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1040x Form For 2010

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1040x Form For 2010

1040x form for 2010 5. 1040x form for 2010   Personal Use of Dwelling Unit (Including Vacation Home) Table of Contents Dividing Expenses Dwelling Unit Used as a HomeMain home. 1040x form for 2010 Shared equity financing agreement. 1040x form for 2010 Donation of use of the property. 1040x form for 2010 Examples. 1040x form for 2010 Days used for repairs and maintenance. 1040x form for 2010 Days used as a main home before or after renting. 1040x form for 2010 Reporting Income and DeductionsNot used as a home. 1040x form for 2010 Used as a home but rented less than 15 days. 1040x form for 2010 Used as a home and rented 15 days or more. 1040x form for 2010 If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. 1040x form for 2010 In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. 1040x form for 2010 Only your rental expenses may deducted on Schedule E (Form 1040). 1040x form for 2010 Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). 1040x form for 2010 You must also determine if the dwelling unit is considered a home. 1040x form for 2010 The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. 1040x form for 2010 Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. 1040x form for 2010 There is a special rule if you used the dwelling unit as a home and you rented it for less than 15 days during the year. 1040x form for 2010 Dwelling unit. 1040x form for 2010   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. 1040x form for 2010 It also includes all structures or other property belonging to the dwelling unit. 1040x form for 2010 A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. 1040x form for 2010   A dwelling unit does not include property (or part of the property) used solely as a hotel, motel, inn, or similar establishment. 1040x form for 2010 Property is used solely as a hotel, motel, inn, or similar establishment if it is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. 1040x form for 2010 Example. 1040x form for 2010 You rent a room in your home that is always available for short-term occupancy by paying customers. 1040x form for 2010 You do not use the room yourself and you allow only paying customers to use the room. 1040x form for 2010 This room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. 1040x form for 2010 Dividing Expenses If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose. 1040x form for 2010 When dividing your expenses, follow these rules. 1040x form for 2010 Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. 1040x form for 2010 (This rule does not apply when determining whether you used the unit as a home. 1040x form for 2010 ) Any day that the unit is available for rent but not actually rented is not a day of rental use. 1040x form for 2010 Fair rental price. 1040x form for 2010   A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. 1040x form for 2010 The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area. 1040x form for 2010   Ask yourself the following questions when comparing another property with yours. 1040x form for 2010 Is it used for the same purpose? Is it approximately the same size? Is it in approximately the same condition? Does it have similar furnishings? Is it in a similar location? If any of the answers are no, the properties probably are not similar. 1040x form for 2010 Example. 1040x form for 2010 Your beach cottage was available for rent from June 1 through August 31 (92 days). 1040x form for 2010 Except for the first week in August (7 days), when you were unable to find a renter, you rented the cottage at a fair rental price during that time. 1040x form for 2010 The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. 1040x form for 2010 Your family also used the cottage during the last 2 weeks of May (14 days). 1040x form for 2010 The cottage was not used at all before May 17 or after August 31. 1040x form for 2010 You figure the part of the cottage expenses to treat as rental expenses as follows. 1040x form for 2010 The cottage was used for rental a total of 85 days (92 − 7). 1040x form for 2010 The days it was available for rent but not rented (7 days) are not days of rental use. 1040x form for 2010 The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. 1040x form for 2010 You used the cottage for personal purposes for 14 days (the last 2 weeks in May). 1040x form for 2010 The total use of the cottage was 99 days (14 days personal use + 85 days rental use). 1040x form for 2010 Your rental expenses are 85/99 (86%) of the cottage expenses. 1040x form for 2010 Note. 1040x form for 2010 When determining whether you used the cottage as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair rental price for the weekend. 1040x form for 2010 Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. 1040x form for 2010 Because you used the cottage for personal purposes more than 14 days and more than 10% of the days of rental use (8 days), you used it as a home. 1040x form for 2010 If you have a net loss, you may not be able to deduct all of the rental expenses. 1040x form for 2010 See Dwelling Unit Used as a Home, next. 1040x form for 2010 Dwelling Unit Used as a Home If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home. 1040x form for 2010 You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 14 days, or 10% of the total days it is rented to others at a fair rental price. 1040x form for 2010 See What is a day of personal use , later. 1040x form for 2010 If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price (discussed earlier), do not count that day as a day of rental use in applying (2) above. 1040x form for 2010 Instead, count it as a day of personal use in applying both (1) and (2) above. 1040x form for 2010 What is a day of personal use?   A day of personal use of a dwelling unit is any day that the unit is used by any of the following persons. 1040x form for 2010 You or any other person who owns an interest in it, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). 1040x form for 2010 However, see Days used as a main home before or after renting , later. 1040x form for 2010 A member of your family or a member of the family of any other person who owns an interest in it, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. 1040x form for 2010 Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. 1040x form for 2010 ), and lineal descendants (children, grandchildren, etc. 1040x form for 2010 ). 1040x form for 2010 Anyone under an arrangement that lets you use some other dwelling unit. 1040x form for 2010 Anyone at less than a fair rental price. 1040x form for 2010 Main home. 1040x form for 2010   If the other person or member of the family in (1) or (2) above has more than one home, his or her main home is ordinarily the one he or she lived in most of the time. 1040x form for 2010 Shared equity financing agreement. 1040x form for 2010   This is an agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the co-owners is entitled to occupy the unit as his or her main home upon payment of rent to the other co-owner or owners. 1040x form for 2010 Donation of use of the property. 1040x form for 2010   You use a dwelling unit for personal purposes if: You donate the use of the unit to a charitable organization, The organization sells the use of the unit at a fund-raising event, and The “purchaser” uses the unit. 1040x form for 2010 Examples. 1040x form for 2010   The following examples show how to determine if you have days of personal use. 1040x form for 2010 Example 1. 1040x form for 2010 You and your neighbor are co-owners of a condominium at the beach. 1040x form for 2010 Last year, you rented the unit to vacationers whenever possible. 1040x form for 2010 The unit was not used as a main home by anyone. 1040x form for 2010 Your neighbor used the unit for 2 weeks last year; you did not use it at all. 1040x form for 2010 Because your neighbor has an interest in the unit, both of you are considered to have used the unit for personal purposes during those 2 weeks. 1040x form for 2010 Example 2. 1040x form for 2010 You and your neighbors are co-owners of a house under a shared equity financing agreement. 1040x form for 2010 Your neighbors live in the house and pay you a fair rental price. 1040x form for 2010 Even though your neighbors have an interest in the house, the days your neighbors live there are not counted as days of personal use by you. 1040x form for 2010 This is because your neighbors rent the house as their main home under a shared equity financing agreement. 1040x form for 2010 Example 3. 