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1040ez Forms

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1040ez Forms

1040ez forms 4. 1040ez forms   Sales and Trades of Investment Property Table of Contents IntroductionNominees. 1040ez forms Topics - This chapter discusses: Useful Items - You may want to see: What Is a Sale or Trade?Dividend versus sale or trade. 1040ez forms Worthless Securities Constructive Sales of Appreciated Financial Positions Section 1256 Contracts Marked to Market Basis of Investment PropertyCost Basis Basis Other Than Cost Adjusted Basis Stocks and Bonds How To Figure Gain or LossFair market value. 1040ez forms Debt paid off. 1040ez forms Payment of cash. 1040ez forms Special Rules for Mutual Funds Nontaxable TradesLike-Kind Exchanges Corporate Stocks Exchange of Shares In One Mutual Fund For Shares In Another Mutual Fund Insurance Policies and Annuities U. 1040ez forms S. 1040ez forms Treasury Notes or Bonds Transfers Between Spouses Related Party TransactionsGain on Sale or Trade of Depreciable Property Capital Gains and LossesCapital or Ordinary Gain or Loss Holding Period Nonbusiness Bad Debts Short Sales Wash Sales Options Straddles Sales of Stock to ESOPs or Certain Cooperatives Rollover of Gain From Publicly Traded Securities Gains on Qualified Small Business Stock Exclusion of Gain From DC Zone Assets Reporting Capital Gains and LossesException 1. 1040ez forms Exception 2. 1040ez forms Section 1256 contracts and straddles. 1040ez forms Market discount bonds. 1040ez forms File Form 1099-B or Form 1099-S with the IRS. 1040ez forms Capital Losses Capital Gain Tax Rates Special Rules for Traders in SecuritiesHow To Report Introduction This chapter explains the tax treatment of sales and trades of investment property. 1040ez forms Investment property. 1040ez forms   This is property that produces investment income. 1040ez forms Examples include stocks, bonds, and Treasury bills and notes. 1040ez forms Property used in a trade or business is not investment property. 1040ez forms Form 1099-B. 1040ez forms   If you sold property such as stocks, bonds, mutual funds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. 1040ez forms You should receive the statement by February 15 of the next year. 1040ez forms It will show the gross proceeds from the sale. 1040ez forms The IRS will also get a copy of Form 1099-B from the broker. 1040ez forms   Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. 1040ez forms If you sold a covered security in 2013, your broker will send you a Form 1099-B (or substitute statement) that shows your basis. 1040ez forms This will help you complete Form 8949. 1040ez forms Generally, a covered security is a security you acquired after 2010, with certain exceptions explained in the Instructions for Form 8949. 1040ez forms    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in this chapter. 1040ez forms Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). 1040ez forms Nominees. 1040ez forms   If someone receives gross proceeds as a nominee for you, that person will give you a Form 1099-B, which will show gross proceeds received on your behalf. 1040ez forms   If you receive a Form 1099-B that includes gross proceeds belonging to another person, see Nominees , later under Reporting Capital Gains and Losses for more information. 1040ez forms Other property transactions. 1040ez forms   Certain transfers of property are discussed in other IRS publications. 1040ez forms These include: Sale of your main home, discussed in Publication 523, Selling Your Home; Installment sales, covered in Publication 537; Various types of transactions involving business property, discussed in Publication 544, Sales and Other Dispositions of Assets; Transfers of property at death, covered in Publication 559; and Disposition of an interest in a passive activity, discussed in Publication 925. 1040ez forms Topics - This chapter discusses: What Is a Sale or Trade? , Basis of Investment Property , Adjusted Basis , How To Figure Gain or Loss , Nontaxable trades , Transfers Between Spouses , Related Party Transactions , Capital Gains and Losses , Reporting Capital Gains and Losses , and Special Rules for Traders in Securities . 1040ez forms Useful Items - You may want to see: Publication 551 Basis of Assets Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 6781 Gains and Losses From Section 1256 Contracts and Straddles 8582 Passive Activity Loss Limitations 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets See chapter 5, How To Get Tax Help , for information about getting these publications and forms. 1040ez forms What Is a Sale or Trade? This section explains what is a sale or trade. 1040ez forms It also explains certain transactions and events that are treated as sales or trades. 1040ez forms A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. 1040ez forms A trade is a transfer of property for other property or services, and may be taxed in the same way as a sale. 1040ez forms Sale and purchase. 1040ez forms   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. 1040ez forms The sale and purchase are two separate transactions. 1040ez forms But see Like-Kind Exchanges under Nontaxable Trades, later. 1040ez forms Redemption of stock. 1040ez forms   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. 1040ez forms Dividend versus sale or trade. 1040ez forms   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. 1040ez forms Both direct and indirect ownership of stock will be considered. 1040ez forms The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend — see Dividends and Other Distributions in chapter 1, There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. 1040ez forms Redemption or retirement of bonds. 1040ez forms   A redemption or retirement of bonds or notes at their maturity generally is treated as a sale or trade. 1040ez forms See Stocks, stock rights, and bonds and Discounted Debt Instruments under Capital or Ordinary Gain or Loss, later. 1040ez forms   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. 1040ez forms For details, see Regulations section 1. 1040ez forms 1001-3. 1040ez forms Surrender of stock. 1040ez forms   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. 1040ez forms The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. 1040ez forms Trade of investment property for an annuity. 1040ez forms   The transfer of investment property to a corporation, trust, fund, foundation, or other organization, in exchange for a fixed annuity contract that will make guaranteed annual payments to you for life, is a taxable trade. 1040ez forms If the present value of the annuity is more than your basis in the property traded, you have a taxable gain in the year of the trade. 1040ez forms Figure the present value of the annuity according to factors used by commercial insurance companies issuing annuities. 1040ez forms Transfer by inheritance. 1040ez forms   The transfer of property of a decedent to the executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or other disposition. 1040ez forms No taxable gain or deductible loss results from the transfer. 1040ez forms Termination of certain rights and obligations. 1040ez forms   The cancellation, lapse, expiration, or other termination of a right or obligation (other than a securities futures contract) with respect to property that is a capital asset (or that would be a capital asset if you acquired it) is treated as a sale. 1040ez forms Any gain or loss is treated as a capital gain or loss. 1040ez forms   This rule does not apply to the retirement of a debt instrument. 1040ez forms See Redemption or retirement of bonds , earlier. 1040ez forms Worthless Securities Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. 1040ez forms This affects whether your capital loss is long term or short term. 1040ez forms See Holding Period , later. 1040ez forms Worthless securities also include securities that you abandon after March 12, 2008. 1040ez forms To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. 1040ez forms All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. 1040ez forms If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. 1040ez forms Do not deduct them in the year the stock became worthless. 1040ez forms How to report loss. 1040ez forms   Report worthless securities in Form 8949, Part I or Part II, whichever applies. 1040ez forms    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. 1040ez forms See Form 8949 and the Instructions for Form 8949. 1040ez forms Filing a claim for refund. 1040ez forms   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. 1040ez forms You must use Form 1040X, Amended U. 1040ez forms S. 1040ez forms Individual Income Tax Return, to amend your return for the year the security became worthless. 1040ez forms You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. 1040ez forms (Claims not due to worthless securities or bad debts generally must be filed within 3 years from the date a return is filed, or 2 years from the date the tax is paid, whichever is later. 1040ez forms ) For more information about filing a claim, see Publication 556. 1040ez forms Constructive Sales of Appreciated Financial Positions You are treated as having made a constructive sale when you enter into certain transactions involving an appreciated financial position (defined later) in stock, a partnership interest, or certain debt instruments. 1040ez forms You must recognize gain as if the position were disposed of at its fair market value on the date of the constructive sale. 1040ez forms This gives you a new holding period for the position that begins on the date of the constructive sale. 1040ez forms Then, when you close the transaction, you reduce your gain (or increase your loss) by the gain recognized on the constructive sale. 1040ez forms Constructive sale. 1040ez forms   You are treated as having made a constructive sale of an appreciated financial position if you: Enter into a short sale of the same or substantially identical property, Enter into an offsetting notional principal contract relating to the same or substantially identical property, Enter into a futures or forward contract to deliver the same or substantially identical property (including a forward contract that provides for cash settlement), or Acquire the same or substantially identical property (if the appreciated financial position is a short sale, an offsetting notional principal contract, or a futures or forward contract). 1040ez forms   You are also treated as having made a constructive sale of an appreciated financial position if a person related to you enters into a transaction described above with a view toward avoiding the constructive sale treatment. 1040ez forms For this purpose, a related person is any related party described under Related Party Transactions , later in this chapter. 1040ez forms Exception for nonmarketable securities. 1040ez forms   You are not treated as having made a constructive sale solely because you entered into a contract for sale of any stock, debt instrument, or partnership interest that is not a marketable security if it settles within 1 year of the date you enter into it. 1040ez forms Exception for certain closed transactions. 1040ez forms   Do not treat a transaction as a constructive sale if all of the following are true. 1040ez forms You closed the transaction on or before the 30th day after the end of your tax year. 1040ez forms You held the appreciated financial position throughout the 60-day period beginning on the date you closed the transaction. 1040ez forms Your risk of loss was not reduced at any time during that 60-day period by holding certain other positions. 1040ez forms   If a closed transaction is reestablished in a substantially similar position during the 60-day period beginning on the date the first transaction was closed, this exception still applies if the reestablished position is closed before the 30th day after the end of your tax year in which the first transaction was closed and, after that closing, (2) and (3) above are true. 1040ez forms   This exception also applies to successive short sales of an entire appreciated financial position. 1040ez forms For more information, see Revenue Ruling 2003-1 in Internal Revenue Bulletin 2003-3. 1040ez forms This bulletin is available at www. 1040ez forms irs. 1040ez forms gov/pub/irs-irbs/irb03-03. 1040ez forms pdf. 1040ez forms Appreciated financial position. 1040ez forms   This is any interest in stock, a partnership interest, or a debt instrument (including a futures or forward contract, a short sale, or an option) if disposing of the interest would result in a gain. 1040ez forms Exceptions. 1040ez forms   An appreciated financial position does not include the following. 1040ez forms Any position from which all of the appreciation is accounted for under marked-to-market rules, including section 1256 contracts (described later under Section 1256 Contracts Marked to Market ). 1040ez forms Any position in a debt instrument if: The position unconditionally entitles the holder to receive a specified principal amount, The interest payments (or other similar amounts) with respect to the position are payable at a fixed rate or a variable rate described in Regulations section 1. 1040ez forms 860G-1(a)(3), and The position is not convertible, either directly or indirectly, into stock of the issuer (or any related person). 1040ez forms Any hedge with respect to a position described in (2). 