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File back taxes free online Index A Abatement of interest and penalties, Abatement of interest and penalties. File back taxes free online Accidents, Deductible losses. File back taxes free online , Nondeductible losses. File back taxes free online Adjusted basis, Adjusted Basis Adjustments to basis, Basis adjustment to corporation's property. File back taxes free online , Adjustments to Basis Amended returns, Amended return. File back taxes free online Appraisals, Appraisal. File back taxes free online , Costs of photographs and appraisals. File back taxes free online Assistance (see Tax help) B Bad debts, Nonbusiness bad debt. File back taxes free online Basis Adjusted, Adjusted Basis Adjustments to, Basis adjustment to corporation's property. File back taxes free online , Adjustments to Basis Replacement property, Basis of replacement property. File back taxes free online Business or income-producing property, Business or income-producing property. File back taxes free online Business purposes, property used partly for, Property used partly for business and partly for personal purposes. File back taxes free online C Cars Accidents, Deductible losses. File back taxes free online Fair market value of, Car value. File back taxes free online Cash gifts, Cash gifts. File back taxes free online Casualty losses, Table 3. File back taxes free online When To Deduct a Casualty or Theft Loss Deductible losses, Deductible losses. File back taxes free online Definition, Casualty Deposits, loss on, Casualty loss or ordinary loss. File back taxes free online Nondeductible losses, Nondeductible losses. File back taxes free online Progressive deterioration, Progressive deterioration. File back taxes free online Proof of, Casualty loss proof. File back taxes free online When to report, Losses. File back taxes free online Workbooks for listing property, Workbooks for casualties and thefts. File back taxes free online Clean up costs, Cost of cleaning up or making repairs. File back taxes free online Condemnation, Condemnations. File back taxes free online Corrosive drywall, Special Procedure for Damage From Corrosive Drywall Costs Appraisals, Costs of photographs and appraisals. File back taxes free online Clean up, Cost of cleaning up or making repairs. File back taxes free online Incidental expenses, Related expenses. File back taxes free online Landscaping, Landscaping. File back taxes free online Photographs taken after loss, Costs of photographs and appraisals. File back taxes free online Protection, Cost of protection. File back taxes free online Repair, Cost of cleaning up or making repairs. File back taxes free online Replacement, Replacement cost. File back taxes free online D Death of taxpayer Postponement of gain, Death of a taxpayer. File back taxes free online Deductible losses, Deductible losses. File back taxes free online Deduction limits, Deduction Limits $100 rule, $100 Rule 10% rule, 10% Rule 2% rule, 2% Rule Deposit losses, Mislaid or lost property. File back taxes free online , Table 3. File back taxes free online When To Deduct a Casualty or Theft Loss Reporting of (Table 1), Table 1. File back taxes free online Reporting Loss on Deposits When to report, Loss on deposits. File back taxes free online Disaster area losses, Lessee's loss. File back taxes free online Claiming on amended return, Claiming a disaster loss on an amended return. File back taxes free online Federal loan canceled, Federal loan canceled. File back taxes free online Federally declared disaster, Business or income-producing property located in a federally declared disaster area. File back taxes free online , Disaster Area Losses Figuring loss deduction, Figuring the loss deduction. File back taxes free online Form 1040X, How to report the loss on Form 1040X. File back taxes free online Home made unsafe, Home made unsafe by disaster. File back taxes free online How to deduct loss in preceding year, How to deduct your loss in the preceding year. File back taxes free online Inventory, Disaster loss to inventory. File back taxes free online Main home rules, Main home in disaster area. File back taxes free online , Gains. File back taxes free online Qualified disaster mitigation payments, Qualified disaster mitigation payments. File back taxes free online Qualified disaster relief payments, Qualified disaster relief payments. File back taxes free online Records to keep, Records. File back taxes free online Tax deadlines postponed, Covered disaster area. File back taxes