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1040 Form For 2010

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1040 Form For 2010

1040 form for 2010 7. 1040 form for 2010   Filing Information Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: What, When, and Where To FileResident Aliens Nonresident Aliens Amended Returns and Claims for Refund Other Forms You May Have To File PenaltiesCivil Penalties Criminal Penalties Introduction This chapter provides the basic filing information that you may need. 1040 form for 2010 Topics - This chapter discusses: Forms aliens must file, When and where to file, Penalties, and Amended returns and claims for refund. 1040 form for 2010 Useful Items - You may want to see: Forms (and Instructions) 1040 U. 1040 form for 2010 S. 1040 form for 2010 Individual Income Tax Return 1040A U. 1040 form for 2010 S. 1040 form for 2010 Individual Income Tax Return 1040EZ Income Tax Return for Single and Joint Filers With No Dependents 1040NR U. 1040 form for 2010 S. 1040 form for 2010 Nonresident Alien Income Tax Return 1040NR-EZ U. 1040 form for 2010 S. 1040 form for 2010 Income Tax Return for Certain Nonresident Aliens With No Dependents See chapter 12 for information about getting these forms. 1040 form for 2010 What, When, and Where To File What return you must file as well as when and where you file that return, depends on your status at the end of the tax year as a resident or a nonresident alien. 1040 form for 2010 Resident Aliens Resident aliens should file Form 1040EZ, 1040A, or 1040 at the address shown in the instructions for that form. 1040 form for 2010 The due date for filing the return and paying any tax due is April 15 of the year following the year for which you are filing a return (but see the Tip, later). 1040 form for 2010 Under U. 1040 form for 2010 S. 1040 form for 2010 immigration law, a lawful permanent resident who is required to file a tax return as a resident and fails to do so may be regarded as having abandoned status and may lose permanent resident status. 1040 form for 2010 Extensions of time to file. 1040 form for 2010   You are allowed an automatic extension to June 15 to file if your main place of business and the home you live in are outside the United States and Puerto Rico on April 15. 1040 form for 2010 You can get an extension of time to October 15 to file your return if you get an extension by April 15 (June 15 if you qualify for the June 15 extension). 1040 form for 2010 Use Form 4868 to get the extension to October 15. 1040 form for 2010 In addition to this 6-month extension, taxpayers who are out of the country (as defined in the Form 4868 instructions) can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers). 1040 form for 2010 To request this extension, you must send the IRS a letter explaining the reasons why you need the additional 2 months. 1040 form for 2010 Send the letter by the extended due date (October 15 for calendar year taxpayers) to the following address:  Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0215   You will not receive any notification from the IRS unless your request is denied for being untimely. 1040 form for 2010   The discretionary 2-month additional extension is not available to taxpayers who have an approved extension of time to file on Form 2350 (for U. 1040 form for 2010 S. 1040 form for 2010 citizens and resident aliens abroad who expect to qualify for special tax treatment). 1040 form for 2010    If the due date for filing falls on a Saturday, Sunday, or legal holiday, the due date is the next day which is not a Saturday, Sunday, or legal holiday. 1040 form for 2010 You may be able to file your return electronically. 1040 form for 2010 See IRS e-file in your form instructions. 1040 form for 2010 Nonresident Aliens Nonresident aliens who are required to file an income tax return should use Form 1040NR or, if qualified, Form 1040NR-EZ. 1040 form for 2010 If you are any of the following, you must file a return. 1040 form for 2010 A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during 2013. 1040 form for 2010 (But see Exceptions , later. 1040 form for 2010 ) You must file even if: Your income did not come from a trade or business conducted in the United States, You have no income from U. 1040 form for 2010 S. 1040 form for 2010 sources, or Your income is exempt from income tax. 1040 form for 2010 A nonresident alien individual not engaged in a trade or business in the United States with U. 1040 form for 2010 S. 1040 form for 2010 income on which the tax liability was not satisfied by the withholding of tax at the source. 1040 form for 2010 A representative or agent responsible for filing the return of an individual described in (1) or (2). 1040 form for 2010 A fiduciary for a nonresident alien estate or trust. 1040 form for 2010 You must also file if you want to: Claim a refund of overwithheld or overpaid tax, or Claim the benefit of any deductions or credits. 1040 form for 2010 For example, if you have no U. 1040 form for 2010 S. 1040 form for 2010 business activities but have income from real property that you choose to treat as effectively connected income (discussed in chapter 4), you must timely file a true and accurate return to take any allowable deductions against that income. 1040 form for 2010 For information on what is timely, see When to file for deductions and credits under When To File, later. 1040 form for 2010 Exceptions. 1040 form for 2010   You do not need to file Form 1040NR or Form 1040NR-EZ if you meet either of the following conditions. 1040 form for 2010 Your only U. 1040 form for 2010 S. 1040 form for 2010 trade or business was the performance of personal services, and Your wages were less than $3,900, and You have no other need to file a return to claim a refund of overwithheld taxes, to satisfy additional withholding at source, or to claim income exempt or partly exempt by treaty. 1040 form for 2010 You were a nonresident alien student, teacher, or trainee who was temporarily present in the United States under an “F,” “J,” “M,” or “Q” visa and you have no income that is subject to tax, such as wages, tips, scholarship and fellowship grants, dividends, etc. 1040 form for 2010 Even if you have left the United States and filed a Form 1040-C, U. 1040 form for 2010 S. 1040 form for 2010 Departing Alien Income Tax Return, on departure, you still must file an annual U. 1040 form for 2010 S. 1040 form for 2010 income tax return. 1040 form for 2010 If you are married and both you and your spouse are required to file, you must each file a separate return. 1040 form for 2010 Form 1040NR-EZ You can use Form 1040NR-EZ if all of the following conditions are met. 1040 form for 2010 You do not claim any dependents. 1040 form for 2010 You cannot be claimed as a dependent on someone else's U. 1040 form for 2010 S. 1040 form for 2010 tax return. 1040 form for 2010 If you were married, you do not claim an exemption for your spouse. 1040 form for 2010 Your taxable income is less than $100,000. 1040 form for 2010 The only itemized deduction you can claim is for state and local income taxes. 1040 form for 2010 Note. 1040 form for 2010 Residents of India who were students or business apprentices may be able to take the standard deduction instead of the itemized deduction for state and local income taxes. 