1040ez forms Certain trust instruments treated as stock. 1040ez forms   For the constructive sale rules, an interest in an actively traded trust is treated as stock unless substantially all of the value of the property held by the trust is debt that qualifies for the exception to the definition of an appreciated financial position (explained in (2) above). 1040ez forms Sale of appreciated financial position. 1040ez forms   A transaction treated as a constructive sale of an appreciated financial position is not treated as a constructive sale of any other appreciated financial position, as long as you continue to hold the original position. 1040ez forms However, if you hold another appreciated financial position and dispose of the original position before closing the transaction that resulted in the constructive sale, you are treated as if, at the same time, you constructively sold the other appreciated financial position. 1040ez forms Section 1256 Contracts Marked to Market If you hold a section 1256 contract at the end of the tax year, you generally must treat it as sold at its fair market value on the last business day of the tax year. 1040ez forms Section 1256 Contract A section 1256 contract is any: Regulated futures contract, Foreign currency contract, Nonequity option, Dealer equity option, or Dealer securities futures contract. 1040ez forms Exceptions. 1040ez forms   A section 1256 contract does not include: Interest rate swaps, Currency swaps, Basis swaps, Interest rate caps, Interest rate floors, Commodity swaps, Equity swaps, Equity index swaps, Credit default swaps, or Similar agreements. 1040ez forms For more details, including definitions of these terms, see section 1256. 1040ez forms Regulated futures contract. 1040ez forms   This is a contract that: Provides that amounts which must be deposited to, or can be withdrawn from, your margin account depend on daily market conditions (a system of marking to market), and Is traded on, or subject to the rules of, a qualified board of exchange. 1040ez forms A qualified board of exchange is a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission, any board of trade or exchange approved by the Secretary of the Treasury, or a national securities exchange registered with the Securities and Exchange Commission. 1040ez forms Foreign currency contract. 1040ez forms   This is a contract that: Requires delivery of a foreign currency that has positions traded through regulated futures contracts (or settlement of which depends on the value of that type of foreign currency), Is traded in the interbank market, and Is entered into at arm's length at a price determined by reference to the price in the interbank market. 1040ez forms   Bank forward contracts with maturity dates longer than the maturities ordinarily available for regulated futures contracts are considered to meet the definition of a foreign currency contract if the above three conditions are satisfied. 1040ez forms   Special rules apply to certain foreign currency transactions. 1040ez forms These transactions may result in ordinary gain or loss treatment. 1040ez forms For details, see Internal Revenue Code section 988 and Regulations sections 1. 1040ez forms 988-1(a)(7) and 1. 1040ez forms 988-3. 1040ez forms Nonequity option. 1040ez forms   This is any listed option (defined later) that is not an equity option. 1040ez forms Nonequity options include debt options, commodity futures options, currency options, and broad-based stock index options. 1040ez forms A broad-based stock index is based on the value of a group of diversified stocks or securities (such as the Standard and Poor's 500 index). 1040ez forms Warrants based on a stock index that are economically, substantially identical in all material respects to options based on a stock index are treated as options based on a stock index. 1040ez forms Cash-settled options. 1040ez forms   Cash-settled options based on a stock index and either traded on or subject to the rules of a qualified board of exchange are nonequity options if the Securities and Exchange Commission (SEC) determines that the stock index is broad based. 1040ez forms   This rule does not apply to options established before the SEC determines that the stock index is broad based. 1040ez forms Listed option. 1040ez forms   This is any option traded on, or subject to the rules of, a qualified board or exchange (as discussed earlier under Regulated futures contract). 1040ez forms A listed option, however, does not include an option that is a right to acquire stock from the issuer. 1040ez forms Dealer equity option. 1040ez forms   This is any listed option that, for an options dealer: Is an equity option, Is bought or granted by that dealer in the normal course of the dealer's business activity of dealing in options, and Is listed on the qualified board of exchange where that dealer is registered. 1040ez forms   An “options dealer” is any person registered with an appropriate national securities exchange as a market maker or specialist in listed options. 1040ez forms Equity option. 1040ez forms   This is any option: To buy or sell stock, or That is valued directly or indirectly by reference to any stock or narrow-based security index. 1040ez forms  Equity options include options on a group of stocks only if the group is a narrow-based stock index. 1040ez forms Dealer securities futures contract. 1040ez forms   For any dealer in securities futures contracts or options on those contracts, this is a securities futures contract (or option on such a contract) that: Is entered into by the dealer (or, in the case of an option, is purchased or granted by the dealer) in the normal course of the dealer's activity of dealing in this type of contract (or option), and Is traded on a qualified board or exchange (as defined under Regulated futures contract , earlier). 1040ez forms A securities futures contract that is not a dealer securities futures contract is treated as described later under Securities Futures Contracts . 1040ez forms Marked-to-Market Rules A section 1256 contract that you hold at the end of the tax year will generally be treated as sold at its fair market value on the last business day of the tax year, and you must recognize any gain or loss that results. 1040ez forms That gain or loss is taken into account in figuring your gain or loss when you later dispose of the contract, as shown in the example under 60/40 rule, below. 1040ez forms Hedging exception. 1040ez forms   The marked-to-market rules do not apply to hedging transactions. 1040ez forms See Hedging Transactions , later. 1040ez forms 60/40 rule. 1040ez forms   Under the marked-to-market system, 60% of your capital gain or loss will be treated as a long-term capital gain or loss, and 40% will be treated as a short-term capital gain or loss. 1040ez forms This is true regardless of how long you actually held the property. 1040ez forms Example. 1040ez forms On June 22, 2012, you bought a regulated futures contract for $50,000. 1040ez forms On December 31, 2012 (the last business day of your tax year), the fair market value of the contract was $57,000. 1040ez forms You recognized a $7,000 gain on your 2012 tax return, treated as 60% long-term and 40% short-term capital gain. 1040ez forms On February 1, 2013, you sold the contract for $56,000. 1040ez forms Because you recognized a $7,000 gain on your 2012 return, you recognize a $1,000 loss ($57,000 − $56,000) on your 2013 tax return, treated as 60% long-term and 40% short-term capital loss. 1040ez forms Limited partners or entrepreneurs. 1040ez forms   The 60/40 rule does not apply to dealer equity options or dealer securities futures contracts that result in capital gain or loss allocable to limited partners or limited entrepreneurs (defined later under Hedging Transactions ). 1040ez forms Instead, these gains or losses are treated as short term. 1040ez forms Terminations and transfers. 1040ez forms   The marked-to-market rules also apply if your obligation or rights under section 1256 contracts are terminated or transferred during the tax year. 1040ez forms In this case, use the fair market value of each section 1256 contract at the time of termination or transfer to determine the gain or loss. 1040ez forms Terminations or transfers may result from any offsetting, delivery, exercise, assignment, or lapse of your obligation or rights under section 1256 contracts. 1040ez forms Loss carryback election. 1040ez forms   An individual having a net section 1256 contracts loss (defined later), generally can elect to carry this loss back 3 years instead of carrying it over to the next year. 1040ez forms See How To Report , later, for information about reporting this election on your return. 1040ez forms   The loss carried back to any year under this election cannot be more than the net section 1256 contracts gain in that year. 1040ez forms In addition, the amount of loss carried back to an earlier tax year cannot increase or produce a net operating loss for that year. 1040ez forms   The loss is carried to the earliest carryback year first, and any unabsorbed loss amount can then be carried to each of the next 2 tax years. 1040ez forms In each carryback year, treat 60% of the carryback amount as a long-term capital loss and 40% as a short-term capital loss from section 1256 contracts. 1040ez forms   If only a portion of the net section 1256 contracts loss is absorbed by carrying the loss back, the unabsorbed portion can be carried forward, under the capital loss carryover rules, to the year following the loss. 1040ez forms (See Capital Losses under Reporting Capital Gains and Losses, later. 1040ez forms ) Figure your capital loss carryover as if, for the loss year, you had an additional short-term capital gain of 40% of the amount of net section 1256 contracts loss absorbed in the carryback years and an additional long-term capital gain of 60% of the absorbed loss. 1040ez forms In the carryover year, treat any capital loss carryover from losses on section 1256 contracts as if it were a loss from section 1256 contracts for that year. 1040ez forms Net section 1256 contracts loss. 1040ez forms   This loss is the lesser of: The net capital loss for your tax year determined by taking into account only the gains and losses from section 1256 contracts, or The capital loss carryover to the next tax year determined without this election. 1040ez forms Net section 1256 contracts gain. 1040ez forms   This gain is the lesser of: The capital gain net income for the carryback year determined by taking into account only gains and losses from section 1256 contracts, or The capital gain net income for that year. 1040ez forms  Figure your net section 1256 contracts gain for any carryback year without regard to the net section 1256 contracts loss for the loss year or any later tax year. 1040ez forms Traders in section 1256 contracts. 1040ez forms   Gain or loss from the trading of section 1256 contracts is capital gain or loss subject to the marked-to-market rules. 1040ez forms However, this does not apply to contracts held for purposes of hedging property if any loss from the property would be an ordinary loss. 1040ez forms Treatment of underlying property. 1040ez forms   The determination of whether an individual's gain or loss from any property is ordinary or capital gain or loss is made without regard to the fact that the individual is actively engaged in dealing in or trading section 1256 contracts related to that property. 1040ez forms How To Report If you disposed of regulated futures or foreign currency contracts in 2013 (or had unrealized profit or loss on these contracts that were open at the end of 2012 or 2013), you should receive Form 1099-B, or substitute statement, from your broker. 1040ez forms Form 6781. 1040ez forms   Use Part I of Form 6781 to report your gains and losses from all section 1256 contracts that are open at the end of the year or that were closed out during the year. 1040ez forms This includes the amount shown in box 10 of Form 1099-B. 1040ez forms Then enter the net amount of these gains and losses on Schedule D (Form 1040), line 4 or line 11, as appropriate. 1040ez forms Include a copy of Form 6781 with your income tax return. 1040ez forms   If the Form 1099-B you receive includes a straddle or hedging transaction, defined later, it may be necessary to show certain adjustments on Form 6781. 1040ez forms Follow the Form 6781 instructions for completing Part I. 1040ez forms Loss carryback election. 1040ez forms   To carry back your loss under the election procedures described earlier, file Form 1040X or Form 1045, Application for Tentative Refund, for the year to which you are carrying the loss with an amended Form 6781 and an amended Schedule D (Form 1040) attached. 1040ez forms Follow the instructions for completing Form 6781 for the loss year to make this election. 1040ez forms Hedging Transactions The marked-to-market rules, described earlier, do not apply to hedging transactions. 1040ez forms A transaction is a hedging transaction if both of the following conditions are met. 1040ez forms You entered into the transaction in the normal course of your trade or business primarily to manage the risk of: Price changes or currency fluctuations on ordinary property you hold (or will hold), or Interest rate or price changes, or currency fluctuations, on your current or future borrowings or ordinary obligations. 