free online When to deduct, When to deduct the loss. File back taxes free online Table 3, Table 3. File back taxes free online When To Deduct a Casualty or Theft Loss Disaster mitigation payments, Qualified disaster mitigation payments. File back taxes free online Disaster relief grants, Disaster relief. File back taxes free online Drywall, corrosive, Special Procedure for Damage From Corrosive Drywall Due dates Tax deadlines postponed, Postponed Tax Deadlines E Employer's emergency disaster fund, Employer's emergency disaster fund. File back taxes free online F Fair market value (FMV) Decline in value of property in or near casualty area, Decline in market value of property in or near casualty area. File back taxes free online Measuring decrease in, Decrease in Fair Market Value Items not to consider, Figuring Decrease in FMV — Items Not To Consider Items to consider, Figuring Decrease in FMV — Items To Consider Federal disaster relief grants, Federal disaster relief grants. File back taxes free online Federal Emergency Management Agency (FEMA), contacting, Contacting the Federal Emergency Management Agency (FEMA) Federally declared disasters, Business or income-producing property located in a federally declared disaster area. File back taxes free online , Disaster Area Losses Figuring gain, Property used partly for business and partly for personal purposes. File back taxes free online Figuring loss, Theft loss proof. File back taxes free online , Figuring the Deduction Adjusted basis, Adjusted Basis Disaster area losses, Figuring the loss deduction. File back taxes free online Insurance and other reimbursements, Insurance and Other Reimbursements Form 1040, Schedule A, Personal-use property. File back taxes free online Form 1040, Schedule D, Personal-use property. File back taxes free online Form 1040X Disaster area losses, How to report the loss on Form 1040X. File back taxes free online Form 4684 Reporting gains and losses on personal-use property, Personal-use property. File back taxes free online Free tax services, Free help with your tax return. File back taxes free online G Gains Figuring, Figuring a Gain Postponement of, Postponement of Gain, How To Postpone a Gain Reimbursements, Gain from reimbursement. File back taxes free online Reporting of, Contacting the Federal Emergency Management Agency (FEMA) When to report, Changing your mind. File back taxes free online H Help (see Tax help) I Incidental expenses, Related expenses. File back taxes free online Insurance, Insurance and Other Reimbursements Living expenses, payments for, Insurance payments for living expenses. File back taxes free online Interest abatement, Abatement of interest and penalties. File back taxes free online Inventory losses, Loss of inventory. File back taxes free online Disaster area losses, Disaster loss to inventory. File back taxes free online L Landscaping, Landscaping. File back taxes free online Leased property, Leased property. File back taxes free online When to report, Lessee's loss. File back taxes free online Losses Casualty (see Casualty losses) Deposits (see Deposit losses) Disaster areas (see Disaster area losses) Figuring amount (see Figuring loss) Proof of, Deducted loss recovered. File back taxes free online Records of, Theft loss proof. File back taxes free online Reporting of, Contacting the Federal Emergency Management Agency (FEMA) Theft (see Theft losses) When to report, Changing your mind. File back taxes free online (Table 3), Table 3. File back taxes free online When To Deduct a Casualty or Theft Loss M Married taxpayers Deduction limits, Married taxpayers. File back taxes free online , Married taxpayers. File back taxes free online Mislaid or lost property, Mislaid or lost property. File back taxes free online Missing children, photographs of, Reminders N Nonbusiness bad debts, Nonbusiness bad debt. File back taxes free online Nondeductible losses, Nondeductible losses. File back taxes free online P Payments for living expenses, Insurance payments for living expenses. File back taxes free online Penalty abatement, Abatement of interest and penalties. File back taxes free online Personal property Loss deduction, figuring of, Personal property. File back taxes free online Personal-use property Reporting gains and losses, Personal-use property. File back taxes free online Personal-use real property, Exception for personal-use real property. File back taxes free online Photographs Documentation of loss, Costs of photographs and appraisals. File back taxes free online Ponzi-type investment