1040 form for 2010 See chapter 5. 1040 form for 2010 Your only U. 1040 form for 2010 S. 1040 form for 2010 source income is from wages, salaries, tips, taxable refunds of state and local income taxes, scholarship or fellowship grants, and nontaxable interest or dividends. 1040 form for 2010 (If you had taxable interest or dividend income, you cannot use this form. 1040 form for 2010 ) You are not claiming any adjustments to income other than the student loan interest deduction or scholarship and fellowship grants excluded. 1040 form for 2010 You are not claiming any tax credits. 1040 form for 2010 This is not an “expatriation return. 1040 form for 2010 ” See Expatriation Tax in chapter 4. 1040 form for 2010 The only taxes you owe are: The income tax from the Tax Table. 1040 form for 2010 The social security and Medicare tax from Form 4137 or Form 8919. 1040 form for 2010 You are not claiming a credit for excess social security and tier 1 RRTA tax withheld. 1040 form for 2010 You are not filing Form 8959, to figure the amount of Additional Medicare Tax you owe and/or the amount of Additional Medicare Tax withheld by your employer, if any. 1040 form for 2010 If you do not meet all of the above conditions, you must file Form 1040NR. 1040 form for 2010 When To File If you are an employee and you receive wages subject to U. 1040 form for 2010 S. 1040 form for 2010 income tax withholding, you will generally file by the 15th day of the 4th month after your tax year ends. 1040 form for 2010 For the 2013 calendar year, file your return by April 15, 2014. 1040 form for 2010 If you are not an employee who receives wages subject to U. 1040 form for 2010 S. 1040 form for 2010 income tax withholding, you must file by the 15th day of the 6th month after your tax year ends. 1040 form for 2010 For the 2013 calendar year, file your return by June 16, 2014 (because June 15 is a Sunday. 1040 form for 2010 ) Extensions of time to file. 1040 form for 2010   If you cannot file your return by the due date, file Form 4868 or use one of the electronic filing options explained in the Form 4868 instructions. 1040 form for 2010 For the 2013 calendar year, this will extend the due date to October 15, 2014 (December 15, 2014, if the regular due date of your return is June 16, 2014). 1040 form for 2010 You must file the extension by the regular due date of your return. 1040 form for 2010   In addition to the 6-month extension to October 15, taxpayers whose main place of business is outside the United States and Puerto Rico and who live outside those jurisdictions can request a discretionary 2-month extension of time to file their returns (to December 15 for calendar year taxpayers). 1040 form for 2010 To request this extension, you must send the IRS a letter explaining the reasons why you need the additional 2 months. 1040 form for 2010 Send the letter by the extended due date (October 15 for calendar year taxpayers) to the following address: Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0215   You will not receive any notification from the IRS unless your request is denied for being untimely. 1040 form for 2010 When to file for deductions and credits. 1040 form for 2010   To get the benefit of any allowable deductions or credits, you must timely file a true and accurate return. 1040 form for 2010 For this purpose, a return is timely if it is filed within 16 months of the due date just discussed. 1040 form for 2010 However, if you did not file a 2012 tax return and 2013 is not the first year for which you are required to file one, your 2013 return is timely for this purpose if it is filed by the earlier of: The date that is 16 months after the due date for filing your 2013 return, or The date the IRS notifies you that your 2013 return has not been filed and that you cannot claim certain deductions and credits. 1040 form for 2010 The allowance of the following credits is not affected by this time requirement. 1040 form for 2010 Credit for withheld taxes. 1040 form for 2010 Credit for excise tax on certain uses of gasoline and special fuels. 1040 form for 2010 Credit for tax paid by a mutual fund (or other regulated investment company) or a real estate investment trust on undistributed long-term capital gains. 1040 form for 2010 Protective return. 1040 form for 2010   If your activities in the United States were limited and you do not believe that you had any gross income effectively connected with a U. 1040 form for 2010 S. 1040 form for 2010 trade or business during the year, you can file a protective return (Form 1040NR) by the deadline explained above. 1040 form for 2010 By filing a protective return, you protect your right to receive the benefit of deductions and credits in the event it is later determined that some or all of your income is effectively connected. 1040 form for 2010 You are not required to report any effectively connected income or any deductions on the protective return, but you must give the reason the return is being filed. 1040 form for 2010   If you believe some of your activities resulted in effectively connected income, file your return reporting that income and related deductions by the regular due date. 1040 form for 2010 To protect your right to claim deductions or credits resulting from other activities, attach a statement to that return explaining that you wish to protect your right to claim deductions and credits if it is later determined that the other activities produced effectively connected income. 1040 form for 2010   You can follow the same procedure if you believe you have no U. 1040 form for 2010 S. 1040 form for 2010 tax liability because of a U. 1040 form for 2010 S. 1040 form for 2010 tax treaty. 1040 form for 2010 Be sure to also complete item L on page 5 of Form 1040NR. 1040 form for 2010 Waiver of filing deadline. 1040 form for 2010   The IRS may waive the filing deadline if you establish that, based on the facts and circumstances, you acted reasonably and in good faith in failing to file a U. 1040 form for 2010 S. 1040 form for 2010 income tax return (including a protective return) and you cooperate with the IRS in determining your U. 1040 form for 2010 S. 1040 form for 2010 income tax liability for the tax year for which you did not file a return. 1040 form for 2010 Where To File If you are not enclosing a payment, file Form 1040NR-EZ and Form 1040NR at the following address. 1040 form for 2010  Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0215 If enclosing a payment, mail your return to:  Internal Revenue Service  P. 1040 form for 2010 O. 1040 form for 2010 Box 1303 Charlotte, NC 28201-1303 Aliens from the U. 1040 form for 2010 S. 1040 form for 2010 Virgin Islands. 1040 form for 2010    If you are a bona fide resident of the U. 1040 form for 2010 S. 1040 form for 2010 Virgin Islands during your entire tax year and work temporarily in the United States, you must pay your income taxes to the U. 1040 form for 2010 S. 1040 form for 2010 Virgin Islands and file your income tax returns at the following address. 1040 form for 2010 Virgin Islands Bureau of Internal Revenue 6115 Estate Smith Bay Suite 225 St. 1040 form for 2010 Thomas, VI 00802   Report all income from U. 1040 form for 2010 S. 1040 form for 2010 sources, as well as income from other sources, on your return. 