Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

1040ez Gov

Irs Forms 1040ezIrs 2012 1040 Tax FormIrs Forms 1040x InstructionsIrs Forms Instructions 1040ezH&rblock2011 Federal Tax Form 1040Free Form 1040ez OnlineAmended State Tax ReturnFile For 2011 TaxesE File State Return1040ez Instructions 2012H And R Block Taxes FreeForm 1040ez 20131040ez Tax Forms DownloadsFree Irs Tax PreparationH&r Block TaxesHow To File Taxes As A College StudentFree File State Return OnlyCan I File 1040x Online1040x Form 2010Irs Amendment Form InstructionsWhere Can I File My 2011 Taxes OnlineIrs Ez FormWhere Do I Mail My 1040x1040ez DownloadFree Tax Preparation SitesFile Ez OnlineFree State File Turbotax1040 Ez InstructionsFile State Income Tax Online FreeH&r Block TaxWhen Can I Amend My 2011 Tax ReturnH&r Block Free State File CouponEfile State Tax Return1040 Ez Tax Form 2011File Amended Return2010 Online Tax FilingIrs 2010 Tax FormsEz 1040 FormFile My Federal And State Taxes For Free

1040ez Gov

1040ez gov 6. 1040ez gov   Tax Treaty Benefits Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Purpose of Tax Treaties Common Benefits Competent Authority AssistanceAdditional filing. 1040ez gov Obtaining Copies of Tax Treaties Topics - This chapter discusses: Some common tax treaty benefits, How to get help in certain situations, and How to get copies of tax treaties. 1040ez gov Useful Items - You may want to see: Publication 597 Information on the United States—Canada Income Tax Treaty 901 U. 1040ez gov S. 1040ez gov Tax Treaties See chapter 7 for information about getting these publications. 1040ez gov Purpose of Tax Treaties The United States has tax treaties or conventions with many countries. 1040ez gov See Table 6-1 at the end of this chapter for a list of these countries. 1040ez gov Under these treaties and conventions, citizens and residents of the United States who are subject to taxes imposed by the foreign countries are entitled to certain credits, deductions, exemptions, and reductions in the rate of taxes of those foreign countries. 1040ez gov If a foreign country with which the United States has a treaty imposes a tax on you, you may be entitled to benefits under the treaty. 1040ez gov Treaty benefits generally are available to residents of the United States. 1040ez gov They generally are not available to U. 1040ez gov S. 1040ez gov citizens who do not reside in the United States. 1040ez gov However, certain treaty benefits and safeguards, such as the nondiscrimination provisions, are available to U. 1040ez gov S. 1040ez gov citizens residing in the treaty countries. 1040ez gov U. 1040ez gov S. 1040ez gov citizens residing in a foreign country also may be entitled to benefits under that country's tax treaties with third countries. 1040ez gov Certification of U. 1040ez gov S. 1040ez gov residency. 1040ez gov   Use Form 8802, Application for United States Residency Certification, to request certification of U. 1040ez gov S. 1040ez gov residency for purposes of claiming benefits under a tax treaty. 1040ez gov Certification can be requested for the current and any prior calendar years. 1040ez gov You should examine the specific treaty articles to find if you are entitled to a tax credit, tax exemption, reduced rate of tax, or other treaty benefit or safeguard. 1040ez gov Common Benefits Some common tax treaty benefits are explained below. 1040ez gov The credits, deductions, exemptions, reductions in rate, and other benefits provided by tax treaties are subject to conditions and various restrictions. 1040ez gov Benefits provided by certain treaties are not provided by others. 1040ez gov Personal service income. 1040ez gov If you are a U. 1040ez gov S. 1040ez gov resident who is in a treaty country for a limited number of days in the tax year and you meet certain other requirements, the payment you receive for personal services performed in that country may be exempt from that country's income tax. 1040ez gov Professors and teachers. 1040ez gov If you are a U. 1040ez gov S. 1040ez gov resident, the payment you receive for the first 2 or 3 years that you are teaching or doing research in a treaty country may be exempt from that country's income tax. 1040ez gov Students, trainees, and apprentices. 1040ez gov If you are a U. 1040ez gov S. 1040ez gov resident, amounts you receive from the United States for study, research, or business, professional and technical training may be exempt from a treaty country's income tax. 1040ez gov Some treaties exempt grants, allowances, and awards received from governmental and certain nonprofit organizations. 1040ez gov Also, under certain circumstances, a limited amount of pay received by students, trainees, and apprentices may be exempt from the income tax of many treaty countries. 1040ez gov Pensions and annuities. 1040ez gov If you are a U. 1040ez gov S. 1040ez gov resident, nongovernment pensions and annuities you receive may be exempt from the income tax of treaty countries. 1040ez gov Most treaties contain separate provisions for exempting government pensions and annuities from treaty country income tax, and some treaties provide exemption from the treaty country's income tax for social security payments. 1040ez gov Investment income. 1040ez gov If you are a U. 1040ez gov S. 1040ez gov resident, investment income, such as interest and dividends, that you receive from sources in a treaty country may be exempt from that country's income tax or taxed at a reduced rate. 1040ez gov Several treaties provide exemption for capital gains (other than from sales of real property in most cases) if specified requirements are met. 1040ez gov Tax credit provisions. 1040ez gov If you are a U. 1040ez gov S. 1040ez gov resident who receives income from or owns capital in a foreign country, you may be taxed on that income or capital by both the United States and the treaty country. 1040ez gov Most treaties allow you to take a credit against or deduction from the treaty country's taxes based on the U. 1040ez gov S. 1040ez gov tax on the income. 1040ez gov Nondiscrimination provisions. 1040ez gov Most U. 1040ez gov S. 1040ez gov tax treaties provide that the treaty country cannot discriminate by imposing more burdensome taxes on U. 1040ez gov S. 1040ez gov citizens who are residents of the treaty country than it imposes on its own citizens in the same circumstances. 1040ez gov Saving clauses. 1040ez gov U. 1040ez gov S. 1040ez gov treaties contain saving clauses that provide that the treaties do not affect the U. 1040ez gov S. 1040ez gov taxation of its own citizens and residents. 1040ez gov As a result, U. 1040ez gov S. 1040ez gov citizens and residents generally cannot use the treaty to reduce their U. 1040ez gov S. 1040ez gov tax liability. 1040ez gov However, most treaties provide exceptions to saving clauses that allow certain provisions of the treaty to be claimed by U. 1040ez gov S. 1040ez gov citizens or residents. 1040ez gov It is important that you examine the applicable saving clause to determine if an exception applies. 1040ez gov More information on treaties. 1040ez gov   Publication 901 contains an explanation of treaty provisions that apply to amounts received by teachers, students, workers, and government employees and pensioners who are alien nonresidents or residents of the United States. 