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Tax Return Forms 2011

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Tax Return Forms 2011

Tax return forms 2011 1. Tax return forms 2011   Gain or Loss Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesGain or Loss From Sales and Exchanges Abandonments Foreclosures and RepossessionsAmount realized on a nonrecourse debt. Tax return forms 2011 Amount realized on a recourse debt. Tax return forms 2011 Involuntary ConversionsCondemnations Nontaxable ExchangesLike-Kind Exchanges Other Nontaxable Exchanges Transfers to Spouse Rollover of Gain From Publicly Traded Securities Gains on Sales of Qualified Small Business Stock Exclusion of Gain From Sale of DC Zone Assets Topics - This chapter discusses: Sales and exchanges Abandonments Foreclosures and repossessions Involuntary conversions Nontaxable exchanges Transfers to spouse Rollovers and exclusions for certain capital gains Useful Items - You may want to see: Publication 523 Selling Your Home 537 Installment Sales 547 Casualties, Disasters, and Thefts 550 Investment Income and Expenses 551 Basis of Assets 908 Bankruptcy Tax Guide 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1040 U. Tax return forms 2011 S. Tax return forms 2011 Individual Income Tax Return 1040X Amended U. Tax return forms 2011 S. Tax return forms 2011 Individual Income Tax Return 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets Although the discussions in this chapter may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. Tax return forms 2011 However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Tax return forms 2011 See chapter 5 for information about getting publications and forms. Tax return forms 2011 Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Tax return forms 2011 An exchange is a transfer of property for other property or services. Tax return forms 2011 The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. Tax return forms 2011 Sale or lease. Tax return forms 2011    Some agreements that seem to be leases may really be conditional sales contracts. Tax return forms 2011 The intention of the parties to the agreement can help you distinguish between a sale and a lease. Tax return forms 2011   There is no test or group of tests to prove what the parties intended when they made the agreement. Tax return forms 2011 You should consider each agreement based on its own facts and circumstances. Tax return forms 2011 For more information, see chapter 3 in Publication 535, Business Expenses. Tax return forms 2011 Cancellation of a lease. Tax return forms 2011    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. Tax return forms 2011 Payments received by a landlord (lessor) for the cancellation of a lease are essentially a substitute for rental payments and are taxed as ordinary income in the year in which they are received. Tax return forms 2011 Copyright. Tax return forms 2011    Payments you receive for granting the exclusive use of (or right to exploit) a copyright throughout its life in a particular medium are treated as received from the sale of property. Tax return forms 2011 It does not matter if the payments are a fixed amount or a percentage of receipts from the sale, performance, exhibition, or publication of the copyrighted work, or an amount based on the number of copies sold, performances given, or exhibitions made. Tax return forms 2011 Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. Tax return forms 2011   If the copyright was used in your trade or business and you held it longer than a year, the gain or loss may be a section 1231 gain or loss. Tax return forms 2011 For more information, see Section 1231 Gains and Losses in chapter 3. Tax return forms 2011 Easement. Tax return forms 2011   The amount received for granting an easement is subtracted from the basis of the property. Tax return forms 2011 If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. Tax return forms 2011 If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received. Tax return forms 2011   Any amount received that is more than the basis to be reduced is a taxable gain. Tax return forms 2011 The transaction is reported as a sale of property. Tax return forms 2011   If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property. Tax return forms 2011 However, if you make a qualified conservation contribution of a restriction or easement granted in perpetuity, it is treated as a charitable contribution and not a sale or exchange, even though you keep a beneficial interest in the property affected by the easement. Tax return forms 2011   If you grant an easement on your property (for example, a right-of-way over it) under condemnation or threat of condemnation, you are considered to have made a forced sale, even though you keep the legal title. Tax return forms 2011 Although you figure gain or loss on the easement in the same way as a sale of property, the gain or loss is treated as a gain or loss from a condemnation. Tax return forms 2011 See Gain or Loss From Condemnations, later. Tax return forms 2011 Property transferred to satisfy debt. Tax return forms 2011   A transfer of property to satisfy a debt is an exchange. Tax return forms 2011 Note's maturity date extended. Tax return forms 2011   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. Tax return forms 2011 Also, it is not considered a closed and completed transaction that would result in a gain or loss. Tax return forms 2011 However, an extension will be treated as a taxable exchange of the outstanding note for a new and materially different note if the changes in the terms of the note are significant. Tax return forms 2011 Each case must be determined by its own facts. Tax return forms 2011 For more information, see Regulations section 1. Tax return forms 2011 1001-3. Tax return forms 2011 Transfer on death. Tax return forms 2011   The transfer of property of a decedent to an executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or exchange or other disposition. Tax return forms 2011 No taxable gain or deductible loss results from the transfer. Tax return forms 2011 Bankruptcy. Tax return forms 2011   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. Tax return forms 2011 Consequently, the transfer generally does not result in gain or loss. Tax return forms 2011 For more information, see Publication 908, Bankruptcy Tax Guide. Tax return forms 2011 Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. Tax return forms 2011 A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. Tax return forms 2011 A loss is the adjusted basis of the property that is more than the amount you realize. Tax return forms 2011   Table 1-1. Tax return forms 2011 How To Figure Whether You Have a Gain or Loss IF your. Tax return forms 2011 . Tax return forms 2011 . Tax return forms 2011 THEN you have a. Tax return forms 2011 . Tax return forms 2011 . Tax return forms 2011 Adjusted basis is more than the amount realized, Loss. Tax return forms 2011 Amount realized is more than the adjusted basis, Gain. Tax return forms 2011 Basis. Tax return forms 2011   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. Tax return forms 2011 The basis of property you buy is usually its cost. Tax return forms 2011 However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. Tax return forms 2011 See Basis Other Than Cost in Publication 551, Basis of Assets. Tax return forms 2011 Special rules apply to property acquired from a decedent who died in 2010 and the executor made the election to file Form 8939, Allocation of Increase in Basis for Property Received From a Decedent. Tax return forms 2011 See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Tax return forms 2011 Adjusted basis. Tax return forms 2011   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. Tax return forms 2011 Increases include costs of any improvements having a useful life of more than 1 year. Tax return forms 2011 Decreases include depreciation and casualty losses. Tax return forms 2011 For more details and additional examples, see Adjusted Basis in Publication 551. Tax return forms 2011 Amount realized. Tax return forms 2011   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (defined below) of all property or services you receive. Tax return forms 2011 The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Tax return forms 2011 Fair market value. Tax return forms 2011   Fair market value (FMV) is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. Tax return forms 2011 If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. Tax return forms 2011 If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. Tax return forms 2011 Example. Tax return forms 2011 You used a building in your business that cost you $70,000. Tax return forms 2011 You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. Tax return forms 2011 You sold the building for $100,000 plus property having an FMV of $20,000. Tax return forms 2011 The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. Tax return forms 2011 The selling expenses were $4,000. Tax return forms 2011 Your gain on the sale is figured as follows. Tax return forms 2011 Amount realized:     Cash $100,000   FMV of property received 20,000   Real estate taxes assumed by buyer 3,000   Mortgage assumed by  buyer 17,000   Total 140,000   Minus: Selling expenses 4,000 $136,000 Adjusted basis:     Cost of building $70,000   Improvements 20,000   Total $90,000   Minus: Depreciation 10,000   Adjusted basis   $80,000 Gain on sale $56,000 Amount recognized. Tax return forms 2011   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. Tax return forms 2011 Recognized gains must be included in gross income. Tax return forms 2011 Recognized losses are deductible from gross income. Tax return forms 2011 However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. Tax return forms 2011 See Nontaxable Exchanges, later. Tax return forms 2011 Also, a loss from the sale or other disposition of property held for personal use is not deductible, except in the case of a casualty or theft. Tax return forms 2011 Interest in property. Tax return forms 2011   The amount you realize from the disposition of a life interest in property, an interest in property for a set number of years, or an income interest in a trust is a recognized gain under certain circumstances. Tax return forms 2011 If you received the interest as a gift, inheritance, or in a transfer from a spouse or former spouse incident to a divorce, the amount realized is a recognized gain. Tax return forms 2011 Your basis in the property is disregarded. Tax return forms 2011 This rule does not apply if all interests in the property are disposed of at the same time. Tax return forms 2011 Example 1. Tax return forms 2011 Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. Tax return forms 2011 You decide to sell your life interest in the farm. Tax return forms 2011 The entire amount you receive is a recognized gain. Tax return forms 2011 Your basis in the farm is disregarded. Tax return forms 2011 Example 2. Tax return forms 2011 The facts are the same as in Example 1, except that your brother joins you in selling the farm. Tax return forms 