1040 form for 2010 For information on filing U. 1040 form for 2010 S. 1040 form for 2010 Virgin Islands returns, contact the U. 1040 form for 2010 S. 1040 form for 2010 Virgin Islands Bureau of Internal Revenue. 1040 form for 2010   Chapter 8 discusses withholding from U. 1040 form for 2010 S. 1040 form for 2010 wages of U. 1040 form for 2010 S. 1040 form for 2010 Virgin Islanders. 1040 form for 2010 Aliens from Guam or the Commonwealth of the Northern Mariana Islands. 1040 form for 2010   If you are a bona fide resident of Guam or the Commonwealth of the Northern Mariana Islands (CNMI) during your entire tax year, you must file your return with, and pay any tax due to, Guam or the CNMI. 1040 form for 2010 Report all income, including income from U. 1040 form for 2010 S. 1040 form for 2010 sources, on your return. 1040 form for 2010 It is not necessary to file a separate U. 1040 form for 2010 S. 1040 form for 2010 income tax return. 1040 form for 2010    Bona fide residents of Guam should file their Guam returns at the following address. 1040 form for 2010   Department of Revenue and Taxation Government of Guam P. 1040 form for 2010 O. 1040 form for 2010 Box 23607 GMF, GU 96921    Bona fide residents of the CNMI should file their CNMI income tax returns at the following address. 1040 form for 2010   Department of Finance Division of Revenue and Taxation Commonwealth of the Northern Mariana Islands P. 1040 form for 2010 O. 1040 form for 2010 Box 5234 CHRB Saipan, MP 96950   If you are not a bona fide resident of Guam or the CNMI, see Pub. 1040 form for 2010 570, Tax Guide for Individuals With Income From U. 1040 form for 2010 S. 1040 form for 2010 Possessions, for information on where to file your return. 1040 form for 2010 Amended Returns and Claims for Refund If you find changes in your income, deductions, or credits after you mail your return, file Form 1040X, Amended U. 1040 form for 2010 S. 1040 form for 2010 Individual Income Tax Return. 1040 form for 2010 Also use Form 1040X if you should have filed Form 1040, 1040A, or 1040EZ instead of Form 1040NR or 1040NR-EZ, or vice versa. 1040 form for 2010 If you amend Form 1040NR or Form 1040NR-EZ or file the correct return, attach the corrected return (Form 1040, Form 1040NR, etc. 1040 form for 2010 ) to Form 1040X. 1040 form for 2010 Print “Amended” across the top. 1040 form for 2010 Ordinarily, an amended return claiming a refund must be filed within 3 years from the date your return was filed or within 2 years from the time the tax was paid, whichever is later. 1040 form for 2010 A return filed before the final due date is considered to have been filed on the due date. 1040 form for 2010 Other Forms You May Have To File You may be required to file information returns to report certain foreign income or assets, or monetary transactions. 1040 form for 2010 FinCen Form 105 FinCEN Form 105 (formerly Customs Form 4790), Report of International Transportation of Currency or Monetary Instruments, must be filed by each person who physically transports, mails, or ships, or causes to be physically transported, mailed, or shipped, currency or other monetary instruments in a total amount of more than $10,000 at one time from the United States to any place outside the United States, or into the United States from any place outside the United States. 1040 form for 2010 The filing requirement also applies to each person who receives in the United States currency or monetary instruments totaling more than $10,000 at one time from any place outside of the United States. 1040 form for 2010 The term “monetary instruments” means the following: Coin and currency of the United States or of any other country, Travelers' checks in any form, Investment securities or stock in bearer form or otherwise in such form that title to them passes upon delivery, Negotiable instruments (including checks, promissory notes, and money orders) in bearer form, endorsed without restriction, made out to a fictitious payee, or otherwise in such form that title to them passes upon delivery, and Checks, promissory notes, and money orders which are signed but on which the name of the payee has been omitted. 1040 form for 2010 However, the term does not include: Checks or money orders made payable to the order of a named person which have not been endorsed or which contain restrictive endorsements, Warehouse receipts, or Bills of lading. 1040 form for 2010 A transfer of funds through normal banking procedures (wire transfer) that does not involve the physical transportation of currency or monetary instruments is not required to be reported on FinCEN Form 105. 1040 form for 2010 Filing requirements. 1040 form for 2010   FinCEN Form 105 filing requirements follow. 1040 form for 2010 Recipients. 1040 form for 2010   Each person who receives currency or other monetary instruments in the United States must file FinCEN Form 105 within 15 days after receipt, with the Customs officer in charge at any port of entry or departure, or by mail at the following address. 1040 form for 2010 Commissioner of Customs  Attention: Currency Transportation Reports Washington, DC 20229 Shippers or mailers. 1040 form for 2010   If the currency or other monetary instrument does not accompany the person entering or departing the United States, FinCEN Form 105 can be filed by mail at the above address on or before the date of entry, departure, mailing, or shipping. 1040 form for 2010 Travelers. 1040 form for 2010   Travelers must file FinCEN Form 105 with the Customs officer in charge at any Customs port of entry or departure, when entering or departing the United States. 1040 form for 2010 Penalties. 1040 form for 2010   Civil and criminal penalties are provided for failing to file a report, filing a report containing material omissions or misstatements, or filing a false or fraudulent report. 1040 form for 2010 Also, the entire amount of the currency or monetary instrument may be subject to seizure and forfeiture. 1040 form for 2010 More information. 1040 form for 2010   More information regarding the filing of FinCEN Form 105 can be found in the instructions on the back of the form. 1040 form for 2010 Form 8938 You may have to file Form 8938, Statement of Specified Foreign Financial Assets, to report the ownership of specified foreign financial asset(s) if you are one of the following individuals. 1040 form for 2010 A resident alien of the United States for any part of the tax year. 1040 form for 2010 A resident alien of the United States who elects to be treated as a resident of a foreign country under the provisions of a U. 1040 form for 2010 S. 1040 form for 2010 income tax treaty. 1040 form for 2010 See Effect of Tax Treaties in chapter 1. 1040 form for 2010 A nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return. 1040 form for 2010 See chapter 1 for information about this election. 1040 form for 2010 A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico. 1040 form for 2010 See Publication 570, Tax Guide for Individuals With Income From U. 1040 form for 2010 S. 1040 form for 2010 Possessions, for a definition of bona fide resident. 1040 form for 2010 You must file Form 8938 if the total value of those assets exceeds an applicable threshold (the “reporting threshold”). 