schemes, Losses from Ponzi-type investment schemes. File back taxes free online Postponed tax deadlines, Postponed Tax Deadlines Postponement of gain, Postponement of Gain, How To Postpone a Gain Amended return, Amended return. File back taxes free online Changing mind, Changing your mind. File back taxes free online Replacement property acquired after return filed, Replacement property acquired after return filed. File back taxes free online Replacement property acquired before return filed, Replacement property acquired before return filed. File back taxes free online Required statement, Required statement. File back taxes free online Substituting replacement property, Substituting replacement property. File back taxes free online Three-year limit, Three-year limit. File back taxes free online Proof of loss, Proof of Loss Protection costs, Cost of protection. File back taxes free online Publications (see Tax help) R Records of loss, Theft loss proof. File back taxes free online Recovered stolen property, Recovered stolen property. File back taxes free online Reimbursements Cash gifts, Cash gifts. File back taxes free online Disaster relief, Disaster relief. File back taxes free online Employer's emergency disaster fund, Employer's emergency disaster fund. File back taxes free online Failure to file a claim, Failure to file a claim for reimbursement. File back taxes free online Received after deducting loss, Reimbursement Received After Deducting Loss Types of, Types of Reimbursements Related expenses, Related expenses. File back taxes free online Related person, replacement property bought from, Buying replacement property from a related person. File back taxes free online Repair costs, Cost of cleaning up or making repairs. File back taxes free online Replacement cost, Replacement cost. File back taxes free online Replacement period, Replacement Period Extension of, Extension. File back taxes free online Replacement property, Replacement Property Advance payment, Advance payment. File back taxes free online Basis adjustment to corporation's property, Basis adjustment to corporation's property. File back taxes free online Basis of, Basis of replacement property. File back taxes free online Main home, Main home replaced. File back taxes free online In disaster area, Main home in disaster area. File back taxes free online Postponement of gain, Replacement property acquired before return filed. File back taxes free online Reporting gains and losses, Reporting a gain. File back taxes free online , How To Report Gains and Losses Basis, adjustments to, Adjustments to Basis Business and income-producing property, Business and income-producing property. File back taxes free online Deductions exceeding income, If Deductions Are More Than Income Deposits, How to report. File back taxes free online Table 1, Table 1. File back taxes free online Reporting Loss on Deposits Disaster area losses, How to report the loss on Form 1040X. File back taxes free online Personal-use property, Personal-use property. File back taxes free online Timing of, When To Report Gains and Losses S Sentimental value, Sentimental value. File back taxes free online State disaster relief grants for businesses, State disaster relief grants for businesses. File back taxes free online Stolen property (see Theft losses) T Tables and figures Reporting loss on deposits (Table 1), Table 1. File back taxes free online Reporting Loss on Deposits When to deduct losses (Table 3), Table 3. File back taxes free online When To Deduct a Casualty or Theft Loss Tax help, How To Get Tax Help Theft losses, Theft FMV of stolen property, FMV of stolen property. File back taxes free online Mislaid or lost property, Mislaid or lost property. File back taxes free online Proof of, Theft loss proof. File back taxes free online When to deduct (Table 3), Table 3. File back taxes free online When To Deduct a Casualty or Theft Loss When to report, Losses. File back taxes free online Workbooks for listing property, Workbooks for casualties and thefts. File back taxes free online Timber loss, Timber loss. File back taxes free online W Workbooks for property lost due to casualties and thefts, Workbooks for casualties and thefts. File back taxes free online Prev  Up     Home   More Online Publications
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Treasury and IRS Announce That All Legal Same-Sex Marriages Will Be Recognized For Federal Tax Purposes; Ruling Provides Certainty, Benefits and Protections Under Federal Tax Law for Same-Sex Married Couples