2011 The entire interest in the property is sold, so your basis in the farm is not disregarded. Tax return forms 2011 Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. Tax return forms 2011 Canceling a sale of real property. Tax return forms 2011   If you sell real property under a sales contract that allows the buyer to return the property for a full refund and the buyer does so, you may not have to recognize gain or loss on the sale. Tax return forms 2011 If the buyer returns the property in the year of sale, no gain or loss is recognized. Tax return forms 2011 This cancellation of the sale in the same year it occurred places both you and the buyer in the same positions you were in before the sale. Tax return forms 2011 If the buyer returns the property in a later tax year, you must recognize gain (or loss, if allowed) in the year of the sale. Tax return forms 2011 When the property is returned in a later year, you acquire a new basis in the property. Tax return forms 2011 That basis is equal to the amount you pay to the buyer. Tax return forms 2011 Bargain Sale If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. Tax return forms 2011 You have a gain if the amount realized is more than your adjusted basis in the property. Tax return forms 2011 However, you do not have a loss if the amount realized is less than the adjusted basis of the property. Tax return forms 2011 Bargain sales to charity. Tax return forms 2011   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. Tax return forms 2011 If a charitable deduction for the contribution is allowable, you must allocate your adjusted basis in the property between the part sold and the part contributed based on the fair market value of each. Tax return forms 2011 The adjusted basis of the part sold is figured as follows. Tax return forms 2011 Adjusted basis of entire property × Amount realized (fair market value of part sold)   Fair market value of entire property   Based on this allocation rule, you will have a gain even if the amount realized is not more than your adjusted basis in the property. Tax return forms 2011 This allocation rule does not apply if a charitable contribution deduction is not allowable. Tax return forms 2011   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. Tax return forms 2011 Example. Tax return forms 2011 You sold property with a fair market value of $10,000 to a charitable organization for $2,000 and are allowed a deduction for your contribution. Tax return forms 2011 Your adjusted basis in the property is $4,000. Tax return forms 2011 Your gain on the sale is $1,200, figured as follows. Tax return forms 2011 Sales price $2,000 Minus: Adjusted basis of part sold ($4,000 × ($2,000 ÷ $10,000)) 800 Gain on the sale $1,200 Property Used Partly for Business or Rental Generally, if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property. Tax return forms 2011 You must subtract depreciation you took or could have taken from the basis of the business or rental part. Tax return forms 2011 However, see the special rule below for a home used partly for business or rental. Tax return forms 2011 You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. Tax return forms 2011 Gain or loss on the business or rental part of the property may be a capital gain or loss or an ordinary gain or loss, as discussed in chapter 3 under Section 1231 Gains and Losses. Tax return forms 2011 Any gain on the personal part of the property is a capital gain. Tax return forms 2011 You cannot deduct a loss on the personal part. Tax return forms 2011 Home used partly for business or rental. Tax return forms 2011    If you use property partly as a home and partly for business or to produce rental income, the computation and treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. Tax return forms 2011 See Property Used Partly for Business or Rental, in Publication 523. Tax return forms 2011 Property Changed to Business or Rental Use You cannot deduct a loss on the sale of property you purchased or constructed for use as your home and used as your home until the time of sale. Tax return forms 2011 You can deduct a loss on the sale of property you acquired for use as your home but changed to business or rental property and used as business or rental property at the time of sale. Tax return forms 2011 However, if the adjusted basis of the property at the time of the change was more than its fair market value, the loss you can deduct is limited. Tax return forms 2011 Figure the loss you can deduct as follows. Tax return forms 2011 Use the lesser of the property's adjusted basis or fair market value at the time of the change. Tax return forms 2011 Add to (1) the cost of any improvements and other increases to basis since the change. Tax return forms 2011 Subtract from (2) depreciation and any other decreases to basis since the change. Tax return forms 2011 Subtract the amount you realized on the sale from the result in (3). Tax return forms 2011 If the amount you realized is more than the result in (3), treat this result as zero. Tax return forms 2011 The result in (4) is the loss you can deduct. Tax return forms 2011 Example. Tax return forms 2011 You changed your main home to rental property 5 years ago. Tax return forms 2011 At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. Tax return forms 2011 This year, you sold the property for $55,000. Tax return forms 2011 You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. Tax return forms 2011 Although your loss on the sale is $7,380 [($75,000 − $12,620) − $55,000], the amount you can deduct as a loss is limited to $2,380, figured as follows. Tax return forms 2011 Lesser of adjusted basis or fair market value at time of the change $70,000 Plus: Cost of any improvements and any other additions to basis after the change -0-   70,000 Minus: Depreciation and any other decreases to basis after the change 12,620   57,380 Minus: Amount you realized from the sale 55,000 Deductible loss $2,380 Gain. Tax return forms 2011   If you have a gain on the sale, you generally must recognize the full amount of the gain. Tax return forms 2011 You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. Tax return forms 2011   You may be able to exclude all or part of the gain if you owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Tax return forms 2011 However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. Tax return forms 2011   For more information, see Business Use or Rental of Home in Publication 523. Tax return forms 2011 In addition, special rules apply if the home sold was acquired in a like-kind exchange. Tax return forms 2011 See Special Situations in Publication 523. Tax return forms 2011 Also see Like-Kind Exchanges, later. Tax return forms 2011 Abandonments The abandonment of property is a disposition of property. Tax return forms 2011 You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. Tax return forms 2011 Generally, abandonment is not treated as a sale or exchange of the property. Tax return forms 2011 If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Tax return forms 2011 If your adjusted basis is more than the amount you realize (if any), then you have a loss. Tax return forms 2011 Loss from abandonment of business or investment property is deductible as a loss. Tax return forms 2011 A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Tax return forms 2011 This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. Tax return forms 2011 If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. Tax return forms 2011 The abandonment loss is deducted in the tax year in which the loss is sustained. Tax return forms 2011 If the abandoned property is secured by debt, special rules apply. Tax return forms 2011 The tax consequences of abandonment of property that is secured by debt depend on whether you are personally liable for the debt (recourse debt) or you are not personally liable for the debt (nonrecourse debt). Tax return forms 2011 For more information, including examples, see chapter 3 of Publication 4681. Tax return forms 2011 You cannot deduct any loss from abandonment of your home or other property held for personal use only. Tax return forms 2011 Cancellation of debt. Tax return forms 2011   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you may realize ordinary income equal to the canceled debt. Tax return forms 2011 This income is separate from any loss realized from abandonment of the property. Tax return forms 2011   You must report this income on your tax return unless one of the following applies. Tax return forms 2011 The cancellation is intended as a gift. Tax return forms 2011 The debt is qualified farm debt. Tax return forms 2011 The debt is qualified real property business debt. Tax return forms 2011 You are insolvent or bankrupt. Tax return forms 2011 The debt is qualified principal residence indebtedness. Tax return forms 2011 File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. Tax return forms 2011 For more information, including other exceptions and exclusion, see Publication 4681. Tax return forms 2011 Forms 1099-A and 1099-C. Tax return forms 2011   If you abandon property that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your loss from the abandonment. Tax return forms 2011 However, if your debt is canceled and the lender must file Form 1099-C, the lender may include the information about the abandonment on that form instead of on Form 1099-A, and send you Form 1099-C only. Tax return forms 2011 The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Tax return forms 2011 For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Tax return forms 2011 Foreclosures and Repossessions If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Tax return forms 2011 The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Tax return forms 2011 This is true even if you voluntarily return the property to the lender. Tax return forms 2011 You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. Tax return forms 2011 Buyer's (borrower's) gain or loss. Tax return forms 2011   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Tax return forms 2011 The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Tax return forms 2011 See Gain or Loss From Sales and Exchanges, earlier. Tax return forms 2011 You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. Tax return forms 2011 Amount realized on a nonrecourse debt. Tax return forms 2011   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full debt canceled by the transfer. Tax return forms 2011 The full canceled debt is included even if the fair market value of the property is less than the canceled debt. Tax return forms 2011 Example 1. Tax return forms 2011 Chris bought a new car for $15,000. Tax return forms 2011 He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. Tax return forms 2011 Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. Tax return forms 2011 The credit company repossessed the car because he stopped making loan payments. Tax return forms 2011 The balance due after taking into account the payments Chris made was $10,000. Tax return forms 2011 The fair market value of the car when repossessed was $9,000. Tax