1040x form for 2010 You own a rental property that you rent to your son. 1040x form for 2010 Your son does not own any interest in this property. 1040x form for 2010 He uses it as his main home and pays you a fair rental price. 1040x form for 2010 Your son's use of the property is not personal use by you because your son is using it as his main home, he owns no interest in the property, and he is paying you a fair rental price. 1040x form for 2010 Example 4. 1040x form for 2010 You rent your beach house to Rosa. 1040x form for 2010 Rosa rents her cabin in the mountains to you. 1040x form for 2010 You each pay a fair rental price. 1040x form for 2010 You are using your beach house for personal purposes on the days that Rosa uses it because your house is used by Rosa under an arrangement that allows you to use her cabin. 1040x form for 2010 Example 5. 1040x form for 2010 You rent an apartment to your mother at less than a fair rental price. 1040x form for 2010 You are using the apartment for personal purposes on the days that your mother rents it because you rent it for less than a fair rental price. 1040x form for 2010 Days used for repairs and maintenance. 1040x form for 2010   Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. 1040x form for 2010 Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. 1040x form for 2010 Example. 1040x form for 2010 Corey owns a cabin in the mountains that he rents for most of the year. 1040x form for 2010 He spends a week at the cabin with family members. 1040x form for 2010 Corey works on maintenance of the cabin 3 or 4 hours each day during the week and spends the rest of the time fishing, hiking, and relaxing. 1040x form for 2010 Corey's family members, however, work substantially full time on the cabin each day during the week. 1040x form for 2010 The main purpose of being at the cabin that week is to do maintenance work. 1040x form for 2010 Therefore, the use of the cabin during the week by Corey and his family will not be considered personal use by Corey. 1040x form for 2010 Days used as a main home before or after renting. 1040x form for 2010   For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. 1040x form for 2010 Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. 1040x form for 2010 You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property. 1040x form for 2010 However, this special rule does not apply when dividing expenses between rental and personal use. 1040x form for 2010 See Property Changed to Rental Use in chapter 4. 1040x form for 2010 Example 1. 1040x form for 2010 On February 29, 2012, you moved out of the house you had lived in for 6 years because you accepted a job in another town. 1040x form for 2010 You rented your house at a fair rental price from March 15, 2012, to May 14, 2013 (14 months). 1040x form for 2010 On June 1, 2013, you moved back into your old house. 1040x form for 2010 The days you used the house as your main home from January 1 to February 29, 2012, and from June 1 to December 31, 2013, are not counted as days of personal use. 1040x form for 2010 Therefore, you would use the rules in chapter 1 when figuring your rental income and expenses. 1040x form for 2010 Example 2. 1040x form for 2010 On January 31, you moved out of the condominium where you had lived for 3 years. 1040x form for 2010 You offered it for rent at a fair rental price beginning on February 1. 1040x form for 2010 You were unable to rent it until April. 1040x form for 2010 On September 15, you sold the condominium. 1040x form for 2010 The days you used the condominium as your main home from January 1 to January 31 are not counted as days of personal use when determining whether you used it as a home. 1040x form for 2010 Examples. 1040x form for 2010   The following examples show how to determine whether you used your rental property as a home. 1040x form for 2010 Example 1. 1040x form for 2010 You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. 1040x form for 2010 You rented the basement apartment at a fair rental price to college students during the regular school year. 1040x form for 2010 You rented to them on a 9-month lease (273 days). 1040x form for 2010 You figured 10% of the total days rented to others at a fair rental price is 27 days. 1040x form for 2010 During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. 1040x form for 2010 Your basement apartment was used as a home because you used it for personal purposes for 30 days. 1040x form for 2010 Rent-free use by your brothers is considered personal use. 1040x form for 2010 Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). 1040x form for 2010 Example 2. 1040x form for 2010 You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). 1040x form for 2010 Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. 1040x form for 2010 You figured 10% of the total days rented to others at a fair rental price is 3 days. 1040x form for 2010 The room was used as a home because you used it for personal purposes for 21 days. 1040x form for 2010 That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). 1040x form for 2010 Example 3. 1040x form for 2010 You own a condominium apartment in a resort area. 1040x form for 2010 You rented it at a fair rental price for a total of 170 days during the year. 1040x form for 2010 For 12 of these days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. 1040x form for 2010 Your family actually used the apartment for 10 of those days. 1040x form for 2010 Therefore, the apartment is treated as having been rented for 160 (170 – 10) days. 1040x form for 2010 You figured 10% of the total days rented to others at a fair rental price is 16 days. 1040x form for 2010 Your family also used the apartment for 7 other days during the year. 1040x form for 2010 You used the apartment as a home because you used it for personal purposes for 17 days. 1040x form for 2010 That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). 1040x form for 2010 Minimal rental use. 1040x form for 2010   If you use the dwelling unit as a home and you rent it less than 15 days during the year, that period is not treated as rental activity. 1040x form for 2010 See Used as a home but rented less than 15 days, later, for more information. 1040x form for 2010 Limit on deductions. 1040x form for 2010   Renting a dwelling unit that is considered a home is not a passive activity. 1040x form for 2010 Instead, if your rental expenses are more than your rental income, some or all of the excess expenses cannot be used to offset income from other sources. 1040x form for 2010 The excess expenses that cannot be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. 1040x form for 2010 Any expenses carried forward to the next year will be subject to any limits that apply for that year. 1040x form for 2010 This limitation will apply to expenses carried forward to another year even if you do not use the property as your home for that subsequent year. 1040x form for 2010   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 5–1. 1040x form for 2010 Reporting Income and Deductions Property not used for personal purposes. 1040x form for 2010   If you do not use a dwelling unit for personal purposes, see chapter 3 for how to report your rental income and expenses. 1040x form for 2010 Property used for personal purposes. 1040x form for 2010   If you do use a dwelling unit for personal purposes, then how you report your rental income and expenses depends on whether you used the dwelling unit as a home. 1040x form for 2010 Not used as a home. 1040x form for 2010   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. 1040x form for 2010 Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in this chapter under Dividing Expenses . 1040x form for 2010 The expenses for personal use are not deductible as rental expenses. 1040x form for 2010   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses in chapter 3. 1040x form for 2010 Used as a home but rented less than 15 days. 1040x form for 2010   If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). 1040x form for 2010 You are not required to report the rental income and rental expenses from this activity. 1040x form for 2010 The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). 1040x form for 2010 See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. 1040x form for 2010 Used as a home and rented 15 days or more. 1040x form for 2010   If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. 1040x form for 2010 Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in this chapter under Dividing Expenses . 1040x form for 2010 The expenses for personal use are not deductible as rental expenses. 