Note: On Sept. 23, 2013 IRS issued Notice 2013-61 providing guidance for employers and employees to claim refunds or adjust overpayments of FICA taxes and employment taxes with respect to certain benefits and remunerations provided to same-sex spouses.

IR-2013-72, Aug. 29, 2013

WASHINGTON — The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

The ruling implements federal tax aspects of the June 26 Supreme Court decision invalidating a key provision of the 1996 Defense of Marriage Act.

Under the ruling, same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.

Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country will be covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.

Legally-married same-sex couples generally must file their 2013 federal income tax return using either the married filing jointly or married filing separately filing status.

Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations.

Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011 and 2012. Some taxpayers may have special circumstances, such as signing an agreement with the IRS to keep the statute of limitations open, that permit them to file refund claims for tax years 2009 and earlier.

Additionally, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income.

How to File a Claim for Refund

Taxpayers who wish to file a refund claim for income taxes should use Form 1040X, Amended U.S. Individual Income Tax Return.

Taxpayers who wish to file a refund claim for gift or estate taxes should file Form 843, Claim for Refund and Request for Abatement. For information on filing an amended return, see Tax Topic 308, Amended Returns, available on IRS.gov, or the Instructions to Forms 1040X and 843. Information on where to file your amended returns is available in the instructions to the form.

Future Guidance

Treasury and the IRS intend to issue streamlined procedures for employers who wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses. Treasury and IRS also intend to issue further guidance on cafeteria plans and on how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods before the effective date of this Revenue Ruling.

Other agencies may provide guidance on other federal programs that they administer that are affected by the Code. 

Revenue Ruling 2013-17, along with updated Frequently Asked Questions for same-sex couples and updated FAQs for registered domestic partners and individuals in civil unions, are available today on IRS.gov. See also Publication 555, Community Property.

Treasury and the IRS will begin applying the terms of Revenue Ruling 2013-17 on Sept. 16, 2013, but taxpayers who wish to rely on the terms of the Revenue Ruling for earlier periods may choose to do so, as long as the statute of limitations for the earlier period has not expired.

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Page Last Reviewed or Updated: 30-Sep-2013