1040ez forms You clearly identified the transaction as being a hedging transaction before the close of the day on which you entered into it. 1040ez forms This hedging transaction exception does not apply to transactions entered into by or for any syndicate. 1040ez forms A syndicate is a partnership, S corporation, or other entity (other than a regular corporation) that allocates more than 35% of its losses to limited partners or limited entrepreneurs. 1040ez forms A limited entrepreneur is a person who has an interest in an enterprise (but not as a limited partner) and who does not actively participate in its management. 1040ez forms However, an interest is not considered held by a limited partner or entrepreneur if the interest holder actively participates (or did so for at least 5 full years) in the management of the entity, or is the spouse, child (including a legally adopted child), grandchild, or parent of an individual who actively participates in the management of the entity. 1040ez forms Hedging loss limit. 1040ez forms   If you are a limited partner or entrepreneur in a syndicate, the amount of a hedging loss you can claim is limited. 1040ez forms A “hedging loss” is the amount by which the allowable deductions in a tax year that resulted from a hedging transaction (determined without regard to the limit) are more than the income received or accrued during the tax year from this transaction. 1040ez forms   Any hedging loss allocated to you for the tax year is limited to your taxable income for that year from the trade or business in which the hedging transaction occurred. 1040ez forms Ignore any hedging transaction items in determining this taxable income. 1040ez forms If you have a hedging loss that is disallowed because of this limit, you can carry it over to the next tax year as a deduction resulting from a hedging transaction. 1040ez forms   If the hedging transaction relates to property other than stock or securities, the limit on hedging losses applies if the limited partner or entrepreneur is an individual. 1040ez forms   The limit on hedging losses does not apply to any hedging loss to the extent that it is more than all your unrecognized gains from hedging transactions at the end of the tax year that are from the trade or business in which the hedging transaction occurred. 1040ez forms The term “unrecognized gain” has the same meaning as defined under Loss Deferral Rules in Straddles, later. 1040ez forms Sale of property used in a hedge. 1040ez forms   Once you identify personal property as being part of a hedging transaction, you must treat gain from its sale or exchange as ordinary income, not capital gain. 1040ez forms Self-Employment Income Gains and losses derived in the ordinary course of a commodity or option dealer's trading in section 1256 contracts and property related to these contracts are included in net earnings from self-employment. 1040ez forms See the Instructions for Schedule SE (Form 1040). 1040ez forms In addition, the rules relating to contributions to self-employment retirement plans apply. 1040ez forms For information on retirement plan contributions, see Publication 560 and Publication 590. 1040ez forms Basis of Investment Property Basis is a way of measuring your investment in property for tax purposes. 1040ez forms You must know the basis of your property to determine whether you have a gain or loss on its sale or other disposition. 1040ez forms Investment property you buy normally has an original basis equal to its cost. 1040ez forms If you get property in some way other than buying it, such as by gift or inheritance, its fair market value may be important in figuring the basis. 1040ez forms Cost Basis The basis of property you buy is usually its cost. 1040ez forms The cost is the amount you pay in cash, debt obligations, or other property or services. 1040ez forms Unstated interest. 1040ez forms   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. 1040ez forms You generally have unstated interest if your interest rate is less than the applicable federal rate. 1040ez forms For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. 1040ez forms Basis Other Than Cost There are times when you must use a basis other than cost. 1040ez forms In these cases, you may need to know the property's fair market value or the adjusted basis of the previous owner. 1040ez forms Fair market value. 1040ez forms   This is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. 1040ez forms Sales of similar property, around the same date, may be helpful in figuring fair market value. 1040ez forms Property Received for Services If you receive investment property for services, you must include the property's fair market value in income. 1040ez forms The amount you include in income then becomes your basis in the property. 1040ez forms If the services were performed for a price that was agreed to beforehand, this price will be accepted as the fair market value of the property if there is no evidence to the contrary. 1040ez forms Restricted property. 1040ez forms   If you receive, as payment for services, property that is subject to certain restrictions, your basis in the property generally is its fair market value when it becomes substantially vested. 1040ez forms Property becomes substantially vested when it is transferable or is no longer subject to substantial risk of forfeiture, whichever happens first. 1040ez forms See Restricted Property in Publication 525 for more information. 1040ez forms Bargain purchases. 1040ez forms   If you buy investment property at less than fair market value, as payment for services, you must include the difference in income. 1040ez forms Your basis in the property is the price you pay plus the amount you include in income. 1040ez forms Property Received in Taxable Trades If you received investment property in trade for other property, the basis of the new property is its fair market value at the time of the trade unless you received the property in a nontaxable trade. 1040ez forms Example. 1040ez forms You trade A Company stock for B Company stock having a fair market value of $1,200. 1040ez forms If the adjusted basis of the A Company stock is less than $1,200, you have a taxable gain on the trade. 1040ez forms If the adjusted basis of the A Company stock is more than $1,200, you have a deductible loss on the trade. 1040ez forms The basis of your B Company stock is $1,200. 1040ez forms If you later sell the B Company stock for $1,300, you will have a gain of $100. 1040ez forms Property Received in Nontaxable Trades If you have a nontaxable trade, you do not recognize gain or loss until you dispose of the property you received in the trade. 1040ez forms See Nontaxable Trades , later. 1040ez forms The basis of property you received in a nontaxable or partly nontaxable trade is generally the same as the adjusted basis of the property you gave up. 1040ez forms Increase this amount by any cash you paid, additional costs you had, and any gain recognized. 1040ez forms Reduce this amount by any cash or unlike property you received, any loss recognized, and any liability of yours that was assumed or treated as assumed. 1040ez forms Property Received From Your Spouse If property is transferred to you from your spouse (or former spouse, if the transfer is incident to your divorce), your basis is the same as your spouse's or former spouse's adjusted basis just before the transfer. 1040ez forms See Transfers Between Spouses , later. 1040ez forms Recordkeeping. 1040ez forms The transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of the transfer. 1040ez forms Property Received as a Gift To figure your basis in property that you received as a gift, you must know its adjusted basis to the donor just before it was given to you, its fair market value at the time it was given to you, the amount of any gift tax paid on it, and the date it was given to you. 1040ez forms Fair market value less than donor's adjusted basis. 1040ez forms   If the fair market value of the property at the time of the gift was less than the donor's adjusted basis just before the gift, your basis for gain on its sale or other disposition is the same as the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. 1040ez forms Your basis for loss is its fair market value at the time of the gift plus or minus any required adjustments to basis during the period you hold the property. 1040ez forms No gain or loss. 1040ez forms   If you use the basis for figuring a gain and the result is a loss, and then use the basis for figuring a loss and the result is a gain, you will have neither a gain nor a loss. 1040ez forms Example. 1040ez forms You receive a gift of investment property having an adjusted basis of $10,000 at the time of the gift. 1040ez forms The fair market value at the time of the gift is $9,000. 1040ez forms You later sell the property for $9,500. 1040ez forms You have neither gain nor loss. 1040ez forms Your basis for figuring gain is $10,000, and $9,500 minus $10,000 results in a $500 loss. 1040ez forms Your basis for figuring loss is $9,000, and $9,500 minus $9,000 results in a $500 gain. 1040ez forms Fair market value equal to or more than donor's adjusted basis. 1040ez forms   If the fair market value of the property at the time of the gift was equal to or more than the donor's adjusted basis just before the gift, your basis for gain or loss on its sale or other disposition is the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. 1040ez forms Also, you may be allowed to add to the donor's adjusted basis all or part of any gift tax paid, depending on the date of the gift. 1040ez forms Gift received before 1977. 1040ez forms   If you received property as a gift before 1977, your basis in the property is the donor's adjusted basis increased by the total gift tax paid on the gift. 1040ez forms However, your basis cannot be more than the fair market value of the gift at the time it was given to you. 1040ez forms Example 1. 1040ez forms You were given XYZ Company stock in 1976. 1040ez forms At the time of the gift, the stock had a fair market value of $21,000. 1040ez forms The donor's adjusted basis was $20,000. 1040ez forms The donor paid a gift tax of $500 on the gift. 1040ez forms Your basis for gain or loss is $20,500, the donor's adjusted basis plus the amount of gift tax paid. 1040ez forms Example 2. 1040ez forms The facts are the same as in Example 1 except that the gift tax paid was $1,500. 1040ez forms Your basis is $21,000, the donor's adjusted basis plus the gift tax paid, but limited to the fair market value of the stock at the time of the gift. 1040ez forms Gift received after 1976. 1040ez forms   If you received property as a gift after 1976, your basis is the donor's adjusted basis increased by the part of the gift tax paid that was for the net increase in value of the gift. 1040ez forms You figure this part by multiplying the gift tax paid on the gift by a fraction. 1040ez forms The numerator (top part) is the net increase in value of the gift and the denominator (bottom part) is the amount of the gift. 1040ez forms   The net increase in value of the gift is the fair market value of the gift minus the donor's adjusted basis. 1040ez forms 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. 1040ez forms Example. 1040ez forms In 2013, you received a gift of property from your mother. 1040ez forms At the time of the gift, the property had a fair market value of $101,000 and an adjusted basis to her of $40,000. 1040ez forms The amount of the gift for gift tax purposes was $87,000 ($101,000 minus the $14,000 annual exclusion), and your mother paid a gift tax of $21,000. 1040ez forms You figure your basis in the following way: Fair market value $101,000 Minus: Adjusted basis 40,000 Net increase in value of gift $61,000 Gift tax paid $21,000 Multiplied by . 1040ez forms 701 ($61,000 ÷ $87,000) . 1040ez forms 701 Gift tax due to net increase in value $14,721 Plus: Adjusted basis of property to  your mother 40,000 Your basis in the property $54,721 Part sale, part gift. 1040ez forms   If you get property in a transfer that is partly a sale and partly a gift, your basis is the larger of the amount you paid for the property or the transferor's adjusted basis in the property at the time of the transfer. 1040ez forms Add to that amount the amount of any gift tax paid on the gift, as described in the preceding discussion. 1040ez forms For figuring loss, your basis is limited to the property's fair market value at the time of the transfer. 1040ez forms Gift tax information. 1040ez forms   For information on gift tax, see Publication 950, Introduction to Estate and Gift Taxes. 1040ez forms For information on figuring the amount of gift tax to add to your basis, see Property Received as a Gift in Publication 551. 1040ez forms Property Received as Inheritance Before or after 2010. 1040ez forms   If you inherited property from a decedent who died before or after 2010, or who died in 2010 and the executor of the decedent's estate elected not to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, your basis in that property generally is its fair market value (its appraised value on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return) on: The date of the decedent's death, or The later alternate valuation date if the estate qualifies for, and elects to use, alternate valuation. 1040ez forms If no Form 706 was filed, use the appraised value on the date of death for state inheritance or transmission taxes. 