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2012 Tax How Com

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2012 Tax How Com

2012 tax how com 6. 2012 tax how com   Basis of Assets Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Cost BasisReal Property Allocating the Basis Uniform Capitalization Rules Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostTaxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Received as a Gift Property Transferred From a Spouse Inherited Property Property Distributed From a Partnership or Corporation Introduction Your basis is the amount of your investment in property for tax purposes. 2012 tax how com Use basis to figure the gain or loss on the sale, exchange, or other disposition of property. 2012 tax how com Also use basis to figure depreciation, amortization, depletion, and casualty losses. 2012 tax how com If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. 2012 tax how com Only the basis allocated to the business or investment use of the property can be depreciated. 2012 tax how com Your original basis in property is adjusted (increased or decreased) by certain events. 2012 tax how com For example, if you make improvements to the property, increase your basis. 2012 tax how com If you take deductions for depreciation, or casualty losses, or claim certain credits, reduce your basis. 2012 tax how com Keep accurate records of all items that affect the basis of your assets. 2012 tax how com For information on keeping records, see chapter 1. 2012 tax how com Topics - This chapter discusses: Cost basis Adjusted basis Basis other than cost Useful Items - You may want to see: Publication 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property See chapter 16 for information about getting publications and forms. 2012 tax how com Cost Basis The basis of property you buy is usually its cost. 2012 tax how com Cost is the amount you pay in cash, debt obligations, other property, or services. 2012 tax how com Your cost includes amounts you pay for sales tax, freight, installation, and testing. 2012 tax how com The basis of real estate and business assets will include other items, discussed later. 2012 tax how com Basis generally does not include interest payments. 2012 tax how com However, see Carrying charges and Capitalized interest in chapter 4 of Publication 535. 2012 tax how com You also may have to capitalize (add to basis) certain other costs related to buying or producing property. 2012 tax how com Under the uniform capitalization rules, discussed later, you may have to capitalize direct costs and certain indirect costs of producing property. 2012 tax how com Loans with low or no interest. 2012 tax how com   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. 2012 tax how com You generally have unstated interest if your interest rate is less than the applicable federal rate. 2012 tax how com See the discussion of unstated interest in Publication 537, Installment Sales. 2012 tax how com Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. 2012 tax how com If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. 2012 tax how com Some of these expenses are discussed next. 2012 tax how com Lump sum purchase. 2012 tax how com   If you buy improvements, such as buildings, and the land on which they stand for a lump sum, allocate your cost basis between the land and improvements. 2012 tax how com Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. 2012 tax how com Figure the basis of each asset by multiplying the lump sum by a fraction. 2012 tax how com The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. 2012 tax how com Fair market value (FMV). 2012 tax how com   FMV is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. 2012 tax how com Sales of similar property on or about the same date may help in figuring the FMV of the property. 2012 tax how com If you are not certain of the FMV of the land and improvements, you can allocate the basis according to their assessed values for real estate tax purposes. 2012 tax how com Real estate taxes. 2012 tax how com   If you pay the real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. 2012 tax how com   If you reimburse the seller for taxes the seller paid for you, you generally can deduct that amount as a tax expense. 2012 tax how com Whether or not you reimburse the seller, do not include that amount in the basis of your property. 2012 tax how com Settlement costs. 2012 tax how com   Your basis includes the settlement fees and closing costs for buying the property. 2012 tax how com See Publication 551 for a detailed list of items you can and cannot include in basis. 2012 tax how com   Do not include fees and costs for getting a loan on the property. 2012 tax how com Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. 2012 tax how com Points. 2012 tax how com   If you pay points to get a loan (including a mortgage, second mortgage, or line-of-credit), do not add the points to the basis of the related property. 2012 tax how com You may be able to deduct the points currently or over the term of the loan. 2012 tax how com For more information about deducting points, see Points in chapter 4 of Publication 535. 2012 tax how com Assumption of a mortgage. 2012 tax how com   If you buy property and assume (or buy the property subject to) an existing mortgage, your basis includes the amount you pay for the property plus the amount you owe on the mortgage. 