1040ez gov Since treaty provisions generally are reciprocal, you usually can substitute “United States” for the name of the treaty country whenever it appears, and vice versa when “U. 1040ez gov S. 1040ez gov ” appears in the treaty exemption discussions in Publication 901. 1040ez gov   Publication 597 contains an explanation of a number of frequently-used provisions of the United States–Canada income tax treaty. 1040ez gov Competent Authority Assistance If you are a U. 1040ez gov S. 1040ez gov citizen or resident alien, you can request assistance from the U. 1040ez gov S. 1040ez gov competent authority if you think that the actions of the United States, a treaty country, or both, cause or will cause a tax situation not intended by the treaty between the two countries. 1040ez gov You should read any treaty articles, including the mutual agreement procedure article, that apply in your situation. 1040ez gov The U. 1040ez gov S. 1040ez gov competent authority cannot consider requests involving countries with which the United States does not have a tax treaty. 1040ez gov Effect of request for assistance. 1040ez gov   If your request provides a basis for competent authority assistance, the U. 1040ez gov S. 1040ez gov competent authority generally will consult with the treaty country competent authority on how to resolve the situation. 1040ez gov How to make your request. 1040ez gov   It is important that you make your request for competent authority consideration as soon as either of the following occurs. 1040ez gov You are denied treaty benefits. 1040ez gov Actions taken by both the United States and the foreign country result in double taxation or will result in taxation not intended by the treaty. 1040ez gov   In addition to making a request for assistance, you should take steps so that any agreement reached by the competent authorities is not barred by administrative, legal, or procedural barriers. 1040ez gov Some of the steps you should consider taking include the following. 1040ez gov Filing a protective claim for credit or refund of U. 1040ez gov S. 1040ez gov taxes. 1040ez gov Delaying the expiration of any period of limitations on the making of a refund or other tax adjustment. 1040ez gov Avoiding the lapse or termination of your right to appeal any tax determination. 1040ez gov Complying with all applicable procedures for invoking competent authority consideration. 1040ez gov Contesting an adjustment or seeking an appropriate correlative adjustment with respect to the U. 1040ez gov S. 1040ez gov or treaty country tax. 1040ez gov Taxpayers can consult with the U. 1040ez gov S. 1040ez gov competent authority to determine whether they need to take protective steps and when any required steps need to be taken. 1040ez gov   The request should contain all essential items of information, including the following items. 1040ez gov A reference to the treaty and the treaty provisions on which the request is based. 1040ez gov The years and amounts involved in both U. 1040ez gov S. 1040ez gov dollars and foreign currency. 1040ez gov A brief description of the issues for which competent authority assistance is requested. 1040ez gov   A complete listing of the information that must be included with the request can be found in Revenue Procedure 2006-54, or its successor. 1040ez gov Revenue Procedure 2006-54 is available at www. 1040ez gov irs. 1040ez gov gov/irb/2006-49_IRB/ar13. 1040ez gov html. 1040ez gov   Also, see Notice 2013-78, which provides proposed updates to the procedures for requesting U. 1040ez gov S. 1040ez gov competent authority assistance under tax treaties. 1040ez gov As noted, Revenue Procedure 2006-54 will be superseded by a revenue procedure to be published in the future. 1040ez gov    Your request for competent authority consideration should be addressed to:   Deputy Commissioner (International) Large Business and International Division Internal Revenue Service 1111 Constitution Avenue, NW Routing M4-365 Washington, DC 20224 Attn: TAIT Additional filing. 1040ez gov   In the case of U. 1040ez gov S. 1040ez gov - initiated adjustments, you also must file a copy of the request with the IRS office where your case is pending. 1040ez gov If the request is filed after the matter has been designated for litigation or while a suit contesting your relevant tax liability is pending in a United States court, a copy of the request, with a separate statement attached identifying the court where the suit is pending and the docket number of the action, also must be filed with the: Office of Associate Chief Counsel (International) Internal Revenue Service 1111 Constitution Avenue, NW Washington, DC 20224 Additional details on the procedures for requesting competent authority assistance are included in Revenue Procedure 2006-54, or its successor. 1040ez gov Obtaining Copies of Tax Treaties Table 6-1 lists those countries with which the United States has income tax treaties. 1040ez gov This table is updated through October 31, 2013. 1040ez gov You can get complete information about treaty provisions from the taxing authority in the country from which you receive income or from the treaty itself. 1040ez gov You can obtain the text of most U. 1040ez gov S. 1040ez gov treaties at IRS. 1040ez gov gov. 1040ez gov You also can request the text of treaties from the Department of Treasury at the following address. 1040ez gov Department of Treasury Office of Business and Public Liaison Rm. 1040ez gov 3411 1500 Pennsylvania Avenue, NW  Washington, DC 20220 If you have questions about a treaty and you are in the United States, Puerto Rico, or the U. 1040ez gov S. 1040ez gov Virgin Islands, you can call the IRS at 1-800-829-1040. 1040ez gov Table 6–1. 1040ez gov List of Tax Treaties (Updated through October 31, 2013) Country Official Text  Symbol1 General  Effective Date Citation Applicable Treasury Explanations  or Treasury Decision (T. 1040ez gov D. 1040ez gov ) Australia TIAS 10773 Dec. 1040ez gov 1, 1983 1986-2 C. 1040ez gov B. 1040ez gov 220 1986-2 C. 1040ez gov B. 1040ez gov 246 Protocol TIAS Jan. 1040ez gov 1, 2004     Austria TIAS Jan. 1040ez gov 1, 1999     Bangladesh TIAS Jan. 1040ez gov 1, 2007     Barbados TIAS 11090 Jan. 1040ez gov 1, 1984 1991-2 C. 1040ez gov B. 1040ez gov 436 1991-2 C. 1040ez gov B. 1040ez gov 466 Protocol TIAS Jan. 1040ez gov 1, 2005     Belgium TIAS Jan. 1040ez gov 1, 2008     Bulgaria TIAS Jan. 1040ez gov 1, 2009     Canada2 TIAS 11087 Jan. 1040ez gov 1, 1985 1986-2 C. 1040ez gov B. 1040ez gov 258 1987-2 C. 1040ez gov B. 1040ez gov 298 Protocol TIAS Jan. 1040ez gov 1, 2009     China, People's Republic of TIAS 12065 Jan. 1040ez gov 1, 1987 1988-1 C. 1040ez gov B. 1040ez gov 414 1988-1 C. 1040ez gov B. 1040ez gov 447 Commonwealth of Independent States3 TIAS 8225 Jan. 1040ez gov 1, 1976 1976-2 C. 1040ez gov B. 1040ez gov 463 1976-2 C. 1040ez gov B. 1040ez gov 475 Cyprus TIAS 10965 Jan. 1040ez gov 1, 1986 1989-2 C. 1040ez gov B. 1040ez gov 280 1989-2 C. 1040ez gov B. 1040ez gov 314 Czech Republic TIAS Jan. 1040ez gov 1, 1993     Denmark TIAS Jan. 1040ez gov 1, 2001     Protocol TIAS Jan. 1040ez gov 1, 2008     Egypt TIAS 10149 Jan. 1040ez gov 1, 1982 1982-1 C. 1040ez gov B. 1040ez gov 219 1982-1 C. 1040ez gov B. 1040ez gov 243 Estonia