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1040nr Tax Return

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1040nr Tax Return

1040nr tax return 1. 1040nr tax return   Gain or Loss Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesGain or Loss From Sales and Exchanges Abandonments Foreclosures and RepossessionsAmount realized on a nonrecourse debt. 1040nr tax return Amount realized on a recourse debt. 1040nr tax return Involuntary ConversionsCondemnations Nontaxable ExchangesLike-Kind Exchanges Other Nontaxable Exchanges Transfers to Spouse Rollover of Gain From Publicly Traded Securities Gains on Sales of Qualified Small Business Stock Exclusion of Gain From Sale of DC Zone Assets Topics - This chapter discusses: Sales and exchanges Abandonments Foreclosures and repossessions Involuntary conversions Nontaxable exchanges Transfers to spouse Rollovers and exclusions for certain capital gains Useful Items - You may want to see: Publication 523 Selling Your Home 537 Installment Sales 547 Casualties, Disasters, and Thefts 550 Investment Income and Expenses 551 Basis of Assets 908 Bankruptcy Tax Guide 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1040 U. 1040nr tax return S. 1040nr tax return Individual Income Tax Return 1040X Amended U. 1040nr tax return S. 1040nr tax return Individual Income Tax Return 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets Although the discussions in this chapter may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. 1040nr tax return However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. 1040nr tax return See chapter 5 for information about getting publications and forms. 1040nr tax return Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. 1040nr tax return An exchange is a transfer of property for other property or services. 1040nr tax return The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. 1040nr tax return Sale or lease. 1040nr tax return    Some agreements that seem to be leases may really be conditional sales contracts. 1040nr tax return The intention of the parties to the agreement can help you distinguish between a sale and a lease. 1040nr tax return   There is no test or group of tests to prove what the parties intended when they made the agreement. 1040nr tax return You should consider each agreement based on its own facts and circumstances. 1040nr tax return For more information, see chapter 3 in Publication 535, Business Expenses. 1040nr tax return Cancellation of a lease. 1040nr tax return    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. 1040nr tax return Payments received by a landlord (lessor) for the cancellation of a lease are essentially a substitute for rental payments and are taxed as ordinary income in the year in which they are received. 1040nr tax return Copyright. 1040nr tax return    Payments you receive for granting the exclusive use of (or right to exploit) a copyright throughout its life in a particular medium are treated as received from the sale of property. 1040nr tax return It does not matter if the payments are a fixed amount or a percentage of receipts from the sale, performance, exhibition, or publication of the copyrighted work, or an amount based on the number of copies sold, performances given, or exhibitions made. 1040nr tax return Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. 1040nr tax return   If the copyright was used in your trade or business and you held it longer than a year, the gain or loss may be a section 1231 gain or loss. 1040nr tax return For more information, see Section 1231 Gains and Losses in chapter 3. 1040nr tax return Easement. 1040nr tax return   The amount received for granting an easement is subtracted from the basis of the property. 1040nr tax return If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. 1040nr tax return If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received. 1040nr tax return   Any amount received that is more than the basis to be reduced is a taxable gain. 1040nr tax return The transaction is reported as a sale of property. 1040nr tax return   If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property. 1040nr tax return However, if you make a qualified conservation contribution of a restriction or easement granted in perpetuity, it is treated as a charitable contribution and not a sale or exchange, even though you keep a beneficial interest in the property affected by the easement. 1040nr tax return   If you grant an easement on your property (for example, a right-of-way over it) under condemnation or threat of condemnation, you are considered to have made a forced sale, even though you keep the legal title. 1040nr tax return Although you figure gain or loss on the easement in the same way as a sale of property, the gain or loss is treated as a gain or loss from a condemnation. 1040nr tax return See Gain or Loss From Condemnations, later. 1040nr tax return Property transferred to satisfy debt. 1040nr tax return   A transfer of property to satisfy a debt is an exchange. 1040nr tax return Note's maturity date extended. 1040nr tax return   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. 1040nr tax return Also, it is not considered a closed and completed transaction that would result in a gain or loss. 1040nr tax return However, an extension will be treated as a taxable exchange of the outstanding note for a new and materially different note if the changes in the terms of the note are significant. 1040nr tax return Each case must be determined by its own facts. 1040nr tax return For more information, see Regulations section 1. 1040nr tax return 1001-3. 1040nr tax return Transfer on death. 1040nr tax return   The transfer of property of a decedent to an executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or exchange or other disposition. 1040nr tax return No taxable gain or deductible loss results from the transfer. 1040nr tax return Bankruptcy. 1040nr tax return   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. 1040nr tax return Consequently, the transfer generally does not result in gain or loss. 1040nr tax return For more information, see Publication 908, Bankruptcy Tax Guide. 1040nr tax return Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. 1040nr tax return A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. 1040nr tax return A loss is the adjusted basis of the property that is more than the amount you realize. 1040nr tax return   Table 1-1. 1040nr tax return How To Figure Whether You Have a Gain or Loss IF your. 1040nr tax return . 1040nr tax return . 1040nr tax return THEN you have a. 1040nr tax return . 1040nr tax return . 1040nr tax return Adjusted basis is more than the amount realized, Loss. 1040nr tax return Amount realized is more than the adjusted basis, Gain. 1040nr tax return Basis. 1040nr tax return   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. 1040nr tax return The basis of property you buy is usually its cost. 1040nr tax return However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. 1040nr tax return See Basis Other Than Cost in Publication 551, Basis of Assets. 1040nr tax return Special rules apply to property acquired from a decedent who died in 2010 and the executor made the election to file Form 8939, Allocation of Increase in Basis for Property Received From a Decedent. 1040nr tax return See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. 1040nr tax return Adjusted basis. 1040nr tax return   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. 1040nr tax return Increases include costs of any improvements having a useful life of more than 1 year. 1040nr tax return Decreases include depreciation and casualty losses. 1040nr tax return For more details and additional examples, see Adjusted Basis in Publication 551. 1040nr tax return Amount realized. 1040nr tax return   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (defined below) of all property or services you receive. 1040nr tax return The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. 1040nr tax return Fair market value. 1040nr tax return   Fair market value (FMV) is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. 1040nr tax return If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. 1040nr tax return If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. 1040nr tax return Example. 1040nr tax return You used a building in your business that cost you $70,000. 1040nr tax return You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. 1040nr tax return You sold the building for $100,000 plus property having an FMV of $20,000. 1040nr tax return The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. 1040nr tax return The selling expenses were $4,000. 1040nr tax return Your gain on the sale is figured as follows. 1040nr tax return Amount realized:     Cash $100,000   FMV of property received 20,000   Real estate taxes assumed by buyer 3,000   Mortgage assumed by  buyer 17,000   Total 140,000   Minus: Selling expenses 4,000 $136,000 Adjusted basis:     Cost of building $70,000   Improvements 20,000   Total $90,000   Minus: Depreciation 10,000   Adjusted basis   $80,000 Gain on sale $56,000 Amount recognized. 1040nr tax return   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. 