return forms 2011 The amount Chris realized on the repossession is $10,000. Tax return forms 2011 That is the outstanding amount of the debt canceled by the repossession, even though the car's fair market value is less than $10,000. Tax return forms 2011 Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). Tax return forms 2011 He has a $5,000 nondeductible loss. Tax return forms 2011 Example 2. Tax return forms 2011 Abena paid $200,000 for her home. Tax return forms 2011 She paid $15,000 down and borrowed the remaining $185,000 from a bank. Tax return forms 2011 Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. Tax return forms 2011 The bank foreclosed on the loan because Abena stopped making payments. Tax return forms 2011 When the bank foreclosed on the loan, the balance due was $180,000, the fair market value of the house was $170,000, and Abena's adjusted basis was $175,000 due to a casualty loss she had deducted. Tax return forms 2011 The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. Tax return forms 2011 She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). Tax return forms 2011 She has a $5,000 realized gain. Tax return forms 2011 Amount realized on a recourse debt. Tax return forms 2011   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Tax return forms 2011 You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Tax return forms 2011 The amount realized does not include the canceled debt that is your income from cancellation of debt. Tax return forms 2011 See Cancellation of debt, below. Tax return forms 2011 Seller's (lender's) gain or loss on repossession. Tax return forms 2011   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Tax return forms 2011 For more information, see Repossession in Publication 537. Tax return forms 2011    Table 1-2. Tax return forms 2011 Worksheet for Foreclosures and Repossessions Part 1. Tax return forms 2011 Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Tax return forms 2011 Complete this part only  if you were personally liable for the debt. Tax return forms 2011 Otherwise,  go to Part 2. Tax return forms 2011   1. Tax return forms 2011 Enter the amount of outstanding debt immediately before the transfer of   property reduced by any amount for which you remain personally liable after   the transfer of property   2. Tax return forms 2011 Enter the fair market value of the transferred property   3. Tax return forms 2011 Ordinary income from cancellation of debt upon foreclosure or    repossession. Tax return forms 2011 * Subtract line 2 from line 1. Tax return forms 2011   If less than zero, enter zero   Part 2. Tax return forms 2011 Figure your gain or loss from foreclosure or repossession. Tax return forms 2011   4. Tax return forms 2011 If you completed Part 1, enter the smaller of line 1 or line 2. Tax return forms 2011   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. Tax return forms 2011 Enter any proceeds you received from the foreclosure sale   6. Tax return forms 2011 Add lines 4 and 5   7. Tax return forms 2011 Enter the adjusted basis of the transferred property   8. Tax return forms 2011 Gain or loss from foreclosure or repossession. Tax return forms 2011 Subtract line 7  from line 6   * The income may not be taxable. Tax return forms 2011 See Cancellation of debt. Tax return forms 2011 Cancellation of debt. Tax return forms 2011   If property that is repossessed or foreclosed on secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the fair market value of the property. Tax return forms 2011 This income is separate from any gain or loss realized from the foreclosure or repossession. Tax return forms 2011 Report the income from cancellation of a debt related to a business or rental activity as business or rental income. Tax return forms 2011    You can use Table 1-2 to figure your income from cancellation of debt. Tax return forms 2011   You must report this income on your tax return unless one of the following applies. Tax return forms 2011 The cancellation is intended as a gift. Tax return forms 2011 The debt is qualified farm debt. Tax return forms 2011 The debt is qualified real property business debt. Tax return forms 2011 You are insolvent or bankrupt. Tax return forms 2011 The debt is qualified principal residence indebtedness. Tax return forms 2011 File Form 982 to report the income exclusion. Tax return forms 2011 Example 1. Tax return forms 2011 Assume the same facts as in Example 1 under Amount realized on a nonrecourse debt, earlier, except Chris is personally liable for the car loan (recourse debt). Tax return forms 2011 In this case, the amount he realizes is $9,000. Tax return forms 2011 This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). Tax return forms 2011 Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). Tax return forms 2011 He has a $6,000 nondeductible loss. Tax return forms 2011 He also is treated as receiving ordinary income from cancellation of debt. Tax return forms 2011 That income is $1,000 ($10,000 − $9,000). Tax return forms 2011 This is the part of the canceled debt not included in the amount realized. Tax return forms 2011 Example 2. Tax return forms 2011 Assume the same facts as in Example 2 under Amount realized on a nonrecourse debt, earlier, except Abena is personally liable for the loan (recourse debt). Tax return forms 2011 In this case, the amount she realizes is $170,000. Tax return forms 2011 This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). Tax return forms 2011 Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). Tax return forms 2011 She has a $5,000 nondeductible loss. Tax return forms 2011 She also is treated as receiving ordinary income from cancellation of debt. Tax return forms 2011 (The debt is not exempt from tax as discussed under Cancellation of debt, above. Tax return forms 2011 ) That income is $10,000 ($180,000 − $170,000). Tax return forms 2011 This is the part of the canceled debt not included in the amount realized. Tax return forms 2011 Forms 1099-A and 1099-C. Tax return forms 2011   A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A showing the information you need to figure your gain or loss. Tax return forms 2011 However, if the lender also cancels part of your debt and must file Form 1099-C, the lender may include the information about the foreclosure or repossession on that form instead of on Form 1099-A and send you Form 1099-C only. Tax return forms 2011 The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Tax return forms 2011 For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Tax return forms 2011 Involuntary Conversions An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. Tax return forms 2011 Involuntary conversions are also called involuntary exchanges. Tax return forms 2011 Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. Tax return forms 2011 You report the gain or deduct the loss on your tax return for the year you realize it. Tax return forms 2011 You cannot deduct a loss from an involuntary conversion of property you held for personal use unless the loss resulted from a casualty or theft. Tax return forms 2011 However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. Tax return forms 2011 Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. Tax return forms 2011 Your basis for the new property is the same as your basis for the converted property. Tax return forms 2011 This means that the gain is deferred until a taxable sale or exchange occurs. Tax return forms 2011 If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can elect to postpone reporting the gain on the property purchased. Tax return forms 2011 This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. Tax return forms 2011 If you have a gain or loss from the destruction or theft of property, see Publication 547. Tax return forms 2011 Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. Tax return forms 2011 The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. Tax return forms 2011 The owner receives a condemnation award (money or property) in exchange for the property taken. Tax return forms 2011 A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. Tax return forms 2011 Example. Tax return forms 2011 A local government authorized to acquire land for public parks informed you that it wished to acquire your property. Tax return forms 2011 After the local government took action to condemn your property, you went to court to keep it. Tax return forms 2011 But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. Tax return forms 2011 This is a condemnation of private property for public use. Tax return forms 2011 Threat of condemnation. Tax return forms 2011   A threat of condemnation exists if a representative of a government body or a public official authorized to acquire property for public use informs you that the government body or official has decided to acquire your property. Tax return forms 2011 You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. Tax return forms 2011   The sale of your property to someone other than the condemning authority will also qualify as an involuntary conversion, provided you have reasonable grounds to believe that your property will be condemned. Tax return forms 2011 If the buyer of this property knows at the time of purchase that it will be condemned and sells it to the condemning authority, this sale also qualifies as an involuntary conversion. Tax return forms 2011 Reports of condemnation. Tax return forms 2011   A threat of condemnation exists if you learn of a decision to acquire your property for public use through a report in a newspaper or other news medium, and this report is confirmed by a representative of the government body or public official involved. Tax return forms 2011 You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. Tax return forms 2011 If you relied on oral statements made by a government representative or public official, the Internal Revenue Service (IRS) may ask you to get written confirmation of the statements. Tax return forms 2011 Example. Tax return forms 2011 Your property lies along public utility lines. Tax return forms 2011 The utility company has the authority to condemn your property. Tax return forms 2011 The company informs you that it intends to acquire your property by negotiation or condemnation. Tax return forms 2011 A threat of condemnation exists when you receive the notice. Tax return forms 2011 Related property voluntarily sold. Tax return forms 2011   A voluntary sale of your property may be treated as a forced sale that qualifies as an involuntary conversion if the property had a substantial economic relationship to property of yours that was condemned. Tax return forms 2011 A substantial economic relationship exists if together the properties were one economic unit. Tax return forms 2011 You also must show that the condemned property could not reasonably or adequately be replaced. Tax return forms 2011 You can elect to postpone reporting the gain by buying replacement property. Tax return forms 2011 See Postponement of Gain, later. Tax return forms 2011 Gain or Loss From Condemnations If your property was condemned or disposed of under the threat of