TIAS Jan. 1040ez gov 1, 2000     Finland TIAS 12101 Jan. 1040ez gov 1, 1991     Protocol TIAS Jan. 1040ez gov 1, 2008     France TIAS Jan. 1040ez gov 1, 1996     Protocol TIAS Jan. 1040ez gov 1, 2009     Germany TIAS Jan. 1040ez gov 1, 1990     Protocol TIAS Jan. 1040ez gov 1, 2008     Greece TIAS 2902 Jan. 1040ez gov 1, 1953 1958-2 C. 1040ez gov B. 1040ez gov 1054 T. 1040ez gov D. 1040ez gov 6109, 1954-2 C. 1040ez gov B. 1040ez gov 638 Hungary TIAS 9560 Jan. 1040ez gov 1, 1980 1980-1 C. 1040ez gov B. 1040ez gov 333 1980-1 C. 1040ez gov B. 1040ez gov 354 Iceland TIAS 8151 Jan. 1040ez gov 1, 2009     India TIAS Jan. 1040ez gov 1, 1991     Indonesia TIAS 11593 Jan. 1040ez gov 1, 1990     Ireland TIAS Jan. 1040ez gov 1, 1998     Israel TIAS Jan. 1040ez gov 1, 1995     Italy TIAS Jan. 1040ez gov 1, 2010     Jamaica TIAS 10207 Jan. 1040ez gov 1, 1982 1982-1 C. 1040ez gov B. 1040ez gov 257 1982-1 C. 1040ez gov B. 1040ez gov 291 Japan TIAS Jan. 1040ez gov 1, 2005     Kazakhstan TIAS Jan. 1040ez gov 1, 1996     Korea, South TIAS 9506 Jan. 1040ez gov 1, 1980 1979-2 C. 1040ez gov B. 1040ez gov 435 1979-2 C. 1040ez gov B. 1040ez gov 458 Latvia TIAS Jan. 1040ez gov 1, 2000     Lithuania TIAS Jan. 1040ez gov 1, 2000     Luxembourg TIAS Jan. 1040ez gov 1, 2001     Malta TIAS Jan. 1040ez gov 1, 2011     Mexico TIAS Jan. 1040ez gov 1,1994     Protocol TIAS Jan. 1040ez gov 1, 2004               Table 6–1 (continued). 1040ez gov Country Official Text  Symbol1 General  Effective Date Citation Applicable Treasury Explanations  or Treasury Decision (T. 1040ez gov D. 1040ez gov ) Morocco TIAS 10195 Jan. 1040ez gov 1, 1981 1982-2 C. 1040ez gov B. 1040ez gov 405 1982-2 C. 1040ez gov B. 1040ez gov 427 Netherlands TIAS Jan. 1040ez gov 1, 1994     Protocol TIAS Jan. 1040ez gov 1, 2005     New Zealand TIAS 10772 Nov. 1040ez gov 2, 1983 1990-2 C. 1040ez gov B. 1040ez gov 274 1990-2 C. 1040ez gov B. 1040ez gov 303 Protocol TIAS Jan. 1040ez gov 1, 2011     Norway TIAS 7474 Jan. 1040ez gov 1, 1971 1973-1 C. 1040ez gov B. 1040ez gov 669 1973-1 C. 1040ez gov B. 1040ez gov 693 Protocol TIAS 10205 Jan. 1040ez gov 1, 1982 1982-2 C. 1040ez gov B. 1040ez gov 440 1982-2 C. 1040ez gov B. 1040ez gov 454 Pakistan TIAS 4232 Jan. 1040ez gov 1, 1959 1960-2 C. 1040ez gov B. 1040ez gov 646 T. 1040ez gov D. 1040ez gov 6431, 1960-1 C. 1040ez gov B. 1040ez gov 755 Philippines TIAS 10417 Jan. 1040ez gov 1, 1983 1984-2 C. 1040ez gov B. 1040ez gov 384 1984-2 C. 1040ez gov B. 1040ez gov 412 Poland TIAS 8486 Jan. 1040ez gov 1, 1974 1977-1 C. 1040ez gov B. 1040ez gov 416 1977-1 C. 1040ez gov B. 1040ez gov 427 Portugal TIAS Jan. 1040ez gov 1, 1996     Romania TIAS 8228 Jan. 1040ez gov 1, 1974 1976-2 C. 1040ez gov B. 1040ez gov 492 1976-2 C. 1040ez gov B. 1040ez gov 504 Russia TIAS Jan. 1040ez gov 1, 1994     Slovak Republic TIAS Jan. 1040ez gov 1, 1993     Slovenia TIAS Jan. 1040ez gov 1, 2002     South Africa TIAS Jan. 1040ez gov 1, 1998     Spain TIAS Jan. 1040ez gov 1, 1991     Sri Lanka TIAS Jan. 1040ez gov 1, 2004     Sweden TIAS Jan. 1040ez gov 1, 1996     Protocol TIAS Jan. 1040ez gov 1, 2007     Switzerland TIAS Jan. 1040ez gov 1, 1998     Thailand TIAS Jan. 1040ez gov 1, 1998     Trinidad and Tobago TIAS 7047 Jan. 1040ez gov 1, 1970 1971-2 C. 1040ez gov B. 1040ez gov 479   Tunisia TIAS Jan. 1040ez gov 1, 1990     Turkey TIAS Jan. 1040ez gov 1, 1998     Ukraine TIAS Jan. 1040ez gov 1, 2001     United Kingdom TIAS Jan. 1040ez gov 1, 2004     Venezuela TIAS Jan. 1040ez gov 1, 2000      1(TIAS) — Treaties and Other International Act Series. 1040ez gov  2Information on the treaty can be found in Publication 597, Information on the United States—Canada Income Tax Treaty. 1040ez gov 3The U. 1040ez gov S. 1040ez gov -U. 1040ez gov S. 1040ez gov S. 1040ez gov R. 1040ez gov income tax treaty applies to the countries of Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan. 1040ez gov Prev  Up  Next   Home   More Online Publications
Español

Bank Accounts

Learn more about how to chose a bank account and resolve problems with your bank.


Tips for Choosing a Bank

Choosing a bank is a major decision, and there is no one right choice for all consumers.

When you shop for a bank, you have to consider the actual products and services it provides as well as the location of branches, size of the bank, fees, and interest rates. Even if you conduct most transactions online or at automated teller machines, you want to choose a bank with quality customer service.

Also, consider the variety of products that the bank provides; some banks may specialize in checking and savings accounts, while others are full-service banks, offering loans and CDs.

You don’t have to maintain all of your accounts at one bank; you can have relationships with several to get the best rates on different services.

The 1040ez Gov

1040ez gov 4. 1040ez gov   Sales and Trades of Investment Property Table of Contents IntroductionNominees. 1040ez gov Topics - This chapter discusses: Useful Items - You may want to see: What Is a Sale or Trade?Dividend versus sale or trade. 1040ez gov 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 gov Debt paid off. 1040ez gov Payment of cash. 1040ez gov 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 gov S. 1040ez gov 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 gov Exception 2. 1040ez gov Section 1256 contracts and straddles. 1040ez gov Market discount bonds. 1040ez gov File Form 1099-B or Form 1099-S with the IRS. 1040ez gov 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 gov Investment property. 1040ez gov   This is property that produces investment income. 1040ez gov Examples include stocks, bonds, and Treasury bills and notes. 1040ez gov Property used in a trade or business is not investment property. 1040ez gov Form 1099-B. 1040ez gov   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 gov You should receive the statement by February 15 of the next year. 1040ez gov It will show the gross proceeds from the sale. 1040ez gov The IRS will also get a copy of Form 1099-B from the broker. 1040ez gov   Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. 1040ez gov 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 gov This will help you complete Form 8949. 1040ez gov Generally, a covered security is a security you acquired after 2010, with certain exceptions explained in the Instructions for Form 8949. 1040ez gov    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in this chapter. 1040ez gov Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). 1040ez gov Nominees. 1040ez gov   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 gov   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 gov Other property transactions. 1040ez gov   Certain transfers of property are discussed in other IRS publications. 1040ez gov 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 gov 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 gov 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 gov What Is a Sale or Trade? This section explains what is a sale or trade. 1040ez gov It also explains certain transactions and events that are treated as sales or trades. 1040ez gov A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. 1040ez gov A trade is a transfer of property for other property or services, and may be taxed in the same way as a sale. 1040ez gov Sale and purchase. 