1040ez forms For stocks and bonds, if no Form 706 was filed and there are no state inheritance or transmission taxes, see the Form 706 instructions for figuring the fair market value of the stocks and bonds on the date of the decedent's death. 1040ez forms Appreciated property you gave the decedent. 1040ez forms   Your basis in certain appreciated property that you inherited is the decedent's adjusted basis in the property immediately before death rather than its fair market value. 1040ez forms This applies to appreciated property that you or your spouse gave the decedent as a gift during the 1-year period ending on the date of death. 1040ez forms Appreciated property is any property whose fair market value on the day you gave it to the decedent was more than its adjusted basis. 1040ez forms More information. 1040ez forms   See Publication 551 for more information on the basis of inherited property, including community property, property held by a surviving tenant in a joint tenancy or tenancy by the entirety, a qualified joint interest, and a farm or closely held business. 1040ez forms Inherited in 2010 and executor elected to file Form 8939. 1040ez forms   If you inherited property from a decedent who died in 2010 and the executor made the election to file Form 8939, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to figure your basis. 1040ez forms Adjusted Basis Before you can figure any gain or loss on a sale, exchange, or other disposition of property or figure allowable depreciation, depletion, or amortization, you usually must make certain adjustments (increases and decreases) to the basis of the property. 1040ez forms The result of these adjustments to the basis is the adjusted basis. 1040ez forms Adjustments to the basis of stocks and bonds are explained in the following discussion. 1040ez forms For information about other adjustments to basis, see Publication 551. 1040ez forms Stocks and Bonds The basis of stocks or bonds you own generally is the purchase price plus the costs of purchase, such as commissions and recording or transfer fees. 1040ez forms If you acquired stock or bonds other than by purchase, your basis is usually determined by fair market value or the previous owner's adjusted basis as discussed earlier under Basis Other Than Cost . 1040ez forms The basis of stock must be adjusted for certain events that occur after purchase. 1040ez forms For example, if you receive more stock from nontaxable stock dividends or stock splits, you must reduce the basis of your original stock. 1040ez forms You must also reduce your basis when you receive nondividend distributions (discussed in chapter 1). 1040ez forms These distributions, up to the amount of your basis, are a nontaxable return of capital. 1040ez forms The IRS partners with companies that offer Form 8949 and Schedule D (Form 1040) software that can import trades from many brokerage firms and accounting software to help you keep track of your adjusted basis in securities. 1040ez forms To find out more, go to www. 1040ez forms irs. 1040ez forms gov/Filing/Filing-Options. 1040ez forms Identifying stock or bonds sold. 1040ez forms   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. 1040ez forms Adequate identification. 1040ez forms   You will make an adequate identification if you show that certificates representing shares of stock from a lot that you bought on a certain date or for a certain price were delivered to your broker or other agent. 1040ez forms Broker holds stock. 1040ez forms   If you have left the stock certificates with your broker or other agent, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred at the time of the sale or transfer, and Receive a written confirmation of this from your broker or other agent within a reasonable time. 1040ez forms  Stock identified this way is the stock sold or transferred even if stock certificates from a different lot are delivered to the broker or other agent. 1040ez forms Single stock certificate. 1040ez forms   If you bought stock in different lots at different times and you hold a single stock certificate for this stock, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred when you deliver the certificate to your broker or other agent, and Receive a written confirmation of this from your broker or other agent within a reasonable time. 1040ez forms   If you sell part of the stock represented by a single certificate directly to the buyer instead of through a broker, you will make an adequate identification if you keep a written record of the particular stock that you intend to sell. 1040ez forms Bonds. 1040ez forms   These methods of identification also apply to bonds sold or transferred. 1040ez forms Identification not possible. 1040ez forms   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. 1040ez forms Except for certain mutual fund shares, discussed later, you cannot use the average price per share to figure gain or loss on the sale of the shares. 1040ez forms Example. 1040ez forms You bought 100 shares of stock of XYZ Corporation in 1998 for $10 a share. 1040ez forms In January 1999 you bought another 200 shares for $11 a share. 1040ez forms In July 1999 you gave your son 50 shares. 1040ez forms In December 2001 you bought 100 shares for $9 a share. 1040ez forms In April 2013 you sold 130 shares. 1040ez forms You cannot identify the shares you disposed of, so you must use the stock you acquired first to figure the basis. 1040ez forms The shares of stock you gave your son had a basis of $500 (50 × $10). 1040ez forms You figure the basis of the 130 shares of stock you sold in 2013 as follows: 50 shares (50 × $10) balance of stock bought in 1998 $ 500 80 shares (80 × $11) stock bought in January 1999 880 Total basis of stock sold in 2013 $1,380 Shares in a mutual fund or REIT. 1040ez forms    The basis of shares in a mutual fund (or other regulated investment company) or a real estate investment trust (REIT) is generally figured in the same way as the basis of other stock and usually includes any commissions or load charges paid for the purchase. 1040ez forms Example. 1040ez forms You bought 100 shares of Fund A for $10 a share. 1040ez forms You paid a $50 commission to the broker for the purchase. 1040ez forms Your cost basis for each share is $10. 1040ez forms 50 ($1,050 ÷ 100). 1040ez forms Commissions and load charges. 1040ez forms   The fees and charges you pay to acquire or redeem shares of a mutual fund are not deductible. 1040ez forms You can usually add acquisition fees and charges to your cost of the shares and thereby increase your basis. 1040ez forms A fee paid to redeem the shares is usually a reduction in the redemption price (sales price). 1040ez forms   You cannot add your entire acquisition fee or load charge to the cost of the mutual fund shares acquired if all of the following conditions apply. 1040ez forms You get a reinvestment right because of the purchase of the shares or the payment of the fee or charge. 1040ez forms You dispose of the shares within 90 days of the purchase date. 1040ez forms You acquire new shares in the same mutual fund or another mutual fund, for which the fee or charge is reduced or waived because of the reinvestment right you got when you acquired the original shares. 1040ez forms   The amount of the original fee or charge in excess of the reduction in (3) is added to the cost of the original shares. 1040ez forms The rest of the original fee or charge is added to the cost basis of the new shares (unless all three conditions above also apply to the purchase of the new shares). 1040ez forms Choosing average basis for mutual fund shares. 1040ez forms   You can choose to use the average basis of mutual fund shares if you acquired the identical shares at various times and prices, or you acquired the shares after 2010 in connection with a dividend reinvestment plan, and left them on deposit in an account kept by a custodian or agent. 1040ez forms The methods you can use to figure average basis are explained later. 1040ez forms Undistributed capital gains. 1040ez forms   If you had to include in your income any undistributed capital gains of the mutual fund or REIT, increase your basis in the stock by the difference between the amount you included and the amount of tax paid for you by the fund or REIT. 1040ez forms See Undistributed capital gains of mutual funds and REITs under Capital Gain Distributions in chapter 1. 1040ez forms Reinvestment right. 1040ez forms   This is the right to acquire mutual fund shares in the same or another mutual fund without paying a fee or load charge, or by paying a reduced fee or load charge. 1040ez forms      The original cost basis of mutual fund shares you acquire by reinvesting your distributions is the amount of the distributions used to purchase each full or fractional share. 1040ez forms This rule applies even if the distribution is an exempt-interest dividend that you do not report as income. 1040ez forms Table 4-1. 1040ez forms This is a worksheet you can use to keep track of the adjusted basis of your mutual fund shares. 1040ez forms Enter the cost per share when you acquire new shares and any adjustments to their basis when the adjustment occurs. 1040ez forms This worksheet will help you figure the adjusted basis when you sell or redeem shares. 1040ez forms Table 4-1. 1040ez forms Mutual Fund Record Mutual Fund Acquired1 Adjustment to Basis Per Share Adjusted2 Basis Per Share Sold or redeemed Date Number of Shares Cost Per Share Date Number of Shares                                                                                                                                                                                                                                                                         1 Include share received from reinvestment of distributions. 1040ez forms 2 Cost plus or minus adjustments. 1040ez forms Automatic investment service. 1040ez forms   If you participate in an automatic investment service, your basis for each share of stock, including fractional shares, bought by the bank or other agent is the purchase price plus a share of the broker's commission. 1040ez forms Dividend reinvestment plans. 1040ez forms   If you participate in a dividend reinvestment plan and receive stock from the corporation at a discount, your basis is the full fair market value of the stock on the dividend payment date. 1040ez forms You must include the amount of the discount in your income. 1040ez forms Public utilities. 1040ez forms   If, before 1986, you excluded from income the value of stock you had received under a qualified public utility reinvestment plan, your basis in that stock is zero. 1040ez forms Stock dividends. 1040ez forms   Stock dividends are distributions made by a corporation of its own stock. 1040ez forms Generally, stock dividends are not taxable to you. 1040ez forms However, see Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1 for some exceptions. 1040ez forms If the stock dividends are not taxable, you must divide your basis for the old stock between the old and new stock. 1040ez forms New and old stock identical. 1040ez forms   If the new stock you received as a nontaxable dividend is identical to the old stock on which the dividend was declared, divide the adjusted basis of the old stock by the number of shares of old and new stock. 1040ez forms The result is your basis for each share of stock. 1040ez forms Example 1. 1040ez forms You owned one share of common stock that you bought for $45. 1040ez forms The corporation distributed two new shares of common stock for each share held. 1040ez forms You then had three shares of common stock. 1040ez forms Your basis in each share is $15 ($45 ÷ 3). 1040ez forms Example 2. 1040ez forms You owned two shares of common stock. 1040ez forms You bought one for $30 and the other for $45. 1040ez forms The corporation distributed two new shares of common stock for each share held. 1040ez forms You had six shares after the distribution—three with a basis of $10 each ($30 ÷ 3) and three with a basis of $15 each ($45 ÷ 3). 1040ez forms New and old stock not identical. 1040ez forms   If the new stock you received as a nontaxable dividend is not identical to the old stock on which it was declared, the basis of the new stock is calculated differently. 1040ez forms Divide the adjusted basis of the old stock between the old and the new stock in the ratio of the fair market value of each lot of stock to the total fair market value of both lots on the date of distribution of the new stock. 1040ez forms Example. 1040ez forms You bought a share of common stock for $100. 1040ez forms Later, the corporation distributed a share of preferred stock for each share of common stock held. 1040ez forms At the date of distribution, your common stock had a fair market value of $150 and the preferred stock had a fair market value of $50. 1040ez forms You figure the basis of the old and new stock by dividing your $100 basis between them. 1040ez forms The basis of your common stock is $75 (($150 ÷ $200) × $100), and the basis of the new preferred stock is $25 (($50 ÷ $200) × $100). 1040ez forms Stock bought at various times. 1040ez forms   Figure the basis of stock dividends received on stock you bought at various times and at different prices by allocating to each lot of stock the share of the stock dividends due to it. 1040ez forms Taxable stock dividends. 