1040 form for 2010 The reporting threshold varies depending on whether you live in the United States, are married, or file a joint income tax return with your spouse. 1040 form for 2010 Specified foreign financial assets include any financial account maintained by a foreign financial institution and, to the extent held for investment, any stock, securities, or any other interest in a foreign entity and any financial instrument or contract with an issuer or counterparty that is not a U. 1040 form for 2010 S. 1040 form for 2010 person. 1040 form for 2010 You may have to pay penalties if you are required to file Form 8938 and fail to do so, or if you have an understatement of tax due to any transaction involving an undisclosed foreign financial asset. 1040 form for 2010 More information about the filing of Form 8938 can be found in the separate instructions for Form 8938. 1040 form for 2010 Penalties The law provides penalties for failure to file returns or pay taxes as required. 1040 form for 2010 Civil Penalties If you do not file your return and pay your tax by the due date, you may have to pay a penalty. 1040 form for 2010 You may also have to pay a penalty if you substantially understate your tax, file a frivolous tax submission, or fail to supply your taxpayer identification number. 1040 form for 2010 If you provide fraudulent information on your return, you may have to pay a civil fraud penalty. 1040 form for 2010 Filing late. 1040 form for 2010   If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. 1040 form for 2010 The penalty is based on the tax not paid by the due date (without regard to extensions). 1040 form for 2010 The penalty is usually 5% for each month or part of a month that a return is late, but not more than 25%. 1040 form for 2010 Fraud. 1040 form for 2010   If your failure to file is due to fraud, the penalty is 15% for each month or part of a month that your return is late, up to a maximum of 75%. 1040 form for 2010 Return over 60 days late. 1040 form for 2010   If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax. 1040 form for 2010 Exception. 1040 form for 2010   You will not have to pay the penalty if you show that you failed to file on time because of reasonable cause and not because of willful neglect. 1040 form for 2010 Paying tax late. 1040 form for 2010   You will have to pay a failure-to-pay penalty of ½ of 1% (. 1040 form for 2010 50%) of your unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. 1040 form for 2010 This penalty does not apply during the automatic 6-month extension of time to file period, if you paid at least 90% of your actual tax liability on or before the due date of your return and pay the balance when you file the return. 1040 form for 2010   The monthly rate of the failure-to-pay penalty is half the usual rate (. 1040 form for 2010 25% instead of . 1040 form for 2010 50%) if an installment agreement is in effect for that month. 1040 form for 2010 You must have filed your return by the due date (including extensions) to qualify for this reduced penalty. 1040 form for 2010   If a notice of intent to levy is issued, the rate will increase to 1% at the start of the first month beginning at least 10 days after the day that the notice is issued. 1040 form for 2010 If a notice and demand for immediate payment is issued, the rate will increase to 1% at the start of the first month beginning after the day that the notice and demand is issued. 1040 form for 2010   This penalty cannot be more than 25% of your unpaid tax. 1040 form for 2010 You will not have to pay the penalty if you can show that you had a good reason for not paying your tax on time. 1040 form for 2010 Combined penalties. 1040 form for 2010   If both the failure-to-file penalty and the failure-to-pay penalty (discussed earlier) apply in any month, the 5% (or 15%) failure-to-file penalty is reduced by the failure-to-pay penalty. 1040 form for 2010 However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax. 1040 form for 2010 Accuracy-related penalty. 1040 form for 2010   You may have to pay an accuracy-related penalty if you underpay your tax because: You show negligence or disregard of rules or regulations, You substantially understate your income tax, You claim tax benefits for a transaction that lacks economic substance, or You fail to disclose a foreign financial asset. 1040 form for 2010 The penalty is equal to 20% of the underpayment. 1040 form for 2010 The penalty is 40% of any portion of the underpayment that is attributable to an undisclosed noneconomic substance transaction or an undisclosed foreign financial asset transaction. 1040 form for 2010 The penalty will not be figured on any part of an underpayment on which the fraud penalty (discussed later) is charged. 1040 form for 2010 Negligence or disregard. 1040 form for 2010   The term “negligence” includes a failure to make a reasonable attempt to comply with the tax law or to exercise ordinary and reasonable care in preparing a return. 1040 form for 2010 Negligence also includes failure to keep adequate books and records. 1040 form for 2010 You will not have to pay a negligence penalty if you have a reasonable basis for a position you took. 1040 form for 2010   The term “disregard” includes any careless, reckless, or intentional disregard. 1040 form for 2010 Adequate disclosure. 1040 form for 2010   You can avoid the penalty for disregard of rules or regulations if you adequately disclose on your return a position that has at least a reasonable basis. 1040 form for 2010 See Disclosure statement , later. 1040 form for 2010   This exception will not apply to an item that is attributable to a tax shelter. 1040 form for 2010 In addition, it will not apply if you fail to keep adequate books and records, or substantiate items properly. 1040 form for 2010 Substantial understatement of income tax. 1040 form for 2010   You understate your tax if the tax shown on your return is less than the correct tax. 1040 form for 2010 The understatement is substantial if it is more than the larger of 10% of the correct tax or $5,000. 1040 form for 2010 However, the amount of the understatement is reduced to the extent the understatement is due to: Substantial authority, or Adequate disclosure and a reasonable basis. 1040 form for 2010   If an item on your return is attributable to a tax shelter, there is no reduction for an adequate disclosure. 1040 form for 2010 However, there is a reduction for a position with substantial authority, but only if you reasonably believed that your tax treatment was more likely than not the proper treatment. 1040 form for 2010 Substantial authority. 1040 form for 2010   Whether there is or was substantial authority for the tax treatment of an item depends on the facts and circumstances. 1040 form for 2010 Consideration will be given to court opinions, Treasury regulations, revenue rulings, revenue procedures, and notices and announcements issued by the IRS and published in the Internal Revenue Bulletin that involve the same or similar circumstances as yours. 1040 form for 2010 Disclosure statement. 1040 form for 2010   To adequately disclose the relevant facts about your tax treatment of an item, use Form 8275, Disclosure Statement. 