1040ez gov   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. 1040ez gov The sale and purchase are two separate transactions. 1040ez gov But see Like-Kind Exchanges under Nontaxable Trades, later. 1040ez gov Redemption of stock. 1040ez gov   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 gov Dividend versus sale or trade. 1040ez gov   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. 1040ez gov Both direct and indirect ownership of stock will be considered. 1040ez gov 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 gov Redemption or retirement of bonds. 1040ez gov   A redemption or retirement of bonds or notes at their maturity generally is treated as a sale or trade. 1040ez gov See Stocks, stock rights, and bonds and Discounted Debt Instruments under Capital or Ordinary Gain or Loss, later. 1040ez gov   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. 1040ez gov For details, see Regulations section 1. 1040ez gov 1001-3. 1040ez gov Surrender of stock. 1040ez gov   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 gov The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. 1040ez gov Trade of investment property for an annuity. 1040ez gov   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 gov 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 gov Figure the present value of the annuity according to factors used by commercial insurance companies issuing annuities. 1040ez gov Transfer by inheritance. 1040ez gov   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 gov No taxable gain or deductible loss results from the transfer. 1040ez gov Termination of certain rights and obligations. 1040ez gov   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 gov Any gain or loss is treated as a capital gain or loss. 1040ez gov   This rule does not apply to the retirement of a debt instrument. 1040ez gov See Redemption or retirement of bonds , earlier. 1040ez gov 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 gov This affects whether your capital loss is long term or short term. 1040ez gov See Holding Period , later. 1040ez gov Worthless securities also include securities that you abandon after March 12, 2008. 1040ez gov To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. 1040ez gov 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 gov 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 gov Do not deduct them in the year the stock became worthless. 1040ez gov How to report loss. 1040ez gov   Report worthless securities in Form 8949, Part I or Part II, whichever applies. 1040ez gov    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. 1040ez gov See Form 8949 and the Instructions for Form 8949. 1040ez gov Filing a claim for refund. 1040ez gov   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 gov You must use Form 1040X, Amended U. 1040ez gov S. 1040ez gov Individual Income Tax Return, to amend your return for the year the security became worthless. 1040ez gov 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 gov (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 gov ) For more information about filing a claim, see Publication 556. 1040ez gov 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 gov You must recognize gain as if the position were disposed of at its fair market value on the date of the constructive sale. 1040ez gov This gives you a new holding period for the position that begins on the date of the constructive sale. 1040ez gov Then, when you close the transaction, you reduce your gain (or increase your loss) by the gain recognized on the constructive sale. 1040ez gov Constructive sale. 1040ez gov   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 gov   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 gov For this purpose, a related person is any related party described under Related Party Transactions , later in this chapter. 1040ez gov Exception for nonmarketable securities. 1040ez gov   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 gov Exception for certain closed transactions. 1040ez gov   Do not treat a transaction as a constructive sale if all of the following are true. 1040ez gov You closed the transaction on or before the 30th day after the end of your tax year. 1040ez gov You held the appreciated financial position throughout the 60-day period beginning on the date you closed the transaction. 1040ez gov Your risk of loss was not reduced at any time during that 60-day period by holding certain other positions. 1040ez gov   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 gov   This exception also applies to successive short sales of an entire appreciated financial position. 1040ez gov For more information, see Revenue Ruling 2003-1 in Internal Revenue Bulletin 2003-3. 1040ez gov This bulletin is available at www. 1040ez gov irs. 1040ez gov gov/pub/irs-irbs/irb03-03. 1040ez gov pdf. 1040ez gov Appreciated financial position. 1040ez gov   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 gov Exceptions. 1040ez gov   An appreciated financial position does not include the following. 1040ez gov 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 gov 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 gov 860G-1(a)(3), and The position is not convertible, either directly or indirectly, into stock of the issuer (or any related person). 1040ez gov Any hedge with respect to a position described in (2). 1040ez gov Certain trust instruments treated as stock. 1040ez gov   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 gov Sale of appreciated financial position. 1040ez gov   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 gov 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 gov 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 gov 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 gov Exceptions. 1040ez gov   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 gov For more details, including definitions of these terms, see section 1256. 1040ez gov Regulated futures contract. 1040ez gov   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 gov 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 gov Foreign currency contract. 1040ez gov   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 gov   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 gov   Special rules apply to certain foreign currency transactions. 1040ez gov These transactions may result in ordinary gain or loss treatment. 1040ez gov For details, see Internal Revenue Code section 988 and Regulations sections 1. 1040ez gov 988-1(a)(7) and 1. 1040ez gov 988-3. 1040ez gov Nonequity option. 1040ez gov   This is any listed option (defined later) that is not an equity option. 1040ez gov Nonequity options include debt options, commodity futures options, currency options, and broad-based stock index options. 1040ez gov 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 gov 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 gov Cash-settled options. 1040ez gov   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 gov   This rule does not apply to options established before the SEC determines that the stock index is broad based. 1040ez gov Listed option. 