2012 tax how com Example. 2012 tax how com If you buy a farm for $100,000 cash and assume a mortgage of $400,000, your basis is $500,000. 2012 tax how com Constructing assets. 2012 tax how com   If you build property or have assets built for you, your expenses for this construction are part of your basis. 2012 tax how com Some of these expenses include the following costs: Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. 2012 tax how com   In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses. 2012 tax how com You must capitalize them (include them in the asset's basis). 2012 tax how com Employee wages paid for the construction work, reduced by any employment credits allowed. 2012 tax how com Depreciation on equipment you own while it is used in the construction. 2012 tax how com Operating and maintenance costs for equipment used in the construction. 2012 tax how com The cost of business supplies and materials used in the construction. 2012 tax how com    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. 2012 tax how com Allocating the Basis In some instances, the rules for determining basis apply to a group of assets acquired in the same transaction or to property that consists of separate items. 2012 tax how com To determine the basis of these assets or separate items, there must be an allocation of basis. 2012 tax how com Group of assets acquired. 2012 tax how com   If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. 2012 tax how com Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. 2012 tax how com You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. 2012 tax how com If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. 2012 tax how com Farming business acquired. 2012 tax how com   If you buy a group of assets that makes up a farming business, there are special rules you must use to allocate the purchase price among the assets. 2012 tax how com Generally, reduce the purchase price by any cash received. 2012 tax how com Allocate the remaining purchase price to the other business assets received in proportion to (but not more than) their FMV and in a certain order. 2012 tax how com See Trade or Business Acquired under Allocating the Basis in Publication 551 for more information. 2012 tax how com Transplanted embryo. 2012 tax how com   If you buy a cow that is pregnant with a transplanted embryo, allocate to the basis of the cow the part of the purchase price equal to the FMV of the cow without the implant. 2012 tax how com Allocate the rest of the purchase price to the basis of the calf. 2012 tax how com Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense. 2012 tax how com Uniform Capitalization Rules Under the uniform capitalization rules, you must include certain direct and indirect costs in the basis of property you produce or in your inventory costs, rather than claim them as a current deduction. 2012 tax how com You recover these costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. 2012 tax how com Generally, you are subject to the uniform capitalization rules if you do any of the following: Produce real or tangible personal property, or Acquire property for resale. 2012 tax how com However, this rule does not apply to personal property if your average annual gross receipts for the 3-tax-year period ending with the year preceding the current tax year are $10 million or less. 2012 tax how com You produce property if you construct, build, install, manufacture, develop, improve, or create the property. 2012 tax how com You are not subject to the uniform capitalization rules if the property is produced for personal use. 2012 tax how com In a farming business, you produce property if you raise or grow any agricultural or horticultural commodity, including plants and animals. 2012 tax how com Plants. 2012 tax how com   A plant produced in a farming business includes the following items: A fruit, nut, or other crop-bearing tree; An ornamental tree; A vine; A bush; Sod; and The crop or yield of a plant that will have more than one crop or yield. 2012 tax how com Animals. 2012 tax how com   An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life. 2012 tax how com The direct and indirect costs of producing plants or animals include preparatory costs and preproductive period costs. 2012 tax how com Preparatory costs include the acquisition costs of the seed, seedling, plant, or animal. 2012 tax how com For plants, preproductive period costs include the costs of items such as irrigation, pruning, frost protection, spraying, and harvesting. 2012 tax how com For animals, preproductive period costs include the costs of items such as feed, maintaining pasture or pen areas, breeding, veterinary services, and bedding. 2012 tax how com Exceptions. 2012 tax how com   In a farming business, the uniform capitalization rules do not apply to: Any animal, Any plant with a preproductive period of 2 years or less, or Any costs of replanting certain plants lost or damaged due to casualty. 2012 tax how com   Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. 2012 tax how com See Accrual Method Required under Accounting Methods in chapter 2. 2012 tax how com   In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. 2012 tax how com If you make this election, special rules apply. 2012 tax how com This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. 