File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Turbo Tax 2008

Filing 2011 Taxes LateHow To File 1040x ElectronicallyHow To Amend A Tax ReturnTax Act Online 20121040ez 2010 Form PrintableAmend A Tax Return 2011Prepare 1040x OnlineHow To File An Ammended Tax ReturnFree Tax ActFill State Taxes FreeEfiling Income TaxFiling A 1040x Amended Tax ReturnHow To Do Military Taxes1040ez Form For 20141040Irs Gov Form1040ezWww Njfastfile ComFiling Free State Taxes OnlineFile A 1040x OnlineFree H&r BlockWhere To File Federal Tax Return 2012Form 4868State Tax Forms 10402012 Tax AmendmentHr Block Tax CalculatorFree Online State Income Tax FilingState Tax ExtensionWho Can File 1040ezCollege Student Tax Return1040nr Ez 2013Irs Tax Return Forms 2012Free Irs Tax Forms 20122012 Tax Forms 1040 EzHow Do I Amend My 2013 Tax Return2012 Tax Returns OnlineIrs 1040v FormHow Far Back Can I Amend My Taxes1040 Es Payment VoucherPenalties For Late Tax ReturnsIrs Tax Return

Turbo Tax 2008

Turbo tax 2008 2. Turbo tax 2008   Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. Turbo tax 2008 The pay may be in cash, property, or services. Turbo tax 2008 It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. Turbo tax 2008 For information about deducting employment taxes, see chapter 5. Turbo tax 2008 You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. Turbo tax 2008 Empowerment zone employment credit (Form 8844). Turbo tax 2008 Indian employment credit (Form 8845). Turbo tax 2008 Work opportunity credit (Form 5884). Turbo tax 2008 Credit for employer differential wage payments (Form 8932). Turbo tax 2008 Reduce your deduction for employee wages by the amount of employment credits you claim. Turbo tax 2008 For more information about these credits, see the form on which the credit is claimed. Turbo tax 2008 Topics - This chapter discusses: Tests for deducting pay Kinds of pay Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits See chapter 12 for information about getting publications and forms. Turbo tax 2008 Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. Turbo tax 2008 These and other requirements that apply to all business expenses are explained in chapter 1. Turbo tax 2008 In addition, the pay must meet both of the following tests. Turbo tax 2008 Test 1. Turbo tax 2008 It must be reasonable. Turbo tax 2008 Test 2. Turbo tax 2008 It must be for services performed. Turbo tax 2008 The form or method of figuring the pay does not affect its deductibility. Turbo tax 2008 For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. Turbo tax 2008 Test 1—Reasonableness You must be able to prove that the pay is reasonable. Turbo tax 2008 Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. Turbo tax 2008 If the pay is excessive, the excess pay is disallowed as a deduction. Turbo tax 2008 Factors to consider. Turbo tax 2008   Determine the reasonableness of pay by the facts and circumstances. Turbo tax 2008 Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. Turbo tax 2008   To determine if pay is reasonable, also consider the following items and any other pertinent facts. Turbo tax 2008 The duties performed by the employee. Turbo tax 2008 The volume of business handled. Turbo tax 2008 The character and amount of responsibility. Turbo tax 2008 The complexities of your business. Turbo tax 2008 The amount of time required. Turbo tax 2008 The cost of living in the locality. Turbo tax 2008 The ability and achievements of the individual employee performing the service. Turbo tax 2008 The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. Turbo tax 2008 Your policy regarding pay for all your employees. Turbo tax 2008 The history of pay for each employee. Turbo tax 2008 Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. Turbo tax 2008 Employee-shareholder salaries. Turbo tax 2008   If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. Turbo tax 2008 The excessive part of the salary would not be allowed as a salary deduction by the corporation. Turbo tax 2008 For more information on corporate distributions to shareholders, see Publication 542, Corporations. Turbo tax 2008 Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. Turbo tax 2008 For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. Turbo tax 2008 Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. Turbo tax 2008 If you give property to an employee as an employee achievement award, your deduction may be limited. Turbo tax 2008 Achievement awards. Turbo tax 2008   An achievement award is an item of tangible personal property that meets all the following requirements. Turbo tax 2008 It is given to an employee for length of service or safety achievement. Turbo tax 2008 It is awarded as part of a meaningful presentation. Turbo tax 2008 It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. Turbo tax 2008 Length-of-service award. Turbo tax 2008    An award will qualify as a length-of-service award only if either of the following applies. Turbo tax 2008 The employee receives the award after his or her first 5 years of employment. Turbo tax 2008 The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. Turbo tax 2008 Safety achievement award. Turbo tax 2008    An award for safety achievement will qualify as an achievement award unless one of the following applies. Turbo tax 2008 It is given to a manager, administrator, clerical employee, or other professional employee. Turbo tax 2008 During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). Turbo tax 2008 Deduction limit. Turbo tax 2008   Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. Turbo tax 2008 $400 for awards that are not qualified plan awards. Turbo tax 2008 $1,600 for all awards, whether or not qualified plan awards. Turbo tax 2008   A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. Turbo tax 2008   A highly compensated employee is an employee who meets either of the following tests. Turbo tax 2008 The employee was a 5% owner at any time during the year or the preceding year. Turbo tax 2008 The employee received more than $115,000 in pay for the preceding year. Turbo tax 2008 You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. Turbo tax 2008   An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. Turbo tax 2008 To figure this average cost, ignore awards of nominal value. Turbo tax 2008 Deduct achievement awards as a nonwage business expense on your return or business schedule. Turbo tax 2008 You may not owe employment taxes on the value of some achievement awards you provide to an employee. Turbo tax 2008 See Publication 15-B. Turbo tax 2008 Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. Turbo tax 2008 However, the total bonuses, salaries, and other pay must be reasonable for the services performed. Turbo tax 2008 If the bonus is paid in property, see Property , later. Turbo tax 2008 Gifts of nominal value. Turbo tax 2008    If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. Turbo tax 2008 Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. Turbo tax 2008 For more information on this deduction limit, see Meals and lodging , later. Turbo tax 2008 Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. Turbo tax 2008 Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. Turbo tax 2008 For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. Turbo tax 2008 Fringe Benefits A fringe benefit is a form of pay for the performance of services. Turbo tax 2008 You can generally deduct the cost of fringe benefits. Turbo tax 2008 You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. Turbo tax 2008 You also may not owe employment taxes on the value of the fringe benefits. Turbo tax 2008 See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. Turbo tax 2008 Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. Turbo tax 2008 Certain fringe benefits are discussed next. Turbo tax 2008 See Publication 15-B for more details on these and other fringe benefits. Turbo tax 2008 Meals and lodging. Turbo tax 2008   You can usually deduct the cost of furnishing meals and lodging to your employees. Turbo tax 2008 Deduct the cost in whatever category the expense falls. Turbo tax 2008 For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. Turbo tax 2008 If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. Turbo tax 2008 Deduction limit on meals. Turbo tax 2008   You can generally deduct only 50% of the cost of furnishing meals to your employees. Turbo tax 2008 However, you can deduct the full cost of the following meals. Turbo tax 2008 Meals whose value you include in an employee's wages. Turbo tax 2008 Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. Turbo tax 2008 This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. Turbo tax 2008 Meals you furnish to your employees at the work site when you operate a restaurant or catering service. Turbo tax 2008 Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. Turbo tax 2008 Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). Turbo tax 2008 This does not include meals you furnish on vessels primarily providing luxury water transportation. Turbo tax 2008 Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. Turbo tax 2008 This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. Turbo tax 2008 Employee benefit programs. Turbo tax 2008   Employee benefit programs include the following. Turbo tax 2008 Accident and health plans. Turbo tax 2008 Adoption assistance. Turbo tax 2008 Cafeteria plans. Turbo tax 2008 Dependent care assistance. Turbo tax 2008 Education assistance. Turbo tax 2008 Life insurance coverage. Turbo tax 2008 Welfare benefit funds. Turbo tax 2008   You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. Turbo tax 2008 For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. Turbo tax 2008 ). Turbo tax 2008 Life insurance coverage. Turbo tax 2008   You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. Turbo tax 2008 See Regulations section 1. Turbo tax 2008 264-1 for more information. Turbo tax 2008 Welfare benefit funds. Turbo tax 2008   A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. Turbo tax 2008 Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. Turbo tax 2008   Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. Turbo tax 2008 If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. Turbo tax 2008   Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. Turbo tax 2008 The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. Turbo tax 2008 The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. Turbo tax 2008 These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. Turbo tax 2008   For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. Turbo tax 2008 Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. Turbo tax 2008 However, if the employee performs no services, treat the amount you advanced as a loan. Turbo tax 2008 If the employee does not repay the loan, treat it as income to the employee. Turbo tax 2008 Below-market interest rate loans. Turbo tax 2008   On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. Turbo tax 2008 See Below-Market Loans in chapter 4. Turbo tax 2008 Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. Turbo tax 2008 The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. Turbo tax 2008 You can claim the deduction only for the tax year in which your employee includes the property's value in income. Turbo tax 2008 Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. Turbo tax 2008 You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. Turbo tax 2008 Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. Turbo tax 2008 These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. Turbo tax 2008 Restricted property. Turbo tax 2008   If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. Turbo tax 2008 However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. Turbo tax 2008    “Substantially vested” means the property is not subject to a substantial risk of forfeiture. Turbo tax 2008 This means that the recipient is not likely to have to give up his or her rights in the property in the future. Turbo tax 2008 Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. Turbo tax 2008 However, your deduction may be limited. Turbo tax 2008 If you make the payment under an accountable plan, deduct it in the category of the expense paid. Turbo tax 2008 For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. Turbo tax 2008 If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. Turbo tax 2008 See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. Turbo tax 2008 Sick and Vacation Pay Sick pay. Turbo tax 2008   You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. Turbo tax 2008 However, your deduction is limited to amounts not compensated by insurance or other means. Turbo tax 2008 Vacation pay. Turbo tax 2008   Vacation pay is an employee benefit. Turbo tax 2008 It includes amounts paid for unused vacation leave. Turbo tax 2008 You can deduct vacation pay only in the tax year in which the employee actually receives it. Turbo tax 2008 This rule applies regardless of whether you use the cash or accrual method of accounting. Turbo tax 2008 Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Understanding Your CP05 Notice