1040ez gov   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 gov A listed option, however, does not include an option that is a right to acquire stock from the issuer. 1040ez gov Dealer equity option. 1040ez gov   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 gov   An “options dealer” is any person registered with an appropriate national securities exchange as a market maker or specialist in listed options. 1040ez gov Equity option. 1040ez gov   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 gov  Equity options include options on a group of stocks only if the group is a narrow-based stock index. 1040ez gov Dealer securities futures contract. 1040ez gov   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 gov A securities futures contract that is not a dealer securities futures contract is treated as described later under Securities Futures Contracts . 1040ez gov 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 gov 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 gov Hedging exception. 1040ez gov   The marked-to-market rules do not apply to hedging transactions. 1040ez gov See Hedging Transactions , later. 1040ez gov 60/40 rule. 1040ez gov   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 gov This is true regardless of how long you actually held the property. 1040ez gov Example. 1040ez gov On June 22, 2012, you bought a regulated futures contract for $50,000. 1040ez gov On December 31, 2012 (the last business day of your tax year), the fair market value of the contract was $57,000. 1040ez gov You recognized a $7,000 gain on your 2012 tax return, treated as 60% long-term and 40% short-term capital gain. 1040ez gov On February 1, 2013, you sold the contract for $56,000. 1040ez gov 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 gov Limited partners or entrepreneurs. 1040ez gov   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 gov Instead, these gains or losses are treated as short term. 1040ez gov Terminations and transfers. 1040ez gov   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 gov 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 gov Terminations or transfers may result from any offsetting, delivery, exercise, assignment, or lapse of your obligation or rights under section 1256 contracts. 1040ez gov Loss carryback election. 1040ez gov   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 gov See How To Report , later, for information about reporting this election on your return. 1040ez gov   The loss carried back to any year under this election cannot be more than the net section 1256 contracts gain in that year. 1040ez gov 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 gov   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 gov 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 gov   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 gov (See Capital Losses under Reporting Capital Gains and Losses, later. 1040ez gov ) 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 gov 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 gov Net section 1256 contracts loss. 1040ez gov   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 gov Net section 1256 contracts gain. 1040ez gov   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 gov  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 gov Traders in section 1256 contracts. 1040ez gov   Gain or loss from the trading of section 1256 contracts is capital gain or loss subject to the marked-to-market rules. 1040ez gov 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 gov Treatment of underlying property. 1040ez gov   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 gov 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 gov Form 6781. 1040ez gov   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 gov This includes the amount shown in box 10 of Form 1099-B. 1040ez gov Then enter the net amount of these gains and losses on Schedule D (Form 1040), line 4 or line 11, as appropriate. 1040ez gov Include a copy of Form 6781 with your income tax return. 1040ez gov   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 gov Follow the Form 6781 instructions for completing Part I. 1040ez gov Loss carryback election. 1040ez gov   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 gov Follow the instructions for completing Form 6781 for the loss year to make this election. 1040ez gov Hedging Transactions The marked-to-market rules, described earlier, do not apply to hedging transactions. 1040ez gov A transaction is a hedging transaction if both of the following conditions are met. 1040ez gov 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 gov You clearly identified the transaction as being a hedging transaction before the close of the day on which you entered into it. 1040ez gov This hedging transaction exception does not apply to transactions entered into by or for any syndicate. 1040ez gov 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 gov 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 gov 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 gov Hedging loss limit. 1040ez gov   If you are a limited partner or entrepreneur in a syndicate, the amount of a hedging loss you can claim is limited. 1040ez gov 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 gov   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 gov Ignore any hedging transaction items in determining this taxable income. 1040ez gov 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 gov   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 gov   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 gov The term “unrecognized gain” has the same meaning as defined under Loss Deferral Rules in Straddles, later. 1040ez gov Sale of property used in a hedge. 1040ez gov   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 gov 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 gov See the Instructions for Schedule SE (Form 1040). 1040ez gov In addition, the rules relating to contributions to self-employment retirement plans apply. 1040ez gov For information on retirement plan contributions, see Publication 560 and Publication 590. 1040ez gov Basis of Investment Property Basis is a way of measuring your investment in property for tax purposes. 1040ez gov You must know the basis of your property to determine whether you have a gain or loss on its sale or other disposition. 1040ez gov Investment property you buy normally has an original basis equal to its cost. 1040ez gov 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 gov Cost Basis The basis of property you buy is usually its cost. 1040ez gov The cost is the amount you pay in cash, debt obligations, or other property or services. 1040ez gov Unstated interest. 1040ez gov   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 gov You generally have unstated interest if your interest rate is less than the applicable federal rate. 1040ez gov For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. 1040ez gov Basis Other Than Cost There are times when you must use a basis other than cost. 1040ez gov In these cases, you may need to know the property's fair market value or the adjusted basis of the previous owner. 1040ez gov Fair market value. 1040ez gov   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 gov Sales of similar property, around the same date, may be helpful in figuring fair market value. 