1040 form for 2010 You must also have a reasonable basis for treating the item the way you did. 1040 form for 2010   In cases of substantial understatement only, items that meet the requirements of Revenue Procedure 2012-51, 2012-51 IRB 719 (or later update) are considered adequately disclosed on your return without filing Form 8275. 1040 form for 2010   Use Form 8275-R, Regulation Disclosure Statement, to disclose items or positions contrary to regulations. 1040 form for 2010 Transaction lacking economic substance. 1040 form for 2010   For more information on economic substance, see section 7701(o). 1040 form for 2010 Foreign financial asset. 1040 form for 2010   For more information on undisclosed foreign financial assets, see section 6662(j) or the Instructions for Form 8938. 1040 form for 2010 Reasonable cause. 1040 form for 2010   You will not have to pay a penalty if you show a good reason (reasonable cause) for the way you treated an item. 1040 form for 2010 You must also show that you acted in good faith. 1040 form for 2010 This does not apply to a transaction that lacks economic substance. 1040 form for 2010 Filing erroneous claim for refund or credit. 1040 form for 2010   You may have to pay a penalty if you file an erroneous claim for refund or credit. 1040 form for 2010 The penalty is equal to 20% of the disallowed amount of the claim, unless you can show a reasonable basis for the way you treated an item. 1040 form for 2010 However, any disallowed amount due to a transaction that lacks economic substance will not be treated as having a reasonable basis. 1040 form for 2010 The penalty will not be figured on any part of the disallowed amount of the claim that relates to the earned income credit or on which the accuracy-related or fraud penalties are charged. 1040 form for 2010 Frivolous tax submission. 1040 form for 2010   You may have to pay a penalty of $5,000 if you file a frivolous tax return or other frivolous submissions. 1040 form for 2010 A frivolous tax return is one that does not include enough information to figure the correct tax or that contains information clearly showing that the tax you reported is substantially incorrect. 1040 form for 2010 For more information on frivolous returns, frivolous submissions, and a list of positions that are identified as frivolous, see Notice 2010-33, 2010-17 IRB 609 available at www. 1040 form for 2010 irs. 1040 form for 2010 gov/irb/2010-17_irb/ar13. 1040 form for 2010 html. 1040 form for 2010   You will have to pay the penalty if you filed this kind of return or submission based on a frivolous position or a desire to delay or interfere with the administration of federal tax laws. 1040 form for 2010 This includes altering or striking out the preprinted language above the space provided for your signature. 1040 form for 2010   This penalty is added to any other penalty provided by law. 1040 form for 2010 Fraud. 1040 form for 2010   If there is any underpayment of tax on your return due to fraud, a penalty of 75% of the underpayment due to fraud will be added to your tax. 1040 form for 2010 Failure to supply taxpayer identification number. 1040 form for 2010   If you do not include your social security number (SSN) or individual taxpayer identification number (ITIN) or the SSN or ITIN of another person where required on a return, statement, or other document, you will be subject to a penalty of $50 for each failure. 1040 form for 2010 You will also be subject to a penalty of $50 if you do not give your SSN or ITIN to another person when it is required on a return, statement, or other document. 1040 form for 2010   For example, if you have a bank account that earns interest, you must give your SSN or ITIN to the bank. 1040 form for 2010 The number must be shown on the Form 1099-INT or other statement the bank sends you. 1040 form for 2010 If you do not give the bank your SSN or ITIN, you will be subject to the $50 penalty. 1040 form for 2010 (You also may be subject to “backup” withholding of income tax. 1040 form for 2010 )   You will not have to pay the penalty if you are able to show that the failure was due to reasonable cause and not willful neglect. 1040 form for 2010 Criminal Penalties You may be subject to criminal prosecution (brought to trial) for actions such as: Tax evasion, Willful failure to file a return, supply information, or pay any tax due, Fraud and false statements, or Preparing and filing a fraudulent return. 1040 form for 2010 Prev  Up  Next   Home   More Online Publications
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The 1040 Form For 2010

1040 form for 2010 13. 1040 form for 2010   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. 1040 form for 2010 It is divided into the following sections. 1040 form for 2010 Cost basis. 1040 form for 2010 Adjusted basis. 1040 form for 2010 Basis other than cost. 1040 form for 2010 Your basis is the amount of your investment in property for tax purposes. 1040 form for 2010 Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. 1040 form for 2010 Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. 1040 form for 2010 If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. 1040 form for 2010 Only the basis allocated to the business or investment use of the property can be depreciated. 1040 form for 2010 Your original basis in property is adjusted (increased or decreased) by certain events. 1040 form for 2010 For example, if you make improvements to the property, increase your basis. 1040 form for 2010 If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. 1040 form for 2010 Keep accurate records of all items that affect the basis of your property. 1040 form for 2010 For more information on keeping records, see chapter 1. 1040 form for 2010 Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. 1040 form for 2010 The cost is the amount you pay in cash, debt obligations, other property, or services. 1040 form for 2010 Your cost also includes amounts you pay for the following items: Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if you assume liability for the seller). 1040 form for 2010 In addition, the basis of real estate and business assets may include other items. 1040 form for 2010 Loans with low or no interest. 1040 form for 2010    If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus any amount considered to be unstated interest. 1040 form for 2010 You generally have unstated interest if your interest rate is less than the applicable federal rate. 1040 form for 2010   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. 1040 form for 2010 Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. 1040 form for 2010 If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. 1040 form for 2010 Lump sum purchase. 1040 form for 2010   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. 1040 form for 2010 Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. 1040 form for 2010 Figure the basis of each asset by multiplying the lump sum by a fraction. 1040 form for 2010 The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. 1040 form for 2010    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. 1040 form for 2010 Fair market value (FMV). 1040 form for 2010   FMV 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 necessary facts. 1040 form for 2010 Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. 1040 form for 2010 Assumption of mortgage. 