1040x form for 2010   If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. 1040x form for 2010 You do not need to use Worksheet 5-1. 1040x form for 2010   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. 1040x form for 2010 To figure your deductible rental expenses and any carryover to next year, use Worksheet 5–1. 1040x form for 2010 Worksheet 5-1. 1040x form for 2010 Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Use this worksheet only if you answer “yes” to all of the following questions. 1040x form for 2010 Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . 1040x form for 2010 ) Did you rent the dwelling unit at a fair rental price 15 days or more this year? Is the total of your rental expenses and depreciation more than your rental income? PART I. 1040x form for 2010 Rental Use Percentage A. 1040x form for 2010 Total days available for rent at fair rental price A. 1040x form for 2010       B. 1040x form for 2010 Total days available for rent (line A) but not rented B. 1040x form for 2010       C. 1040x form for 2010 Total days of rental use. 1040x form for 2010 Subtract line B from line A C. 1040x form for 2010       D. 1040x form for 2010 Total days of personal use (including days rented at less than fair rental price) D. 1040x form for 2010       E. 1040x form for 2010 Total days of rental and personal use. 1040x form for 2010 Add lines C and D E. 1040x form for 2010       F. 1040x form for 2010 Percentage of expenses allowed for rental. 1040x form for 2010 Divide line C by line E     F. 1040x form for 2010 . 1040x form for 2010 PART II. 1040x form for 2010 Allowable Rental Expenses 1. 1040x form for 2010 Enter rents received 1. 1040x form for 2010   2a. 1040x form for 2010 Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. 1040x form for 2010       b. 1040x form for 2010 Enter the rental portion of real estate taxes b. 1040x form for 2010       c. 1040x form for 2010 Enter the rental portion of deductible casualty and theft losses (see instructions) c. 1040x form for 2010       d. 1040x form for 2010 Enter direct rental expenses (see instructions) d. 1040x form for 2010       e. 1040x form for 2010 Fully deductible rental expenses. 1040x form for 2010 Add lines 2a–2d. 1040x form for 2010 Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. 1040x form for 2010   3. 1040x form for 2010 Subtract line 2e from line 1. 1040x form for 2010 If zero or less, enter -0- 3. 1040x form for 2010   4a. 1040x form for 2010 Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. 1040x form for 2010       b. 1040x form for 2010 Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. 1040x form for 2010       c. 1040x form for 2010 Carryover of operating expenses from 2012 worksheet c. 1040x form for 2010       d. 1040x form for 2010 Add lines 4a–4c d. 1040x form for 2010       e. 1040x form for 2010 Allowable expenses. 1040x form for 2010 Enter the smaller of line 3 or line 4d (see instructions) 4e. 1040x form for 2010   5. 1040x form for 2010 Subtract line 4e from line 3. 1040x form for 2010 If zero or less, enter -0- 5. 1040x form for 2010   6a. 1040x form for 2010 Enter the rental portion of excess casualty and theft losses (see instructions) 6a. 1040x form for 2010       b. 1040x form for 2010 Enter the rental portion of depreciation of the dwelling unit b. 1040x form for 2010       c. 1040x form for 2010 Carryover of excess casualty losses and depreciation from 2012 worksheet c. 1040x form for 2010       d. 1040x form for 2010 Add lines 6a–6c d. 1040x form for 2010       e. 1040x form for 2010 Allowable excess casualty and theft losses and depreciation. 1040x form for 2010 Enter the smaller of  line 5 or line 6d (see instructions) 6e. 1040x form for 2010   PART III. 1040x form for 2010 Carryover of Unallowed Expenses to Next Year 7a. 1040x form for 2010 Operating expenses to be carried over to next year. 1040x form for 2010 Subtract line 4e from line 4d 7a. 1040x form for 2010   b. 1040x form for 2010 Excess casualty and theft losses and depreciation to be carried over to next year. 1040x form for 2010  Subtract line 6e from line 6d b. 1040x form for 2010   Worksheet 5-1 Instructions. 1040x form for 2010 Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. 1040x form for 2010 Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of  Part II. 1040x form for 2010 Line 2a. 1040x form for 2010 Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. 1040x form for 2010 Do not include interest on a loan that did not benefit the dwelling unit. 1040x form for 2010 For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. 1040x form for 2010 Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. 1040x form for 2010 Include the rental portion of this interest in the total you enter on line 2a of the worksheet. 1040x form for 2010   Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A as if you had not rented the unit. 1040x form for 2010 See the Schedule A instructions. 1040x form for 2010 However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. 1040x form for 2010 See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. 1040x form for 2010 Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. 1040x form for 2010   Note. 1040x form for 2010 Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. 1040x form for 2010 Instead, figure the personal portion on a separate Schedule A. 1040x form for 2010 If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount. 1040x form for 2010           Line 2c. 1040x form for 2010 Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A as if you had not rented the dwelling unit. 1040x form for 2010 To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. 1040x form for 2010 If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. 1040x form for 2010 On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. 1040x form for 2010 Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. 1040x form for 2010   Note. 1040x form for 2010 Do not file this Form 4684 or use it to figure your personal losses on Schedule A. 1040x form for 2010 Instead, figure the personal portion on a separate Form 4684. 1040x form for 2010           Line 2d. 1040x form for 2010 Enter the total of your rental expenses that are directly related only to the rental activity. 1040x form for 2010 These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. 1040x form for 2010 Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. 1040x form for 2010           Line 2e. 1040x form for 2010 You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. 1040x form for 2010 Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. 1040x form for 2010           Line 4b. 1040x form for 2010 On line 2a, you entered the rental portion of the mortgage interest or qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. 1040x form for 2010 If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. 1040x form for 2010 Do not include interest on a loan that did not benefit the dwelling unit  (as explained in the line 2a instructions). 1040x form for 2010           Line 4e. 1040x form for 2010 You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e. 1040x form for 2010 *           Line 6a. 1040x form for 2010 To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. 1040x form for 2010   A. 1040x form for 2010 Enter the amount from Form 4684, line 10       B. 1040x form for 2010 Enter the rental portion of line A       C. 1040x form for 2010 Enter the amount from line 2c of this worksheet       D. 1040x form for 2010 Subtract line C from line B. 1040x form for 2010 Enter the result here and on line 6a of this worksheet               Line 6e. 1040x form for 2010 You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e. 1040x form for 2010 * *Allocating the limited deduction. 1040x form for 2010 If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. 1040x form for 2010 Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. 1040x form for 2010 Prev  Up  Next   Home   More Online Publications
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Letter 2604C Frequently Asked Questions (FAQs)

What is the letter telling me?

This letter is telling you we have accepted your oral or written request to pay what you owe IRS in installments. It provides you with a specific dollar amount to pay each month and when your payment is due. It also provides the address that your payments should be mailed to. Included is the dollar amount for the fee we charge to establish an agreement. The amount varies depending on the type of agreement that is established. The letter also provides instructions on how to apply for the Low Income Fee Reduction (if you qualify).

What do I have to do?