1040ez gov Property Received for Services If you receive investment property for services, you must include the property's fair market value in income. 1040ez gov The amount you include in income then becomes your basis in the property. 1040ez gov 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 gov Restricted property. 1040ez gov   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 gov Property becomes substantially vested when it is transferable or is no longer subject to substantial risk of forfeiture, whichever happens first. 1040ez gov See Restricted Property in Publication 525 for more information. 1040ez gov Bargain purchases. 1040ez gov   If you buy investment property at less than fair market value, as payment for services, you must include the difference in income. 1040ez gov Your basis in the property is the price you pay plus the amount you include in income. 1040ez gov 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 gov Example. 1040ez gov You trade A Company stock for B Company stock having a fair market value of $1,200. 1040ez gov If the adjusted basis of the A Company stock is less than $1,200, you have a taxable gain on the trade. 1040ez gov If the adjusted basis of the A Company stock is more than $1,200, you have a deductible loss on the trade. 1040ez gov The basis of your B Company stock is $1,200. 1040ez gov If you later sell the B Company stock for $1,300, you will have a gain of $100. 1040ez gov 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 gov See Nontaxable Trades , later. 1040ez gov 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 gov Increase this amount by any cash you paid, additional costs you had, and any gain recognized. 1040ez gov 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 gov 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 gov See Transfers Between Spouses , later. 1040ez gov Recordkeeping. 1040ez gov 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 gov 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 gov Fair market value less than donor's adjusted basis. 1040ez gov   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 gov 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 gov No gain or loss. 1040ez gov   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 gov Example. 1040ez gov You receive a gift of investment property having an adjusted basis of $10,000 at the time of the gift. 1040ez gov The fair market value at the time of the gift is $9,000. 1040ez gov You later sell the property for $9,500. 1040ez gov You have neither gain nor loss. 1040ez gov Your basis for figuring gain is $10,000, and $9,500 minus $10,000 results in a $500 loss. 1040ez gov Your basis for figuring loss is $9,000, and $9,500 minus $9,000 results in a $500 gain. 1040ez gov Fair market value equal to or more than donor's adjusted basis. 1040ez gov   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 gov 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 gov Gift received before 1977. 1040ez gov   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 gov However, your basis cannot be more than the fair market value of the gift at the time it was given to you. 1040ez gov Example 1. 1040ez gov You were given XYZ Company stock in 1976. 1040ez gov At the time of the gift, the stock had a fair market value of $21,000. 1040ez gov The donor's adjusted basis was $20,000. 1040ez gov The donor paid a gift tax of $500 on the gift. 1040ez gov Your basis for gain or loss is $20,500, the donor's adjusted basis plus the amount of gift tax paid. 1040ez gov Example 2. 1040ez gov The facts are the same as in Example 1 except that the gift tax paid was $1,500. 1040ez gov 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 gov Gift received after 1976. 1040ez gov   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 gov You figure this part by multiplying the gift tax paid on the gift by a fraction. 1040ez gov 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 gov   The net increase in value of the gift is the fair market value of the gift minus the donor's adjusted basis. 1040ez gov 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 gov Example. 1040ez gov In 2013, you received a gift of property from your mother. 1040ez gov 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 gov 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 gov 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 gov 701 ($61,000 ÷ $87,000) . 1040ez gov 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 gov   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 gov Add to that amount the amount of any gift tax paid on the gift, as described in the preceding discussion. 1040ez gov For figuring loss, your basis is limited to the property's fair market value at the time of the transfer. 1040ez gov Gift tax information. 1040ez gov   For information on gift tax, see Publication 950, Introduction to Estate and Gift Taxes. 1040ez gov For information on figuring the amount of gift tax to add to your basis, see Property Received as a Gift in Publication 551. 1040ez gov Property Received as Inheritance Before or after 2010. 1040ez gov   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 gov If no Form 706 was filed, use the appraised value on the date of death for state inheritance or transmission taxes. 1040ez gov 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 gov Appreciated property you gave the decedent. 1040ez gov   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 gov 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 gov 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 gov More information. 1040ez gov   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 gov Inherited in 2010 and executor elected to file Form 8939. 1040ez gov   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 gov 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 gov The result of these adjustments to the basis is the adjusted basis. 1040ez gov Adjustments to the basis of stocks and bonds are explained in the following discussion. 1040ez gov For information about other adjustments to basis, see Publication 551. 1040ez gov 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 gov 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 gov The basis of stock must be adjusted for certain events that occur after purchase. 1040ez gov For example, if you receive more stock from nontaxable stock dividends or stock splits, you must reduce the basis of your original stock. 1040ez gov You must also reduce your basis when you receive nondividend distributions (discussed in chapter 1). 1040ez gov These distributions, up to the amount of your basis, are a nontaxable return of capital. 1040ez gov 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 gov To find out more, go to www. 1040ez gov irs. 1040ez gov gov/Filing/Filing-Options. 1040ez gov Identifying stock or bonds sold. 1040ez gov   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 gov Adequate identification. 1040ez gov   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 gov Broker holds stock. 1040ez gov   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 gov  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 gov Single stock certificate. 