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1040 Form For 2010

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1040 Form For 2010

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

Forms Available for Filing Season 2014 (TY 2013)
Form Number Form Name Available
Form 1040 U.S. Individual Income Tax Return

1/31/2014

Form 1040A U.S. Individual Income Tax Return

1/31/2014

Form 1040EZ Income Tax Return for Single and Joint Filers With No Dependents

1/31/2014

Form 1040V Payment Voucher

1/31/2014

Form 1040ES Estimated Tax Payments

2/13/2014

Schedule A Itemized Deductions

1/31/2014

Schedule B Interest and Ordinary Dividends

1/31/2014

Schedule C Profit or Loss From Business

1/31/2014

Schedule C-EZ Net Profit from Business

1/31/2014

Schedule D Capital Gains and Losses

1/31/2014

Schedule E Supplemental Income and Loss

1/31/2014

Schedule EIC Earned Income Credit

1/31/2014

Schedule F Profit or Loss From Farming

1/31/2014

Schedule H Household Employment Taxes

1/31/2014

Schedule J Farm Income Averaging

1/31/2014

Schedule L Standard Deduction for Certain Filers

1/31/2014

Schedule R Credit for the Elderly or the Disabled

1/31/2014

Schedule SE Self-Employment Tax

1/31/2014

Form 1116 Foreign Tax Credit

1/31/2014

Form 1310 Statement of Person Claiming Refund Due of a Deceased Taxpayer

1/31/2014

Form 2106 Employee Business Expenses

1/31/2014

Form 2106EZ Unreimbursed Employee Business Expenses

1/31/2014

Form 2120 Multiple Support Declaration

1/31/2014

Form 2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts

1/31/2014

Form 2210F Underpayment of Estimated Tax by Farmers and Fishermen

2/13/2014

Form 2439 Notice to Shareholder of Undistributed Long-Term Capital Gains

1/31/2014

Form 2441 Child and Dependent Care Expenses

1/31/2014

Form 2555 Form 2555 Foreign Earned Income

1/31/2014

Form 2555EZ Form 2555EZ Foreign Earned Income Exclusion

1/31/2014

Form 3468 Investment Credit

1/31/2014

Form 3800 General Business Credit

1/31/2014

Form 3903 Moving Expenses

1/31/2014

Form 4136 Credit for Federal Tax Paid on Fuels

1/31/2014

Form 4137 Social Security and Medicare Tax on Unreported Tip Income

1/31/2014

Form 4255 Recapture of Investment Credit

1/31/2014

Form 4562 Depreciation and Amortization (Including Information on Listed Property)

1/31/2014

Form 4684 Casualties and Thefts

1/31/2014

Form 4797 Sales of Business Property

1/31/2014

Form 4835 Farm Rental Income and Expenses

1/31/2014

Form 4868 Application for Automatic Extension of Time to File U.S. Individual Income Tax Return (Can print and mail now)

E-file on 3/5/14

Form 4952 Investment Interest Expense Deduction

1/31/2014

Form 4972 Tax on Lump Sum Distributions

1/31/2014

Form 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts

1/31/2014

Form 5405 First-Time Homebuyer Credit (Only Page 2, Part IV of the Form, Repayment of Credit may be e-filed)

1/31/2014

Form 5695 Residential Energy Credits

1/31/2014

Form 5884 Work Opportunity Credit

1/31/2014

Form 6198 At-Risk Limitations

1/31/2014

Form 6251 Alternative Minimum Tax-Individuals

1/31/2014

Form 6252 Installment Sale Income

1/31/2014

Form 6478 Credit for Alcohol Used as Fuel

1/31/2014

Form 6765 Credit for Increasing Research Activities

1/31/2014

Form 6781 Gains and Losses from Section 1256 Contracts & Straddles

1/31/2014

Form 8082 Notice of Inconsistent Treatment or Administrative Adjustment Request

1/31/2014

Form 8275 Disclosure Statement

1/31/2014

Form 8275R Regulation Disclosure Statement

1/31/2014

Form 8283 Noncash Charitable Contribution

1/31/2014

Form 8379 Injured Spouse Allocation

1/31/2014

Form 8396 Mortgage Interest Credit

1/31/2014

Form 8453 U.S. Individual Income Tax Transmittal for an IRS e-file Return (This form that can't be e-filed, must be mailed in)