2012 tax how com This election also does not apply to any costs incurred for the planting, cultivation, maintenance, or development of any citrus or almond grove (or any part thereof) within the first 4 years the trees were planted. 2012 tax how com    If you elect not to use the uniform capitalization rules, you must use the alternative depreciation system for all property used in any of your farming businesses and placed in service in any tax year during which the election is in effect. 2012 tax how com See chapter 7, for additional information on depreciation. 2012 tax how com Example. 2012 tax how com You grow trees that have a preproductive period of more than 2 years. 2012 tax how com The trees produce an annual crop. 2012 tax how com You are an individual and the uniform capitalization rules apply to your farming business. 2012 tax how com You must capitalize the direct costs and an allocable part of indirect costs incurred due to the production of the trees. 2012 tax how com You are not required to capitalize the costs of producing the annual crop because its preproductive period is 2 years or less. 2012 tax how com Preproductive period of more than 2 years. 2012 tax how com   The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. 2012 tax how com Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. 2012 tax how com Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years. 2012 tax how com More information. 2012 tax how com   For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1. 2012 tax how com 263A-4. 2012 tax how com Table 6-1. 2012 tax how com Plants With a Preproductive Period of More Than 2 Years Plants producing the following crops or yields have a nationwide weighted average preproductive period of more than 2 years. 2012 tax how com Almonds Apples Apricots Avocados Blueberries Cherries Chestnuts Coffee beans Currants Dates Figs Grapefruit Grapes Guavas Kiwifruit Kumquats Lemons Limes Macadamia nuts Mangoes Nectarines Olives Oranges Peaches Pears Pecans Persimmons Pistachio nuts Plums Pomegranates Prunes Tangelos Tangerines Tangors Walnuts Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the cost basis or basis other than cost (discussed later) of the property. 2012 tax how com The adjustments to the original basis are increases or decreases to the cost basis or other basis which result in the adjusted basis of the property. 2012 tax how com Increases to Basis Increase the basis of any property by all items properly added to a capital account. 2012 tax how com These include the cost of any improvements having a useful life of more than 1 year. 2012 tax how com The following costs increase the basis of property. 2012 tax how com The cost of extending utility service lines to property. 2012 tax how com Legal fees, such as the cost of defending and perfecting title. 2012 tax how com Legal fees for seeking a decrease in an assessment levied against property to pay for local improvements. 2012 tax how com Assessments for items such as paving roads and building ditches that increase the value of the property assessed. 2012 tax how com Do not deduct these expenses as taxes. 2012 tax how com However, you can deduct as taxes amounts assessed for maintenance or repairs, or for meeting interest charges related to the improvements. 2012 tax how com If you make additions or improvements to business property, depreciate the basis of each addition or improvement as separate depreciable property using the rules that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. 2012 tax how com See chapter 7. 2012 tax how com Deducting vs. 2012 tax how com capitalizing costs. 2012 tax how com   Do not add to your basis costs you can deduct as current expenses. 2012 tax how com For example, amounts paid for incidental repairs or maintenance are deductible as business expenses and are not added to basis. 2012 tax how com However, you can elect either to deduct or to capitalize certain other costs. 2012 tax how com See chapter 7 in Publication 535. 2012 tax how com Decreases to Basis The following are some items that reduce the basis of property. 2012 tax how com Section 179 deduction. 2012 tax how com Deductions previously allowed or allowable for amortization, depreciation, and depletion. 2012 tax how com Alternative motor vehicle credit. 2012 tax how com See Form 8910. 2012 tax how com Alternative fuel vehicle refueling property credit. 2012 tax how com See Form 8911. 2012 tax how com Residential energy efficient property credits. 2012 tax how com See Form 5695. 2012 tax how com Investment credit (part or all) taken. 2012 tax how com Casualty and theft losses and insurance reimbursements. 2012 tax how com Payments you receive for granting an easement. 2012 tax how com Exclusion from income of subsidies for energy conservation measures. 2012 tax how com Certain canceled debt excluded from income. 2012 tax how com Rebates from a manufacturer or seller. 2012 tax how com Patronage dividends received from a cooperative association as a result of a purchase of property. 2012 tax how com See Patronage Dividends in chapter 3. 2012 tax how com Gas-guzzler tax. 2012 tax how com See Form 6197. 2012 tax how com Some of these items are discussed next. 2012 tax how com For a more detailed list of items that decrease basis, see section 1016 of the Internal Revenue Code and Publication 551. 