1040ez gov   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 gov   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 gov Bonds. 1040ez gov   These methods of identification also apply to bonds sold or transferred. 1040ez gov Identification not possible. 1040ez gov   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 gov 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 gov Example. 1040ez gov You bought 100 shares of stock of XYZ Corporation in 1998 for $10 a share. 1040ez gov In January 1999 you bought another 200 shares for $11 a share. 1040ez gov In July 1999 you gave your son 50 shares. 1040ez gov In December 2001 you bought 100 shares for $9 a share. 1040ez gov In April 2013 you sold 130 shares. 1040ez gov You cannot identify the shares you disposed of, so you must use the stock you acquired first to figure the basis. 1040ez gov The shares of stock you gave your son had a basis of $500 (50 × $10). 1040ez gov 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 gov    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 gov Example. 1040ez gov You bought 100 shares of Fund A for $10 a share. 1040ez gov You paid a $50 commission to the broker for the purchase. 1040ez gov Your cost basis for each share is $10. 1040ez gov 50 ($1,050 ÷ 100). 1040ez gov Commissions and load charges. 1040ez gov   The fees and charges you pay to acquire or redeem shares of a mutual fund are not deductible. 1040ez gov You can usually add acquisition fees and charges to your cost of the shares and thereby increase your basis. 1040ez gov A fee paid to redeem the shares is usually a reduction in the redemption price (sales price). 1040ez gov   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 gov You get a reinvestment right because of the purchase of the shares or the payment of the fee or charge. 1040ez gov You dispose of the shares within 90 days of the purchase date. 1040ez gov 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 gov   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 gov 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 gov Choosing average basis for mutual fund shares. 1040ez gov   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 gov The methods you can use to figure average basis are explained later. 1040ez gov Undistributed capital gains. 1040ez gov   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 gov See Undistributed capital gains of mutual funds and REITs under Capital Gain Distributions in chapter 1. 1040ez gov Reinvestment right. 1040ez gov   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 gov      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 gov This rule applies even if the distribution is an exempt-interest dividend that you do not report as income. 1040ez gov Table 4-1. 1040ez gov This is a worksheet you can use to keep track of the adjusted basis of your mutual fund shares. 1040ez gov Enter the cost per share when you acquire new shares and any adjustments to their basis when the adjustment occurs. 1040ez gov This worksheet will help you figure the adjusted basis when you sell or redeem shares. 1040ez gov Table 4-1. 1040ez gov 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 gov 2 Cost plus or minus adjustments. 1040ez gov Automatic investment service. 1040ez gov   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 gov Dividend reinvestment plans. 1040ez gov   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 gov You must include the amount of the discount in your income. 1040ez gov Public utilities. 1040ez gov   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 gov Stock dividends. 1040ez gov   Stock dividends are distributions made by a corporation of its own stock. 1040ez gov Generally, stock dividends are not taxable to you. 1040ez gov However, see Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1 for some exceptions. 1040ez gov If the stock dividends are not taxable, you must divide your basis for the old stock between the old and new stock. 1040ez gov New and old stock identical. 1040ez gov   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 gov The result is your basis for each share of stock. 1040ez gov Example 1. 1040ez gov You owned one share of common stock that you bought for $45. 1040ez gov The corporation distributed two new shares of common stock for each share held. 1040ez gov You then had three shares of common stock. 1040ez gov Your basis in each share is $15 ($45 ÷ 3). 1040ez gov Example 2. 1040ez gov You owned two shares of common stock. 1040ez gov You bought one for $30 and the other for $45. 1040ez gov The corporation distributed two new shares of common stock for each share held. 1040ez gov 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 gov New and old stock not identical. 1040ez gov   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 gov 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 gov Example. 1040ez gov You bought a share of common stock for $100. 1040ez gov Later, the corporation distributed a share of preferred stock for each share of common stock held. 1040ez gov 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 gov You figure the basis of the old and new stock by dividing your $100 basis between them. 1040ez gov 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 gov Stock bought at various times. 1040ez gov   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 gov Taxable stock dividends. 1040ez gov   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 gov The basis of your old stock does not change. 1040ez gov Stock splits. 1040ez gov   Figure the basis of stock splits in the same way as stock dividends if identical stock is distributed on the stock held. 1040ez gov Stock rights. 1040ez gov   A stock right is a right to acquire a corporation's stock. 1040ez gov It may be exercised, it may be sold if it has a market value, or it may expire. 1040ez gov Stock rights are rarely taxable when you receive them. 1040ez gov See Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1. 1040ez gov Taxable stock rights. 1040ez gov   If you receive stock rights that are taxable, the basis of the rights is their fair market value at the time of distribution. 1040ez gov The basis of the old stock does not change. 1040ez gov Nontaxable stock rights. 1040ez gov   If you receive nontaxable stock rights and allow them to expire, they have no basis. 1040ez gov   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 gov Use a ratio of the fair market value of each to the total fair market value of both at the time of distribution. 1040ez gov   If the fair market value of the stock rights was less than 15%, their basis is zero. 1040ez gov However, you can choose to divide the basis of the old stock between the old stock and the stock rights. 1040ez gov 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 gov Basis of new stock. 1040ez gov   If you exercise the stock rights, the basis of the new stock is its cost plus the basis of the stock rights exercised. 1040ez gov Example. 1040ez gov You own 100 shares of ABC Company stock, which cost you $22 per share. 1040ez gov The ABC Company gave you 10 nontaxable stock rights that would allow you to buy 10 more shares at $26 per share. 