1040nr tax return Recognized gains must be included in gross income. 1040nr tax return Recognized losses are deductible from gross income. 1040nr tax return However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. 1040nr tax return See Nontaxable Exchanges, later. 1040nr tax return Also, a loss from the sale or other disposition of property held for personal use is not deductible, except in the case of a casualty or theft. 1040nr tax return Interest in property. 1040nr tax return   The amount you realize from the disposition of a life interest in property, an interest in property for a set number of years, or an income interest in a trust is a recognized gain under certain circumstances. 1040nr tax return If you received the interest as a gift, inheritance, or in a transfer from a spouse or former spouse incident to a divorce, the amount realized is a recognized gain. 1040nr tax return Your basis in the property is disregarded. 1040nr tax return This rule does not apply if all interests in the property are disposed of at the same time. 1040nr tax return Example 1. 1040nr tax return Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. 1040nr tax return You decide to sell your life interest in the farm. 1040nr tax return The entire amount you receive is a recognized gain. 1040nr tax return Your basis in the farm is disregarded. 1040nr tax return Example 2. 1040nr tax return The facts are the same as in Example 1, except that your brother joins you in selling the farm. 1040nr tax return The entire interest in the property is sold, so your basis in the farm is not disregarded. 1040nr tax return Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. 1040nr tax return Canceling a sale of real property. 1040nr tax return   If you sell real property under a sales contract that allows the buyer to return the property for a full refund and the buyer does so, you may not have to recognize gain or loss on the sale. 1040nr tax return If the buyer returns the property in the year of sale, no gain or loss is recognized. 1040nr tax return This cancellation of the sale in the same year it occurred places both you and the buyer in the same positions you were in before the sale. 1040nr tax return If the buyer returns the property in a later tax year, you must recognize gain (or loss, if allowed) in the year of the sale. 1040nr tax return When the property is returned in a later year, you acquire a new basis in the property. 1040nr tax return That basis is equal to the amount you pay to the buyer. 1040nr tax return Bargain Sale If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. 1040nr tax return You have a gain if the amount realized is more than your adjusted basis in the property. 1040nr tax return However, you do not have a loss if the amount realized is less than the adjusted basis of the property. 1040nr tax return Bargain sales to charity. 1040nr tax return   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. 1040nr tax return If a charitable deduction for the contribution is allowable, you must allocate your adjusted basis in the property between the part sold and the part contributed based on the fair market value of each. 1040nr tax return The adjusted basis of the part sold is figured as follows. 1040nr tax return Adjusted basis of entire property × Amount realized (fair market value of part sold)   Fair market value of entire property   Based on this allocation rule, you will have a gain even if the amount realized is not more than your adjusted basis in the property. 1040nr tax return This allocation rule does not apply if a charitable contribution deduction is not allowable. 1040nr tax return   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. 1040nr tax return Example. 1040nr tax return You sold property with a fair market value of $10,000 to a charitable organization for $2,000 and are allowed a deduction for your contribution. 1040nr tax return Your adjusted basis in the property is $4,000. 1040nr tax return Your gain on the sale is $1,200, figured as follows. 1040nr tax return Sales price $2,000 Minus: Adjusted basis of part sold ($4,000 × ($2,000 ÷ $10,000)) 800 Gain on the sale $1,200 Property Used Partly for Business or Rental Generally, if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property. 1040nr tax return You must subtract depreciation you took or could have taken from the basis of the business or rental part. 1040nr tax return However, see the special rule below for a home used partly for business or rental. 1040nr tax return You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. 1040nr tax return Gain or loss on the business or rental part of the property may be a capital gain or loss or an ordinary gain or loss, as discussed in chapter 3 under Section 1231 Gains and Losses. 1040nr tax return Any gain on the personal part of the property is a capital gain. 1040nr tax return You cannot deduct a loss on the personal part. 1040nr tax return Home used partly for business or rental. 1040nr tax return    If you use property partly as a home and partly for business or to produce rental income, the computation and treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. 1040nr tax return See Property Used Partly for Business or Rental, in Publication 523. 1040nr tax return Property Changed to Business or Rental Use You cannot deduct a loss on the sale of property you purchased or constructed for use as your home and used as your home until the time of sale. 1040nr tax return You can deduct a loss on the sale of property you acquired for use as your home but changed to business or rental property and used as business or rental property at the time of sale. 1040nr tax return However, if the adjusted basis of the property at the time of the change was more than its fair market value, the loss you can deduct is limited. 1040nr tax return Figure the loss you can deduct as follows. 1040nr tax return Use the lesser of the property's adjusted basis or fair market value at the time of the change. 1040nr tax return Add to (1) the cost of any improvements and other increases to basis since the change. 1040nr tax return Subtract from (2) depreciation and any other decreases to basis since the change. 1040nr tax return Subtract the amount you realized on the sale from the result in (3). 1040nr tax return If the amount you realized is more than the result in (3), treat this result as zero. 1040nr tax return The result in (4) is the loss you can deduct. 1040nr tax return Example. 1040nr tax return You changed your main home to rental property 5 years ago. 1040nr tax return At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. 1040nr tax return This year, you sold the property for $55,000. 1040nr tax return You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. 1040nr tax return Although your loss on the sale is $7,380 [($75,000 − $12,620) − $55,000], the amount you can deduct as a loss is limited to $2,380, figured as follows. 1040nr tax return Lesser of adjusted basis or fair market value at time of the change $70,000 Plus: Cost of any improvements and any other additions to basis after the change -0-   70,000 Minus: Depreciation and any other decreases to basis after the change 12,620   57,380 Minus: Amount you realized from the sale 55,000 Deductible loss $2,380 Gain. 1040nr tax return   If you have a gain on the sale, you generally must recognize the full amount of the gain. 1040nr tax return You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. 1040nr tax return   You may be able to exclude all or part of the gain if you owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. 1040nr tax return However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. 1040nr tax return   For more information, see Business Use or Rental of Home in Publication 523. 1040nr tax return In addition, special rules apply if the home sold was acquired in a like-kind exchange. 1040nr tax return See Special Situations in Publication 523. 1040nr tax return Also see Like-Kind Exchanges, later. 1040nr tax return Abandonments The abandonment of property is a disposition of property. 1040nr tax return You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. 1040nr tax return Generally, abandonment is not treated as a sale or exchange of the property. 1040nr tax return If the amount you realize (if any) is more than your adjusted basis, then you have a gain. 1040nr tax return If your adjusted basis is more than the amount you realize (if any), then you have a loss. 1040nr tax return Loss from abandonment of business or investment property is deductible as a loss. 1040nr tax return A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. 1040nr tax return This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. 1040nr tax return If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. 1040nr tax return The abandonment loss is deducted in the tax year in which the loss is sustained. 1040nr tax return If the abandoned property is secured by debt, special rules apply. 1040nr tax return The tax consequences of abandonment of property that is secured by debt depend on whether you are personally liable for the debt (recourse debt) or you are not personally liable for the debt (nonrecourse debt). 