2012 tax how com Depreciation and section 179 deduction. 2012 tax how com   The adjustments you must make to the basis of the property if you take the section 179 deduction or depreciate the property are explained next. 2012 tax how com For more information on these deductions, see chapter 7. 2012 tax how com Section 179 deduction. 2012 tax how com   If you take the section 179 expense deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. 2012 tax how com Depreciation. 2012 tax how com   Decrease the basis of property by the depreciation you deducted or could have deducted on your tax returns under the method of depreciation you chose. 2012 tax how com If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. 2012 tax how com If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. 2012 tax how com   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for any year. 2012 tax how com   See chapter 7 for information on figuring the depreciation you should have claimed. 2012 tax how com   In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation you must capitalize under the uniform capitalization rules. 2012 tax how com Casualty and theft losses. 2012 tax how com   If you have a casualty or theft loss, decrease the basis of the property by any insurance or other reimbursement. 2012 tax how com Also, decrease it by any deductible loss not covered by insurance. 2012 tax how com See chapter 11 for information about figuring your casualty or theft loss. 2012 tax how com   You must increase your basis in the property by the amount you spend on clean-up costs (such as debris removal) and repairs that restore the property to its pre-casualty condition. 2012 tax how com To make this determination, compare the repaired property to the property before the casualty. 2012 tax how com Easements. 2012 tax how com   The amount you receive for granting an easement is usually considered to be proceeds from the sale of an interest in the real property. 2012 tax how com It reduces the basis of the affected part of the property. 2012 tax how com If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. 2012 tax how com See Easements and rights-of-way in chapter 3. 2012 tax how com Exclusion from income of subsidies for energy conservation measures. 2012 tax how com   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. 2012 tax how com Reduce the basis of the property by the excluded amount. 2012 tax how com Canceled debt excluded from income. 2012 tax how com   If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. 2012 tax how com A debt includes any indebtedness for which you are liable or which attaches to property you hold. 2012 tax how com   You can exclude your canceled debt from income if the debt is any of the following. 2012 tax how com Debt canceled in a bankruptcy case or when you are insolvent. 2012 tax how com Qualified farm debt. 2012 tax how com Qualified real property business debt (provided you are not a C corporation). 2012 tax how com Qualified principal residence indebtedness. 2012 tax how com Discharge of certain indebtedness of a qualified individual because of Midwestern disasters. 2012 tax how com If you exclude canceled debt described in (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. 2012 tax how com If you exclude canceled debt described in (3), you must only reduce the basis of your depreciable property by the excluded amount. 2012 tax how com   For more information about canceled debt in a bankruptcy case, see Publication 908, Bankruptcy Tax Guide. 2012 tax how com For more information about insolvency and canceled debt that is qualified farm debt or qualified principal residence indebtedness, see chapter 3. 2012 tax how com For more information about qualified real property business debt, see Publication 334, Tax Guide for Small Business. 2012 tax how com For more information about canceled debt in Midwestern disaster areas, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. 2012 tax how com Basis Other Than Cost There are times when you cannot use cost as basis. 2012 tax how com In these situations, the fair market value or the adjusted basis of property may be used. 2012 tax how com Examples are discussed next. 2012 tax how com Property changed from personal to business or rental use. 2012 tax how com   When you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. 2012 tax how com An example of changing property from personal to business use would be changing the use of your pickup truck that you originally purchased for your personal use to use in your farming business. 2012 tax how com   The basis for depreciation is the lesser of: The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. 2012 tax how com   If you later sell or dispose of this property, the basis you use will depend on whether you are figuring a gain or loss. 2012 tax how com The basis for figuring a gain is your adjusted basis in the property when you sell the property. 2012 tax how com Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. 2012 tax how com Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . 2012 tax how com Property received for services. 2012 tax how com   If you receive property for services, include the property's FMV in income. 2012 tax how com The amount you include in income becomes your basis. 2012 tax how com If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. 2012 tax how com Example. 