1040ez forms   If your stock dividend is taxable when you receive it, the basis of your new stock is its fair market value on the date of distribution. 1040ez forms The basis of your old stock does not change. 1040ez forms Stock splits. 1040ez forms   Figure the basis of stock splits in the same way as stock dividends if identical stock is distributed on the stock held. 1040ez forms Stock rights. 1040ez forms   A stock right is a right to acquire a corporation's stock. 1040ez forms It may be exercised, it may be sold if it has a market value, or it may expire. 1040ez forms Stock rights are rarely taxable when you receive them. 1040ez forms See Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1. 1040ez forms Taxable stock rights. 1040ez forms   If you receive stock rights that are taxable, the basis of the rights is their fair market value at the time of distribution. 1040ez forms The basis of the old stock does not change. 1040ez forms Nontaxable stock rights. 1040ez forms   If you receive nontaxable stock rights and allow them to expire, they have no basis. 1040ez forms   If you exercise or sell the nontaxable stock rights and if, at the time of distribution, the stock rights had a fair market value of 15% or more of the fair market value of the old stock, you must divide the adjusted basis of the old stock between the old stock and the stock rights. 1040ez forms Use a ratio of the fair market value of each to the total fair market value of both at the time of distribution. 1040ez forms   If the fair market value of the stock rights was less than 15%, their basis is zero. 1040ez forms However, you can choose to divide the basis of the old stock between the old stock and the stock rights. 1040ez forms To make the choice, attach a statement to your return for the year in which you received the rights, stating that you choose to divide the basis of the stock. 1040ez forms Basis of new stock. 1040ez forms   If you exercise the stock rights, the basis of the new stock is its cost plus the basis of the stock rights exercised. 1040ez forms Example. 1040ez forms You own 100 shares of ABC Company stock, which cost you $22 per share. 1040ez forms The ABC Company gave you 10 nontaxable stock rights that would allow you to buy 10 more shares at $26 per share. 1040ez forms At the time the stock rights were distributed, the stock had a market value of $30, not including the stock rights. 1040ez forms Each stock right had a market value of $3. 1040ez forms The market value of the stock rights was less than 15% of the market value of the stock, but you chose to divide the basis of your stock between the stock and the rights. 1040ez forms You figure the basis of the rights and the basis of the old stock as follows: 100 shares × $22 = $2,200, basis of old stock   100 shares × $30 = $3,000, market value of old stock   10 rights × $3 = $30, market value of rights   ($3,000 ÷ $3,030) × $2,200 = $2,178. 1040ez forms 22, new basis of old stock   ($30 ÷ $3,030) × $2,200 = $21. 1040ez forms 78, basis of rights   If you sell the rights, the basis for figuring gain or loss is $2. 1040ez forms 18 ($21. 1040ez forms 78 ÷ 10) per right. 1040ez forms If you exercise the rights, the basis of the stock you acquire is the price you pay ($26) plus the basis of the right exercised ($2. 1040ez forms 18), or $28. 1040ez forms 18 per share. 1040ez forms The remaining basis of the old stock is $21. 1040ez forms 78 per share. 1040ez forms Investment property received in liquidation. 1040ez forms   In general, if you receive investment property as a distribution in partial or complete liquidation of a corporation and if you recognize gain or loss when you acquire the property, your basis in the property is its fair market value at the time of the distribution. 1040ez forms S corporation stock. 1040ez forms   You must increase your basis in stock of an S corporation by your pro rata share of the following items. 1040ez forms All income items of the S corporation, including tax-exempt income, that are separately stated and passed through to you as a shareholder. 1040ez forms The nonseparately stated income of the S corporation. 1040ez forms The amount of the deduction for depletion (other than oil and gas depletion) that is more than the basis of the property being depleted. 1040ez forms   You must decrease your basis in stock of an S corporation by your pro rata share of the following items. 1040ez forms Distributions by the S corporation that were not included in your income. 1040ez forms All loss and deduction items of the S corporation that are separately stated and passed through to you. 1040ez forms Any nonseparately stated loss of the S corporation. 1040ez forms Any expense of the S corporation that is not deductible in figuring its taxable income and not properly chargeable to a capital account. 1040ez forms The amount of your deduction for depletion of oil and gas wells to the extent the deduction is not more than your share of the adjusted basis of the wells. 1040ez forms However, your basis in the stock cannot be reduced below zero. 1040ez forms Specialized small business investment company stock or partnership interest. 1040ez forms   If you bought this stock or interest as replacement property for publicly traded securities you sold at a gain, you must reduce the basis of the stock or interest by the amount of any postponed gain on that sale. 1040ez forms See Rollover of Gain From Publicly Traded Securities , later. 1040ez forms Qualified small business stock. 1040ez forms   If you bought this stock as replacement property for other qualified small business stock you sold at a gain, you must reduce the basis of this replacement stock by the amount of any postponed gain on the earlier sale. 1040ez forms See Gains on Qualified Small Business Stock , later. 1040ez forms Short sales. 1040ez forms   If you cannot deduct payments you make to a lender in lieu of dividends on stock used in a short sale, the amount you pay to the lender is a capital expense, and you must add it to the basis of the stock used to close the short sale. 1040ez forms   See Payments in lieu of dividends , later, for information about deducting payments in lieu of dividends. 1040ez forms Premiums on bonds. 1040ez forms   If you buy a bond at a premium, the premium is treated as part of your basis in the bond. 1040ez forms If you choose to amortize the premium paid on a taxable bond, you must reduce the basis of the bond by the amortized part of the premium each year over the life of the bond. 1040ez forms   Although you cannot deduct the premium on a tax-exempt bond, you must amortize it to determine your adjusted basis in the bond. 1040ez forms You must reduce the basis of the bond by the premium you amortized for the period you held the bond. 1040ez forms   See Bond Premium Amortization in chapter 3 for more information. 1040ez forms Market discount on bonds. 1040ez forms   If you include market discount on a bond in income currently, increase the basis of your bond by the amount of market discount you include in your income. 1040ez forms See Market Discount Bonds in chapter 1 for more information. 1040ez forms Bonds purchased at par value. 1040ez forms   A bond purchased at par value (face amount) has no premium or discount. 1040ez forms When you sell or otherwise dispose of the bond, you figure the gain or loss by comparing the bond proceeds to the purchase price of the bond. 1040ez forms Example. 1040ez forms You purchased a bond several years ago for its par value of $10,000. 1040ez forms You sold the bond this year for $10,100. 1040ez forms You have a gain of $100. 1040ez forms However, if you had sold the bond for $9,900, you would have a loss of $100. 1040ez forms Acquisition discount on short-term obligations. 1040ez forms   If you include acquisition discount on a short-term obligation in your income currently, increase the basis of the obligation by the amount of acquisition discount you include in your income. 1040ez forms See Discount on Short-Term Obligations in chapter 1 for more information. 1040ez forms Original issue discount (OID) on debt instruments. 1040ez forms   Increase the basis of a debt instrument by the OID you include in your income. 1040ez forms See Original Issue Discount (OID) in chapter 1. 1040ez forms Discounted tax-exempt obligations. 1040ez forms   OID on tax-exempt obligations is generally not taxable. 1040ez forms However, when you dispose of a tax-exempt obligation issued after September 3, 1982, that you acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. 1040ez forms The accrued OID is added to the basis of the obligation to determine your gain or loss. 1040ez forms   For information on determining OID on a long-term obligation, see Debt Instruments Issued After July 1, 1982, and Before 1985 or Debt Instruments Issued After 1984, whichever applies, in Publication 1212 under Figuring OID on Long-Term Debt Instruments. 1040ez forms   If the tax-exempt obligation has a maturity of 1 year or less, accrue OID under the rules for acquisition discount on short-term obligations. 1040ez forms See Discount on Short-Term Obligations in chapter 1. 1040ez forms Stripped tax-exempt obligation. 1040ez forms   If you acquired a stripped tax-exempt bond or coupon after October 22, 1986, you must accrue OID on it to determine its adjusted basis when you dispose of it. 1040ez forms For stripped tax-exempt bonds or coupons acquired after June 10, 1987, part of this OID may be taxable. 1040ez forms You accrue the OID on these obligations in the manner described in chapter 1 under Stripped Bonds and Coupons . 1040ez forms   Increase your basis in the stripped tax-exempt bond or coupon by the taxable and nontaxable accrued OID. 1040ez forms Also increase your basis by the interest that accrued (but was not paid and was not previously reflected in your basis) before the date you sold the bond or coupon. 1040ez forms In addition, for bonds acquired after June 10, 1987, add to your basis any accrued market discount not previously reflected in basis. 1040ez forms How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. 1040ez forms Gain. 1040ez forms   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. 1040ez forms Loss. 1040ez forms   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. 1040ez forms Amount realized. 1040ez forms   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). 1040ez forms Amount realized includes the money you receive plus the fair market value of any property or services you receive. 1040ez forms   If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. 1040ez forms For more information, see Publication 537. 1040ez forms   If a buyer of property issues a debt instrument to the seller of the property, the amount realized is determined by reference to the issue price of the debt instrument, which may or may not be the fair market value of the debt instrument. 1040ez forms See Regulations section 1. 1040ez forms 1001-1(g). 1040ez forms However, if the debt instrument was previously issued by a third party (one not part of the sale transaction), the fair market value of the debt instrument is used to determine the amount realized. 1040ez forms Fair market value. 1040ez forms   Fair market value is the price at which property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. 1040ez forms Example. 1040ez forms You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. 1040ez forms Your gain is $3,000 ($10,000 – $7,000). 1040ez forms If you also receive a note for $6,000 that has an issue price of $6,000, your gain is $9,000 ($10,000 + $6,000 – $7,000). 1040ez forms Debt paid off. 1040ez forms   A debt against the property, or against you, that is paid off as a part of the transaction or that is assumed by the buyer must be included in the amount realized. 1040ez forms This is true even if neither you nor the buyer is personally liable for the debt. 1040ez forms For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. 1040ez forms Example. 1040ez forms You sell stock that you had pledged as security for a bank loan of $8,000. 1040ez forms Your basis in the stock is $6,000. 1040ez forms The buyer pays off your bank loan and pays you $20,000 in cash. 1040ez forms The amount realized is $28,000 ($20,000 + $8,000). 1040ez forms Your gain is $22,000 ($28,000 – $6,000). 1040ez forms Payment of cash. 1040ez forms   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. 1040ez forms Determine your gain or loss by subtracting the cash you pay and the adjusted basis of the property you trade in from the amount you realize. 1040ez forms If the result is a positive number, it is a gain. 1040ez forms If the result is a negative number, it is a loss. 1040ez forms No gain or loss. 1040ez forms   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. 1040ez forms In this case, you may have neither a gain nor a loss. 1040ez forms See No gain or loss in the discussion on the basis of property you received as a gift under Basis Other Than Cost, earlier. 1040ez forms Special Rules for Mutual Funds To figure your gain or loss when you dispose of mutual fund shares, you need to determine which shares were sold and the basis of those shares. 1040ez forms If your shares in a mutual fund were acquired all on the same day and for the same price, figuring their basis is not difficu
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Sale of Assets Financed with Tax-Exempt Bonds by State and Local Governments and 501(c)(3) Organizations