1040nr tax return For more information, including examples, see chapter 3 of Publication 4681. 1040nr tax return You cannot deduct any loss from abandonment of your home or other property held for personal use only. 1040nr tax return Cancellation of debt. 1040nr tax return   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you may realize ordinary income equal to the canceled debt. 1040nr tax return This income is separate from any loss realized from abandonment of the property. 1040nr tax return   You must report this income on your tax return unless one of the following applies. 1040nr tax return The cancellation is intended as a gift. 1040nr tax return The debt is qualified farm debt. 1040nr tax return The debt is qualified real property business debt. 1040nr tax return You are insolvent or bankrupt. 1040nr tax return The debt is qualified principal residence indebtedness. 1040nr tax return File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. 1040nr tax return For more information, including other exceptions and exclusion, see Publication 4681. 1040nr tax return Forms 1099-A and 1099-C. 1040nr tax return   If you abandon property that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your loss from the abandonment. 1040nr tax return However, if your debt is canceled and the lender must file Form 1099-C, the lender may include the information about the abandonment on that form instead of on Form 1099-A, and send you Form 1099-C only. 1040nr tax return The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. 1040nr tax return For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. 1040nr tax return Foreclosures and Repossessions If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. 1040nr tax return The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. 1040nr tax return This is true even if you voluntarily return the property to the lender. 1040nr tax return You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. 1040nr tax return Buyer's (borrower's) gain or loss. 1040nr tax return   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. 1040nr tax return The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. 1040nr tax return See Gain or Loss From Sales and Exchanges, earlier. 1040nr tax return You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. 1040nr tax return Amount realized on a nonrecourse debt. 1040nr tax return   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full debt canceled by the transfer. 1040nr tax return The full canceled debt is included even if the fair market value of the property is less than the canceled debt. 1040nr tax return Example 1. 1040nr tax return Chris bought a new car for $15,000. 1040nr tax return He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. 1040nr tax return Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. 1040nr tax return The credit company repossessed the car because he stopped making loan payments. 1040nr tax return The balance due after taking into account the payments Chris made was $10,000. 1040nr tax return The fair market value of the car when repossessed was $9,000. 1040nr tax return The amount Chris realized on the repossession is $10,000. 1040nr tax return That is the outstanding amount of the debt canceled by the repossession, even though the car's fair market value is less than $10,000. 1040nr tax return Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). 1040nr tax return He has a $5,000 nondeductible loss. 1040nr tax return Example 2. 1040nr tax return Abena paid $200,000 for her home. 1040nr tax return She paid $15,000 down and borrowed the remaining $185,000 from a bank. 1040nr tax return Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. 1040nr tax return The bank foreclosed on the loan because Abena stopped making payments. 1040nr tax return When the bank foreclosed on the loan, the balance due was $180,000, the fair market value of the house was $170,000, and Abena's adjusted basis was $175,000 due to a casualty loss she had deducted. 1040nr tax return The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. 1040nr tax return She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). 1040nr tax return She has a $5,000 realized gain. 1040nr tax return Amount realized on a recourse debt. 1040nr tax return   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. 1040nr tax return You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. 1040nr tax return The amount realized does not include the canceled debt that is your income from cancellation of debt. 1040nr tax return See Cancellation of debt, below. 1040nr tax return Seller's (lender's) gain or loss on repossession. 1040nr tax return   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. 1040nr tax return For more information, see Repossession in Publication 537. 1040nr tax return    Table 1-2. 1040nr tax return Worksheet for Foreclosures and Repossessions Part 1. 1040nr tax return Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. 1040nr tax return Complete this part only  if you were personally liable for the debt. 1040nr tax return Otherwise,  go to Part 2. 1040nr tax return   1. 1040nr tax return Enter the amount of outstanding debt immediately before the transfer of   property reduced by any amount for which you remain personally liable after   the transfer of property   2. 1040nr tax return Enter the fair market value of the transferred property   3. 1040nr tax return Ordinary income from cancellation of debt upon foreclosure or    repossession. 1040nr tax return * Subtract line 2 from line 1. 1040nr tax return   If less than zero, enter zero   Part 2. 1040nr tax return Figure your gain or loss from foreclosure or repossession. 1040nr tax return   4. 1040nr tax return If you completed Part 1, enter the smaller of line 1 or line 2. 1040nr tax return   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. 1040nr tax return Enter any proceeds you received from the foreclosure sale   6. 1040nr tax return Add lines 4 and 5   7. 1040nr tax return Enter the adjusted basis of the transferred property   8. 1040nr tax return Gain or loss from foreclosure or repossession. 1040nr tax return Subtract line 7  from line 6   * The income may not be taxable. 1040nr tax return See Cancellation of debt. 1040nr tax return Cancellation of debt. 1040nr tax return   If property that is repossessed or foreclosed on secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the fair market value of the property. 1040nr tax return This income is separate from any gain or loss realized from the foreclosure or repossession. 1040nr tax return Report the income from cancellation of a debt related to a business or rental activity as business or rental income. 1040nr tax return    You can use Table 1-2 to figure your income from cancellation of debt. 1040nr tax return   You must report this income on your tax return unless one of the following applies. 1040nr tax return The cancellation is intended as a gift. 1040nr tax return The debt is qualified farm debt. 1040nr tax return The debt is qualified real property business debt. 1040nr tax return You are insolvent or bankrupt. 1040nr tax return The debt is qualified principal residence indebtedness. 1040nr tax return File Form 982 to report the income exclusion. 1040nr tax return Example 1. 1040nr tax return Assume the same facts as in Example 1 under Amount realized on a nonrecourse debt, earlier, except Chris is personally liable for the car loan (recourse debt). 1040nr tax return In this case, the amount he realizes is $9,000. 1040nr tax return This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). 1040nr tax return Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). 1040nr tax return He has a $6,000 nondeductible loss. 1040nr tax return He also is treated as receiving ordinary income from cancellation of debt. 1040nr tax return That income is $1,000 ($10,000 − $9,000). 1040nr tax return This is the part of the canceled debt not included in the amount realized. 1040nr tax return Example 2. 1040nr tax return Assume the same facts as in Example 2 under Amount realized on a nonrecourse debt, earlier, except Abena is personally liable for the loan (recourse debt). 1040nr tax return In this case, the amount she realizes is $170,000. 1040nr tax return This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). 1040nr tax return Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). 1040nr tax return She has a $5,000 nondeductible loss. 1040nr tax return She also is treated as receiving ordinary income from cancellation of debt. 1040nr tax return (The debt is not exempt from tax as discussed under Cancellation of debt, above. 1040nr tax return ) That income is $10,000 ($180,000 − $170,000). 1040nr tax return This is the part of the canceled debt not included in the amount realized. 1040nr tax return Forms 1099-A and 1099-C. 1040nr tax return   A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A showing the information you need to figure your gain or loss. 1040nr tax return However, if the lender also cancels part of your debt and must file Form 1099-C, the lender may include the information about the foreclosure or repossession on that form instead of on Form 1099-A and send you Form 1099-C only. 1040nr tax return The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. 