2012 tax how com George Smith is an accountant and also operates a farming business. 2012 tax how com George agreed to do some accounting work for his neighbor in exchange for a dairy cow. 2012 tax how com The accounting work and the cow are each worth $1,500. 2012 tax how com George must include $1,500 in income for his accounting services. 2012 tax how com George's basis in the cow is $1,500. 2012 tax how com Taxable Exchanges A taxable exchange is one in which the gain is taxable, or the loss is deductible. 2012 tax how com A taxable gain or deductible loss also is known as a recognized gain or loss. 2012 tax how com A taxable exchange occurs when you receive cash or get property that is not similar or related in use to the property exchanged. 2012 tax how com If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. 2012 tax how com Example. 2012 tax how com You trade a tract of farmland with an adjusted basis of $2,000 for a tractor that has an FMV of $6,000. 2012 tax how com You must report a taxable gain of $4,000 for the land. 2012 tax how com The tractor has a basis of $6,000. 2012 tax how com Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property you receive using the basis of the converted property. 2012 tax how com Similar or related property. 2012 tax how com   If the replacement property is similar or related in service or use to the converted property, the replacement property's basis is the same as the old property's basis on the date of the conversion. 2012 tax how com However, make the following adjustments. 2012 tax how com Decrease the basis by the following amounts. 2012 tax how com Any loss you recognize on the involuntary conversion. 2012 tax how com Any money you receive that you do not spend on similar property. 2012 tax how com Increase the basis by the following amounts. 2012 tax how com Any gain you recognize on the involuntary conversion. 2012 tax how com Any cost of acquiring the replacement property. 2012 tax how com Money or property not similar or related. 2012 tax how com   If you receive money or property not similar or related in service or use to the converted property and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the involuntary conversion. 2012 tax how com Allocating the basis. 2012 tax how com   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. 2012 tax how com Basis for depreciation. 2012 tax how com   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. 2012 tax how com For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. 2012 tax how com For more information about involuntary conversions, see chapter 11. 2012 tax how com Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. 2012 tax how com A nontaxable gain or loss also is known as an unrecognized gain or loss. 2012 tax how com If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. 2012 tax how com Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. 2012 tax how com For an exchange to qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. 2012 tax how com There must also be an exchange of like-kind property. 2012 tax how com For more information, see Like-Kind Exchanges in  chapter 8. 2012 tax how com The basis of the property you receive generally is the same as the adjusted basis of the property you gave up. 2012 tax how com Example 1. 2012 tax how com You traded a truck you used in your farming business for a new smaller truck to use in farming. 2012 tax how com The adjusted basis of the old truck was $10,000. 2012 tax how com The FMV of the new truck is $30,000. 2012 tax how com Because this is a nontaxable exchange, you do not recognize any gain, and your basis in the new truck is $10,000, the same as the adjusted basis of the truck you traded. 2012 tax how com Example 2. 2012 tax how com You trade a field cultivator (adjusted basis of $8,000) for a planter (FMV of $9,000). 2012 tax how com You use both the field cultivator and the planter in your farming business. 2012 tax how com The basis of the planter you receive is $8,000, the same as the field cultivator traded Exchange expenses. 2012 tax how com   Exchange expenses generally are the closing costs that you pay. 2012 tax how com They include such items as brokerage commissions, attorney fees, and deed preparation fees. 2012 tax how com Add them to the basis of the like-kind property you receive. 2012 tax how com Property plus cash. 2012 tax how com   If you trade property in a like-kind exchange and also pay money, the basis of the property you receive is the adjusted basis of the property you gave up plus the money you paid. 2012 tax how com Example. 2012 tax how com You trade in a truck (adjusted basis of $3,000) for another truck (FMV of $7,500) and pay $4,000. 2012 tax how com Your basis in the new truck is $7,000 (the $3,000 adjusted basis of the old truck plus the $4,000 cash). 2012 tax how com Special rules for related persons. 2012 tax how com   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. 2012 tax how com Each person must report any gain or loss not recognized on the original exchange unless the loss is not deductible under the related party rules. 2012 tax how com Each person reports it on the tax return filed for the year in which the later disposition occurred. 2012 tax how com If this rule applies, the basis of the property received in the original exchange will be its FMV. 2012 tax how com For more information, see chapter 8. 