Tax Exempt Bonds (“TEB”) focuses on providing participants in the municipal bond industry with quality service to assist issuers and conduit borrowers in understanding their tax responsibilities. TEB has initiated an outreach and educational services program to increase understanding and compliance with tax law applicable to tax-exempt bonds. As part of this service TEB is providing the following information with respect to the sale of property financed by tax-exempt bonds. Governmental issuers and 501(c)(3) organizations may use this information to establish practices to monitor tax compliance throughout the period that their bonds are outstanding. This information is not intended to be cited as an authoritative source. TEB recommends that issuers and 501(c)(3) organizations review this basic information concerning remedial actions in consultation with their counsel.

For remedial action with respect to exempt facility bonds, see section 1.142-2 of the Income Tax Regulations (the “Regulations”), and for build America bonds, see IRM 7.2.3.1.2.3.

Generally

To raise needed funds, state and local governments and 501(c)(3) organizations may plan to sell property financed with tax-exempt bonds. The sale of such property could cause the bond issue to become taxable. A timely remedial action, if necessary, will help ensure that the interest on the bond issue remains tax-exempt.

There are three basic remedial action options as generally described below:

  • Redemption or defeasance of nonqualified bonds
  • Alternative use of disposition proceeds
  • Alternative use of facility

Governmental Bonds Example

A governmental bond is one that is not a private activity bond. A bond is a private activity bond if both: (i) more than 10% of the proceeds of a bond issue are used for a private business use (the private business use test); and (ii) more than 10% of the debt service on the bonds is directly or indirectly secured by an interest in property or payments with respect to property used for a private business use or derived from payments in respect of property used for a private business use (the private security or payment test). The sale of bond-financed property, a “deliberate action,” may cause the bond issue to meet both of these tests.

Private business use, generally, is use directly or indirectly in a trade or business carried on by any person other than a governmental unit. The result of meeting both the private business use test and the private security or payment test (together, the private business tests) is that the tax-exempt bond issue becomes a taxable private activity bond.

An example of when governmental bonds are likely to meet the private business tests is the sale of a tax-exempt bond financed facility to a corporation. The sale is a deliberate action because the sale was within the issuer’s control. Depending on how much of the proceeds of the bond issue that the issuer used to construct or acquire the facility and how long after the bonds are issued that the sale occurs, the private business use test may be met since the purchaser is not a governmental entity. If the present value of the sales price is greater than 10% of the present value of the debt service on the bonds, the private security or payment test is met. If the revenues from the facility were pledged as security for the payment of debt service on the bonds and are expected to be more than 10% of the present value of the debt service, the private security or payment test is met (regardless of the sales price to the new purchaser). If the bond issue meets both the private business use test and the private security or payment test, the bonds are taxable unless remedial action is taken as described below.

Qualified 501(c)(3) Bonds Example

If the bonds financing the property are qualified 501(c)(3) bonds, the private business use test threshold of 10% is reduced to 5%. The 5% is further reduced by the percentage of proceeds of the bonds used to pay costs of issuance. (Up to 2% of the proceeds may be used for costs of issuance.) Additionally, use of tax-exempt bond financed property in an unrelated trade or business of any 501(c)(3) organization, as described in section 513 of the Internal Revenue Code (the “Code”), is considered private business use and counts toward the 5% limit.

An example of qualified 501(c)(3) bonds likely to meet the private business tests is the sale of tax-exempt bond financed land to a taxable corporation. The sale is a deliberate action because the sale was within the issuer’s (or 501(c)(3) borrower’s) control. Depending on how much of the proceeds of the bond issue that the issuer or 501(c)(3) borrower used to construct or acquire the facility and how long after the bonds are issued that the sale occurs, the private business use test may be met since the purchaser is not a governmental entity or a 501(c)(3) organization. If the parcel of land sold was pledged as security for the payment of debt service on the bonds, the private security or payment test is met if the sales price is more than 5% of the present value of the debt service on the bonds. If the revenues from the facility were pledged as security for the payment of debt service on the bonds and are expected to be more than 5% of the present value of the debt service, the private security or payment test is met (regardless of the sales price to the new purchaser). If the bond issue meets both the private business use test and the private security or payment test, the bonds are taxable unless remedial action is taken as described below.

A qualified 501(c)(3) bond is one where, among other requirements, the tax-exempt bond financed property is owned by a 501(c)(3) organization or a governmental unit. An example of qualified 501(c)(3) bonds failing to meet this requirement is the sale of the tax-exempt bond financed land to a taxable corporation. Accordingly, the bonds are taxable unless remedial action is taken as described below.

Remedial Action under the Treasury Regulations

The Regulations permit an issuer to take remedial action to preclude the sale of tax-exempt bond financed assets from causing the bonds to become taxable bonds. There are five basic conditions that an issuer must meet to qualify to take a remedial action. The conditions are:

  • The issuer must have reasonably expected on the issue date that the bonds would not meet either the applicable private business tests (including the ownership test for qualified 501(c)(3) bonds) or the private loan financing test for the entire term of the bonds.
  • The term of the bonds must not be longer than reasonably necessary for the qualified purposes of the issue (as a guideline, the term is not greater than 120% of the average reasonably expected economic life of the financed property).
  • Generally, the terms of a sale must be a bona fide and arm’s-length arrangement for fair market value.
  • Disposition proceeds must be treated as gross proceeds for arbitrage and rebate purposes. Disposition proceeds are any amounts, including property, derived from the sale, exchange or other disposition of the tax-exempt bond financed property.
  • Except for a remedial action involving the redemption or defeasance of nonqualified bonds, the proceeds must have been spent on a qualified purpose before the date of the deliberate action, that is, the sale of the bond-financed assets.