2/27/2014

Form 8582 Passive Activity Loss Limitations

1/31/2014

Form 8582-CR Passive Activity Credit Limitations

1/31/2014

Form 8586 Low-Income Housing Credit

1/31/2014

Form 8594 Asset Acquisition Statement

1/31/2014

Form 8606 Nondeductible IRAs

1/31/2014

Form 8609A Annual Statement for Low-Income Housing Credit

1/31/2014

Form 8611 Recapture of Low-income Housing Credit

1/31/2014

Form 8615 Tax for Children Under Age 18/24 With Investment Income of More Than $1,800

1/31/2014

Form 8689 Allocation of Individual Income Tax to the US Virgin Islands

1/31/2014

Form 8697 Interest Computation Under the Look-Back Method for Completed Long-Term Contracts

1/31/2014

Form 8801 Credit for Prior Year Minimum Tax - Individuals, Estates and Trusts

1/31/2014

Form 8812 Additional Child Tax Credit

1/31/2014

Form 8814 Parents' Election To Report Child's Interest and Dividends

1/31/2014

Form 8815 Exclusion of Interest From Series EE US Savings Bonds Issued After 1989

1/31/2014

Form 8820 Orphan Drug Credit

1/31/2014

Form 8824 Like-Kind Exchanges

1/31/2014

Form 8826 Disabled Access Credit

1/31/2014

Form 8828 Recapture of Federal Mortgage Subsidy

1/31/2014

Form 8829 Expenses for Business Use of Your Home

1/31/2014

Form 8833 Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)

1/31/2014

Form 8834 Qualified Electric Vehicle Credit

1/31/2014

Form 8839 Qualified Adoption Expense

1/31/2014

Form 8844 Empowerment Zone and Renewal Community Employment Credit

1/31/2014

Form 8845 Indian Employment Credit

1/31/2014

Form 8846 Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips

1/31/2014

Form 8847 Credit for Contributions to Selected Community Development Corporations

1/31/2014

Form 8853 Archer MSAs and Long-Term Care Insurance Contracts

1/31/2014

Form 8859 District of Columbia First-Time Homebuyer Credit

2/13/2014

Form 8862 Information To Claim Earned Income Credit After Disallowance

1/31/2014

Form 8863 Education Credits (Hope and Lifetime Learning Credits)

1/31/2014

Form 8864 Biodiesel and Renewable Diesel Fuels Credit

1/31/2014

Form 8874 New Markets Credit

1/31/2014

Form 8880 Credit for Qualified Retirement Savings Contributions

1/31/2014

Form 8881 Credit for Small Employer Pension Plan Startup Costs

1/31/2014

Form 8882 Credit for Employer - Provided ChildCare Facilities and Services

1/31/2014

Form 8885 Health Coverage Tax Credit

1/31/2014

Form 8886 Reportable Transaction Disclosure Statement

1/31/2014

Form 8888 Direct Deposit of Refund to more than 1 account

1/31/2014

Form 8889 Health Savings Accounts (HSAs)

1/31/2014

Form 8891 US Information Return for Beneficiary of Certain Canadian Registered Retirement Plans