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Page Last Reviewed or Updated: 30-Jan-2014

The 1040x Form For 2010

1040x form for 2010 4. 1040x form for 2010   Sales and Trades of Investment Property Table of Contents IntroductionNominees. 1040x form for 2010 Topics - This chapter discusses: Useful Items - You may want to see: What Is a Sale or Trade?Dividend versus sale or trade. 1040x form for 2010 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. 1040x form for 2010 Debt paid off. 1040x form for 2010 Payment of cash. 1040x form for 2010 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. 1040x form for 2010 S. 1040x form for 2010 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. 1040x form for 2010 Exception 2. 1040x form for 2010 Section 1256 contracts and straddles. 1040x form for 2010 Market discount bonds. 1040x form for 2010 File Form 1099-B or Form 1099-S with the IRS. 1040x form for 2010 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. 1040x form for 2010 Investment property. 1040x form for 2010   This is property that produces investment income. 1040x form for 2010 Examples include stocks, bonds, and Treasury bills and notes. 1040x form for 2010 Property used in a trade or business is not investment property. 1040x form for 2010 Form 1099-B. 1040x form for 2010   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. 1040x form for 2010 You should receive the statement by February 15 of the next year. 1040x form for 2010 It will show the gross proceeds from the sale. 1040x form for 2010 The IRS will also get a copy of Form 1099-B from the broker. 1040x form for 2010   Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. 1040x form for 2010 If you sold a covered security in 2013, your broker will send you a Form 1099-B (or substitute statement) that shows your basis. 1040x form for 2010 This will help you complete Form 8949. 1040x form for 2010 Generally, a covered security is a security you acquired after 2010, with certain exceptions explained in the Instructions for Form 8949. 1040x form for 2010    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in this chapter. 1040x form for 2010 Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). 1040x form for 2010 Nominees. 1040x form for 2010   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. 1040x form for 2010   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. 1040x form for 2010 Other property transactions. 1040x form for 2010   Certain transfers of property are discussed in other IRS publications. 1040x form for 2010 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. 1040x form for 2010 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 . 1040x form for 2010 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. 1040x form for 2010 What Is a Sale or Trade? This section explains what is a sale or trade. 1040x form for 2010 It also explains certain transactions and events that are treated as sales or trades. 1040x form for 2010 A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. 1040x form for 2010 A trade is a transfer of property for other property or services, and may be taxed in the same way as a sale. 1040x form for 2010 Sale and purchase. 1040x form for 2010   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. 1040x form for 2010 The sale and purchase are two separate transactions. 1040x form for 2010 But see Like-Kind Exchanges under Nontaxable Trades, later. 1040x form for 2010 Redemption of stock. 1040x form for 2010   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. 1040x form for 2010 Dividend versus sale or trade. 1040x form for 2010   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. 1040x form for 2010 Both direct and indirect ownership of stock will be considered. 1040x form for 2010 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. 1040x form for 2010 Redemption or retirement of bonds. 1040x form for 2010   A redemption or retirement of bonds or notes at their maturity generally is treated as a sale or trade. 1040x form for 2010 See Stocks, stock rights, and bonds and Discounted Debt Instruments under Capital or Ordinary Gain or Loss, later. 1040x form for 2010   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. 1040x form for 2010 For details, see Regulations section 1. 1040x form for 2010 1001-3. 1040x form for 2010 Surrender of stock. 1040x form for 2010   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. 1040x form for 2010 The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. 1040x form for 2010 Trade of investment property for an annuity. 1040x form for 2010   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. 1040x form for 2010 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. 1040x form for 2010 Figure the present value of the annuity according to factors used by commercial insurance companies issuing annuities. 1040x form for 2010 Transfer by inheritance. 1040x form for 2010   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. 1040x form for 2010 No taxable gain or deductible loss results from the transfer. 1040x form for 2010 Termination of certain rights and obligations. 1040x form for 2010   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. 1040x form for 2010 Any gain or loss is treated as a capital gain or loss. 1040x form for 2010   This rule does not apply to the retirement of a debt instrument. 1040x form for 2010 See Redemption or retirement of bonds , earlier. 1040x form for 2010 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. 1040x form for 2010 This affects whether your capital loss is long term or short term. 1040x form for 2010 See Holding Period , later. 1040x form for 2010 Worthless securities also include securities that you abandon after March 12, 2008. 1040x form for 2010 To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. 1040x form for 2010 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. 1040x form for 2010 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. 1040x form for 2010 Do not deduct them in the year the stock became worthless. 1040x form for 2010 How to report loss. 1040x form for 2010   Report worthless securities in Form 8949, Part I or Part II, whichever applies. 1040x form for 2010    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. 1040x form for 2010 See Form 8949 and the Instructions for Form 8949. 1040x form for 2010 Filing a claim for refund. 1040x form for 2010   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. 1040x form for 2010 You must use Form 1040X, Amended U. 1040x form for 2010 S. 1040x form for 2010 Individual Income Tax Return, to amend your return for the year the security became worthless. 1040x form for 2010 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. 1040x form for 2010 (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. 1040x form for 2010 ) For more information about filing a claim, see Publication 556. 1040x form for 2010 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. 1040x form for 2010 You must recognize gain as if the position were disposed of at its fair market value on the date of the constructive sale. 1040x form for 2010 This gives you a new holding period for the position that begins on the date of the constructive sale. 1040x form for 2010 Then, when you close the transaction, you reduce your gain (or increase your loss) by the gain recognized on the constructive sale. 1040x form for 2010 Constructive sale. 1040x form for 2010   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). 1040x form for 2010   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. 1040x form for 2010 For this purpose, a related person is any related party described under Related Party Transactions , later in this chapter. 1040x form for 2010 Exception for nonmarketable securities. 1040x form for 2010   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. 1040x form for 2010 Exception for certain closed transactions. 1040x form for 2010   Do not treat a transaction as a constructive sale if all of the following are true. 1040x form for 2010 You closed the transaction on or before the 30th day after the end of your tax year. 1040x form for 2010 You held the appreciated financial position throughout the 60-day period beginning on the date you closed the transaction. 1040x form for 2010 Your risk of loss was not reduced at any time during that 60-day period by holding certain other positions. 1040x form for 2010   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. 1040x form for 2010   This exception also applies to successive short sales of an entire appreciated financial position. 1040x form for 2010 For more information, see Revenue Ruling 2003-1 in Internal Revenue Bulletin 2003-3. 1040x form for 2010 This bulletin is available at www. 1040x form for 2010 irs. 1040x form for 2010 gov/pub/irs-irbs/irb03-03. 1040x form for 2010 pdf. 1040x form for 2010 Appreciated financial position. 1040x form for 2010   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. 1040x form for 2010 Exceptions. 1040x form for 2010   An appreciated financial position does not include the following. 1040x form for 2010 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 ). 1040x form for 2010 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. 