1040 form for 2010   If you buy property and assume (or buy the property subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. 1040 form for 2010 Settlement costs. 1040 form for 2010   Your basis includes the settlement fees and closing costs you paid for buying the property. 1040 form for 2010 (A fee for buying property is a cost that must be paid even if you buy the property for cash. 1040 form for 2010 ) Do not include fees and costs for getting a loan on the property in your basis. 1040 form for 2010   The following are some of the settlement fees or closing costs you can include in the basis of your property. 1040 form for 2010 Abstract fees (abstract of title fees). 1040 form for 2010 Charges for installing utility services. 1040 form for 2010 Legal fees (including fees for the title search and preparation of the sales contract and deed). 1040 form for 2010 Recording fees. 1040 form for 2010 Survey fees. 1040 form for 2010 Transfer taxes. 1040 form for 2010 Owner's title insurance. 1040 form for 2010 Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. 1040 form for 2010   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. 1040 form for 2010   The following are some of the settlement fees and closing costs you cannot include in the basis of property. 1040 form for 2010 Casualty insurance premiums. 1040 form for 2010 Rent for occupancy of the property before closing. 1040 form for 2010 Charges for utilities or other services related to occupancy of the property before closing. 1040 form for 2010 Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. 1040 form for 2010 Fees for refinancing a mortgage. 1040 form for 2010 Real estate taxes. 1040 form for 2010   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. 1040 form for 2010 You cannot deduct them as an expense. 1040 form for 2010    If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. 1040 form for 2010 Do not include that amount in the basis of your property. 1040 form for 2010 If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. 1040 form for 2010 Points. 1040 form for 2010   If you pay points to get a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. 1040 form for 2010 Generally, you deduct the points over the term of the loan. 1040 form for 2010 For more information on how to deduct points, see chapter 23. 1040 form for 2010 Points on home mortgage. 1040 form for 2010   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. 1040 form for 2010 If certain requirements are met, you can deduct the points in full for the year in which they are paid. 1040 form for 2010 Reduce the basis of your home by any seller-paid points. 1040 form for 2010 Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. 1040 form for 2010 The result is the adjusted basis. 1040 form for 2010 Increases to Basis Increase the basis of any property by all items properly added to a capital account. 1040 form for 2010 Examples of items that increase basis are shown in Table 13-1. 1040 form for 2010 These include the items discussed below. 1040 form for 2010 Improvements. 1040 form for 2010   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. 1040 form for 2010 For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. 1040 form for 2010 Assessments for local improvements. 1040 form for 2010   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. 1040 form for 2010 Do not deduct them as taxes. 1040 form for 2010 However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. 1040 form for 2010 Example. 1040 form for 2010 Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. 1040 form for 2010 Add the assessment to your property's basis. 1040 form for 2010 In this example, the assessment is a depreciable asset. 1040 form for 2010 Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. 1040 form for 2010 Examples of items that decrease basis are shown in Table 13-1. 1040 form for 2010 These include the items discussed below. 1040 form for 2010 Table 13-1. 1040 form for 2010 Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. 1040 form for 2010   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. 1040 form for 2010    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. 1040 form for 2010   For more information on casualty and theft losses, see chapter 25. 1040 form for 2010 Depreciation and section 179 deduction. 1040 form for 2010   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. 1040 form for 2010   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. 1040 form for 2010 Example. 1040 form for 2010 You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. 1040 form for 2010 You added an improvement to the duplex that cost $10,000. 1040 form for 2010 In February last year, the duplex was damaged by fire. 1040 form for 2010 Up to that time, you had been allowed depreciation of $23,000. 1040 form for 2010 You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. 1040 form for 2010 You deducted a casualty loss of $1,000 on your income tax return for last year. 1040 form for 2010 You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. 1040 form for 2010 You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. 1040 form for 2010 Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. 1040 form for 2010 Your basis in the land is its original cost of $5,000. 1040 form for 2010 Easements. 1040 form for 2010   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. 1040 form for 2010 It reduces the basis of the affected part of the property. 1040 form for 2010 If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. 1040 form for 2010   If the gain is on a capital asset, see chapter 16 for information about how to report it. 1040 form for 2010 If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. 1040 form for 2010 Exclusion of subsidies for energy conservation measures. 1040 form for 2010   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. 1040 form for 2010 Reduce the basis of the property for which you received the subsidy by the excluded amount. 1040 form for 2010 For more information about this subsidy, see chapter 12. 1040 form for 2010 Postponed gain from sale of home. 1040 form for 2010    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. 1040 form for 2010 For more information on the rules for the sale of a home, see chapter 15. 1040 form for 2010 Basis Other Than Cost There are many times when you cannot use cost as basis. 1040 form for 2010 In these cases, the fair market value or the adjusted basis of the property can be used. 1040 form for 2010 Fair market value (FMV) and adjusted basis were discussed earlier. 1040 form for 2010 Property Received for Services If you receive property for your services, include the FMV of the property in income. 1040 form for 2010 The amount you include in income becomes your basis. 1040 form for 2010 If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. 1040 form for 2010 Restricted property. 1040 form for 2010   If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested. 1040 form for 2010 However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. 1040 form for 2010 Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). 1040 form for 2010 For more information, see Restricted Property in Publication 525. 1040 form for 2010 Bargain purchases. 