1/31/2014

Form 8903 Domestic Production Activities Deduction

1/31/2014

Form 8906 Distilled Spirits Credit

1/31/2014

Form 8907 Nonconventional Source Fuel Credit

1/31/2014

Form 8908 Energy Efficient Home Credit

1/31/2014

Form 8909 Energy Efficient Appliance Credit

1/31/2014

Form 8910 Alternate Motor Vehicle Credit

1/31/2014

Form 8911 Alternate Fuel Vehicle Refueling Credit

1/31/2014

Form 8915 Qualified Hurricane Katrina Retirement Plan Dists and Repayments

1/31/2014

Form 8917 Tuition and Fees Deduction

1/31/2014

Form 8919 Uncollected Social Security and Medicare Tax on Wages

1/31/2014

Form 8930 Midwestern Disaster Area Distributions

1/31/2014

Form 8931 Agricultural Chemicals Security Credit

1/31/2014

Form 8932 Credit for Employer Differential Wage Payments

1/31/2014

Form 8933 Carbon Dioxide Sequestration Credit

1/31/2014

Form 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit

2/13/2014

Form 8941 Credit for Small Employer Health Insurance Premiums

1/31/2014

Form 8949 Sales and other Dispositions of Capital Assets

1/31/2014

Form 8959 Additional Medicare Tax

2/13/2014

Form 8960 Net Investment Income Tax - Individuals, Estates and Trusts

2/13/2014

Form 9465 Installment Agreement Request

1/31/2014

Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (And Section 1082 Basis Adjustment)

1/31/2014

     

 

 

 