1040nr tax return For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. 1040nr tax return Involuntary Conversions An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. 1040nr tax return Involuntary conversions are also called involuntary exchanges. 1040nr tax return Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. 1040nr tax return You report the gain or deduct the loss on your tax return for the year you realize it. 1040nr tax return You cannot deduct a loss from an involuntary conversion of property you held for personal use unless the loss resulted from a casualty or theft. 1040nr tax return However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. 1040nr tax return Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. 1040nr tax return Your basis for the new property is the same as your basis for the converted property. 1040nr tax return This means that the gain is deferred until a taxable sale or exchange occurs. 1040nr tax return If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can elect to postpone reporting the gain on the property purchased. 1040nr tax return This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. 1040nr tax return If you have a gain or loss from the destruction or theft of property, see Publication 547. 1040nr tax return Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. 1040nr tax return The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. 1040nr tax return The owner receives a condemnation award (money or property) in exchange for the property taken. 1040nr tax return A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. 1040nr tax return Example. 1040nr tax return A local government authorized to acquire land for public parks informed you that it wished to acquire your property. 1040nr tax return After the local government took action to condemn your property, you went to court to keep it. 1040nr tax return But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. 1040nr tax return This is a condemnation of private property for public use. 1040nr tax return Threat of condemnation. 1040nr tax return   A threat of condemnation exists if a representative of a government body or a public official authorized to acquire property for public use informs you that the government body or official has decided to acquire your property. 1040nr tax return You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. 1040nr tax return   The sale of your property to someone other than the condemning authority will also qualify as an involuntary conversion, provided you have reasonable grounds to believe that your property will be condemned. 1040nr tax return If the buyer of this property knows at the time of purchase that it will be condemned and sells it to the condemning authority, this sale also qualifies as an involuntary conversion. 1040nr tax return Reports of condemnation. 1040nr tax return   A threat of condemnation exists if you learn of a decision to acquire your property for public use through a report in a newspaper or other news medium, and this report is confirmed by a representative of the government body or public official involved. 1040nr tax return You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. 1040nr tax return If you relied on oral statements made by a government representative or public official, the Internal Revenue Service (IRS) may ask you to get written confirmation of the statements. 1040nr tax return Example. 1040nr tax return Your property lies along public utility lines. 1040nr tax return The utility company has the authority to condemn your property. 1040nr tax return The company informs you that it intends to acquire your property by negotiation or condemnation. 1040nr tax return A threat of condemnation exists when you receive the notice. 1040nr tax return Related property voluntarily sold. 1040nr tax return   A voluntary sale of your property may be treated as a forced sale that qualifies as an involuntary conversion if the property had a substantial economic relationship to property of yours that was condemned. 1040nr tax return A substantial economic relationship exists if together the properties were one economic unit. 1040nr tax return You also must show that the condemned property could not reasonably or adequately be replaced. 1040nr tax return You can elect to postpone reporting the gain by buying replacement property. 1040nr tax return See Postponement of Gain, later. 1040nr tax return Gain or Loss From Condemnations If your property was condemned or disposed of under the threat of condemnation, figure your gain or loss by comparing the adjusted basis of your condemned property with your net condemnation award. 1040nr tax return If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. 1040nr tax return You can postpone reporting gain from a condemnation if you buy replacement property. 1040nr tax return If only part of your property is condemned, you can treat the cost of restoring the remaining part to its former usefulness as the cost of replacement property. 1040nr tax return See Postponement of Gain, later. 1040nr tax return If your net condemnation award is less than your adjusted basis, you have a loss. 1040nr tax return If your loss is from property you held for personal use, you cannot deduct it. 1040nr tax return You must report any deductible loss in the tax year it happened. 1040nr tax return You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. 1040nr tax return Main home condemned. 1040nr tax return   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. 1040nr tax return You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). 1040nr tax return For information on this exclusion, see Publication 523. 1040nr tax return If your gain is more than you can exclude but you buy replacement property, you may be able to postpone reporting the rest of the gain. 1040nr tax return See Postponement of Gain, later. 1040nr tax return Table 1-3. 1040nr tax return Worksheet for Condemnations Part 1. 1040nr tax return Gain from severance damages. 1040nr tax return  If you did not receive severance damages, skip Part 1 and go to Part 2. 1040nr tax return   1. 1040nr tax return Enter gross severance damages received   2. 1040nr tax return Enter your expenses in getting severance damages   3. 1040nr tax return Subtract line 2 from line 1. 1040nr tax return If less than zero, enter -0-   4. 1040nr tax return Enter any special assessment on remaining property taken out of your award   5. 1040nr tax return Net severance damages. 1040nr tax return Subtract line 4 from line 3. 1040nr tax return If less than zero, enter -0-   6. 1040nr tax return Enter the adjusted basis of the remaining property   7. 1040nr tax return Gain from severance damages. 1040nr tax return Subtract line 6 from line 5. 1040nr tax return If less than zero, enter -0-   8. 1040nr tax return Refigured adjusted basis of the remaining property. 1040nr tax return Subtract line 5 from line 6. 1040nr tax return If less than zero, enter -0-   Part 2. 1040nr tax return Gain or loss from condemnation award. 1040nr tax return   9. 1040nr tax return Enter the gross condemnation award received   10. 1040nr tax return Enter your expenses in getting the condemnation award   11. 1040nr tax return If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. 1040nr tax return If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. 1040nr tax return Otherwise, enter -0-   12. 1040nr tax return Add lines 10 and 11   13. 1040nr tax return Net condemnation award. 1040nr tax return Subtract line 12 from line 9   14. 1040nr tax return Enter the adjusted basis of the condemned property   15. 1040nr tax return Gain from condemnation award. 1040nr tax return If line 14 is more than line 13, enter -0-. 1040nr tax return Otherwise, subtract line 14 from  line 13 and skip line 16   16. 1040nr tax return Loss from condemnation award. 1040nr tax return Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. 1040nr tax return )   Part 3. 1040nr tax return Postponed gain from condemnation. 1040nr tax return  (Complete only if line 7 or line 15 is more than zero and you bought qualifying replacement property or made expenditures to restore the usefulness of your remaining property. 1040nr tax return )   17. 1040nr tax return If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. 1040nr tax return Otherwise, enter -0-   18. 1040nr tax return If line 15 is more than zero, enter the amount from line 13. 1040nr tax return Otherwise, enter -0-   19. 1040nr tax return Add lines 17 and 18. 1040nr tax return If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. 1040nr tax return Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. 1040nr tax return Subtract line 20 from line 19. 1040nr tax return If less than zero, enter -0-   22. 1040nr tax return If you completed Part 1, add lines 7 and 15. 1040nr tax return Otherwise, enter the amount from line 15. 1040nr tax return If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. 1040nr tax return Recognized gain. 1040nr tax return Enter the smaller of line 21 or line 22. 1040nr tax return   24. 1040nr tax return Postponed gain. 1040nr tax return Subtract line 23 from line 22. 1040nr tax return If less than zero, enter -0-   Condemnation award. 