1040ez gov At the time the stock rights were distributed, the stock had a market value of $30, not including the stock rights. 1040ez gov Each stock right had a market value of $3. 1040ez gov 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 gov 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 gov 22, new basis of old stock   ($30 ÷ $3,030) × $2,200 = $21. 1040ez gov 78, basis of rights   If you sell the rights, the basis for figuring gain or loss is $2. 1040ez gov 18 ($21. 1040ez gov 78 ÷ 10) per right. 1040ez gov 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 gov 18), or $28. 1040ez gov 18 per share. 1040ez gov The remaining basis of the old stock is $21. 1040ez gov 78 per share. 1040ez gov Investment property received in liquidation. 1040ez gov   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 gov S corporation stock. 1040ez gov   You must increase your basis in stock of an S corporation by your pro rata share of the following items. 1040ez gov All income items of the S corporation, including tax-exempt income, that are separately stated and passed through to you as a shareholder. 1040ez gov The nonseparately stated income of the S corporation. 1040ez gov 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 gov   You must decrease your basis in stock of an S corporation by your pro rata share of the following items. 1040ez gov Distributions by the S corporation that were not included in your income. 1040ez gov All loss and deduction items of the S corporation that are separately stated and passed through to you. 1040ez gov Any nonseparately stated loss of the S corporation. 1040ez gov Any expense of the S corporation that is not deductible in figuring its taxable income and not properly chargeable to a capital account. 1040ez gov 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 gov However, your basis in the stock cannot be reduced below zero. 1040ez gov Specialized small business investment company stock or partnership interest. 1040ez gov   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 gov See Rollover of Gain From Publicly Traded Securities , later. 1040ez gov Qualified small business stock. 1040ez gov   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 gov See Gains on Qualified Small Business Stock , later. 1040ez gov Short sales. 1040ez gov   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 gov   See Payments in lieu of dividends , later, for information about deducting payments in lieu of dividends. 1040ez gov Premiums on bonds. 1040ez gov   If you buy a bond at a premium, the premium is treated as part of your basis in the bond. 1040ez gov 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 gov   Although you cannot deduct the premium on a tax-exempt bond, you must amortize it to determine your adjusted basis in the bond. 1040ez gov You must reduce the basis of the bond by the premium you amortized for the period you held the bond. 1040ez gov   See Bond Premium Amortization in chapter 3 for more information. 1040ez gov Market discount on bonds. 1040ez gov   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 gov See Market Discount Bonds in chapter 1 for more information. 1040ez gov Bonds purchased at par value. 1040ez gov   A bond purchased at par value (face amount) has no premium or discount. 1040ez gov 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 gov Example. 1040ez gov You purchased a bond several years ago for its par value of $10,000. 1040ez gov You sold the bond this year for $10,100. 1040ez gov You have a gain of $100. 1040ez gov However, if you had sold the bond for $9,900, you would have a loss of $100. 1040ez gov Acquisition discount on short-term obligations. 1040ez gov   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 gov See Discount on Short-Term Obligations in chapter 1 for more information. 1040ez gov Original issue discount (OID) on debt instruments. 1040ez gov   Increase the basis of a debt instrument by the OID you include in your income. 1040ez gov See Original Issue Discount (OID) in chapter 1. 1040ez gov Discounted tax-exempt obligations. 1040ez gov   OID on tax-exempt obligations is generally not taxable. 1040ez gov 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 gov The accrued OID is added to the basis of the obligation to determine your gain or loss. 1040ez gov   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 gov   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 gov See Discount on Short-Term Obligations in chapter 1. 1040ez gov Stripped tax-exempt obligation. 1040ez gov   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 gov For stripped tax-exempt bonds or coupons acquired after June 10, 1987, part of this OID may be taxable. 1040ez gov You accrue the OID on these obligations in the manner described in chapter 1 under Stripped Bonds and Coupons . 1040ez gov   Increase your basis in the stripped tax-exempt bond or coupon by the taxable and nontaxable accrued OID. 1040ez gov 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 gov In addition, for bonds acquired after June 10, 1987, add to your basis any accrued market discount not previously reflected in basis. 1040ez gov 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 gov Gain. 1040ez gov   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 gov Loss. 1040ez gov   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. 1040ez gov Amount realized. 1040ez gov   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 gov Amount realized includes the money you receive plus the fair market value of any property or services you receive. 1040ez gov   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 gov For more information, see Publication 537. 1040ez gov   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 gov See Regulations section 1. 1040ez gov 1001-1(g). 1040ez gov 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 gov Fair market value. 1040ez gov   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 gov Example. 1040ez gov 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 gov Your gain is $3,000 ($10,000 – $7,000). 1040ez gov 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 gov Debt paid off. 1040ez gov   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 gov This is true even if neither you nor the buyer is personally liable for the debt. 1040ez gov 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 gov Example. 1040ez gov You sell stock that you had pledged as security for a bank loan of $8,000. 1040ez gov Your basis in the stock is $6,000. 1040ez gov The buyer pays off your bank loan and pays you $20,000 in cash. 1040ez gov The amount realized is $28,000 ($20,000 + $8,000). 1040ez gov Your gain is $22,000 ($28,000 – $6,000). 1040ez gov Payment of cash. 1040ez gov   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. 1040ez gov 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 gov If the result is a positive number, it is a gain. 1040ez gov If the result is a negative number, it is a loss. 1040ez gov No gain or loss. 1040ez gov   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. 1040ez gov In this case, you may have neither a gain nor a loss. 1040ez gov 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 gov 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 gov 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