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File back taxes free online Publication 551 - Main Content Table of Contents Cost BasisStocks and Bonds Real Property Business Assets Allocating the Basis Adjusted BasisIncreases to Basis Decreases to Basis Adjustments to Basis Example Basis Other Than CostProperty Received for Services Taxable Exchanges Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed to Business or Rental Use How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). File back taxes free online Cost Basis The basis of property you buy is usually its cost. File back taxes free online The cost is the amount you pay in cash, debt obligations, other property, or services. File back taxes free online Your cost also includes amounts you pay for the following items. File back taxes free online Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if assumed for the seller). File back taxes free online  You may also have to capitalize (add to basis) certain other costs related to buying or producing property. File back taxes free online Loans with low or no interest. File back taxes free online   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. File back taxes free online You generally have unstated interest if your interest rate is less than the applicable federal rate. File back taxes free online For more information, see Unstated Interest and Original Issue Discount in Publication 537. File back taxes free online Purchase of a business. File back taxes free online   When you purchase a trade or business, you generally purchase all assets used in the business operations, such as land, buildings, and machinery. File back taxes free online Allocate the price among the various assets, including any section 197 intangibles. File back taxes free online See Allocating the Basis, later. File back taxes free online Stocks and Bonds The basis of stocks or bonds you buy is generally the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. File back taxes free online If you get stocks or bonds other than by purchase, your basis is usually determined by the fair market value (FMV) or the previous owner's adjusted basis of the stock. File back taxes free online You must adjust the basis of stocks for certain events that occur after purchase. File back taxes free online See Stocks and Bonds in chapter 4 of Publication 550 for more information on the basis of stock. File back taxes free online Identifying stock or bonds sold. File back taxes free online   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. File back taxes free online 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. File back taxes free online For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. File back taxes free online Mutual fund shares. File back taxes free online   If you sell mutual fund shares acquired at different times and prices, you can choose to use an average basis. File back taxes free online For more information, see Publication 550. File back taxes free online Real Property Real property, also called real estate, is land and generally anything built on or attached to it. File back taxes free online If you buy real property, certain fees and other expenses become part of your cost basis in the property. File back taxes free online Real estate taxes. File back taxes free online   If you pay 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. File back taxes free online You cannot deduct them as taxes. File back taxes free online   If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. File back taxes free online Do not include that amount in the basis of the property. File back taxes free online If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. File back taxes free online Settlement costs. File back taxes free online   Your basis includes the settlement fees and closing costs for buying property. File back taxes free online You cannot include in your basis the fees and costs for getting a loan on property. File back taxes free online A fee for buying property is a cost that must be paid even if you bought the property for cash. File back taxes free online   The following items are some of the settlement fees or closing costs you can include in the basis of your property. File back taxes free online Abstract fees (abstract of title fees); Charges for installing utility services; Legal fees (including title search and preparation of the sales contract and deed); Recording fees; Surveys; Transfer taxes; Owner's title insurance; and Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. File back taxes free online   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. File back taxes free online   The following items are some settlement fees and closing costs you cannot include in the basis of the property. File back taxes free online Casualty insurance premiums. File back taxes free online Rent for occupancy of the property before closing. File back taxes free online Charges for utilities or other services related to occupancy of the property before closing. File back taxes free online Charges connected with getting a loan. File back taxes free online The following are examples of these charges. File back taxes free online Points (discount points, loan origination fees). File back taxes free online Mortgage insurance premiums. File back taxes free online Loan assumption fees. File back taxes free online Cost of a credit report. File back taxes free online Fees for an appraisal required by a lender. File back taxes free online Fees for refinancing a mortgage. File back taxes free online If these costs relate to business property, items (1) through (3) are deductible as business expenses. File back taxes free online Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan. File back taxes free online Points. File back taxes free online   If you pay points to obtain a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. File back taxes free online Generally, you deduct the points over the term of the loan. File back taxes free online For more information on how to deduct points, see Points in chapter 4 of Publication 535. File back taxes free online Points on home mortgage. File back taxes free online   Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. File back taxes free online If certain requirements are met, you can deduct the points in full for the year in which they are paid. File back taxes free online Reduce the basis of your home by any seller-paid points. File back taxes free online For more information, see Points in Publication 936, Home Mortgage Interest Deduction. File back taxes free online Assumption of mortgage. File back taxes free online   If you buy property and assume (or buy subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. File back taxes free online Example. File back taxes free online If you buy a building for $20,000 cash and assume a mortgage of $80,000 on it, your basis is $100,000. File back taxes free online Constructing assets. File back taxes free online   If you build property or have assets built for you, your expenses for this construction are part of your basis. File back taxes free online Some of these expenses include the following costs. File back taxes free online Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. File back taxes free online In addition, if you own a business and use your employees, material, and equipment to build an asset, do not deduct the following