Page Last Reviewed or Updated: 04-Mar-2014

The 1040 Form For 2010

1040 form for 2010 4. 1040 form for 2010   Special Situations Table of Contents Condominiums CooperativesDepreciation Property Changed to Rental UseBasis of Property Changed to Rental Use Figuring the Depreciation Deduction Renting Part of Property Not Rented for ProfitPostponing decision. 1040 form for 2010 Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. 1040 form for 2010 Condominiums A condominium is most often a dwelling unit in a multi-unit building, but can also take other forms, such as a townhouse or garden apartment. 1040 form for 2010 If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. 1040 form for 2010 You and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common elements. 1040 form for 2010 Special rules apply if you rent your condominium to others. 1040 form for 2010 You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. 1040 form for 2010 In addition, you can deduct any dues or assessments paid for maintenance of the common elements. 1040 form for 2010 You cannot deduct special assessments you pay to a condominium management corporation for improvements. 1040 form for 2010 However, you may be able to recover your share of the cost of any improvement by taking depreciation. 1040 form for 2010 Cooperatives If you live in a cooperative, you do not own your apartment. 1040 form for 2010 Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. 1040 form for 2010 If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation. 1040 form for 2010 In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation. 1040 form for 2010 Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. 1040 form for 2010 Figure your depreciation deduction as follows. 1040 form for 2010 Figure the depreciation for all the depreciable real property owned by the corporation. 1040 form for 2010 (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. 1040 form for 2010 ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. 1040 form for 2010 Multiply your cost per share by the total number of outstanding shares. 1040 form for 2010 Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. 1040 form for 2010 Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. 1040 form for 2010 Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. 1040 form for 2010 Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. 1040 form for 2010 Multiply the result of (2) by the percentage you figured in (3). 1040 form for 2010 This is your depreciation on the stock. 1040 form for 2010 Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property. 1040 form for 2010 Payments added to capital account. 1040 form for 2010   Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation's capital account are added to the basis of your stock in the corporation. 1040 form for 2010 For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation's mortgage. 1040 form for 2010   Treat as a capital cost the amount you were assessed for capital items. 1040 form for 2010 This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation's mortgage interest and real estate taxes. 1040 form for 2010   Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. 1040 form for 2010 Otherwise, figure your share in the following manner. 1040 form for 2010 Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. 1040 form for 2010 Multiply the corporation's deductible interest by the number you figured in (1). 1040 form for 2010 This is your share of the interest. 1040 form for 2010 Multiply the corporation's deductible taxes by the number you figured in (1). 1040 form for 2010 This is your share of the taxes. 1040 form for 2010 Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. 1040 form for 2010 You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. 1040 form for 2010 You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. 1040 form for 2010 However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). 1040 form for 2010 Example. 1040 form for 2010 Your tax year is the calendar year. 1040 form for 2010 You moved from your home in May and started renting it out on June 1. 1040 form for 2010 You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. 1040 form for 2010 Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. 1040 form for 2010 When figuring depreciation, treat the property as placed in service on June 1. 1040 form for 2010 Basis of Property Changed to Rental Use When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion. 1040 form for 2010 Fair market value. 1040 form for 2010   This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. 1040 form for 2010 Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. 1040 form for 2010 Figuring the basis. 1040 form for 2010   The basis for depreciation is the lesser of: The fair market value of the property on the date you changed it to rental use, or Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. 1040 form for 2010 For other increases and decreases to basis, see Adjusted Basis in chapter 2. 1040 form for 2010 Example. 1040 form for 2010 Several years ago you built your home for $140,000 on a lot that cost you $14,000. 1040 form for 2010 Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. 1040 form for 2010 Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. 1040 form for 2010 Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. 1040 form for 2010 The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500). 1040 form for 2010 On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house. 1040 form for 2010 The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000). 1040 form for 2010 Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. 1040 form for 2010 (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. 1040 form for 2010 ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. 1040 form for 2010 The fair market value of the property on the date you change your apartment to rental use. 1040 form for 2010 This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. 1040 form for 2010 The corporation's adjusted basis in the property on that date. 1040 form for 2010 Do not subtract depreciation when figuring the corporation's adjusted basis. 1040 form for 2010 If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). 1040 form for 2010 The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. 1040 form for 2010 Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. 1040 form for 2010 Generally, that will be MACRS for any conversion after 1986. 1040 form for 2010 Treat the property as placed in service on the conversion date. 1040 form for 2010 Example. 1040 form for 2010 Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. 1040 form for 2010 Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. 1040 form for 2010 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . 1040 form for 2010 01364). 1040 form for 2010 Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. 1040 form for 2010 You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). 1040 form for 2010 You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. 1040 form for 2010 There is no change in the types of expenses deductible for the personal-use part of your property. 