condemnation, figure your gain or loss by comparing the adjusted basis of your condemned property with your net condemnation award. Tax return forms 2011 If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. Tax return forms 2011 You can postpone reporting gain from a condemnation if you buy replacement property. Tax return forms 2011 If only part of your property is condemned, you can treat the cost of restoring the remaining part to its former usefulness as the cost of replacement property. Tax return forms 2011 See Postponement of Gain, later. Tax return forms 2011 If your net condemnation award is less than your adjusted basis, you have a loss. Tax return forms 2011 If your loss is from property you held for personal use, you cannot deduct it. Tax return forms 2011 You must report any deductible loss in the tax year it happened. Tax return forms 2011 You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. Tax return forms 2011 Main home condemned. Tax return forms 2011   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. Tax return forms 2011 You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). Tax return forms 2011 For information on this exclusion, see Publication 523. Tax return forms 2011 If your gain is more than you can exclude but you buy replacement property, you may be able to postpone reporting the rest of the gain. Tax return forms 2011 See Postponement of Gain, later. Tax return forms 2011 Table 1-3. Tax return forms 2011 Worksheet for Condemnations Part 1. Tax return forms 2011 Gain from severance damages. Tax return forms 2011  If you did not receive severance damages, skip Part 1 and go to Part 2. Tax return forms 2011   1. Tax return forms 2011 Enter gross severance damages received   2. Tax return forms 2011 Enter your expenses in getting severance damages   3. Tax return forms 2011 Subtract line 2 from line 1. Tax return forms 2011 If less than zero, enter -0-   4. Tax return forms 2011 Enter any special assessment on remaining property taken out of your award   5. Tax return forms 2011 Net severance damages. Tax return forms 2011 Subtract line 4 from line 3. Tax return forms 2011 If less than zero, enter -0-   6. Tax return forms 2011 Enter the adjusted basis of the remaining property   7. Tax return forms 2011 Gain from severance damages. Tax return forms 2011 Subtract line 6 from line 5. Tax return forms 2011 If less than zero, enter -0-   8. Tax return forms 2011 Refigured adjusted basis of the remaining property. Tax return forms 2011 Subtract line 5 from line 6. Tax return forms 2011 If less than zero, enter -0-   Part 2. Tax return forms 2011 Gain or loss from condemnation award. Tax return forms 2011   9. Tax return forms 2011 Enter the gross condemnation award received   10. Tax return forms 2011 Enter your expenses in getting the condemnation award   11. Tax return forms 2011 If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. Tax return forms 2011 If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. Tax return forms 2011 Otherwise, enter -0-   12. Tax return forms 2011 Add lines 10 and 11   13. Tax return forms 2011 Net condemnation award. Tax return forms 2011 Subtract line 12 from line 9   14. Tax return forms 2011 Enter the adjusted basis of the condemned property   15. Tax return forms 2011 Gain from condemnation award. Tax return forms 2011 If line 14 is more than line 13, enter -0-. Tax return forms 2011 Otherwise, subtract line 14 from  line 13 and skip line 16   16. Tax return forms 2011 Loss from condemnation award. Tax return forms 2011 Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. Tax return forms 2011 )   Part 3. Tax return forms 2011 Postponed gain from condemnation. Tax return forms 2011  (Complete only if line 7 or line 15 is more than zero and you bought qualifying replacement property or made expenditures to restore the usefulness of your remaining property. Tax return forms 2011 )   17. Tax return forms 2011 If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. Tax return forms 2011 Otherwise, enter -0-   18. Tax return forms 2011 If line 15 is more than zero, enter the amount from line 13. Tax return forms 2011 Otherwise, enter -0-   19. Tax return forms 2011 Add lines 17 and 18. Tax return forms 2011 If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. Tax return forms 2011 Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. Tax return forms 2011 Subtract line 20 from line 19. Tax return forms 2011 If less than zero, enter -0-   22. Tax return forms 2011 If you completed Part 1, add lines 7 and 15. Tax return forms 2011 Otherwise, enter the amount from line 15. Tax return forms 2011 If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. Tax return forms 2011 Recognized gain. Tax return forms 2011 Enter the smaller of line 21 or line 22. Tax return forms 2011   24. Tax return forms 2011 Postponed gain. Tax return forms 2011 Subtract line 23 from line 22. Tax return forms 2011 If less than zero, enter -0-   Condemnation award. Tax return forms 2011   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. Tax return forms 2011 The award is also the amount you are paid for the sale of your property under threat of condemnation. Tax return forms 2011 Payment of your debts. Tax return forms 2011   Amounts taken out of the award to pay your debts are considered paid to you. Tax return forms 2011 Amounts the government pays directly to the holder of a mortgage or lien against your property are part of your award, even if the debt attaches to the property and is not your personal liability. Tax return forms 2011 Example. Tax return forms 2011 The state condemned your property for public use. Tax return forms 2011 The award was set at $200,000. Tax return forms 2011 The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. Tax return forms 2011 You are considered to have received the entire $200,000 as a condemnation award. Tax return forms 2011 Interest on award. Tax return forms 2011   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. Tax return forms 2011 You must report the interest separately as ordinary income. Tax return forms 2011 Payments to relocate. Tax return forms 2011   Payments you receive to relocate and replace housing because you have been displaced from your home, business, or farm as a result of federal or federally assisted programs are not part of the condemnation award. Tax return forms 2011 Do not include them in your income. Tax return forms 2011 Replacement housing payments used to buy new property are included in the property's basis as part of your cost. Tax return forms 2011 Net condemnation award. Tax return forms 2011   A net condemnation award is the total award you received, or are considered to have received, for the condemned property minus your expenses of obtaining the award. Tax return forms 2011 If only a part of your property was condemned, you also must reduce the award by any special assessment levied against the part of the property you retain. Tax return forms 2011 This is discussed later under Special assessment taken out of award. Tax return forms 2011 Severance damages. Tax return forms 2011    Severance damages are not part of the award paid for the property condemned. Tax return forms 2011 They are paid to you if part of your property is condemned and the value of the part you keep is decreased because of the condemnation. Tax return forms 2011   For example, you may receive severance damages if your property is subject to flooding because you sell flowage easement rights (the condemned property) under threat of condemnation. Tax return forms 2011 Severance damages also may be given to you if, because part of your property is condemned for a highway, you must replace fences, dig new wells or ditches, or plant trees to restore your remaining property to the same usefulness it had before the condemnation. Tax return forms 2011   The contracting parties should agree on the specific amount of severance damages in writing. Tax return forms 2011 If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. Tax return forms 2011   You cannot make a completely new allocation of the total award after the transaction is completed. Tax return forms 2011 However, you can show how much of the award both parties intended for severance damages. Tax return forms 2011 The severance damages part of the award is determined from all the facts and circumstances. Tax return forms 2011 Example. Tax return forms 2011 You sold part of your property to the state under threat of condemnation. Tax return forms 2011 The contract you and the condemning authority signed showed only the total purchase price. Tax return forms 2011 It did not specify a fixed sum for severance damages. Tax return forms 2011 However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. Tax return forms 2011 You may treat this part as severance damages. Tax return forms 2011 Treatment of severance damages. Tax return forms 2011   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. Tax return forms 2011 Use them to reduce the basis of the remaining property. Tax return forms 2011 If the amount of severance damages is based on damage to a specific part of the property you kept, reduce the basis of only that part by the net severance damages. Tax return forms 2011   If your net severance damages are more than the basis of your retained property, you have a gain. Tax return forms 2011 You may be able to postpone reporting the gain. Tax return forms 2011 See Postponement of Gain, later. Tax return forms 2011    You can use Part 1 of Table 1-3 to figure any gain from severance damages and to refigure the adjusted basis of the remaining part of your property. Tax return forms 2011 Net severance damages. Tax return forms 2011   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. Tax return forms 2011 You then reduce them by any special assessment (described later) levied against the remaining part of the property and retained out of the award by the condemning authority. Tax return forms 2011 The balance is your net severance damages. Tax return forms 2011 Expenses of obtaining a condemnation award and severance damages. Tax return forms 2011   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. Tax return forms 2011 Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. Tax return forms 2011 If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. Tax return forms 2011 Example. Tax return forms 2011 You receive a condemnation award and severance damages. Tax return forms 2011 One-fourth of the total was designated as severance damages in your agreement with the condemning authority. Tax return forms 2011 You had legal expenses for the entire condemnation proceeding. Tax return forms 2011 You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. Tax return forms 2011 You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. Tax return forms 2011 Special assessment retained out of award. Tax return forms 2011   When only part of your property is condemned, a special assessment levied against the remaining property may be retained by the governing body out of your condemnation award. Tax return forms 2011 An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. Tax return