1040nr tax return   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. 1040nr tax return The award is also the amount you are paid for the sale of your property under threat of condemnation. 1040nr tax return Payment of your debts. 1040nr tax return   Amounts taken out of the award to pay your debts are considered paid to you. 1040nr tax return Amounts the government pays directly to the holder of a mortgage or lien against your property are part of your award, even if the debt attaches to the property and is not your personal liability. 1040nr tax return Example. 1040nr tax return The state condemned your property for public use. 1040nr tax return The award was set at $200,000. 1040nr tax return The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. 1040nr tax return You are considered to have received the entire $200,000 as a condemnation award. 1040nr tax return Interest on award. 1040nr tax return   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. 1040nr tax return You must report the interest separately as ordinary income. 1040nr tax return Payments to relocate. 1040nr tax return   Payments you receive to relocate and replace housing because you have been displaced from your home, business, or farm as a result of federal or federally assisted programs are not part of the condemnation award. 1040nr tax return Do not include them in your income. 1040nr tax return Replacement housing payments used to buy new property are included in the property's basis as part of your cost. 1040nr tax return Net condemnation award. 1040nr tax return   A net condemnation award is the total award you received, or are considered to have received, for the condemned property minus your expenses of obtaining the award. 1040nr tax return If only a part of your property was condemned, you also must reduce the award by any special assessment levied against the part of the property you retain. 1040nr tax return This is discussed later under Special assessment taken out of award. 1040nr tax return Severance damages. 1040nr tax return    Severance damages are not part of the award paid for the property condemned. 1040nr tax return They are paid to you if part of your property is condemned and the value of the part you keep is decreased because of the condemnation. 1040nr tax return   For example, you may receive severance damages if your property is subject to flooding because you sell flowage easement rights (the condemned property) under threat of condemnation. 1040nr tax return Severance damages also may be given to you if, because part of your property is condemned for a highway, you must replace fences, dig new wells or ditches, or plant trees to restore your remaining property to the same usefulness it had before the condemnation. 1040nr tax return   The contracting parties should agree on the specific amount of severance damages in writing. 1040nr tax return If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. 1040nr tax return   You cannot make a completely new allocation of the total award after the transaction is completed. 1040nr tax return However, you can show how much of the award both parties intended for severance damages. 1040nr tax return The severance damages part of the award is determined from all the facts and circumstances. 1040nr tax return Example. 1040nr tax return You sold part of your property to the state under threat of condemnation. 1040nr tax return The contract you and the condemning authority signed showed only the total purchase price. 1040nr tax return It did not specify a fixed sum for severance damages. 1040nr tax return However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. 1040nr tax return You may treat this part as severance damages. 1040nr tax return Treatment of severance damages. 1040nr tax return   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. 1040nr tax return Use them to reduce the basis of the remaining property. 1040nr tax return If the amount of severance damages is based on damage to a specific part of the property you kept, reduce the basis of only that part by the net severance damages. 1040nr tax return   If your net severance damages are more than the basis of your retained property, you have a gain. 1040nr tax return You may be able to postpone reporting the gain. 1040nr tax return See Postponement of Gain, later. 1040nr tax return    You can use Part 1 of Table 1-3 to figure any gain from severance damages and to refigure the adjusted basis of the remaining part of your property. 1040nr tax return Net severance damages. 1040nr tax return   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. 1040nr tax return You then reduce them by any special assessment (described later) levied against the remaining part of the property and retained out of the award by the condemning authority. 1040nr tax return The balance is your net severance damages. 1040nr tax return Expenses of obtaining a condemnation award and severance damages. 1040nr tax return   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. 1040nr tax return Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. 1040nr tax return If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. 1040nr tax return Example. 1040nr tax return You receive a condemnation award and severance damages. 1040nr tax return One-fourth of the total was designated as severance damages in your agreement with the condemning authority. 1040nr tax return You had legal expenses for the entire condemnation proceeding. 1040nr tax return You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. 1040nr tax return You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. 1040nr tax return Special assessment retained out of award. 1040nr tax return   When only part of your property is condemned, a special assessment levied against the remaining property may be retained by the governing body out of your condemnation award. 1040nr tax return An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. 1040nr tax return Examples of improvements that may cause a special assessment are widening a street and installing a sewer. 1040nr tax return   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. 1040nr tax return Example. 1040nr tax return To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. 1040nr tax return You were awarded $5,000 for this and spent $300 to get the award. 1040nr tax return Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. 1040nr tax return The city then paid you only $4,300. 1040nr tax return Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). 1040nr tax return If the $700 special assessment was not retained out of the award and you were paid $5,000, your net award would be $4,700 ($5,000 − $300). 1040nr tax return The net award would not change, even if you later paid the assessment from the amount you received. 1040nr tax return Severance damages received. 1040nr tax return   If severance damages are included in the condemnation proceeds, the special assessment retained out of the severance damages is first used to reduce the severance damages. 1040nr tax return Any balance of the special assessment is used to reduce the condemnation award. 1040nr tax return Example. 1040nr tax return You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. 1040nr tax return You spent $300 to obtain the severance damages. 1040nr tax return A special assessment of $800 was retained out of the award. 1040nr tax return The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. 1040nr tax return Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. 1040nr tax return Part business or rental. 1040nr tax return   If you used part of your condemned property as your home and part as business or rental property, treat each part as a separate property. 1040nr tax return Figure your gain or loss separately because gain or loss on each part may be treated differently. 1040nr tax return   Some examples of this type of property are a building in which you live and operate a grocery, and a building in which you live on the first floor and rent out the second floor. 1040nr tax return Example. 1040nr tax return You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. 1040nr tax return You rented half the building and lived in the other half. 1040nr tax return You paid $25,000 for the building and spent an additional $1,000 for a new roof. 1040nr tax return You claimed allowable depreciation of $4,600 on the rental half. 1040nr tax return You spent $200 in legal expenses to obtain the condemnation award. 1040nr tax return Figure your gain or loss as follows. 1040nr tax return     Resi- dential Part Busi- ness Part 1) Condemnation award received $12,000 $12,000 2) Minus: Legal expenses, $200 100 100 3) Net condemnation award $11,900 $11,900 4) Adjusted basis:       ½ of original cost, $25,000 $12,500 $12,500   Plus: ½ of cost of roof, $1,000 500 500   Total $13,000 $13,000 5) Minus: Depreciation   4,600 6) Adjusted basis, business part   $8,400 7) (Loss) on residential property ($1,100)   8) Gain on business property $3,500 The loss on the residential part of the property is not deductible. 1040nr tax return Postponement of Gain Do not report the gain on condemned property if you receive only property that is similar or related in service or use to the condemned property. 