expenses. File back taxes free online You must include them in the asset's basis. File back taxes free online Employee wages paid for the construction work, reduced by any employment credits allowed; Depreciation on equipment you own while it is used in the construction; Operating and maintenance costs for equipment used in the construction; and The cost of business supplies and materials used in the construction. File back taxes free online    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. File back taxes free online Business Assets If you purchase property to use in your business, your basis is usually its actual cost to you. File back taxes free online If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. File back taxes free online In certain circumstances, you may be subject to the uniform capitalization rules, next. File back taxes free online Uniform Capitalization Rules The uniform capitalization rules specify the costs you add to basis in certain circumstances. File back taxes free online Activities subject to the rules. File back taxes free online   You must use the uniform capitalization rules if you do any of the following in your trade or business or activity carried on for profit. File back taxes free online Produce real or tangible personal property for use in the business or activity, Produce real or tangible personal property for sale to customers, or Acquire property for resale. File back taxes free online However, this rule does not apply to personal property if your average annual gross receipts for the 3 previous tax years are $10 million or less. File back taxes free online   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. File back taxes free online Treat property produced for you under a contract as produced by you up to the amount you pay or costs you otherwise incur for the property. File back taxes free online Tangible personal property includes films, sound recordings, video tapes, books, or similar property. File back taxes free online    Under the uniform capitalization rules, you must capitalize all direct costs and an allocable part of most indirect costs you incur due to your production or resale activities. File back taxes free online To capitalize means to include certain expenses in the basis of property you produce or in your inventory costs rather than deduct them as a current expense. File back taxes free online You recover these costs through deductions for depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. File back taxes free online   Any cost you cannot use to figure your taxable income for any tax year is not subject to the uniform capitalization rules. File back taxes free online Example. File back taxes free online If you incur a business meal expense for which your deduction would be limited to 50% of the cost of the meal, that amount is subject to the uniform capitalization rules. File back taxes free online The nondeductible part of the cost is not subject to the uniform capitalization rules. File back taxes free online More information. File back taxes free online   For more information about these rules, see the regulations under section 263A of the Internal Revenue Code and Publication 538, Accounting Periods and Methods. File back taxes free online Exceptions. File back taxes free online   The following are not subject to the uniform capitalization rules. File back taxes free online Property you produce that you do not use in your trade, business, or activity conducted for profit; Qualified creative expenses you pay or incur as a free-lance (self-employed) writer, photographer, or artist that are otherwise deductible on your tax return; Property you produce under a long-term contract, except for certain home construction contracts; Research and experimental expenses deductible under section 174 of the Internal Revenue Code; and Costs for personal property acquired for resale if your (or your predecessor's) average annual gross receipts for the 3 previous tax years do not exceed $10 million. File back taxes free online For other exceptions to the uniform capitalization rules, see section 1. File back taxes free online 263A-1(b) of the regulations. File back taxes free online   For information on the special rules that apply to costs incurred in the business of farming, see chapter 6 of Publication 225, Farmer's Tax Guide. File back taxes free online Intangible Assets Intangible assets include goodwill, patents, copyrights, trademarks, trade names, and franchises. File back taxes free online The basis of an intangible asset is usually the cost to buy or create it. File back taxes free online If you acquire multiple assets, for example a going business for a lump sum, see Allocating the Basis below to figure the basis of the individual assets. File back taxes free online The basis of certain intangibles can be amortized. File back taxes free online See chapter 8 of Publication 535 for information on the amortization of these costs. File back taxes free online Patents. File back taxes free online   The basis of a patent you get for an invention is the cost of development, such as research and experimental expenditures, drawings, working models, and attorneys' and governmental fees. File back taxes free online If you deduct the research and experimental expenditures as current business expenses, you cannot include them in the basis of the patent. File back taxes free online The value of the inventor's time spent on an invention is not part of the basis. File back taxes free online Copyrights. File back taxes free online   If you are an author, the basis of a copyright will usually be the cost of getting the copyright plus copyright fees, attorneys' fees, clerical assistance, and the cost of plates that remain in your possession. File back taxes free online Do not include the value of your time as the author, or any other person's time you did not pay for. File back taxes free online Franchises, trademarks, and trade names. File back taxes free online   If you buy a franchise, trademark, or trade name, the basis is its cost, unless you can deduct your payments as a business expense. File back taxes free online Allocating the Basis If you buy multiple assets for a lump sum, allocate the amount you pay among the assets you receive. File back taxes free online You must make this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. File back taxes free online See Trade or Business Acquired below. File back taxes free online Group of Assets Acquired If you buy multiple assets for a lump sum, you and the seller may agree to a specific allocation of the purchase price among the assets in the sales contract. File back taxes free online 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. File back taxes free online However, see Trade or Business Acquired, next. File back taxes free online Trade or Business Acquired If you acquire a trade or business, allocate the consideration paid to the various assets acquired. File back taxes free online Generally, reduce the consideration paid by any cash and general deposit accounts (including checking and savings accounts) received. File back taxes free online Allocate the remaining consideration to the other business assets received in proportion to (but not more than) their fair market value in the following order. File back taxes free online Certificates of deposit, U. File back taxes free online S. File back taxes free online