forms 2011 Examples of improvements that may cause a special assessment are widening a street and installing a sewer. Tax return forms 2011   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. Tax return forms 2011 Example. Tax return forms 2011 To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. Tax return forms 2011 You were awarded $5,000 for this and spent $300 to get the award. Tax return forms 2011 Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. Tax return forms 2011 The city then paid you only $4,300. Tax return forms 2011 Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). Tax return forms 2011 If the $700 special assessment was not retained out of the award and you were paid $5,000, your net award would be $4,700 ($5,000 − $300). Tax return forms 2011 The net award would not change, even if you later paid the assessment from the amount you received. Tax return forms 2011 Severance damages received. Tax return forms 2011   If severance damages are included in the condemnation proceeds, the special assessment retained out of the severance damages is first used to reduce the severance damages. Tax return forms 2011 Any balance of the special assessment is used to reduce the condemnation award. Tax return forms 2011 Example. Tax return forms 2011 You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. Tax return forms 2011 You spent $300 to obtain the severance damages. Tax return forms 2011 A special assessment of $800 was retained out of the award. Tax return forms 2011 The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. Tax return forms 2011 Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. Tax return forms 2011 Part business or rental. Tax return forms 2011   If you used part of your condemned property as your home and part as business or rental property, treat each part as a separate property. Tax return forms 2011 Figure your gain or loss separately because gain or loss on each part may be treated differently. Tax return forms 2011   Some examples of this type of property are a building in which you live and operate a grocery, and a building in which you live on the first floor and rent out the second floor. Tax return forms 2011 Example. Tax return forms 2011 You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. Tax return forms 2011 You rented half the building and lived in the other half. Tax return forms 2011 You paid $25,000 for the building and spent an additional $1,000 for a new roof. Tax return forms 2011 You claimed allowable depreciation of $4,600 on the rental half. Tax return forms 2011 You spent $200 in legal expenses to obtain the condemnation award. Tax return forms 2011 Figure your gain or loss as follows. Tax return forms 2011     Resi- dential Part Busi- ness Part 1) Condemnation award received $12,000 $12,000 2) Minus: Legal expenses, $200 100 100 3) Net condemnation award $11,900 $11,900 4) Adjusted basis:       ½ of original cost, $25,000 $12,500 $12,500   Plus: ½ of cost of roof, $1,000 500 500   Total $13,000 $13,000 5) Minus: Depreciation   4,600 6) Adjusted basis, business part   $8,400 7) (Loss) on residential property ($1,100)   8) Gain on business property $3,500 The loss on the residential part of the property is not deductible. Tax return forms 2011 Postponement of Gain Do not report the gain on condemned property if you receive only property that is similar or related in service or use to the condemned property. Tax return forms 2011 Your basis for the new property is the same as your basis for the old. Tax return forms 2011 Money or unlike property received. Tax return forms 2011   You ordinarily must report the gain if you receive money or unlike property. Tax return forms 2011 You can elect to postpone reporting the gain if you buy property that is similar or related in service or use to the condemned property within the replacement period, discussed later. Tax return forms 2011 You also can elect to postpone reporting the gain if you buy a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the condemned property. Tax return forms 2011 See Controlling interest in a corporation, later. Tax return forms 2011   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. Tax return forms 2011 If the cost of the replacement property is less than the amount realized, you must report the gain up to the unspent part of the amount realized. Tax return forms 2011   The basis of the replacement property is its cost, reduced by the postponed gain. Tax return forms 2011 Also, if your replacement property is stock in a corporation that owns property similar or related in service or use, the corporation generally will reduce its basis in its assets by the amount by which you reduce your basis in the stock. Tax return forms 2011 See Controlling interest in a corporation, later. Tax return forms 2011 You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. Tax return forms 2011 Postponing gain on severance damages. Tax return forms 2011   If you received severance damages for part of your property because another part was condemned and you buy replacement property, you can elect to postpone reporting gain. Tax return forms 2011 See Treatment of severance damages, earlier. Tax return forms 2011 You can postpone reporting all your gain if the replacement property costs at least as much as your net severance damages plus your net condemnation award (if resulting in gain). Tax return forms 2011   You also can make this election if you spend the severance damages, together with other money you received for the condemned property (if resulting in gain), to acquire nearby property that will allow you to continue your business. Tax return forms 2011 If suitable nearby property is not available and you are forced to sell the remaining property and relocate in order to continue your business, see Postponing gain on the sale of related property, next. Tax return forms 2011   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. Tax return forms 2011 Postponing gain on the sale of related property. Tax return forms 2011   If you sell property that is related to the condemned property and then buy replacement property, you can elect to postpone reporting gain on the sale. Tax return forms 2011 You must meet the requirements explained earlier under Related property voluntarily sold. Tax return forms 2011 You can postpone reporting all your gain if the replacement property costs at least as much as the amount realized from the sale plus your net condemnation award (if resulting in gain) plus your net severance damages, if any (if resulting in gain). Tax return forms 2011 Buying replacement property from a related person. Tax return forms 2011   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. Tax return forms 2011 For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. Tax return forms 2011   This rule applies to the following taxpayers. Tax return forms 2011 C corporations. Tax return forms 2011 Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. Tax return forms 2011 All others (including individuals, partnerships (other than those in (2)), and S corporations) if the total realized gain for the tax year on all involuntarily converted properties on which there is realized gain of more than $100,000. Tax return forms 2011   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. Tax return forms 2011 If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Tax return forms 2011 If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Tax return forms 2011 Exception. Tax return forms 2011   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. Tax return forms 2011 Advance payment. Tax return forms 2011   If you pay a contractor in advance to build your replacement property, you have not bought replacement property unless it is finished before the end of the replacement period (discussed later). Tax return forms 2011 Replacement property. Tax return forms 2011   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. Tax return forms 2011 You do not have to use the actual funds from the condemnation award to acquire the replacement property. Tax return forms 2011 Property you acquire by gift or inheritance does not qualify as replacement property. Tax return forms 2011 Similar or related in service or use. Tax return forms 2011   Your replacement property must be similar or related in service or use to the property it replaces. Tax return forms 2011   If the condemned property is real property you held for productive use in your trade or business or for investment (other than property held mainly for sale), like-kind property to be held either for productive use in trade or business or for investment will be treated as property similar or related in service or use. Tax return forms 2011 For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. Tax return forms 2011 Owner-user. Tax return forms 2011   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. Tax return forms 2011 Example. Tax return forms 2011 Your home was condemned and you invested the proceeds from the condemnation in a grocery store. Tax return forms 2011 Your replacement property is not similar or related in service or use to the condemned property. Tax return forms 2011 To be similar or related in service or use, your replacement property must also be used by you as your home. Tax return forms 2011 Owner-investor. Tax return forms 2011   If you are an owner-investor, similar or related in service or use means that any replacement property must have the same relationship of services or uses to you as the property it replaces. Tax return forms 2011 You decide this by determining all the following information. Tax return forms 2011 Whether the properties are of similar service to you. Tax return forms 2011 The nature of the business risks connected with the properties. Tax return forms 2011 What the properties demand of you in the way of management, service, and relations to your tenants. Tax return forms 2011 Example. Tax return forms 2011 You owned land and a building you rented to a manufacturing company. Tax return forms 2011 The building was condemned. Tax return forms 2011 During the replacement period, you had a new building built on other land you already owned. Tax return forms 2011 You rented out the new building for use as a wholesale grocery warehouse. Tax return forms 2011 The replacement property is also rental property, so the two properties are considered similar or related in service or use if there is a similarity in all the following areas. Tax return forms 2011 Your management activities. Tax return forms 2011 The amount and kind of services you provide to your tenants. Tax return forms 2011 The nature of your business risks connected with the properties. Tax return forms 2011 Leasehold replaced with fee simple property. Tax return forms 2011   Fee simple property you will use in your trade or business or for investment can qualify as replacement property that is similar or related in service or use to a condemned leasehold if you use it in the same business and for the identical purpose as the condemned leasehold. Tax return forms 2011   A fee simple property interest generally is a property interest that