We’re reviewing your tax return to verify the following:

  • Your income
  • The withholding you reported on your income and social security benefits
  • The tax credits you claimed
  • The household help you claimed
  • Your business income

We’re holding your refund pending the results of our review.


What you need to do

You don’t need to take any action at this time. We may contact third parties to verify the information you reported on your return. If you haven’t received your refund or been contacted by us within 45 days from the date of this notice, you can call us at the number provided on your notice.


You may want to

  • Review this notice with your tax preparer.
  • If you are experiencing economic harm, believe an IRS system or procedure isn’t working as it should, or are seeking help in resolving tax problems that have not been resolved through normal channels, you may be eligible for Taxpayer Advocate Service (TAS) assistance. You can reach them at 1-877-777-4778 or TTY/TTD 1-800-829-4059.

Answers to Common Questions

Why was my return being reviewed?
While most returns are accepted as filed, some are selected for examination. The IRS examines some federal tax returns to determine if income, expenses, and credits are being reported accurately. The IRS selects returns for examination using various methods which include random sampling, computerized screening, and comparison of information received by the IRS such as Forms W-2 and 1099. Having your return selected for examination does not suggest that you made an error or were dishonest.

What if I did not file a tax return claiming the items you are questioning and someone else is using my name and social security number?
Send us a completed and signed Form 14039, Identity Theft Affidavit. You can download this form online at www.irs.gov. You can also refer to the IRS Identity Theft resource page for more information.


Tips for next year

Review all of your income and withholding documents for completeness and review your return to make sure you are eligible to claim all income, credits and business income that you reported.

Page Last Reviewed or Updated: 19-Feb-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Turbo Tax 2008

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