1040 form for 2010   A bargain purchase is a purchase of an item for less than its FMV. 1040 form for 2010 If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. 1040 form for 2010 Your basis in the property is its FMV (your purchase price plus the amount you include in income). 1040 form for 2010   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. 1040 form for 2010 However, your basis in the property is still its FMV. 1040 form for 2010 See Employee Discounts in Publication 15-B. 1040 form for 2010 Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. 1040 form for 2010 A taxable gain or deductible loss also is known as a recognized gain or loss. 1040 form for 2010 If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. 1040 form for 2010 Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. 1040 form for 2010 Similar or related property. 1040 form for 2010   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. 1040 form for 2010 Decrease the basis by the following. 1040 form for 2010 Any loss you recognize on the involuntary conversion. 1040 form for 2010 Any money you receive that you do not spend on similar property. 1040 form for 2010 Increase the basis by the following. 1040 form for 2010 Any gain you recognize on the involuntary conversion. 1040 form for 2010 Any cost of acquiring the replacement property. 1040 form for 2010 Money or property not similar or related. 1040 form for 2010    If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the conversion. 1040 form for 2010 Example. 1040 form for 2010 The state condemned your property. 1040 form for 2010 The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. 1040 form for 2010 You realized a gain of $5,000 ($31,000 − $26,000). 1040 form for 2010 You bought replacement property similar in use to the converted property for $29,000. 1040 form for 2010 You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. 1040 form for 2010 Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. 1040 form for 2010 The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. 1040 form for 2010   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. 1040 form for 2010 Basis for depreciation. 1040 form for 2010   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. 1040 form for 2010 For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. 1040 form for 2010 Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. 1040 form for 2010 If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. 1040 form for 2010 See Nontaxable Trades in chapter 14. 1040 form for 2010 Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. 1040 form for 2010 To qualify as a like-kind exchange, the property traded and the property received must be both of the following. 1040 form for 2010 Qualifying property. 1040 form for 2010 Like-kind property. 1040 form for 2010 The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. 1040 form for 2010 If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. 1040 form for 2010 Qualifying property. 1040 form for 2010   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. 1040 form for 2010 Like-kind property. 1040 form for 2010   There must be an exchange of like-kind property. 1040 form for 2010 Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. 1040 form for 2010 The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. 1040 form for 2010 Example. 1040 form for 2010 You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. 1040 form for 2010 The dealer allows you $2,000 on the old truck, and you pay $4,800. 1040 form for 2010 This is a like-kind exchange. 1040 form for 2010 The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). 1040 form for 2010 If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). 1040 form for 2010 The basis of the new truck is the price you pay the dealer. 1040 form for 2010 Partially nontaxable exchanges. 1040 form for 2010   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. 1040 form for 2010 The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. 1040 form for 2010 Decrease the basis by the following amounts. 1040 form for 2010 Any money you receive. 1040 form for 2010 Any loss you recognize on the exchange. 1040 form for 2010 Increase the basis by the following amounts. 1040 form for 2010 Any additional costs you incur. 1040 form for 2010 Any gain you recognize on the exchange. 1040 form for 2010 If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. 1040 form for 2010 Allocation of basis. 1040 form for 2010   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. 1040 form for 2010 The rest is the basis of the like-kind property. 1040 form for 2010 More information. 1040 form for 2010   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. 1040 form for 2010 Basis for depreciation. 1040 form for 2010   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. 1040 form for 2010 For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. 1040 form for 2010 Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. 1040 form for 2010 The same rule applies to a transfer by your former spouse that is incident to divorce. 1040 form for 2010 However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. 1040 form for 2010 If the property transferred to you is a series E, series EE, or series I U. 1040 form for 2010 S. 1040 form for 2010 savings bond, the transferor must include in income the interest accrued to the date of transfer. 1040 form for 2010 Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. 1040 form for 2010 For more information on these bonds, see chapter 7. 1040 form for 2010 At the time of the transfer, the transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. 1040 form for 2010 For more information about the transfer of property from a spouse, see chapter 14. 1040 form for 2010 Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. 1040 form for 2010 FMV less than donor's adjusted basis. 1040 form for 2010   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. 1040 form for 2010 Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. 1040 form for 2010 Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. 1040 form for 2010 See Adjusted Basis , earlier. 1040 form for 2010 Example. 1040 form for 2010 You received an acre of land as a gift. 1040 form for 2010 At the time of the gift, the land had an FMV of $8,000. 1040 form for 2010 The donor's adjusted basis was $10,000. 1040 form for 2010 After you received the property, no events occurred to increase or decrease your basis. 1040 form for 2010 If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. 1040 form for 2010 If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. 1040 form for 2010 If the sales price is between $8,000 and $10,000, you have neither gain nor loss. 1040 form for 2010 Business property. 1040 form for 2010   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. 1040 form for 2010 FMV equal to or greater than donor's adjusted basis. 1040 form for 2010   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. 1040 form for 2010 Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. 1040 form for 2010   Also, for figuring gain or loss from a sale or other disposition or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. 1040 form for 2010 See Adjusted Basis , earlier. 1040 form for 2010   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. 