entitles the owner to the entire property with unconditional power to dispose of it during his or her lifetime. Tax return forms 2011 A leasehold is property held under a lease, usually for a term of years. Tax return forms 2011 Outdoor advertising display replaced with real property. Tax return forms 2011   You can elect to treat an outdoor advertising display as real property. Tax return forms 2011 If you make this election and you replace the display with real property in which you hold a different kind of interest, your replacement property can qualify as like-kind property. Tax return forms 2011 For example, real property bought to replace a destroyed billboard and leased property on which the billboard was located qualify as property of a like-kind. Tax return forms 2011   You can make this election only if you did not claim a section 179 deduction for the display. Tax return forms 2011 You cannot cancel this election unless you get the consent of the IRS. Tax return forms 2011   An outdoor advertising display is a sign or device rigidly assembled and permanently attached to the ground, a building, or any other permanent structure used to display a commercial or other advertisement to the public. Tax return forms 2011 Substituting replacement property. Tax return forms 2011   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. Tax return forms 2011 But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. Tax return forms 2011 Controlling interest in a corporation. Tax return forms 2011   You can replace property by acquiring a controlling interest in a corporation that owns property similar or related in service or use to your condemned property. Tax return forms 2011 You have controlling interest if you own stock having at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation. Tax return forms 2011 Basis adjustment to corporation's property. Tax return forms 2011   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. Tax return forms 2011 You are not required to reduce the adjusted basis of the corporation's properties below your adjusted basis in the corporation's stock (determined after reduction by your postponed gain). Tax return forms 2011   Allocate this reduction to the following classes of property in the order shown below. Tax return forms 2011 Property that is similar or related in service or use to the condemned property. Tax return forms 2011 Depreciable property not reduced in (1). Tax return forms 2011 All other property. Tax return forms 2011 If two or more properties fall in the same class, allocate the reduction to each property in proportion to the adjusted basis of all the properties in that class. Tax return forms 2011 The reduced basis of any single property cannot be less than zero. Tax return forms 2011 Main home replaced. Tax return forms 2011   If your gain from a condemnation of your main home is more than you can exclude from your income (see Main home condemned under Gain or Loss From Condemnations, earlier), you can postpone reporting the rest of the gain by buying replacement property that is similar or related in service or use. Tax return forms 2011 The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. Tax return forms 2011   You must reduce the basis of your replacement property by the postponed gain. Tax return forms 2011 Also, if you postpone reporting any part of your gain under these rules, you are treated as having owned and used the replacement property as your main home for the period you owned and used the condemned property as your main home. Tax return forms 2011 Example. Tax return forms 2011 City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. Tax return forms 2011 The city paid you a condemnation award of $400,000. Tax return forms 2011 Your adjusted basis in the property was $80,000. Tax return forms 2011 You realize a gain of $320,000 ($400,000 − $80,000). Tax return forms 2011 You purchased a new home for $100,000. Tax return forms 2011 You can exclude $250,000 of the realized gain from your gross income. Tax return forms 2011 The amount realized is then treated as being $150,000 ($400,000 − $250,000) and the gain realized is $70,000 ($150,000 amount realized − $80,000 adjusted basis). Tax return forms 2011 You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). Tax return forms 2011 The remaining $20,000 of realized gain is postponed. Tax return forms 2011 Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). Tax return forms 2011 Replacement period. Tax return forms 2011   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. Tax return forms 2011 This is the replacement period. Tax return forms 2011   The replacement period for a condemnation begins on the earlier of the following dates. Tax return forms 2011 The date on which you disposed of the condemned property. Tax return forms 2011 The date on which the threat of condemnation began. Tax return forms 2011   The replacement period generally ends 2 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Tax return forms 2011 However, see the exceptions below. Tax return forms 2011 Three-year replacement period for certain property. Tax return forms 2011   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Tax return forms 2011 However, this 3-year replacement period cannot be used if you replace the condemned property by acquiring control of a corporation owning property that is similar or related in service or use. Tax return forms 2011 Five-year replacement period for certain property. Tax return forms 2011   The replacement period ends 5 years after the end of the first tax year in which any part of the gain is realized on the compulsory or involuntary conversion of the following qualified property. Tax return forms 2011 Property in any Midwestern disaster area compulsorily or involuntarily converted on or after the applicable disaster date as a result of severe storms, tornadoes, or flooding, but only if substantially all of the use of the replacement property is in a Midwestern disaster area. Tax return forms 2011 Property in the Kansas disaster area compulsorily or involuntarily converted after May 3, 2007, but only if substantially all of the use of the replacement property is in the Kansas disaster area. Tax return forms 2011 Property in the Hurricane Katrina disaster area compulsorily or involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, but only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Tax return forms 2011 Extended replacement period for taxpayers affected by other federally declared disasters. Tax return forms 2011    If you are affected by a federally declared disaster, the IRS may grant disaster relief by extending the periods to perform certain tax-related acts for 2013, including the replacement period, by up to one year. Tax return forms 2011 For more information visit www. Tax return forms 2011 irs. Tax return forms 2011 gov/uac/Tax-Relief-in-Disaster-Situations. Tax return forms 2011 Weather-related sales of livestock in an area eligible for federal assistance. Tax return forms 2011   Generally, if the sale or exchange of livestock is due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. Tax return forms 2011    If the weather-related conditions continue for longer than 3 years, the replacement period may be extended on a regional basis until the end of your first drought-free year for the applicable region. Tax return forms 2011 See Notice 2006-82. Tax return forms 2011 You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. Tax return forms 2011 irs. Tax return forms 2011 gov/irb/2006-39_IRB/ar13. Tax return forms 2011 html. Tax return forms 2011    Each year, the IRS publishes a list of counties, districts, cities, or parishes for which exceptional, extreme, or severe drought was reported during the preceding 12 months. Tax return forms 2011 If you qualified for a 4-year replacement period for livestock sold or exchanged on account of drought and your replacement period is scheduled to expire at the end of 2013 (or at the end of the tax year that includes August 31, 2013), see Notice 2013-62. Tax return forms 2011 You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. Tax return forms 2011 irs. Tax return forms 2011 gov/irb/2013-45_IRB/ar04. Tax return forms 2011 html. Tax return forms 2011 The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. Tax return forms 2011 Determining when gain is realized. Tax return forms 2011   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. Tax return forms 2011 If the condemning authority makes deposits with the court, you realize gain when you withdraw (or have the right to withdraw) amounts that are more than your basis. Tax return forms 2011   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. Tax return forms 2011 A replacement will be too late if you wait for a final determination that does not take place in the applicable replacement period after you first realize gain. Tax return forms 2011   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. Tax return forms 2011 All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. Tax return forms 2011 All or part of the award is actually or constructively received. Tax return forms 2011 For example, if you have an absolute right to a part of a condemnation award when it is deposited with the court, the amount deposited accrues in the year the deposit is made even though the full amount of the award is still contested. Tax return forms 2011 Replacement property bought before the condemnation. Tax return forms 2011   If you buy your replacement property after there is a threat of condemnation but before the actual condemnation and you still hold the replacement property at the time of the condemnation, you have bought your replacement property within the replacement period. Tax return forms 2011 Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. Tax return forms 2011 Example. Tax return forms 2011 On April 3, 2012, city authorities notified you that your property would be condemned. Tax return forms 2011 On June 5, 2012, you acquired property to replace the property to be condemned. Tax return forms 2011 You still had the new property when the city took possession of your old property on September 4, 2013. Tax return forms 2011 You have made a replacement within the replacement period. Tax return forms 2011 Extension. Tax return forms 2011   You can request an extension of the replacement period from the IRS director for your area. Tax return forms 2011 You should apply before the end of the replacement period. Tax return forms 2011 Your request should explain in detail why you need an extension. Tax return forms 2011 The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. Tax return forms 2011 An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. Tax return forms 2011   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. Tax return forms 2011 Extensions are usually limited to a period of 1 year or less. Tax return forms 2011 The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. Tax return forms 2011 If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri
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Letter 2318C Frequently Asked Questions (FAQs)