1040nr tax return Your basis for the new property is the same as your basis for the old. 1040nr tax return Money or unlike property received. 1040nr tax return   You ordinarily must report the gain if you receive money or unlike property. 1040nr tax return You can elect to postpone reporting the gain if you buy property that is similar or related in service or use to the condemned property within the replacement period, discussed later. 1040nr tax return You also can elect to postpone reporting the gain if you buy a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the condemned property. 1040nr tax return See Controlling interest in a corporation, later. 1040nr tax return   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. 1040nr tax return If the cost of the replacement property is less than the amount realized, you must report the gain up to the unspent part of the amount realized. 1040nr tax return   The basis of the replacement property is its cost, reduced by the postponed gain. 1040nr tax return Also, if your replacement property is stock in a corporation that owns property similar or related in service or use, the corporation generally will reduce its basis in its assets by the amount by which you reduce your basis in the stock. 1040nr tax return See Controlling interest in a corporation, later. 1040nr tax return You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. 1040nr tax return Postponing gain on severance damages. 1040nr tax return   If you received severance damages for part of your property because another part was condemned and you buy replacement property, you can elect to postpone reporting gain. 1040nr tax return See Treatment of severance damages, earlier. 1040nr tax return You can postpone reporting all your gain if the replacement property costs at least as much as your net severance damages plus your net condemnation award (if resulting in gain). 1040nr tax return   You also can make this election if you spend the severance damages, together with other money you received for the condemned property (if resulting in gain), to acquire nearby property that will allow you to continue your business. 1040nr tax return If suitable nearby property is not available and you are forced to sell the remaining property and relocate in order to continue your business, see Postponing gain on the sale of related property, next. 1040nr tax return   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. 1040nr tax return Postponing gain on the sale of related property. 1040nr tax return   If you sell property that is related to the condemned property and then buy replacement property, you can elect to postpone reporting gain on the sale. 1040nr tax return You must meet the requirements explained earlier under Related property voluntarily sold. 1040nr tax return You can postpone reporting all your gain if the replacement property costs at least as much as the amount realized from the sale plus your net condemnation award (if resulting in gain) plus your net severance damages, if any (if resulting in gain). 1040nr tax return Buying replacement property from a related person. 1040nr tax return   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. 1040nr tax return For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. 1040nr tax return   This rule applies to the following taxpayers. 1040nr tax return C corporations. 1040nr tax return Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. 1040nr tax return All others (including individuals, partnerships (other than those in (2)), and S corporations) if the total realized gain for the tax year on all involuntarily converted properties on which there is realized gain of more than $100,000. 1040nr tax return   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. 1040nr tax return If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. 1040nr tax return If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. 1040nr tax return Exception. 1040nr tax return   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. 1040nr tax return Advance payment. 1040nr tax return   If you pay a contractor in advance to build your replacement property, you have not bought replacement property unless it is finished before the end of the replacement period (discussed later). 1040nr tax return Replacement property. 1040nr tax return   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. 1040nr tax return You do not have to use the actual funds from the condemnation award to acquire the replacement property. 1040nr tax return Property you acquire by gift or inheritance does not qualify as replacement property. 1040nr tax return Similar or related in service or use. 1040nr tax return   Your replacement property must be similar or related in service or use to the property it replaces. 1040nr tax return   If the condemned property is real property you held for productive use in your trade or business or for investment (other than property held mainly for sale), like-kind property to be held either for productive use in trade or business or for investment will be treated as property similar or related in service or use. 1040nr tax return For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. 1040nr tax return Owner-user. 1040nr tax return   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. 1040nr tax return Example. 1040nr tax return Your home was condemned and you invested the proceeds from the condemnation in a grocery store. 1040nr tax return Your replacement property is not similar or related in service or use to the condemned property. 1040nr tax return To be similar or related in service or use, your replacement property must also be used by you as your home. 1040nr tax return Owner-investor. 1040nr tax return   If you are an owner-investor, similar or related in service or use means that any replacement property must have the same relationship of services or uses to you as the property it replaces. 1040nr tax return You decide this by determining all the following information. 1040nr tax return Whether the properties are of similar service to you. 1040nr tax return The nature of the business risks connected with the properties. 1040nr tax return What the properties demand of you in the way of management, service, and relations to your tenants. 1040nr tax return Example. 1040nr tax return You owned land and a building you rented to a manufacturing company. 1040nr tax return The building was condemned. 1040nr tax return During the replacement period, you had a new building built on other land you already owned. 1040nr tax return You rented out the new building for use as a wholesale grocery warehouse. 1040nr tax return The replacement property is also rental property, so the two properties are considered similar or related in service or use if there is a similarity in all the following areas. 1040nr tax return Your management activities. 1040nr tax return The amount and kind of services you provide to your tenants. 1040nr tax return The nature of your business risks connected with the properties. 1040nr tax return Leasehold replaced with fee simple property. 1040nr tax return   Fee simple property you will use in your trade or business or for investment can qualify as replacement property that is similar or related in service or use to a condemned leasehold if you use it in the same business and for the identical purpose as the condemned leasehold. 1040nr tax return   A fee simple property interest generally is a property interest that entitles the owner to the entire property with unconditional power to dispose of it during his or her lifetime. 1040nr tax return A leasehold is property held under a lease, usually for a term of years. 1040nr tax return Outdoor advertising display replaced with real property. 1040nr tax return   You can elect to treat an outdoor advertising display as real property. 1040nr tax return If you make this election and you replace the display with real property in which you hold a different kind of interest, your replacement property can qualify as like-kind property. 1040nr tax return For example, real property bought to replace a destroyed billboard and leased property on which the billboard was located qualify as property of a like-kind. 1040nr tax return   You can make this election only if you did not claim a section 179 deduction for the display. 1040nr tax return You cannot cancel this election unless you get the consent of the IRS. 1040nr tax return   An outdoor advertising display is a sign or device rigidly assembled and permanently attached to the ground, a building, or any other permanent structure used to display a commercial or other advertisement to the public. 1040nr tax return Substituting replacement property. 1040nr tax return   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. 1040nr tax return But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. 1040nr tax return Controlling interest in a corporation. 1040nr tax return   You can replace property by acquiring a controlling interest in a corporation that owns property similar or related in service or use to your condemned property. 