planning us 2007 taxes Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Tax planning us 2007 taxes   If you have a tax question, check the information available on IRS. Tax planning us 2007 taxes gov or call 1-800-829-1040. Tax planning us 2007 taxes We cannot answer tax questions sent to either of the above addresses. Tax planning us 2007 taxes Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 523 Selling Your Home 527 Residential Rental Property 541 Partnerships 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 559 Survivors, Executors, and Administrators 575 Pension and Annuity Income 915 Social Security and Equivalent Railroad Retirement Benefits 970 Tax Benefits for Education 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) 1040 U. Tax planning us 2007 taxes S. Tax planning us 2007 taxes Individual Income Tax Return 1040A U. Tax planning us 2007 taxes S. Tax planning us 2007 taxes Individual Income Tax Return 1040EZ Income Tax Return for Single and Joint Filers With No Dependents 1040NR U. Tax planning us 2007 taxes S. Tax planning us 2007 taxes Nonresident Alien Income Tax Return 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Tax planning us 2007 taxes W-2 Wage and Tax Statement  See How To Get Tax Help , near the end of this publication, for information about getting these publications. Tax planning us 2007 taxes Prev  Up  Next   Home   More Online Publications