What is the letter telling me?

This letter is a result of your oral or written request to pay your tax liability through Payroll Deductions. It also explains the necessary fees charged for paying monthly.

What do I have to do?

Provide us with your employer's signature which agrees to deducting a specific amount from your pay check and sending that amount to the IRS.

How much time do I have?

The letter provides you a specific time frame to respond.

What happens if I don't take any action?

If you fail to make the payments, enforced collection action may be taken to collect the amount you owe, including the filing of a Notice of Federal Tax Lien, or garnishment of your wages and/or bank accounts.

Who should I contact?

The letter will provide you a toll free number. The person who answers the phone will assist you.

What if I don't agree or have already taken corrective action?

You should contact us immediately. You can also contact us to verify that your payroll deduction has been established.

Page Last Reviewed or Updated: 30-Jan-2014

The Tax Return Forms 2011

Tax return forms 2011 6. Tax return forms 2011   Insurance Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible PremiumsSelf-Employed Health Insurance Deduction Nondeductible Premiums Capitalized Premiums When To Deduct Premiums What's New Retiree drug subsidy. Tax return forms 2011  Beginning in 2013, sponsors of certain qualified retiree prescription drug plans must account for the subsidy received by reducing the amount of qualified retiree prescription drug plans expense by the subsidy received (taking into account the taxpayer's accounting method). Tax return forms 2011 For more information, see the retiree drug subsidy frequently asked questions on IRS. Tax return forms 2011 gov. Tax return forms 2011 Introduction You generally can deduct the ordinary and necessary cost of insurance as a business expense if it is for your trade, business, or profession. Tax return forms 2011 However, you may have to capitalize certain insurance costs under the uniform capitalization rules. Tax return forms 2011 For more information, see Capitalized Premiums , later. Tax return forms 2011 Topics - This chapter discusses: Deductible premiums Nondeductible premiums Capitalized premiums When to deduct premiums Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 538 Accounting Periods and Methods 547 Casualties, Disasters, and Thefts Form (and Instructions) 1040 U. Tax return forms 2011 S. Tax return forms 2011 Individual Income Tax Return See chapter 12 for information about getting publications and forms. Tax return forms 2011 Deductible Premiums You generally can deduct premiums you pay for the following kinds of insurance related to your trade or business. Tax return forms 2011 Insurance that covers fire, storm, theft, accident, or similar losses. Tax return forms 2011 Credit insurance that covers losses from business bad debts. Tax return forms 2011 Group hospitalization and medical insurance for employees, including long-term care insurance. Tax return forms 2011 If a partnership pays accident and health insurance premiums for its partners, it generally can deduct them as guaranteed payments to partners. Tax return forms 2011 If an S corporation pays accident and health insurance premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages subject to federal income tax withholding. Tax return forms 2011 See Publication 15-B. Tax return forms 2011 Liability insurance. Tax return forms 2011 Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. Tax return forms 2011 Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. Tax return forms 2011 If a partnership pays workers' compensation premiums for its partners, it generally can deduct them as guaranteed payments to partners. Tax return forms 2011 If an S corporation pays workers' compensation premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages. Tax return forms 2011 Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. Tax return forms 2011 Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. Tax return forms 2011 Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. Tax return forms 2011 If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. Tax return forms 2011 If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. Tax return forms 2011 Life insurance covering your officers and employees if you are not directly or indirectly a beneficiary under the contract. Tax return forms 2011 Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. Tax return forms 2011 Self-Employed Health Insurance Deduction You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. Tax return forms 2011 The insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. Tax return forms 2011 A child includes your son, daughter, stepchild, adopted child, or foster child. Tax return forms 2011 A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Tax return forms 2011 One of the following statements must be true. Tax return forms 2011 You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ (Form 1040), Net Profit From Business; or Schedule F (Form 1040), Profit or Loss From Farming. Tax return forms 2011 You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Tax return forms 2011 , box 14, code A. Tax return forms 2011 You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. Tax return forms 2011 You received wages in 2013 from an S corporation in which you were a more-than-2% shareholder. Tax return forms 2011 Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2, Wage and Tax Statement. Tax return forms 2011 The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business. Tax return forms 2011 For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual. Tax return forms 2011 For partners, a policy can be either in the name of the partnership or in the name of the partner. Tax return forms 2011 You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Tax return forms 2011 However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Tax return forms 2011 Otherwise, the insurance plan will not be considered to be established under your business. Tax return forms 2011 For more-than-2% shareholders, a policy can be either in the name of the S corporation or in the name of the shareholder. Tax return forms 2011 You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. Tax return forms 2011 However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Tax return forms 2011 Otherwise, the insurance plan will not be considered to be established under your business. Tax return forms 2011 Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. Tax return forms 2011 If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. Tax return forms 2011 For more information, see Form 1040X, Amended U. Tax return forms 2011 S. Tax return forms 2011 Individual Income Tax Return. Tax return forms 2011 Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction. Tax return forms 2011 Take the deduction on Form 1040, line 29. Tax return forms 2011 Qualified long-term care insurance. Tax return forms 2011   You can include premiums paid on a qualified long-term care insurance contract when figuring your deduction. Tax return forms 2011 But, for each person covered, you can include only the smaller of the following amounts. Tax return forms 2011 The amount paid for that person. Tax return forms 2011 The amount shown below. Tax return forms 2011 Use the person's age at the end of the tax year. Tax return forms 2011 Age 40 or younger–$360 Age 41 to 50–$680 Age 51 to 60–$1,360 Age 61 to 70–$3,640 Age 71 or older–$4,550 Qualified long-term care insurance contract. Tax return forms 2011   A qualified long-term care insurance contract is an insurance contract that only provides coverage of qualified long-term care services. Tax return forms 2011 The contract must meet all the following requirements. Tax return forms 2011 It must be guaranteed renewable. Tax return forms 2011 It must provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits. Tax return forms 2011 It must not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed. Tax return forms 2011 It generally must not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. Tax return forms 2011 Qualified long-term care services. Tax return forms 2011   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and Maintenance or personal care services. Tax return forms 2011 The services must be required by a chronically ill individual and prescribed by a licensed health care practitioner. Tax return forms 2011 Worksheet 6-A. Tax return forms 2011 Self-Employed Health Insurance Deduction Worksheet Note. Tax return forms 2011 Use a separate worksheet for each trade or business under which an insurance plan is established. Tax return forms 2011 1. Tax return forms 2011 Enter the total amount paid in 2013 for health insurance coverage established under your business for 2013 for you, your spouse, and your dependents. Tax return forms 2011 Your insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. Tax return forms 2011 But do not include the following. Tax return forms 2011   Amounts for any month you were eligible to participate in a health plan subsidized by your or your spouse's employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. Tax return forms 2011 Any amounts paid from retirement plan distributions that were nontaxable because you are a retired public safety officer. Tax return forms 2011 Any amounts you included on Form 8885, line 4. Tax return forms 2011 Any qualified health insurance premiums you paid to “U. Tax return forms 2011 S. Tax return forms 2011 Treasury-HCTC. Tax return forms 2011 ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H. Tax return forms 2011 Any payments for qualified long-term care insurance (see line 2) 1. Tax return forms 2011   2. Tax return forms 2011 For coverage under a qualified long-term care insurance contract, enter for each person covered the smaller of the following amounts. Tax return forms 2011       a) Total payments made for that person during the year. Tax return forms 2011       b) The amount shown below. Tax return forms 2011 Use the person's age at the end of the tax year. Tax return forms 2011         $360— if that person is age 40 or younger          $680— if age 41 to 50         $1,360— if age 51 to 60         $3,640— if age 61 to 70         $4,550— if age 71 or older         Do not include payments for any month you were eligible to participate in a long-term care insurance plan subsidized by your or your spouse’s employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. Tax return forms 2011 If more than one person is covered, figure separately the amount to enter for each person. Tax return forms 2011 Then enter the total of those amounts 2. Tax return forms 2011   3. Tax return forms 2011 Add lines 1 and 2 3. Tax return forms 2011   4. Tax return forms 2011 Enter your net profit* and any other earned income** from the trade or business under which the insurance plan is established. Tax return forms 2011 Do not include Conservation Reserve Program payments exempt from self-employment tax. Tax return forms 2011 If the business is an S corporation, skip to line 11 4. Tax return forms 2011   5. Tax return forms 2011 Enter the total of all net profits* from: Schedule C (Form 1040), line 31; Schedule C-EZ (Form 1040), line 3; Schedule F (Form 1040), line 34; or Schedule K-1 (Form 1065), box 14, code A; plus any other income allocable to the profitable businesses. Tax return forms 2011 Do not include Conservation Reserve Program payments exempt from self-employment tax. Tax return forms 2011 See the Instructions for Schedule