1040 form for 2010 Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). 1040 form for 2010 You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. 1040 form for 2010 You do not have to divide the expenses that belong only to the rental part of your property. 1040 form for 2010 For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. 1040 form for 2010 If you install a second phone line strictly for your tenant's use, all of the cost of the second line is deductible as a rental expense. 1040 form for 2010 You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. 1040 form for 2010 How to divide expenses. 1040 form for 2010   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. 1040 form for 2010 You can use any reasonable method for dividing the expense. 1040 form for 2010 It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. 1040 form for 2010 The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home. 1040 form for 2010 Example. 1040 form for 2010 You rent a room in your house. 1040 form for 2010 The room is 12 × 15 feet, or 180 square feet. 1040 form for 2010 Your entire house has 1,800 square feet of floor space. 1040 form for 2010 You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. 1040 form for 2010 If your heating bill for the year for the entire house was $600, $60 ($600 × . 1040 form for 2010 10) is a rental expense. 1040 form for 2010 The balance, $540, is a personal expense that you cannot deduct. 1040 form for 2010 Duplex. 1040 form for 2010   A common situation is the duplex where you live in one unit and rent out the other. 1040 form for 2010 Certain expenses apply to the entire property, such as mortgage interest and real estate taxes, and must be split to determine rental and personal expenses. 1040 form for 2010 Example. 1040 form for 2010 You own a duplex and live in one half, renting the other half. 1040 form for 2010 Both units are approximately the same size. 1040 form for 2010 Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. 1040 form for 2010 You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E (Form 1040), and if you itemize your deductions, you can deduct the other $5,000 mortgage interest and $1,000 real estate taxes on Schedule A (Form 1040). 1040 form for 2010 Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. 1040 form for 2010 You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. 1040 form for 2010 Where to report. 1040 form for 2010   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. 1040 form for 2010 For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. 1040 form for 2010   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. 1040 form for 2010 You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. 1040 form for 2010 Presumption of profit. 1040 form for 2010   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. 1040 form for 2010 Postponing decision. 1040 form for 2010   If you are starting your rental activity and do not have 3 years showing a profit, you can elect to have the presumption made after you have the 5 years of experience required by the test. 1040 form for 2010 You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. 1040 form for 2010 You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. 1040 form for 2010 More information. 1040 form for 2010   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. 1040 form for 2010 Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. 1040 form for 2010 Instead of selling the house she had been living in, she decided to change it to rental property. 1040 form for 2010 Eileen selected a tenant and started renting the house on February 1. 1040 form for 2010 Eileen charges $750 a month for rent and collects it herself. 1040 form for 2010 Eileen also received a $750 security deposit from her tenant. 1040 form for 2010 Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. 1040 form for 2010 Her rental expenses for the year are as follows. 1040 form for 2010   Mortgage interest $1,800     Fire insurance (1-year policy) 100     Miscellaneous repairs (after renting) 297     Real estate taxes imposed and paid 1,200   Eileen must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the property and the rental use of the property. 1040 form for 2010 She can deduct eleven-twelfths of these expenses as rental expenses. 1040 form for 2010 She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. 1040 form for 2010 She cannot deduct the balance of the fire insurance because it is a personal expense. 1040 form for 2010 Eileen bought this house in 1984 for $35,000. 1040 form for 2010 Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. 1040 form for 2010 Before changing it to rental property, Eileen added several improvements to the house. 1040 form for 2010 She figures her adjusted basis as follows:   Improvements Cost     House $25,000     Remodeled kitchen 4,200     Recreation room 5,800     New roof 1,600     Patio and deck 2,400     Adjusted basis $39,000   On February 1, when Eileen changed her house to rental property, the property had a fair market value of $152,000. 1040 form for 2010 Of this amount, $35,000 was for the land and $117,000 was for the house. 1040 form for 2010 Because Eileen's adjusted basis is less than the fair market value on the date of the change, Eileen uses $39,000 as her basis for depreciation. 1040 form for 2010 As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. 1040 form for 2010 She chooses the GDS recovery period of 27. 1040 form for 2010 5 years. 1040 form for 2010 She uses Table 2-2d to find her depreciation percentage. 1040 form for 2010 Since she placed the property in service in February, the percentage is 3. 1040 form for 2010 182%. 1040 form for 2010 On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. 1040 form for 2010 The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. 1040 form for 2010 She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. 1040 form for 2010 On May 1, Eileen paid $4,000 to have a furnace installed in the house. 1040 form for 2010 The furnace is residential rental property. 1040 form for 2010 Because she placed the property in service in May, the percentage from Table 2-2d is 2. 1040 form for 2010 273%. 1040 form for 2010 Eileen figures her net rental income or loss for the house as follows: Total rental income received  ($750 × 11) $8,250 Minus: Expenses     Mortgage interest ($1,800 × 11/12) $1,650   Fire insurance ($100 × 11/12) 92   Miscellaneous repairs 297   Real estate taxes ($1,200 × 11/12) 1,100   Total expenses 3,139 Balance $5,111 Minus: Depreciation     House ($39,000 × . 1040 form for 2010 03182) $1,241   Dishwasher ($425 × . 1040 form for 2010 20) 85   Furnace ($4,000 × . 1040 form for 2010 02273) 91   Total depreciation 1,417 Net rental income for house   $3,694       Eileen uses Schedule E, Part I, to report her rental income and expenses. 1040 form for 2010 She enters her income, expenses, and depreciation for the house in the column for Property A. 1040 form for 2010 Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. 1040 form for 2010 See the Instructions for Form 4562 for more information on preparing the form. 1040 form for 2010 Prev  Up  Next   Home   More Online Publications