1040nr tax return You have controlling interest if you own stock having at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation. 1040nr tax return Basis adjustment to corporation's property. 1040nr tax return   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. 1040nr tax return You are not required to reduce the adjusted basis of the corporation's properties below your adjusted basis in the corporation's stock (determined after reduction by your postponed gain). 1040nr tax return   Allocate this reduction to the following classes of property in the order shown below. 1040nr tax return Property that is similar or related in service or use to the condemned property. 1040nr tax return Depreciable property not reduced in (1). 1040nr tax return All other property. 1040nr tax return If two or more properties fall in the same class, allocate the reduction to each property in proportion to the adjusted basis of all the properties in that class. 1040nr tax return The reduced basis of any single property cannot be less than zero. 1040nr tax return Main home replaced. 1040nr tax return   If your gain from a condemnation of your main home is more than you can exclude from your income (see Main home condemned under Gain or Loss From Condemnations, earlier), you can postpone reporting the rest of the gain by buying replacement property that is similar or related in service or use. 1040nr tax return The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. 1040nr tax return   You must reduce the basis of your replacement property by the postponed gain. 1040nr tax return Also, if you postpone reporting any part of your gain under these rules, you are treated as having owned and used the replacement property as your main home for the period you owned and used the condemned property as your main home. 1040nr tax return Example. 1040nr tax return City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. 1040nr tax return The city paid you a condemnation award of $400,000. 1040nr tax return Your adjusted basis in the property was $80,000. 1040nr tax return You realize a gain of $320,000 ($400,000 − $80,000). 1040nr tax return You purchased a new home for $100,000. 1040nr tax return You can exclude $250,000 of the realized gain from your gross income. 1040nr tax return The amount realized is then treated as being $150,000 ($400,000 − $250,000) and the gain realized is $70,000 ($150,000 amount realized − $80,000 adjusted basis). 1040nr tax return You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). 1040nr tax return The remaining $20,000 of realized gain is postponed. 1040nr tax return Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). 1040nr tax return Replacement period. 1040nr tax return   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. 1040nr tax return This is the replacement period. 1040nr tax return   The replacement period for a condemnation begins on the earlier of the following dates. 1040nr tax return The date on which you disposed of the condemned property. 1040nr tax return The date on which the threat of condemnation began. 1040nr tax return   The replacement period generally ends 2 years after the end of the first tax year in which any part of the gain on the condemnation is realized. 1040nr tax return However, see the exceptions below. 1040nr tax return Three-year replacement period for certain property. 1040nr tax return   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the end of the first tax year in which any part of the gain on the condemnation is realized. 1040nr tax return However, this 3-year replacement period cannot be used if you replace the condemned property by acquiring control of a corporation owning property that is similar or related in service or use. 1040nr tax return Five-year replacement period for certain property. 1040nr tax return   The replacement period ends 5 years after the end of the first tax year in which any part of the gain is realized on the compulsory or involuntary conversion of the following qualified property. 1040nr tax return Property in any Midwestern disaster area compulsorily or involuntarily converted on or after the applicable disaster date as a result of severe storms, tornadoes, or flooding, but only if substantially all of the use of the replacement property is in a Midwestern disaster area. 1040nr tax return Property in the Kansas disaster area compulsorily or involuntarily converted after May 3, 2007, but only if substantially all of the use of the replacement property is in the Kansas disaster area. 1040nr tax return Property in the Hurricane Katrina disaster area compulsorily or involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, but only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. 1040nr tax return Extended replacement period for taxpayers affected by other federally declared disasters. 1040nr tax return    If you are affected by a federally declared disaster, the IRS may grant disaster relief by extending the periods to perform certain tax-related acts for 2013, including the replacement period, by up to one year. 1040nr tax return For more information visit www. 1040nr tax return irs. 1040nr tax return gov/uac/Tax-Relief-in-Disaster-Situations. 1040nr tax return Weather-related sales of livestock in an area eligible for federal assistance. 1040nr tax return   Generally, if the sale or exchange of livestock is due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. 1040nr tax return    If the weather-related conditions continue for longer than 3 years, the replacement period may be extended on a regional basis until the end of your first drought-free year for the applicable region. 1040nr tax return See Notice 2006-82. 1040nr tax return You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. 1040nr tax return irs. 1040nr tax return gov/irb/2006-39_IRB/ar13. 1040nr tax return html. 1040nr tax return    Each year, the IRS publishes a list of counties, districts, cities, or parishes for which exceptional, extreme, or severe drought was reported during the preceding 12 months. 1040nr tax return If you qualified for a 4-year replacement period for livestock sold or exchanged on account of drought and your replacement period is scheduled to expire at the end of 2013 (or at the end of the tax year that includes August 31, 2013), see Notice 2013-62. 1040nr tax return You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. 1040nr tax return irs. 1040nr tax return gov/irb/2013-45_IRB/ar04. 1040nr tax return html. 1040nr tax return The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. 1040nr tax return Determining when gain is realized. 1040nr tax return   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. 1040nr tax return If the condemning authority makes deposits with the court, you realize gain when you withdraw (or have the right to withdraw) amounts that are more than your basis. 1040nr tax return   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. 1040nr tax return A replacement will be too late if you wait for a final determination that does not take place in the applicable replacement period after you first realize gain. 1040nr tax return   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. 1040nr tax return All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. 1040nr tax return All or part of the award is actually or constructively received. 1040nr tax return For example, if you have an absolute right to a part of a condemnation award when it is deposited with the court, the amount deposited accrues in the year the deposit is made even though the full amount of the award is still contested. 1040nr tax return Replacement property bought before the condemnation. 1040nr tax return   If you buy your replacement property after there is a threat of condemnation but before the actual condemnation and you still hold the replacement property at the time of the condemnation, you have bought your replacement property within the replacement period. 1040nr tax return Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. 1040nr tax return Example. 1040nr tax return On April 3, 2012, city authorities notified you that your property would be condemned. 1040nr tax return On June 5, 2012, you acquired property to replace the property to be condemned. 1040nr tax return You still had the new property when the city took possession of your old property on September 4, 2013. 1040nr tax return You have made a replacement within the replacement period. 1040nr tax return Extension. 1040nr tax return   You can request an extension of the replacement period from the IRS director for your area. 1040nr tax return You should apply before the end of the replacement period. 1040nr tax return Your request should explain in detail why you need an extension. 1040nr tax return The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. 1040nr tax return An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. 1040nr tax return   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. 1040nr tax return Extensions are usually limited to a period of 1 year or less. 1040nr tax return The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. 1040nr tax return If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri
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Understanding Your CP124 Notice