SE (Form 1040). Tax return forms 2011 Do not include any net losses shown on these schedules. Tax return forms 2011 5. Tax return forms 2011   6. Tax return forms 2011 Divide line 4 by line 5 6. Tax return forms 2011   7. Tax return forms 2011 Multiply Form 1040, line 27, by the percentage on line 6 7. Tax return forms 2011   8. Tax return forms 2011 Subtract line 7 from line 4 8. Tax return forms 2011   9. Tax return forms 2011 Enter the amount, if any, from Form 1040, line 28, attributable to the same trade or business in which the insurance plan is established 9. Tax return forms 2011   10. Tax return forms 2011 Subtract line 9 from line 8 10. Tax return forms 2011   11. Tax return forms 2011 Enter your Medicare wages (Form W-2, box 5) from an S corporation in which you are a more-than-2% shareholder and in which the insurance plan is established 11. Tax return forms 2011   12. Tax return forms 2011 Enter any amount from Form 2555, line 45, attributable to the amount entered on line 4 or 11 above, or any amount from Form 2555-EZ, line 18, attributable to the amount entered on line 11 above 12. Tax return forms 2011   13. Tax return forms 2011 Subtract line 12 from line 10 or 11, whichever applies 13. Tax return forms 2011   14. Tax return forms 2011 Enter the smaller of line 3 or line 13 here and on Form 1040, line 29. Tax return forms 2011 Do not include this amount when figuring any medical expense deduction on Schedule A (Form 1040). Tax return forms 2011 14. Tax return forms 2011   * If you used either optional method to figure your net earnings from self-employment from any business, do not enter your net profit from the business. Tax return forms 2011 Instead, enter the amount attributable to that business from Schedule SE (Form 1040), Section B, line 4b. Tax return forms 2011 * *Earned income includes net earnings and gains from the sale, transfer, or licensing of property you created. Tax return forms 2011 However, it does not include capital gain income. Tax return forms 2011 Chronically ill individual. Tax return forms 2011   A chronically ill individual is a person who has been certified as one of the following. Tax return forms 2011 An individual who has been unable, due to loss of functional capacity for at least 90 days, to perform at least two activities of daily living without substantial assistance from another individual. Tax return forms 2011 Activities of daily living are eating, toileting, transferring (general mobility), bathing, dressing, and continence. Tax return forms 2011 An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Tax return forms 2011 The certification must have been made by a licensed health care practitioner within the previous 12 months. Tax return forms 2011 Benefits received. Tax return forms 2011   For information on excluding benefits you receive from a long-term care contract from gross income, see Publication 525. Tax return forms 2011 Other coverage. Tax return forms 2011   You cannot take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you did not actually participate. Tax return forms 2011 In addition, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2013, do not use amounts paid for coverage for that month to figure the deduction. Tax return forms 2011   These rules are applied separately to plans that provide long-term care insurance and plans that do not provide long-term care insurance. Tax return forms 2011 However, any medical insurance payments not deductible on Form 1040, line 29, can be included as medical expenses on Schedule A (Form 1040), Itemized Deductions, if you itemize deductions. Tax return forms 2011 Effect on itemized deductions. Tax return forms 2011   Subtract the health insurance deduction from your medical insurance when figuring medical expenses on Schedule A (Form 1040) if you itemize deductions. Tax return forms 2011 Effect on self-employment tax. Tax return forms 2011   For tax years beginning before or after 2010, you cannot subtract the self-employed health insurance deduction when figuring net earnings for your self-employment tax from the business under which the insurance plan is established, or considered to be established as discussed earlier. Tax return forms 2011 For more information, see Schedule SE (Form 1040). Tax return forms 2011 How to figure the deduction. Tax return forms 2011   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. Tax return forms 2011 However, if any of the following apply, you must use Worksheet 6-A in this chapter. Tax return forms 2011 You had more than one source of income subject to self-employment tax. Tax return forms 2011 You file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. Tax return forms 2011 You are using amounts paid for qualified long-term care insurance to figure the deduction. Tax return forms 2011 If you are claiming the health coverage tax credit, complete Form 8885, Health Coverage Tax Credit, before you figure this deduction. Tax return forms 2011 Health coverage tax credit. Tax return forms 2011   You may be able to take this credit only if you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment trade adjustment assistance (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient. Tax return forms 2011 Use Form 8885 to figure the amount, if any, of this credit. Tax return forms 2011   When figuring the amount to enter on line 1 of Worksheet 6-A, do not include the following. Tax return forms 2011 Any amounts you included on Form 8885, line 4. Tax return forms 2011 Any qualified health insurance premiums you paid to “U. Tax return forms 2011 S. Tax return forms 2011 Treasury-HCTC. Tax return forms 2011 ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. Tax return forms 2011 More than one health plan and business. Tax return forms 2011   If you have more than one health plan during the year and each plan is established under a different business, you must use separate worksheets (Worksheet 6-A) to figure each plan's net earnings limit. Tax return forms 2011 Include the premium you paid under each plan on line 1 or line 2 of that separate worksheet and your net profit (or wages) from that business on line 4 (or line 11). Tax return forms 2011 For a plan that provides long-term care insurance, the total of the amounts entered for each person on line 2 of all worksheets cannot be more than the appropriate limit shown on line 2 for that person. Tax return forms 2011 Nondeductible Premiums You cannot deduct premiums on the following kinds of insurance. Tax return forms 2011 Self-insurance reserve funds. Tax return forms 2011 You cannot deduct amounts credited to a reserve set up for self-insurance. Tax return forms 2011 This applies even if you cannot get business insurance coverage for certain business risks. Tax return forms 2011 However, your actual losses may be deductible. Tax return forms 2011 See Publication 547. Tax return forms 2011 Loss of earnings. Tax return forms 2011 You cannot deduct premiums for a policy that pays for lost earnings due to sickness or disability. Tax return forms 2011 However, see the discussion on overhead insurance, item (8), under Deductible Premiums , earlier. Tax return forms 2011 Certain life insurance and annuities. Tax return forms 2011 For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. Tax return forms 2011 You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. Tax return forms 2011 A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. Tax return forms 2011 For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. Tax return forms 2011 The disallowance applies without regard to whom the policy covers. Tax return forms 2011 Partners. Tax return forms 2011 If, as a partner in a partnership, you take out an insurance policy on your own life and name your partners as beneficiaries to induce them to retain their investments in the partnership, you are considered a beneficiary. Tax return forms 2011 You cannot deduct the insurance premiums. Tax return forms 2011 Insurance to secure a loan. Tax return forms 2011 If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. Tax return forms 2011 Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. Tax return forms 2011 In the event of death, the proceeds of the policy are generally not taxed as income even if they are used to liquidate the debt. Tax return forms 2011 Capitalized Premiums Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Tax return forms 2011 Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. Tax return forms 2011 You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Tax return forms 2011 Indirect costs include premiums for insurance on your plant or facility, machinery, equipment, materials, property produced, or property acquired for resale. Tax return forms 2011 Uniform capitalization rules. Tax return forms 2011   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. Tax return forms 2011 Produce real property or tangible personal property. Tax return forms 2011 For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. Tax return forms 2011 Acquire property for resale. Tax return forms 2011 However, these rules do not apply to the following property. Tax return forms 2011 Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. Tax return forms 2011 Property you produce if you meet either of the following conditions. Tax return forms 2011 Your indirect costs of producing the property are $200,000 or less. Tax return forms 2011 You use the cash method of accounting and do not account for inventories. Tax return forms 2011 More information. Tax return forms 2011   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. Tax return forms 2011 When To Deduct Premiums You can usually deduct insurance premiums in the tax year to which they apply. Tax return forms 2011 Cash method. Tax return forms 2011   If you use the cash method of accounting, you generally deduct insurance premiums in the tax year you actually paid them, even if you incurred them in an earlier year. Tax return forms 2011 However, see Prepayment , later. Tax return forms 2011 Accrual method. Tax return forms 2011   If you use an accrual method of accounting, you cannot deduct insurance premiums before the tax year in which you incur a liability for them. Tax return forms 2011 In addition, you cannot deduct insurance premiums before the tax year in which you actually pay them (unless the exception for recurring items applies). Tax return forms 2011 For more information about the accrual method of accounting, see chapter 1. Tax return forms 2011 For information about the exception for recurring items, see Publication 538. Tax return forms 2011 Prepayment. Tax return forms 2011   You cannot deduct expenses in advance, even if you pay them in advance. Tax return forms 2011 This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Tax return forms 2011   Expenses such as insurance are generally allocable to a period of time. Tax return forms 2011 You can deduct insurance expenses for the year to which they are allocable. Tax return forms 2011 Example. Tax return forms 2011 In 2013, you signed a 3-year insurance contract. Tax return forms 2011 Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. Tax return forms 2011 You can deduct in 2014 and 2015 the premium allocable to those years. Tax return forms 2011 Dividends received. Tax return forms 2011   If you receive dividends from business insurance and you deducted the premiums in prior years, at least part of the dividends generally are income. Tax return forms 2011 For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1 under How Much Can I Deduct. Tax return forms 2011 Prev  Up  Next   Home   More Online Publications