1040 form for 2010 Figure the increase by multiplying the gift tax paid by a fraction. 1040 form for 2010 The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. 1040 form for 2010   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. 1040 form for 2010 The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. 1040 form for 2010 Example. 1040 form for 2010 In 2013, you received a gift of property from your mother that had an FMV of $50,000. 1040 form for 2010 Her adjusted basis was $20,000. 1040 form for 2010 The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). 1040 form for 2010 She paid a gift tax of $7,320 on the property. 1040 form for 2010 Your basis is $26,076, figured as follows: Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000     Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . 1040 form for 2010 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. 1040 form for 2010 If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. 1040 form for 2010 However, your basis cannot exceed the FMV of the gift at the time it was given to you. 1040 form for 2010 Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. 1040 form for 2010 The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. 1040 form for 2010 The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. 1040 form for 2010 The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. 1040 form for 2010 If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. 1040 form for 2010 For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. 1040 form for 2010 Property inherited from a decedent who died in 2010. 1040 form for 2010   If you inherited property from a decedent who died in 2010, special rules may apply. 1040 form for 2010 For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. 1040 form for 2010 Community property. 1040 form for 2010   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. 1040 form for 2010 When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. 1040 form for 2010 For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. 1040 form for 2010 Example. 1040 form for 2010 You and your spouse owned community property that had a basis of $80,000. 1040 form for 2010 When your spouse died, half the FMV of the community interest was includible in your spouse's estate. 1040 form for 2010 The FMV of the community interest was $100,000. 1040 form for 2010 The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). 1040 form for 2010 The basis of the other half to your spouse's heirs is also $50,000. 1040 form for 2010 For more information about community property, see Publication 555, Community Property. 1040 form for 2010 Property Changed From Personal to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you can begin to depreciate the property at the time of the change. 1040 form for 2010 To do so, you must figure its basis for depreciation at the time of the change. 1040 form for 2010 An example of changing property held for personal use to business or rental use would be renting out your former personal residence. 1040 form for 2010 Basis for depreciation. 1040 form for 2010   The basis for depreciation is the lesser of the following amounts. 1040 form for 2010 The FMV of the property on the date of the change. 1040 form for 2010 Your adjusted basis on the date of the change. 1040 form for 2010 Example. 1040 form for 2010 Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. 1040 form for 2010 You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. 1040 form for 2010 Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. 1040 form for 2010 Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). 1040 form for 2010 On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. 1040 form for 2010 The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). 1040 form for 2010 Sale of property. 1040 form for 2010   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. 1040 form for 2010 Gain. 1040 form for 2010   The basis for figuring a gain is your adjusted basis in the property when you sell the property. 1040 form for 2010 Example. 1040 form for 2010 Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. 1040 form for 2010 Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). 1040 form for 2010 Loss. 1040 form for 2010   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. 1040 form for 2010 Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . 1040 form for 2010 Example. 1040 form for 2010 Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. 1040 form for 2010 In this case, you would start with the FMV on the date of the change to rental use ($180,000), because it is less than the adjusted basis of $203,000 ($178,000 + $25,000 (land)) on that date. 1040 form for 2010 Reduce that amount ($180,000) by the depreciation deductions ($37,500). 1040 form for 2010 The basis for loss is $142,500 ($180,000 − $37,500). 1040 form for 2010 Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. 1040 form for 2010 If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. 1040 form for 2010 You must adjust the basis of stocks for certain events that occur after purchase. 1040 form for 2010 For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. 1040 form for 2010 This rule applies only when the additional stock received is identical to the stock held. 1040 form for 2010 Also reduce your basis when you receive nontaxable distributions. 1040 form for 2010 They are a return of capital. 1040 form for 2010 Example. 1040 form for 2010 In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. 1040 form for 2010 In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. 1040 form for 2010 In 2013 XYZ declared a 2-for-1 stock split. 1040 form for 2010 You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. 1040 form for 2010 Other basis. 1040 form for 2010   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. 1040 form for 2010 For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. 1040 form for 2010 Identifying stocks or bonds sold. 1040 form for 2010   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stocks or bonds. 1040 form for 2010 If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. 1040 form for 2010 For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. 1040 form for 2010 Mutual fund shares. 1040 form for 2010   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. 1040 form for 2010 For more information, see Publication 550. 1040 form for 2010 Bond premium. 1040 form for 2010   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. 1040 form for 2010 See Bond Premium Amortization in chapter 3 of Publication 550 for more information. 1040 form for 2010 Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. 1040 form for 2010 Original issue discount (OID) on debt instruments. 1040 form for 2010   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. 1040 form for 2010 See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. 1040 form for 2010 Tax-exempt obligations. 1040 form for 2010    OID on tax-exempt obligations is generally not taxable. 1040 form for 2010 However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. 1040 form for 2010 The accrued OID is added to the basis of the obligation to determine your gain or loss. 1040 form for 2010 See chapter 4 of Publication 550. 1040 form for 2010 Prev  Up  Next   Home   More Online Publications