Redemption or Defeasance of Nonqualified Bonds

Generally, in the case of a sale of bond-financed property, the nonqualified bonds are the portion of the outstanding bonds equal to the percentage of the proceeds of the bond issue that financed that property. For example, if 50% of the proceeds of a bond issue financed the sold property, the nonqualified bonds equal 50% of the outstanding bonds of the issue at the time of the sale.

The first type of remedial action available is the redemption or defeasance of all of the nonqualified bonds within 90 days of the deliberate action. (Generally, proceeds of another issue of tax-exempt bonds may not be used for this redemption.) If the disposition proceeds are all cash, the issuer need not redeem or defease all of the nonqualified bonds, but must use all of the disposition proceeds to redeem a pro rata portion of nonqualified bonds. The redemption must be on the earliest call date after the deliberate action, or if the earliest call date is more than 90 days after the deliberate action, the issuer must establish a defeasance escrow within 90 days of the deliberate action. Defeasance is only permitted as a remedial action if the first call date is no more than 10 ½ years from the issue date of the bonds. The issuer must provide written notice to the Commissioner of the escrow within 90 days of its establishment.

Alternative Use of Disposition Proceeds

The second type of remedial action, available when the seller receives only cash, allows the issuer to spend the disposition proceeds within two years of the date of the sale for an alternative qualifying use. The issuer must treat the disposition proceeds as proceeds of the bonds, and must not take any action after the date of the sale to cause either the applicable private business use tests or the private loan financing test to be met. (If the bonds are qualified 501(c)(3) bonds, the disposition proceeds must be used for a qualified purpose under section 145 of the Code.) If the issuer does not expect the full amount of the disposition proceeds to be spent for a qualifying purpose within the two year period, it must use the balance of disposition proceeds to redeem (or defease) nonqualified bonds as allowed for the first type of remedial action described above.

Note: If the proceeds of a governmental bond issue are to be subsequently used by a 501(c)(3) organization, remediation by spending the disposition proceeds for an alternate use requires that the nonqualified bonds satisfy all the requirements for qualified 501(c)(3) bonds beginning on the date of the sale.

Alternative Use of Facility

The third type of remedial action available to the issuer is when the tax-exempt financed facility will be used after the sale for a purpose that is a qualifying purpose for another type of tax-exempt bonds (provided that the purchaser of the facility does not use tax-exempt bond proceeds for its purchase). The nonqualified bonds must satisfy all the requirements for the alternate type of tax-exempt bonds beginning on the date of the sale. The issuer must either apply any disposition proceeds resulting from the sale to pay the debt service on the bonds on the next available payment date or deposit the proceeds into an escrow within 90 days of their receipt. If the issuer must establish an escrow, the investment yield on the disposition proceeds must be restricted to the yield on the bonds and the escrow used to pay debt service on the next available payment date.

Allocation of Disposition Proceeds

For all three remedial actions, if the property was financed by different sources, the issuer must first allocate disposition proceeds to the outstanding bonds in proportion to the principal amounts of the outstanding bonds. If the disposition proceeds are not greater than the principal amount of outstanding bonds allocated to the sold property, the proceeds must first be allocated to the outstanding bonds before allocating to bonds no longer outstanding or to sources not derived from borrowing (such as revenues of the issuer).

Remedial Actions-Examples

The following examples assume that the above-described five conditions for remedial action are satisfied. Also, in these examples, no bond proceeds were used for costs of issuance or to fund a reserve fund.


Example 1. - Disposition proceeds are less than the principal amount of the outstanding bonds allocated to the sold property.

Issuer issues $10 million of bonds to finance the construction of a community center. Issuer later sells the center for $5 million, its fair market value. At this time, all $10 million of the bonds are still outstanding. The issuer may choose to remediate by using all $5 million of disposition proceeds to redeem within 90 days or establish a defeasance escrow for a pro rata portion of the $10 million of nonqualified bonds. The remaining outstanding $5 million of bonds would not be private activity bonds because the issuer has remediated as required by the Regulations.

Or, the issuer could remediate by using the alternative use of disposition proceeds option. Under this option, the issuer must apply the total amount of disposition proceeds, $5 million, to a qualifying alternative use within two years (or use a combination of the alternative use of disposition proceeds and redemption or defeasance options).

The disposition proceeds are considered gross proceeds of the bonds and as such are subject to the applicable yield restriction and arbitrage rebate rules pending their use as described above.

Example 2.- Disposition proceeds are greater than the principal amount of the outstanding bonds allocated to the sold property.

Issuer issues $10 million of bonds to finance a school and land. Issuer subsequently sells a portion of the land for $3 million. At this time, all $10 million of the bonds are still outstanding. The principal amount of outstanding bonds allocated to the sold property is $2 million. If the issuer chooses to remediate by redeeming bonds, it must redeem $2 million of outstanding bonds leaving the issuer with $1 million of gross proceeds.

Or, the issuer could remediate by using the alternative use of disposition proceeds option. If so, the Issuer must apply the total amount of the disposition proceeds, $3 million, to a qualifying use within two years (or use a combination of the alternative use of disposition proceeds and redemption or defeasance options).

The disposition proceeds are considered gross proceeds of the bonds and as such are subject to the applicable yield restriction and arbitrage rebate rules pending their use as described above.

Example 3. - Disposition proceeds are greater than the principal amount of the outstanding bonds allocated to the sold property and the conduit borrower finances the project in part with tax-exempt bond proceeds and in part with an equity contribution.

A 501(c)(3) conduit borrower contributed $4 million of cash from its revenues and used $6 million of tax-exempt bonds to finance a $10 million acquisition of a continuing care facility. Subsequently, the conduit borrower sells the facility for $12 million. At this time, all $6 million of the bonds are still outstanding. Thus the issuer has $6 million of nonqualified bonds. The issuer may remediate by either redeeming all of the $6 million nonqualified bonds or by requiring the conduit borrower to use $12 million of disposition proceeds for an alternative use within two years (provided all requirements of qualified 501(c)(3) bonds are met).

Of the $12 million of disposition proceeds, $6 million are considered gross proceeds of the bonds and as such are subject to the applicable yield restriction and arbitrage rebate rules pending their use as described above.

Gross Proceeds - Example 2 versus Example 3

When the tax-exempt bond financed property is sold for an amount in excess of the principal amount of the outstanding bonds allocated to that property, a different result occurs with respect to that excess amount depending on whether all the bonds of the issue have been redeemed. In Example 3, where the issuer redeemed all of the outstanding bonds, the remaining disposition proceeds are not gross proceeds of the bonds and, therefore, are no longer subject to the federal tax restrictions. This is because the amount of gross proceeds cannot exceed the amount of the outstanding bonds of the issue. Whereas in Example 2, although the issuer has redeemed the nonqualified bonds, the issuer still has bonds of the issue outstanding and thus the additional disposition proceeds are gross proceeds of the bonds and subject to the applicable yield restriction and arbitrage rebate rules pending their use.

Correction of Violations Using TEB Voluntary Closing Agreement Program (VCAP)

If an issuer or conduit borrower discovers that it has sold bond financed assets causing the applicable private business tests to be met but is ineligible to self-correct through a remedial action provision, TEB encourages the issuer to take advantage of its Voluntary Closing Agreement Program (TEB VCAP) to resolve federal tax violations relating to bonds as described in Notice 2008-31 and IRM section 7.2.3.