2012 tax how com Exchange of business property. 2012 tax how com   Exchanging the property of one business for the property of another business generally is a multiple property exchange. 2012 tax how com For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. 2012 tax how com Basis for depreciation. 2012 tax how com   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind transaction. 2012 tax how com For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. 2012 tax how com Partially Nontaxable Exchanges A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. 2012 tax how com The basis of the property you receive is the same as the adjusted basis of the property you gave up with the following adjustments. 2012 tax how com Decrease the basis by the following amounts. 2012 tax how com Any money you receive. 2012 tax how com Any loss you recognize on the exchange. 2012 tax how com Increase the basis by the following amounts. 2012 tax how com Any additional costs you incur. 2012 tax how com Any gain you recognize on the exchange. 2012 tax how com If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. 2012 tax how com Example 1. 2012 tax how com You trade farmland (basis of $100,000) for another tract of farmland (FMV of $110,000) and $30,000 cash. 2012 tax how com You realize a gain of $40,000. 2012 tax how com This is the FMV of the land received plus the cash minus the basis of the land you traded ($110,000 + $30,000 − $100,000). 2012 tax how com Include your gain in income (recognize gain) only to the extent of the cash received. 2012 tax how com Your basis in the land you received is figured as follows. 2012 tax how com Basis of land traded $100,000 Minus: Cash received (adjustment 1(a)) − 30,000   $70,000 Plus: Gain recognized (adjustment 2(b)) + 30,000 Basis of land received $100,000 Example 2. 2012 tax how com You trade a truck (adjusted basis of $22,750) for another truck (FMV of $20,000) and $10,000 cash. 2012 tax how com You realize a gain of $7,250. 2012 tax how com This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($20,000 + $10,000 − $22,750). 2012 tax how com You include all the gain in your income (recognize gain) because the gain is less than the cash you received. 2012 tax how com Your basis in the truck you received is figured as follows. 2012 tax how com Adjusted basis of truck traded $22,750 Minus: Cash received (adjustment 1(a)) −10,000   $12,750 Plus: Gain recognized (adjustment 2(b)) + 7,250 Basis of truck received $20,000 Allocation of basis. 2012 tax how com   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. 2012 tax how com The rest is the basis of the like-kind property. 2012 tax how com Example. 2012 tax how com You traded a tractor with an adjusted basis of $15,000 for another tractor that had an FMV of $12,500. 2012 tax how com You also received $1,000 cash and a truck that had an FMV of $3,000. 2012 tax how com The truck is unlike property. 2012 tax how com You realized a gain of $1,500. 2012 tax how com This is the FMV of the tractor received plus the FMV of the truck received plus the cash minus the adjusted basis of the tractor you traded ($12,500 + $3,000 + $1,000 − $15,000). 2012 tax how com You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. 2012 tax how com Your basis in the properties you received is figured as follows. 2012 tax how com Adjusted basis of old tractor $15,000 Minus: Cash received (adjustment 1(a)) − 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) + 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property—the truck ($3,000). 2012 tax how com This is the truck's FMV. 2012 tax how com The rest ($12,500) is the basis of the tractor. 2012 tax how com Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. 2012 tax how com Example. 2012 tax how com You used a tractor on your farm for 3 years. 2012 tax how com Its adjusted basis is $22,000 and its FMV is $40,000. 2012 tax how com You are interested in a new tractor, which sells for $60,000. 2012 tax how com Ordinarily, you would trade your old tractor for the new one and pay the dealer $20,000. 2012 tax how com Your basis for depreciating the new tractor would then be $42,000 ($20,000 + $22,000, the adjusted basis of your old tractor). 2012 tax how com However, you want a higher basis for depreciating the new tractor, so you agree to pay the dealer $60,000 for the new tractor if he will pay you $40,000 for your old tractor. 2012 tax how com Because the two transactions are dependent on each other, you are treated as having exchanged your old tractor for the new one and paid $20,000 ($60,000 − $40,000). 2012 tax how com Your basis for depreciating the new tractor is $42,000, the same as if you traded the old tractor. 2012 tax how com Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you. 2012 tax how com You also must know its FMV at the time it was given to you and any gift tax paid on it. 2012 tax how com FMV equal to or greater than donor's adjusted basis. 2012 tax how com   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis when you received the gift. 2012 tax how com Increase your basis by all or part of any gift tax paid, depending on the date of the gift. 2012 tax how com   Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. 2012 tax how com See Adjusted Basis , earlier. 2012 tax how com   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. 