1040x form for 2010 860G-1(a)(3), and The position is not convertible, either directly or indirectly, into stock of the issuer (or any related person). 1040x form for 2010 Any hedge with respect to a position described in (2). 1040x form for 2010 Certain trust instruments treated as stock. 1040x form for 2010   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). 1040x form for 2010 Sale of appreciated financial position. 1040x form for 2010   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. 1040x form for 2010 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. 1040x form for 2010 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. 1040x form for 2010 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. 1040x form for 2010 Exceptions. 1040x form for 2010   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. 1040x form for 2010 For more details, including definitions of these terms, see section 1256. 1040x form for 2010 Regulated futures contract. 1040x form for 2010   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. 1040x form for 2010 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. 1040x form for 2010 Foreign currency contract. 1040x form for 2010   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. 1040x form for 2010   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. 1040x form for 2010   Special rules apply to certain foreign currency transactions. 1040x form for 2010 These transactions may result in ordinary gain or loss treatment. 1040x form for 2010 For details, see Internal Revenue Code section 988 and Regulations sections 1. 1040x form for 2010 988-1(a)(7) and 1. 1040x form for 2010 988-3. 1040x form for 2010 Nonequity option. 1040x form for 2010   This is any listed option (defined later) that is not an equity option. 1040x form for 2010 Nonequity options include debt options, commodity futures options, currency options, and broad-based stock index options. 1040x form for 2010 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). 1040x form for 2010 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. 1040x form for 2010 Cash-settled options. 1040x form for 2010   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. 1040x form for 2010   This rule does not apply to options established before the SEC determines that the stock index is broad based. 1040x form for 2010 Listed option. 1040x form for 2010   This is any option traded on, or subject to the rules of, a qualified board or exchange (as discussed earlier under Regulated futures contract). 1040x form for 2010 A listed option, however, does not include an option that is a right to acquire stock from the issuer. 1040x form for 2010 Dealer equity option. 1040x form for 2010   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. 1040x form for 2010   An “options dealer” is any person registered with an appropriate national securities exchange as a market maker or specialist in listed options. 1040x form for 2010 Equity option. 1040x form for 2010   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. 1040x form for 2010  Equity options include options on a group of stocks only if the group is a narrow-based stock index. 1040x form for 2010 Dealer securities futures contract. 1040x form for 2010   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). 1040x form for 2010 A securities futures contract that is not a dealer securities futures contract is treated as described later under Securities Futures Contracts . 1040x form for 2010 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. 1040x form for 2010 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. 1040x form for 2010 Hedging exception. 1040x form for 2010   The marked-to-market rules do not apply to hedging transactions. 1040x form for 2010 See Hedging Transactions , later. 1040x form for 2010 60/40 rule. 1040x form for 2010   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. 1040x form for 2010 This is true regardless of how long you actually held the property. 1040x form for 2010 Example. 1040x form for 2010 On June 22, 2012, you bought a regulated futures contract for $50,000. 1040x form for 2010 On December 31, 2012 (the last business day of your tax year), the fair market value of the contract was $57,000. 1040x form for 2010 You recognized a $7,000 gain on your 2012 tax return, treated as 60% long-term and 40% short-term capital gain. 1040x form for 2010 On February 1, 2013, you sold the contract for $56,000. 1040x form for 2010 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. 1040x form for 2010 Limited partners or entrepreneurs. 1040x form for 2010   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 ). 1040x form for 2010 Instead, these gains or losses are treated as short term. 1040x form for 2010 Terminations and transfers. 1040x form for 2010   The marked-to-market rules also apply if your obligation or rights under section 1256 contracts are terminated or transferred during the tax year. 1040x form for 2010 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. 1040x form for 2010 Terminations or transfers may result from any offsetting, delivery, exercise, assignment, or lapse of your obligation or rights under section 1256 contracts. 1040x form for 2010 Loss carryback election. 1040x form for 2010   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. 1040x form for 2010 See How To Report , later, for information about reporting this election on your return. 1040x form for 2010   The loss carried back to any year under this election cannot be more than the net section 1256 contracts gain in that year. 1040x form for 2010 In addition, the amount of loss carried back to an earlier tax year cannot increase or produce a net operating loss for that year. 1040x form for 2010   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. 1040x form for 2010 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. 1040x form for 2010   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. 1040x form for 2010 (See Capital Losses under Reporting Capital Gains and Losses, later. 1040x form for 2010 ) 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. 1040x form for 2010 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. 1040x form for 2010 Net section 1256 contracts loss. 1040x form for 2010   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. 1040x form for 2010 Net section 1256 contracts gain. 1040x form for 2010   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. 1040x form for 2010  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. 1040x form for 2010 Traders in section 1256 contracts. 1040x form for 2010   Gain or loss from the trading of section 1256 contracts is capital gain or loss subject to the marked-to-market rules. 1040x form for 2010 However, this does not apply to contracts held for purposes of hedging property if any loss from the property would be an ordinary loss. 1040x form for 2010 Treatment of underlying property. 1040x form for 2010   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. 1040x form for 2010 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. 1040x form for 2010 Form 6781. 1040x form for 2010   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. 1040x form for 2010 This includes the amount shown in box 10 of Form 1099-B. 1040x form for 2010 Then enter the net amount of these gains and losses on Schedule D (Form 1040), line 4 or line 11, as appropriate. 1040x form for 2010 Include a copy of Form 6781 with your income tax return. 1040x form for 2010   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. 1040x form for 2010 Follow the Form 6781 instructions for completing Part I. 1040x form for 2010 Loss carryback election. 1040x form for 2010   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. 1040x form for 2010 Follow the instructions for completing Form 6781 for the loss year to make this election. 1040x form for 2010 Hedging Transactions The marked-to-market rules, described earlier, do not apply to hedging transactions. 1040x form for 2010 A transaction is a hedging transaction if both of the following conditions are met. 1040x form for 2010 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. 1040x form for 2010 You clearly identified the transaction as being a hedging transaction before the close of the day on which you entered into it. 1040x form for 2010 This hedging transaction exception does not apply to transactions entered into by or for any syndicate. 1040x form for 2010 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. 1040x form for 2010 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. 1040x form for 2010 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. 1040x form for 2010 Hedging loss limit. 1040x form for 2010   If you are a limited partner or entrepreneur in a syndicate, the amount of a hedging loss you can claim is limited. 1040x form for 2010 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. 1040x form for 2010   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. 1040x form for 2010 Ignore any hedging transaction items in determining this taxable income. 1040x form for 2010 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. 1040x form for 2010   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. 1040x form for 2010   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. 1040x form for 2010 The term “unrecognized gain” has the same meaning as defined under Loss Deferral Rules in Straddles, later. 