Page Last Reviewed or Updated: 04-Sep-2013

The 1040ez Forms

1040ez forms Publication 584 - Additional Material Table of Contents This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Entrance Hall This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Living Room This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Dining Room This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Kitchen This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Den This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Bedrooms This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Bathrooms This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Recreation Room This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Laundry and Basement This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Garage This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Sporting Equipment This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Men's Clothing This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Women's Clothing This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Children's Clothing This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Jewelry This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Electrical Appliances This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Linens This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Miscellaneous This image is too large to be displayed in the current screen. 1040ez forms Please click the link to view the image. 1040ez forms Motor Vehicles Schedule 20. 1040ez forms Home (Excluding Contents) Note. 1040ez forms If you used the entire property as your home, fill out only column (a). 1040ez forms If you used part of the property as your home and part of it for business or to produce rental income, you must allocate the entries on lines 2-9 between the personal part (column (a)) and the business/rental part (column (b)). 1040ez forms 1. 1040ez forms Description of property (Show location and date acquired. 1040ez forms )     (a)  Personal Part (b)  Business/Rental Part 2. 1040ez forms Cost or other (adjusted) basis of property (from Worksheet A)     3. 1040ez forms Insurance or other reimbursement Note. 1040ez forms If line 2 is more than line 3, skip line 4. 1040ez forms If line 3 is more than line 2, you exclude gain, and the gain is more than you can exclude, see the instructions for line 3 in the Instructions for Form 4684 for the amount to enter. 1040ez forms     4. 1040ez forms Gain from casualty. 1040ez forms If line 3 is more than line 2, enter the difference here and skip lines 5 through 9. 1040ez forms But see Next below line 9. 1040ez forms     5. 1040ez forms Fair market value before casualty     6. 1040ez forms Fair market value after casualty     7. 1040ez forms Decrease in fair market value. 1040ez forms Subtract line 6 from line 5. 1040ez forms     8. 1040ez forms Enter the smaller of line 2 or line 7 Note for business/rental part. 1040ez forms If the property was totally destroyed by casualty, enter on line 8, column (b) the amount from line 2, column (b). 1040ez forms     9. 1040ez forms Subtract line 3 from line 8. 1040ez forms If zero or less, enter -0-. 1040ez forms     Next: Transfer the entries from line 1 and lines 2-9, column (a), above to the corresponding lines on Form 4684, Section A. 1040ez forms Transfer the entries from line 1 and lines 2-9, column (b), to the corresponding lines on Form 4684, Section B. 1040ez forms Worksheet A. 1040ez forms Cost or Other (Adjusted) Basis Caution. 1040ez forms See the Worksheet A Instructions before you use this worksheet. 1040ez forms         (a) Personal Part (b) Business/Rental Part 1. 1040ez forms   Enter the purchase price of the home damaged or destroyed. 1040ez forms (If you filed Form 2119 when you originally acquired that home to postpone gain on the sale of a previous home before May 7, 1997, enter the adjusted basis of the new home from that Form 2119. 1040ez forms ) 1. 1040ez forms     2. 1040ez forms   Seller paid points for home bought after 1990. 1040ez forms Do not include any seller-paid points you already subtracted to arrive at the amount entered on line 1 2. 1040ez forms     3. 1040ez forms   Subtract line 2 from line 1 3. 1040ez forms     4. 1040ez forms   Settlement fees or closing costs. 1040ez forms (See Settlement costs in Publication 551. 1040ez forms ) If line 1 includes the adjusted basis of the new home from Form 2119, skip lines 4a-4g and 5; go to line 6. 1040ez forms         a. 1040ez forms Abstract and recording fees 4a. 1040ez forms       b. 1040ez forms Legal fees (including fees for title search and preparing documents) 4b. 1040ez forms       c. 1040ez forms Survey fees 4c. 1040ez forms       d. 1040ez forms Title insurance 4d. 1040ez forms       e. 1040ez forms Transfer or stamp taxes 4e. 1040ez forms       f. 1040ez forms Amounts that the seller owed that you agreed to pay (back taxes or interest, recording or mortgage fees, and sales commissions) 4f. 1040ez forms       g. 1040ez forms Other 4g. 1040ez forms     5. 1040ez forms   Add lines 4a through 4g 5. 1040ez forms     6. 1040ez forms   Cost of additions and improvements. 1040ez forms (See Increases to Basis in Publication 551. 1040ez forms ) Do not include any additions and improvements included on line 1 6. 1040ez forms     7. 1040ez forms   Special tax assessments paid for local improvements, such as streets and sidewalks 7. 1040ez forms     8. 1040ez forms   Other increases to basis 8. 1040ez forms     9. 1040ez forms   Add lines 3, 5, 6, 7, and 8 9. 1040ez forms     10. 1040ez forms   Depreciation allowed or allowable, related to the business use or rental of the home 10. 1040ez forms 0   11. 1040ez forms   Other decreases to basis (See Decreases to Basis in Publication 551. 1040ez forms ) 11. 1040ez forms     12. 1040ez forms   Add lines 10 and 11 12. 1040ez forms     13. 1040ez forms   Cost or other (adjusted) basis of home damaged or destroyed. 1040ez forms Subtract line 12 from line 9. 1040ez forms Enter here and on Schedule 20, line 2 13. 1040ez forms     Worksheet A Instructions. 1040ez forms If you use Worksheet A to figure the cost or other (adjusted) basis of your home, follow these instructions. 1040ez forms DO NOT use this worksheet to determine your basis if you acquired an interest in your home from a decedent who died in 2010 and whose executor filed Form 8939. 1040ez forms IF. 1040ez forms . 1040ez forms . 1040ez forms   THEN. 1040ez forms . 1040ez forms . 1040ez forms you inherited your home from a decedent who died either before or after 2010 or from a decedent who died in 2010 and whose executor did not file Form 8939. 1040ez forms 1 skip lines 1–4 of the worksheet. 1040ez forms 2 find your basis using the rules under Inherited Property in Publication 551. 1040ez forms Enter this amount on line 5 of the worksheet. 1040ez forms 3 fill out lines 6–13 of the worksheet. 1040ez forms you received your home as a gift 1 read Property Received as a Gift in Publication 551 and enter on lines 1 and 3 of the worksheet either the donor's adjusted basis or the home's fair market value at the time of the gift, whichever is appropriate. 1040ez forms 2 if you can add any federal gift tax to your basis, enter that amount on line 5 of the worksheet. 1040ez forms 3 fill out the rest of the worksheet. 1040ez forms you received your home as a trade for other property 1 enter on line 1 of the worksheet the fair market value of the other property at the time of the trade. 1040ez forms (But if you received your home as a trade for your previous home before May 7, 1997, and had a gain on the trade that you postponed using Form 2119, enter on line 1 of the worksheet the adjusted basis of the new home from that Form 2119. 1040ez forms ) 2 fill out the rest of the worksheet. 1040ez forms you built your home 1 add the purchase price of the land and the cost of building the home. 1040ez forms Enter that total on line 1 of the worksheet. 1040ez forms (However, if you filed a Form 2119 to postpone gain on the sale of a previous home before May 7, 1997, enter on line 1 of the worksheet the adjusted basis of the new home from that Form 2119. 1040ez forms ) 2 fill out the rest of the worksheet. 1040ez forms you received your home from your spouse after July 18, 1984 1 skip lines 1–4 of the worksheet. 1040ez forms 2 enter on line 5 of the worksheet your spouse's cost or other (adjusted) basis in the home just before you received it. 1040ez forms 3 fill out lines 6–13 of the worksheet, making adjustments to basis only for events after the transfer. 1040ez forms you owned a home jointly with your spouse, who transferred his or her interest in the home to you after July 18, 1984     fill out one worksheet, making adjustments to basis for events both before and after the transfer. 1040ez forms   you received your home from your spouse before July 19, 1984 1 skip lines 1–4 of the worksheet. 1040ez forms 2 enter on line 5 of the worksheet the home's fair market value at the time you received it. 1040ez forms 3 fill out lines 6–13 of the worksheet, making adjustments to basis only for events after the transfer. 1040ez forms you owned a home jointly with your spouse, and your spouse transferred his or her interest in the home to you before July 19, 1984 1 fill out a worksheet, lines 1–13, making adjustments to basis only for events before the transfer. 1040ez forms 2 multiply the amount on line 13 of that worksheet by 50% (0. 1040ez forms 50) to get the adjusted basis of your half-interest at the time of the transfer. 1040ez forms 3 multiply the fair market value of the home at the time of the transfer by 50% (0. 1040ez forms 50). 1040ez forms Generally, this is the basis of the half-interest that your spouse owned. 1040ez forms 4 add the amounts from steps 2 and 3 and enter the total on line 5 of a second worksheet. 1040ez forms 5 complete lines 6–13 of the second worksheet, making adjustments to basis only for events after the transfer. 1040ez forms you owned your home jointly with a nonspouse 1 fill out lines 1–13 of the worksheet. 1040ez forms 2 multiply the amount on line 13 by your percentage of ownership to get the adjusted basis of your part-interest. 1040ez forms Worksheet A Instructions. 1040ez forms (Continued) IF. 1040ez forms . 1040ez forms . 1040ez forms   THEN. 1040ez forms . 1040ez forms . 1040ez forms you owned your home jointly with your spouse who died before 2010 and before the casualty 1 fill out a worksheet, lines 1–13, including adjustments to basis only for events before your spouse's death. 1040ez forms 2 multiply the amount on line 13 of that worksheet by 50% (0. 1040ez forms 50) to get the adjusted basis of your half-interest on the date of death. 1040ez forms 3 figure the basis for the half-interest owned by your spouse. 1040ez forms This is one-half of the fair market value on the date of death (or later alternate valuation used for estate or inheritance tax). 1040ez forms (The basis in your half will remain one-half of the adjusted basis determined in step 2. 1040ez forms ) 4 add the amounts from steps 2 and 3 and enter the total on line 5 of a second worksheet. 1040ez forms 5 complete lines 6–13 of the second worksheet, making adjustments to basis only for events after your spouse's death. 1040ez forms you owned your home jointly with your spouse who died before 2010 and before the casualty, and your permanent legal home is in a community property state 1 skip lines 1–4 of the worksheet. 1040ez forms 2 enter the amount of your basis on line 5 of the worksheet. 1040ez forms Generally, this is the fair market value of the home at the time of death. 1040ez forms (But see Community Property in Publication 551 for special rules. 1040ez forms ) 3 fill out lines 6–13 of the worksheet, making adjustments to basis only for events after your spouse's death. 1040ez forms you owned your home jointly with a nonspouse who died before 2010 and before the casualty 1 fill out lines 1–13 of the worksheet, including adjustments to basis only for events before the co-owner's death. 1040ez forms 2 multiply the amount on line 13 by your percentage of ownership to get the adjusted basis of your part-interest on the date of death. 1040ez forms 3 multiply the fair market value on the date of death (or later alternate valuation used for estate or inheritance tax) by the co-owner's percentage of ownership. 1040ez forms This is the basis for the co-owner's part-interest. 1040ez forms 4 add the amounts from steps 2 and 3 and enter the total on line 5 of a second worksheet. 1040ez forms 5 complete lines 6–13 of the second worksheet, including adjustments to basis only for events after the co-owner's death. 1040ez forms your home was ever damaged as a result of a prior casualty 1 on line 8 of the worksheet, enter any amounts you spent to restore the home to its condition before the prior casualty. 1040ez forms 2 on line 11 enter: any insurance reimbursements you received (or expect to receive) for the prior loss,  and any deductible casualty losses from prior years not covered by insurance. 1040ez forms the person who sold you your home paid points on your loan and you bought your home after 1990 but before April 4, 1994. 1040ez forms   on line 2 enter the seller-paid points only if you deducted them as home mortgage interest in the year paid (unless you used the seller-paid points to reduce the amount on line 1). 1040ez forms the person who sold you your home paid points on your loan and you bought your home after April 3, 1994   on line 2 enter the seller-paid points even if you did not deduct them (unless you used the seller-paid points to reduce the amount on line 1). 1040ez forms you used part of the property as your home and part of it for business or to produce rental income   you must allocate the entries on Worksheet A between the personal part (column (a)) and the business/rental part (column (b)). 1040ez forms none of these items apply   fill out the entire worksheet. 1040ez forms Prev  Up  Next   Home   More Online Publications