We made changes to your excise tax return because we believe there was a miscalculation. As a result of these changes, there is a balance due of less than $1.


What you need to do

  • Read your notice carefully — it explains the changes to your tax account. Compare the figures on the notice with your excise tax return.
  • If you disagree with our change(s), contact us within 30 days of the date of your notice.
  • If you agree with our change(s), correct the copy of your excise tax return that you kept for your records.
  • You don’t have to pay if you owe less than $1.

You may want to

  • Download copies of the following materials (if they weren’t included with your notice).

 


Answers to Common Questions

Q. How can I find out what caused my tax return to change?

A. Please contact us at the toll free number listed on the top right corner of your notice for specific information about your tax return.

Q. What should I do if I disagree with the changes you made?

A. If you disagree, contact us at the toll free number listed on the top right corner of your notice or respond in writing within 30 days of the date of the notice. If your response provides us with additional information that justifies a reversal of the change, we’ll reverse the change we made to your account. If you agree with the change, please correct your records and no further action is required.

 


Tips for next year

Consider filing your excise taxes electronically. Filing online can help you to avoid mistakes and to find credits and deductions for which you may qualify. Learn more about e-file.

Page Last Reviewed or Updated: 24-Jan-2014

How to get help

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

The 1040nr Tax Return

1040nr tax return Publication 505 - Introductory Material Table of Contents IntroductionNonresident aliens. 1040nr tax return Ordering forms and publications. 1040nr tax return Tax questions. 1040nr tax return What's New for 2014 Reminders Introduction The federal income tax is a pay-as-you-go tax. 1040nr tax return You must pay the tax as you earn or receive income during the year. 1040nr tax return There are two ways to pay as you go. 1040nr tax return Withholding. 1040nr tax return If you are an employee, your employer probably withholds income tax from your pay. 1040nr tax return In addition, tax may be withheld from certain other income, such as pensions, bonuses, commissions, and gambling winnings. 1040nr tax return The amount withheld is paid to the Internal Revenue Service (IRS) in your name. 1040nr tax return Estimated tax. 1040nr tax return If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. 1040nr tax return People who are in business for themselves generally will have to pay their tax this way. 1040nr tax return You may have to pay estimated tax if you receive income such as dividends, interest, capital gains, rents, and royalties. 1040nr tax return Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax. 1040nr tax return This publication explains both of these methods. 1040nr tax return It also explains how to take credit on your return for the tax that was withheld and for your estimated tax payments. 1040nr tax return If you did not pay enough tax during the year, either through withholding or by making estimated tax payments, you may have to pay a penalty. 1040nr tax return Generally, the IRS can figure this penalty for you. 1040nr tax return This underpayment penalty, and the exceptions to it, are discussed in chapter 4. 1040nr tax return Nonresident aliens. 1040nr tax return    Before completing Form W-4, nonresident alien employees should see the Instructions for Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. 1040nr tax return Also see chapter 8 of Publication 519, U. 1040nr tax return S. 1040nr tax return Tax Guide for Aliens, for important information on withholding. 1040nr tax return What's new for 2013 and 2014. 1040nr tax return   See What's New for 2014 in this Introduction, and What's New for 2013 in chapter 4. 1040nr tax return Comments and suggestions. 1040nr tax return   We welcome your comments about this publication and your suggestions for future editions. 1040nr tax return   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 1040nr tax return NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. 1040nr tax return Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 1040nr tax return   You can send your comments from www. 1040nr tax return irs. 1040nr tax return gov/formspubs/. 1040nr tax return Click on “More Information” and then on Give us feedback on forms and publications. 1040nr tax return   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 1040nr tax return Ordering forms and publications. 1040nr tax return   Visit www. 1040nr tax return irs. 1040nr tax return gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 business days after your request is received. 1040nr tax return Internal Revenue Service 1201 N. 1040nr tax return Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 1040nr tax return   If you have a tax question, check the information available on IRS. 1040nr tax return gov or call 1-800-829-1040. 1040nr tax return We cannot answer tax questions sent to either of the above addresses. 1040nr tax return What's New for 2014 Use your 2013 tax return as a guide in figuring your 2014 estimated tax, but be sure to consider the following. 1040nr tax return Standard mileage rates. 1040nr tax return  The 2014 rate for business use of your vehicle is 56 cents per mile. 1040nr tax return The rate for use of your vehicle to get medical care or move is 23½ cents per mile. 1040nr tax return The rate of 14 cents per mile for charitable use is unchanged. 1040nr tax return Personal exemption increased for certain taxpayers. 1040nr tax return  For 2014, the personal exemption amount is increased to $3,950 for taxpayers with adjusted gross income at or below $305,050 if married filing jointly or qualifying widow(er), $279,650 if head of household, $254,200 if single, or $152,525 if married filing separately. 1040nr tax return The personal exemption amount for taxpayers with adjusted gross income above these thresholds may be reduced. 1040nr tax return Limitation on itemized deductions. 1040nr tax return  For 2014, itemized deductions for taxpayers with adjusted gross income above $305,050 if married filing jointly or qualifying widow(er), $279,650 if head of household, $254,200 if single, and $152,525 if married filing separately may be reduced. 1040nr tax return Health care coverage. 1040nr tax return  When you file your 2014 tax return in 2015, you will need to either (1) indicate on your return that you and your family had health care coverage throughout 2014, (2) claim an exemption from the health care coverage requirement for some or all of 2014, or (3) make a payment if you do not have coverage or an exemption(s) for all 12 months of 2014. 1040nr tax return For examples on how this payment works, go to www. 1040nr tax return IRS. 1040nr tax return gov/aca and click under the “Individuals & Families” section. 1040nr tax return You may want to consider this when figuring your “Other taxes” on Line 12 of the 2014 Estimated Tax Worksheet (Worksheet 2-1). 1040nr tax return For general information on these requirements, go to www. 1040nr tax return IRS. 1040nr tax return gov/aca. 1040nr tax return Advance payments of the Premium Tax Credit. 1040nr tax return  If you buy health care insurance through the Health Insurance Marketplace, you may be eligible for advance payments of the Premium Tax Credit to help pay for your insurance coverage. 1040nr tax return Receiving too little or too much in advance will affect your refund or balance due. 1040nr tax return Promptly report changes in your income or family size to your Marketplace. 1040nr tax return You may want to consider this when figuring your estimated taxes for 2014. 1040nr tax return For more information, go to www. 1040nr tax return IRS. 1040nr tax return gov/aca and see Publication 5120 and Publication 5121. 1040nr tax return http://www. 1040nr tax return IRS. 1040nr tax return gov/pub5120 Alternative minimum tax (AMT) exemption amount increased. 1040nr tax return  The AMT exemption amount is increased to $52,800 ($82,100 if married filing jointly or qualifying widow(er); $41,050 if married filing separately). 1040nr tax return Lifetime learning credit income limits. 1040nr tax return  In order to claim a lifetime learning credit, your MAGI must be less than $54,000 ($108,000 if married filing jointly). 1040nr tax return Retirement savings contribution credit income limits increased. 1040nr tax return  In order to claim this credit for 2014, your MAGI must be less than $30,000 ($60,000 if married filing jointly; $45,000 if head of household). 1040nr tax return Adoption credit or exclusion. 1040nr tax return  The maximum adoption credit or exclusion for employer-provided adoption benefits has increased to $13,190. 1040nr tax return In order to claim either the credit or exclusion, your MAGI must be less than $237,880. 1040nr tax return Earned income credit (EIC). 1040nr tax return  You may be able to take the EIC in 2014 if: Three or more children lived with you and you earned less than $46,997 ($52,427 if married filing jointly), Two children lived with you and you earned less than $43,756 ($49,186 if married filing jointly), One child lived with you and you earned less than $38,511 ($43,941 if married filing jointly), or A child did not live with you and you earned less than $14,590 ($20,020 if married filing jointly). 1040nr tax return Also, the maximum MAGI you can have and still get the credit has increased. 1040nr tax return You may be able to take the credit if your MAGI is less than the amount in the above list that applies to you. 1040nr tax return The maximum investment income you can have and get the credit has increased to $3,350. 1040nr tax return Reminders Future developments. 1040nr tax return  The IRS has created a page on IRS. 1040nr tax return gov for information about Publication 505 at www. 1040nr tax return irs. 1040nr tax return gov/pub505. 1040nr tax return Information about any future developments affecting Publication 505 (such as legislation enacted after we release it) will be posted on that page. 1040nr tax return Social security tax. 1040nr tax return   Generally, each employer for whom you work during the tax year must withhold social security tax up to the annual limit. 1040nr tax return The annual limit is $117,000 in 2014. 1040nr tax return Photographs of missing children. 1040nr tax return  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 1040nr tax return Photographs of missing children selected by the Center may appear in this publication on pages that otherwise would be blank. 1040nr tax return You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. 1040nr tax return Additional Medicare Tax. 1040nr tax return  Beginning in 2013, a 0. 1040nr tax return 9% Additional Medicare Tax applies to Medicare wages, Railroad Retirement Tax Act compensation, and self-employment income over a threshold amount based on your filing status. 1040nr tax return You may need to include this amount when figuring your estimated tax. 1040nr tax return See the instructions for line 12 of the 2014 Estimated Tax Worksheet. 1040nr tax return You may also request that your employer deduct and withhold an additional amount of income tax withholding from your wages on Form W-4, Employee's Withholding Allowance Certificate. 1040nr tax return For more information on Additional Medicare Tax, go to IRS. 1040nr tax return gov and enter “Additional Medicare Tax” in the search box. 1040nr tax return Net Investment Income Tax. 1040nr tax return  Beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). 1040nr tax return NIIT is a 3. 1040nr tax return 8% tax on the lesser of net investment income or the excess of your modified adjusted gross income (MAGI) over the threshold amount. 1040nr tax return NIIT may need to be included when figuring estimated tax. 1040nr tax return See the instructions for line 12 of the 2014 Estimated Tax Worksheet. 1040nr tax return You may also request that your employer deduct and withhold an additional amount of income tax withholding from your wages on Form W-4. 1040nr tax return For more information on NIIT, go to IRS. 1040nr tax return gov and enter “Net Investment Income Tax” in the search box. 1040nr tax return Prev  Up  Next   Home   More Online Publications