1040x form for 2010 Sale of property used in a hedge. 1040x form for 2010   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. 1040x form for 2010 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. 1040x form for 2010 See the Instructions for Schedule SE (Form 1040). 1040x form for 2010 In addition, the rules relating to contributions to self-employment retirement plans apply. 1040x form for 2010 For information on retirement plan contributions, see Publication 560 and Publication 590. 1040x form for 2010 Basis of Investment Property Basis is a way of measuring your investment in property for tax purposes. 1040x form for 2010 You must know the basis of your property to determine whether you have a gain or loss on its sale or other disposition. 1040x form for 2010 Investment property you buy normally has an original basis equal to its cost. 1040x form for 2010 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. 1040x form for 2010 Cost Basis The basis of property you buy is usually its cost. 1040x form for 2010 The cost is the amount you pay in cash, debt obligations, or other property or services. 1040x form for 2010 Unstated interest. 1040x form for 2010   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. 1040x form for 2010 You generally have unstated interest if your interest rate is less than the applicable federal rate. 1040x form for 2010 For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. 1040x form for 2010 Basis Other Than Cost There are times when you must use a basis other than cost. 1040x form for 2010 In these cases, you may need to know the property's fair market value or the adjusted basis of the previous owner. 1040x form for 2010 Fair market value. 1040x form for 2010   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. 1040x form for 2010 Sales of similar property, around the same date, may be helpful in figuring fair market value. 1040x form for 2010 Property Received for Services If you receive investment property for services, you must include the property's fair market value in income. 1040x form for 2010 The amount you include in income then becomes your basis in the property. 1040x form for 2010 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. 1040x form for 2010 Restricted property. 1040x form for 2010   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. 1040x form for 2010 Property becomes substantially vested when it is transferable or is no longer subject to substantial risk of forfeiture, whichever happens first. 1040x form for 2010 See Restricted Property in Publication 525 for more information. 1040x form for 2010 Bargain purchases. 1040x form for 2010   If you buy investment property at less than fair market value, as payment for services, you must include the difference in income. 1040x form for 2010 Your basis in the property is the price you pay plus the amount you include in income. 1040x form for 2010 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. 1040x form for 2010 Example. 1040x form for 2010 You trade A Company stock for B Company stock having a fair market value of $1,200. 1040x form for 2010 If the adjusted basis of the A Company stock is less than $1,200, you have a taxable gain on the trade. 1040x form for 2010 If the adjusted basis of the A Company stock is more than $1,200, you have a deductible loss on the trade. 1040x form for 2010 The basis of your B Company stock is $1,200. 1040x form for 2010 If you later sell the B Company stock for $1,300, you will have a gain of $100. 1040x form for 2010 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. 1040x form for 2010 See Nontaxable Trades , later. 1040x form for 2010 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. 1040x form for 2010 Increase this amount by any cash you paid, additional costs you had, and any gain recognized. 1040x form for 2010 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. 1040x form for 2010 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. 1040x form for 2010 See Transfers Between Spouses , later. 1040x form for 2010 Recordkeeping. 1040x form for 2010 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. 1040x form for 2010 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. 1040x form for 2010 Fair market value less than donor's adjusted basis. 1040x form for 2010   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. 1040x form for 2010 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. 1040x form for 2010 No gain or loss. 1040x form for 2010   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. 1040x form for 2010 Example. 1040x form for 2010 You receive a gift of investment property having an adjusted basis of $10,000 at the time of the gift. 1040x form for 2010 The fair market value at the time of the gift is $9,000. 1040x form for 2010 You later sell the property for $9,500. 1040x form for 2010 You have neither gain nor loss. 1040x form for 2010 Your basis for figuring gain is $10,000, and $9,500 minus $10,000 results in a $500 loss. 1040x form for 2010 Your basis for figuring loss is $9,000, and $9,500 minus $9,000 results in a $500 gain. 1040x form for 2010 Fair market value equal to or more than donor's adjusted basis. 1040x form for 2010   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. 1040x form for 2010 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. 1040x form for 2010 Gift received before 1977. 1040x form for 2010   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. 1040x form for 2010 However, your basis cannot be more than the fair market value of the gift at the time it was given to you. 1040x form for 2010 Example 1. 1040x form for 2010 You were given XYZ Company stock in 1976. 1040x form for 2010 At the time of the gift, the stock had a fair market value of $21,000. 1040x form for 2010 The donor's adjusted basis was $20,000. 1040x form for 2010 The donor paid a gift tax of $500 on the gift. 1040x form for 2010 Your basis for gain or loss is $20,500, the donor's adjusted basis plus the amount of gift tax paid. 1040x form for 2010 Example 2. 1040x form for 2010 The facts are the same as in Example 1 except that the gift tax paid was $1,500. 1040x form for 2010 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. 1040x form for 2010 Gift received after 1976. 1040x form for 2010   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. 1040x form for 2010 You figure this part by multiplying the gift tax paid on the gift by a fraction. 1040x form for 2010 The numerator (top part) is the net increase in value of the gift and the denominator (bottom part) is the amount of the gift. 1040x form for 2010   The net increase in value of the gift is the fair market value of the gift minus the donor's adjusted basis. 1040x form for 2010 The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. 1040x form for 2010 Example. 1040x form for 2010 In 2013, you received a gift of property from your mother. 1040x form for 2010 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. 1040x form for 2010 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. 1040x form for 2010 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 . 1040x form for 2010 701 ($61,000 ÷ $87,000) . 1040x form for 2010 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. 1040x form for 2010   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. 1040x form for 2010 Add to that amount the amount of any gift tax paid on the gift, as described in the preceding discussion. 1040x form for 2010 For figuring loss, your basis is limited to the property's fair market value at the time of the transfer. 1040x form for 2010 Gift tax information. 1040x form for 2010   For information on gift tax, see Publication 950, Introduction to Estate and Gift Taxes. 1040x form for 2010 For information on figuring the amount of gift tax to add to your basis, see Property Received as a Gift in Publication 551. 1040x form for 2010 Property Received as Inheritance Before or after 2010. 1040x form for 2010   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. 1040x form for 2010 If no Form 706 was filed, use the appraised value on the date of death for state inheritance or transmission taxes. 1040x form for 2010 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. 1040x form for 2010 Appreciated property you gave the decedent. 1040x form for 2010   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. 1040x form for 2010 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. 1040x form for 2010 Appreciated property is any property whose fair market value on the day you gave it to the decedent was more than its adjusted basis. 1040x form for 2010 More information. 1040x form for 2010   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. 1040x form for 2010 Inherited in 2010 and executor elected to file Form 8939. 1040x form for 2010   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. 1040x form for 2010 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. 1040x form for 2010 The result of these adjustments to the basis is the adjusted basis. 1040x form for 2010 Adjustments to the basis of stocks and bonds are explained in the following discussion. 1040x form for 2010 For information about other adjustments to basis, see Publication 551. 