2012 tax how com Figure the increase by multiplying the gift tax paid by the following fraction. 2012 tax how com Net increase in value of the gift Amount of the gift   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. 2012 tax how com 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. 2012 tax how com Example. 2012 tax how com In 2013, you received a gift of property from your mother that had an FMV of $50,000. 2012 tax how com Her adjusted basis was $20,000. 2012 tax how com The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). 2012 tax how com She paid a gift tax of $7,320. 2012 tax how com Your basis, $26,076, is figured as follows. 2012 tax how com Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000 Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . 2012 tax how com 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. 2012 tax how com If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. 2012 tax how com However, your basis cannot exceed the FMV of the gift when it was given to you. 2012 tax how com FMV less than donor's adjusted basis. 2012 tax how com   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. 2012 tax how com Your basis for figuring gain is the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. 2012 tax how com Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. 2012 tax how com (See Adjusted Basis , earlier. 2012 tax how com )   If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither gain nor loss on the sale or other disposition of the property. 2012 tax how com Example. 2012 tax how com You received farmland as a gift from your parents when they retired from farming. 2012 tax how com At the time of the gift, the land had an FMV of $80,000. 2012 tax how com Your parents' adjusted basis was $100,000. 2012 tax how com After you received the land, no events occurred that would increase or decrease your basis. 2012 tax how com If you sell the land for $120,000, you will have a $20,000 gain because you must use the donor's adjusted basis at the time of the gift ($100,000) as your basis to figure a gain. 2012 tax how com If you sell the land for $70,000, you will have a $10,000 loss because you must use the FMV at the time of the gift ($80,000) as your basis to figure a loss. 2012 tax how com If the sales price is between $80,000 and $100,000, you have neither gain nor loss. 2012 tax how com For instance, if the sales price was $90,000 and you tried to figure a gain using the donor's adjusted basis ($100,000), you would get a $10,000 loss. 2012 tax how com If you then tried to figure a loss using the FMV ($80,000), you would get a $10,000 gain. 2012 tax how com Business property. 2012 tax how com   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. 2012 tax how com Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. 2012 tax how com The same rule applies to a transfer by your former spouse if the transfer is incident to divorce. 2012 tax how com However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed plus the liabilities to which the property is subject are more than the adjusted basis of the property transferred. 2012 tax how com The transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. 2012 tax how com For more information, see Property Settlements in Publication 504, Divorced or Separated Individuals. 2012 tax how com Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. 2012 tax how com If a federal estate return is filed, you can use its appraised value. 2012 tax how com The FMV on the alternate valuation date, if the personal representative for the estate elects to use alternate valuation. 2012 tax how com For information on the alternate valuation, see the Instructions for Form 706. 2012 tax how com The decedent's adjusted basis in land to the extent of the value that is excluded from the decedent's taxable estate as a qualified conservation easement. 2012 tax how com If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. 2012 tax how com Special-use valuation method. 2012 tax how com   Under certain conditions, when a person dies, the executor or personal representative of that person's estate may elect to value qualified real property at other than its FMV. 2012 tax how com If so, the executor or personal representative values the qualified real property based on its use as a farm or other closely held business. 2012 tax how com If the executor or personal representative elects this method of valuation for estate tax purposes, this value is the basis of the property for the qualified heirs. 2012 tax how com The qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. 2012 tax how com   If you are a qualified heir who received special-use valuation property, increase your basis by any gain recognized by the estate or trust because of post-death appreciation. 2012 tax how com Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or on the alternate valuation date. 2012 tax how com Figure all FMVs without regard to the special-use valuation. 2012 tax how com   You may be liable for an additional estate tax if, within 10 years after the death of the decedent, you transfer the property or the property stops being used as a farm. 2012 tax how com This tax does not apply if you dispose of the property in a like-kind exchange or in an involuntary conversion in which all of the proceeds are reinvested in qualified replacement property. 