1040x form for 2010 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. 1040x form for 2010 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 . 1040x form for 2010 The basis of stock must be adjusted for certain events that occur after purchase. 1040x form for 2010 For example, if you receive more stock from nontaxable stock dividends or stock splits, you must reduce the basis of your original stock. 1040x form for 2010 You must also reduce your basis when you receive nondividend distributions (discussed in chapter 1). 1040x form for 2010 These distributions, up to the amount of your basis, are a nontaxable return of capital. 1040x form for 2010 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. 1040x form for 2010 To find out more, go to www. 1040x form for 2010 irs. 1040x form for 2010 gov/Filing/Filing-Options. 1040x form for 2010 Identifying stock or bonds sold. 1040x form for 2010   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. 1040x form for 2010 Adequate identification. 1040x form for 2010   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. 1040x form for 2010 Broker holds stock. 1040x form for 2010   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. 1040x form for 2010  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. 1040x form for 2010 Single stock certificate. 1040x form for 2010   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. 1040x form for 2010   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. 1040x form for 2010 Bonds. 1040x form for 2010   These methods of identification also apply to bonds sold or transferred. 1040x form for 2010 Identification not possible. 1040x form for 2010   If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. 1040x form for 2010 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. 1040x form for 2010 Example. 1040x form for 2010 You bought 100 shares of stock of XYZ Corporation in 1998 for $10 a share. 1040x form for 2010 In January 1999 you bought another 200 shares for $11 a share. 1040x form for 2010 In July 1999 you gave your son 50 shares. 1040x form for 2010 In December 2001 you bought 100 shares for $9 a share. 1040x form for 2010 In April 2013 you sold 130 shares. 1040x form for 2010 You cannot identify the shares you disposed of, so you must use the stock you acquired first to figure the basis. 1040x form for 2010 The shares of stock you gave your son had a basis of $500 (50 × $10). 1040x form for 2010 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. 1040x form for 2010    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. 1040x form for 2010 Example. 1040x form for 2010 You bought 100 shares of Fund A for $10 a share. 1040x form for 2010 You paid a $50 commission to the broker for the purchase. 1040x form for 2010 Your cost basis for each share is $10. 1040x form for 2010 50 ($1,050 ÷ 100). 1040x form for 2010 Commissions and load charges. 1040x form for 2010   The fees and charges you pay to acquire or redeem shares of a mutual fund are not deductible. 1040x form for 2010 You can usually add acquisition fees and charges to your cost of the shares and thereby increase your basis. 1040x form for 2010 A fee paid to redeem the shares is usually a reduction in the redemption price (sales price). 1040x form for 2010   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. 1040x form for 2010 You get a reinvestment right because of the purchase of the shares or the payment of the fee or charge. 1040x form for 2010 You dispose of the shares within 90 days of the purchase date. 1040x form for 2010 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. 1040x form for 2010   The amount of the original fee or charge in excess of the reduction in (3) is added to the cost of the original shares. 1040x form for 2010 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). 1040x form for 2010 Choosing average basis for mutual fund shares. 1040x form for 2010   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. 1040x form for 2010 The methods you can use to figure average basis are explained later. 1040x form for 2010 Undistributed capital gains. 1040x form for 2010   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. 1040x form for 2010 See Undistributed capital gains of mutual funds and REITs under Capital Gain Distributions in chapter 1. 1040x form for 2010 Reinvestment right. 1040x form for 2010   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. 1040x form for 2010      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. 1040x form for 2010 This rule applies even if the distribution is an exempt-interest dividend that you do not report as income. 1040x form for 2010 Table 4-1. 1040x form for 2010 This is a worksheet you can use to keep track of the adjusted basis of your mutual fund shares. 1040x form for 2010 Enter the cost per share when you acquire new shares and any adjustments to their basis when the adjustment occurs. 1040x form for 2010 This worksheet will help you figure the adjusted basis when you sell or redeem shares. 1040x form for 2010 Table 4-1. 1040x form for 2010 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. 1040x form for 2010 2 Cost plus or minus adjustments. 1040x form for 2010 Automatic investment service. 1040x form for 2010   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. 1040x form for 2010 Dividend reinvestment plans. 1040x form for 2010   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. 1040x form for 2010 You must include the amount of the discount in your income. 1040x form for 2010 Public utilities. 1040x form for 2010   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. 1040x form for 2010 Stock dividends. 1040x form for 2010   Stock dividends are distributions made by a corporation of its own stock. 1040x form for 2010 Generally, stock dividends are not taxable to you. 1040x form for 2010 However, see Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1 for some exceptions. 1040x form for 2010 If the stock dividends are not taxable, you must divide your basis for the old stock between the old and new stock. 1040x form for 2010 New and old stock identical. 1040x form for 2010   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. 1040x form for 2010 The result is your basis for each share of stock. 1040x form for 2010 Example 1. 1040x form for 2010 You owned one share of common stock that you bought for $45. 1040x form for 2010 The corporation distributed two new shares of common stock for each share held. 1040x form for 2010 You then had three shares of common stock. 1040x form for 2010 Your basis in each share is $15 ($45 ÷ 3). 1040x form for 2010 Example 2. 1040x form for 2010 You owned two shares of common stock. 1040x form for 2010 You bought one for $30 and the other for $45. 1040x form for 2010 The corporation distributed two new shares of common stock for each share held. 1040x form for 2010 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). 1040x form for 2010 New and old stock not identical. 1040x form for 2010   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. 1040x form for 2010 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. 1040x form for 2010 Example. 1040x form for 2010 You bought a share of common stock for $100. 1040x form for 2010 Later, the corporation distributed a share of preferred stock for each share of common stock held. 1040x form for 2010 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. 1040x form for 2010 You figure the basis of the old and new stock by dividing your $100 basis between them. 1040x form for 2010 The basis of your common stock is $75 (($150 ÷ $200) × $100), and the basis of the new preferred stock is $25 (($50 ÷ $200) × $100). 1040x form for 2010 Stock bought at various times. 1040x form for 2010   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. 1040x form for 2010 Taxable stock dividends. 1040x form for 2010   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. 1040x form for 2010 The basis of your old stock does not change. 1040x form for 2010 Stock splits. 1040x form for 2010   Figure the basis of stock splits in the same way as stock dividends if identical stock is distributed on the stock held. 1040x form for 2010 Stock rights. 1040x form for 2010   A stock right is a right to acquire a corporation's stock. 1040x form for 2010 It may be exercised, it may be sold if it has a market value, or it may expire. 1040x form for 2010 Stock rights are rarely taxable when you receive them. 1040x form for 2010 See Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1. 1040x form for 2010 Taxable stock rights. 1040x form for 2010   If you receive stock rights that are taxable, the basis of the rights is their fair market value at the time of distribution. 1040x form for 2010 The basis of the old stock does not change. 1040x form for 2010 Nontaxable stock rights. 1040x form for 2010   If you receive nontaxable stock rights and allow them to expire, they have no basis. 1040x form for 2010   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. 1040x form for 2010 Use a ratio of the fair market value of each to the total fair market value of both at the time of distribution. 1040x form for 2010   If the fair market value of the stock rights was less than 15%, their basis is zero. 1040x form for 2010 However, you can choose to divide the basis of the old stock between the old stock and the stock rights. 1040x form for 2010 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. 1040x form for 2010 Basis of new stock. 1040x form for 2010   If you exercise the stock rights, the basis of the new stock is its cost plus the basis of the stock rights exercised. 1040x form for 2010 Example. 1040x form for 2010 You own 100 shares of ABC Company stock, which cost you $22 per share. 1040x form for 2010 The ABC Company gave you 10 nontaxable stock rights that would allow you to buy 10 more shares at $26 per share. 1040x form for 2010 At the time the stock rights were distributed, the stock had a market value of $30, not including the stock rights. 1040x form for 2010 Each stock right had a market value of $3. 1040x form for 2010 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. 1040x form for 2010 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. 1040x form for 2010 22, new basis of old stock   ($30 ÷ $3,030) × $2,200 = $21. 1040x form for 2010 78, basis of rights   If you sell the rights, the basis for figuring gain or loss is $2. 1040x form for 2010 18 ($21. 1040x form for 2010 78 ÷ 10) per right. 1040x form for 2010 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. 1040x form for 2010 18), or $28. 1040x form for 2010 18 per share. 1040x form for 2010 The remaining basis of the old stock is $21. 1040x form for 2010 78 per share. 1040x form for 2010 Investment property received in liquidation. 1040x form for 2010   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. 1040x form for 2010 S corporation stock. 1040x form for 2010   You must increase your basis in stock of an S corporation by your pro rata share of the following items. 1040x form for 2010 All income items of the S corporation, including tax-exempt income, that are separately stated and passed through to you as a shareholder. 1040x form for 2010 The nonseparately stated income of the S corporation. 1040x form for 2010 The amount of the deduction for depletion (other than oil and gas depletion) that is more than the basis of the property being depleted. 1040x form for 2010   You must decrease your basis in stock of an S corporation by your pro rata share of the following items. 1040x form for 2010 Distributions by the S corporation that were not included in your income. 1040x form for 2010 All loss and deduction items of the S corporation that are separately stated and passed through to you. 1040x form for 2010 Any nonseparately stated loss of the S corporation. 1040x form for 2010 Any expense of the S corporation that is not deductible in figuring its taxable income and not properly chargeable to a capital account. 1040x form for 2010 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. 1040x form for 2010 However, your basis in the stock cannot be reduced below zero. 1040x form for 2010 Specialized small business investment company stock or partnership interest. 1040x form for 2010   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. 1040x form for 2010 See Rollover of Gain From Publicly Traded Securities , later. 1040x form for 2010 Qualified small business stock. 1040x form for 2010   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. 1040x form for 2010 See Gains on Qualified Small Business Stock , later. 1040x form for 2010 Short sales. 1040x form for 2010   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. 1040x form for 2010   See Payments in lieu of dividends , later, for information about deducting payments in lieu of dividends. 1040x form for 2010 Premiums on bonds. 1040x form for 2010   If you buy a bond at a premium, the premium is treated as part of your basis in the bond. 1040x form for 2010 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. 1040x form for 2010   Although you cannot deduct the premium on a tax-exempt bond, you must amortize it to determine your adjusted basis in the bond. 1040x form for 2010 You must reduce the basis of the bond by the premium you amortized for the period you held the bond. 1040x form for 2010   See Bond Premium Amortization in chapter 3 for more information. 1040x form for 2010 Market discount on bonds. 1040x form for 2010   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. 1040x form for 2010 See Market Discount Bonds in chapter 1 for more information. 1040x form for 2010 Bonds purchased at par value. 1040x form for 2010   A bond purchased at par value (face amount) has no premium or discount. 1040x form for 2010 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. 1040x form for 2010 Example. 1040x form for 2010 You purchased a bond several years ago for its par value of $10,000. 1040x form for 2010 You sold the bond this year for $10,100. 1040x form for 2010 You have a gain of $100. 1040x form for 2010 However, if you had sold the bond for $9,900, you would have a loss of $100. 1040x form for 2010 Acquisition discount on short-term obligations. 1040x form for 2010   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. 1040x form for 2010 See Discount on Short-Term Obligations in chapter 1 for more information. 1040x form for 2010 Original issue discount (OID) on debt instruments. 1040x form for 2010   Increase the basis of a debt instrument by the OID you include in your income. 1040x form for 2010 See Original Issue Discount (OID) in chapter 1. 1040x form for 2010 Discounted tax-exempt obligations. 1040x form for 2010   OID on tax-exempt obligations is generally not taxable. 1040x form for 2010 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. 1040x form for 2010 The accrued OID is added to the basis of the obligation to determine your gain or loss. 1040x form for 2010   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. 1040x form for 2010   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. 1040x form for 2010 See Discount on Short-Term Obligations in chapter 1. 1040x form for 2010 Stripped tax-exempt obligation. 1040x form for 2010   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. 1040x form for 2010 For stripped tax-exempt bonds or coupons acquired after June 10, 1987, part of this OID may be taxable. 1040x form for 2010 You accrue the OID on these obligations in the manner described in chapter 1 under Stripped Bonds and Coupons . 1040x form for 2010   Increase your basis in the stripped tax-exempt bond or coupon by the taxable and nontaxable accrued OID. 1040x form for 2010 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. 1040x form for 2010 In addition, for bonds acquired after June 10, 1987, add to your basis any accrued market discount not previously reflected in basis. 1040x form for 2010 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. 1040x form for 2010 Gain. 1040x form for 2010   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. 1040x form for 2010 Loss. 1040x form for 2010   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. 1040x form for 2010 Amount realized. 1040x form for 2010   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). 1040x form for 2010 Amount realized includes the money you receive plus the fair market value of any property or services you receive. 1040x form for 2010   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. 1040x form for 2010 For more information, see Publication 537. 1040x form for 2010   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. 1040x form for 2010 See Regulations section 1. 1040x form for 2010 1001-1(g). 1040x form for 2010 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. 1040x form for 2010 Fair market value. 1040x form for 2010   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. 1040x form for 2010 Example. 1040x form for 2010 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. 1040x form for 2010 Your gain is $3,000 ($10,000 – $7,000). 1040x form for 2010 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). 1040x form for 2010 Debt paid off. 1040x form for 2010   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. 1040x form for 2010 This is true even if neither you nor the buyer is personally liable for the debt. 1040x form for 2010 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. 1040x form for 2010 Example. 1040x form for 2010 You sell stock that you had pledged as security for a bank loan of $8,000. 1040x form for 2010 Your basis in the stock is $6,000. 1040x form for 2010 The buyer pays off your bank loan and pays you $20,000 in cash. 1040x form for 2010 The amount realized is $28,000 ($20,000 + $8,000). 1040x form for 2010 Your gain is $22,000 ($28,000 – $6,000). 1040x form for 2010 Payment of cash. 1040x form for 2010   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. 1040x form for 2010 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. 1040x form for 2010 If the result is a positive number, it is a gain. 1040x form for 2010 If the result is a negative number, it is a loss. 1040x form for 2010 No gain or loss. 1040x form for 2010   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. 1040x form for 2010 In this case, you may have neither a gain nor a loss. 1040x form for 2010 See No gain or loss in the discussion on the basis of property you received as a gift under Basis Other Than Cost, earlier. 1040x form for 2010 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. 1040x form for 2010 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