2012 tax how com The tax also does not apply if you transfer the property to a member of your family and certain requirements are met. 2012 tax how com   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. 2012 tax how com To increase your basis, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of payment of the additional estate tax. 2012 tax how com If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. 2012 tax how com The increase in your basis is considered to have occurred immediately before the event that resulted in the additional estate tax. 2012 tax how com   You make the election by filing, with Form 706-A, United States Additional Estate Tax Return, a statement that: Contains your (and the estate's) name, address, and taxpayer identification number; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which you are making the election; and Provides any additional information required by the Form 706-A instructions. 2012 tax how com   For more information, see Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706-A, and the related instructions. 2012 tax how com Property inherited from a decedent who died in 2010. 2012 tax how com   If you inherited property from a decedent who died in 2010, different rules may apply. 2012 tax how com See Publication 4895, Tax Treatment of Property Acquired From a Decendent Dying in 2010, for details. 2012 tax how com Property Distributed From a Partnership or Corporation The following rules apply to determine a partner's basis and a shareholder's basis in property distributed respectively from a partnership to the partner with respect to the partner's interest in the partnership and from a corporation to the shareholder with respect to the shareholder's ownership of stock in the corporation. 2012 tax how com Partner's basis. 2012 tax how com   Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed by a partnership to the partner is its adjusted basis to the partnership immediately before the distribution. 2012 tax how com However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. 2012 tax how com For more information, see Partner's Basis for Distributed Property in Publication 541, Partnerships. 2012 tax how com Shareholder's basis. 2012 tax how com   The basis of property distributed by a corporation to a shareholder is its fair market value. 2012 tax how com For more information about corporate distributions, see Distributions to Shareholders in Publication 542, Corporations. 2012 tax how com Prev  Up  Next   Home   More Online Publications
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The 2012 Tax How Com

2012 tax how com Publication 936 - Introductory Material Table of Contents Reminders IntroductionOrdering forms and publications. 2012 tax how com Tax questions. 2012 tax how com Useful Items - You may want to see: Reminders Future developments. 2012 tax how com  For the latest information about developments related to Publication 936, Home Mortgage Interest Deduction, such as legislation enacted after it was published, go to www. 2012 tax how com irs. 2012 tax how com gov/pub936. 2012 tax how com Photographs of missing children. 2012 tax how com  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 2012 tax how com Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 2012 tax how com You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. 2012 tax how com Introduction This publication discusses the rules for deducting home mortgage interest. 2012 tax how com Part I contains general information on home mortgage interest, including points and mortgage insurance premiums. 2012 tax how com It also explains how to report deductible interest on your tax return. 2012 tax how com Part II explains how your deduction for home mortgage interest may be limited. 2012 tax how com It contains Table 1, which is a worksheet you can use to figure the limit on your deduction. 2012 tax how com Comments and suggestions. 2012 tax how com   We welcome your comments about this publication and your suggestions for future editions. 2012 tax how com   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 2012 tax how com NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. 2012 tax how com Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 2012 tax how com   You can send your comments from www. 2012 tax how com irs. 2012 tax how com gov/formspubs. 2012 tax how com Click on “More Information” and then on “Comment on Tax Forms and Publications. 2012 tax how com ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 2012 tax how com Ordering forms and publications. 2012 tax how com   Visit www. 2012 tax how com irs. 2012 tax how com gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. 2012 tax how com Internal Revenue Service 1201 N. 2012 tax how com Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 2012 tax how com   If you have a tax question, check the information available on IRS. 2012 tax how com gov or call 1-800-829-1040. 2012 tax how com We cannot answer tax questions sent to either of the above addresses. 2012 tax how com Useful Items - You may want to see: Publication 523 Selling Your Home 527 Residential Rental Property 530 Tax Information for Homeowners 535 Business Expenses   See How To Get Tax Help near the end of this publication, for information about getting these publications. 2012 tax how com Prev  Up  Next   Home   More Online Publications