Government securities, foreign currency, and actively traded personal property, including stock and securities. File back taxes free online Accounts receivable, other debt instruments, and assets you mark to market at least annually for federal income tax purposes. File back taxes free online Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held primarily for sale to customers in the ordinary course of business. File back taxes free online All other assets except section 197 intangibles, goodwill, and going concern value. File back taxes free online Section 197 intangibles except goodwill and going concern value. File back taxes free online Goodwill and going concern value (whether or not they qualify as section 197 intangibles). File back taxes free online Agreement. File back taxes free online   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value (FMV) of any of the assets. File back taxes free online This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. File back taxes free online Reporting requirement. File back taxes free online   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. File back taxes free online Use Form 8594 to provide this information. File back taxes free online The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. File back taxes free online More information. File back taxes free online   See Sale of a Business in chapter 2 of Publication 544 for more information. File back taxes free online Land and Buildings If you buy buildings and the land on which they stand for a lump sum, allocate the basis of the property among the land and the buildings so you can figure the depreciation allowable on the buildings. File back taxes free online Figure the basis of each asset by multiplying the lump sum by a fraction. File back taxes free online The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. File back taxes free online If you are not certain of the FMV of the land and buildings, you can allocate the basis based on their assessed values for real estate tax purposes. File back taxes free online Demolition of building. File back taxes free online   Add demolition costs and other losses incurred for the demolition of any building to the basis of the land on which the demolished building was located. File back taxes free online Do not claim the costs as a current deduction. File back taxes free online Modification of building. File back taxes free online   A modification of a building will not be treated as a demolition if the following conditions are satisfied. File back taxes free online 75 percent or more of the existing external walls of the building are retained in place as internal or external walls, and 75 percent or more of the existing internal structural framework of the building is retained in place. File back taxes free online   If the building is a certified historic structure, the modification must also be part of a certified rehabilitation. File back taxes free online   If these conditions are met, add the costs of the modifications to the basis of the building. File back taxes free online Subdivided lots. File back taxes free online   If you buy a tract of land and subdivide it, you must determine the basis of each lot. File back taxes free online This is necessary because you must figure the gain or loss on the sale of each individual lot. File back taxes free online As a result, you do not recover your entire cost in the tract until you have sold all of the lots. File back taxes free online   To determine the basis of an individual lot, multiply the total cost of the tract by a fraction. File back taxes free online The numerator is the FMV of the lot and the denominator is the FMV of the entire tract. File back taxes free online Future improvement costs. File back taxes free online   If you are a developer and sell subdivided lots before the development work is completed, you can (with IRS consent) include in the basis of the properties sold an allocation of the estimated future cost for common improvements. File back taxes free online See Revenue Procedure 92–29 for more information, including an explanation of the procedures for getting consent from the IRS. File back taxes free online Use of erroneous cost basis. File back taxes free online   If you made a mistake in figuring the cost basis of subdivided lots sold in previous years, you cannot correct the mistake for years for which the statute of limitations (generally 3 tax years) has expired. File back taxes free online Figure the basis of any remaining lots by allocating the correct original cost basis of the entire tract among the original lots. File back taxes free online Example. File back taxes free online You bought a tract of land to which you assigned a cost of $15,000. File back taxes free online You subdivided the land into 15 building lots of equal size and equitably divided your basis so that each lot had a basis of $1,000. File back taxes free online You treated the sale of each lot as a separate transaction and figured gain or loss separately on each sale. File back taxes free online Several years later you determine that your original basis in the tract was $22,500 and not $15,000. File back taxes free online You sold eight lots using $8,000 of basis in years for which the statute of limitations has expired. File back taxes free online You now can take $1,500 of basis into account for figuring gain or loss only on the sale of each of the remaining seven lots ($22,500 basis divided among all 15 lots). File back taxes free online You cannot refigure the basis of the eight lots sold in tax years barred by the statute of limitations. File back taxes free online 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 basis of the property. File back taxes free online The result of these adjustments to the basis is the adjusted basis. File back taxes free online Increases to Basis Increase the basis of any property by all items properly added to a capital account. File back taxes free online These include the cost of any improvements having a useful life of more than 1 year. File back taxes free online Rehabilitation expenses also increase basis. File back taxes free online However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis. File back taxes free online If you have to recapture any of the credit, increase your basis by the recaptured amount. File back taxes free online If you make additions or improvements to business property, keep separate accounts for them. File back taxes free online Also, you must depreciate the basis of each according to the depreciation rules that would apply to the underlying property if you had placed it in service at the same time you placed the addition or improvement in service. File back taxes free online For more information, see Publication 946. File back taxes free online The following items increase the basis of property. File back taxes free online The cost of extending utility service lines to the property; Impact fees; Legal fees, such as the cost of defending and perfecting title; Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements; Zoning costs; and The capitalized value of a redeemable ground rent. File back taxes free online Assessments for Local Improvements Increase the basis of property by assessments for items such as paving roads and building ditches that increase the value of the property assessed. File back taxes free online Do not deduct them as taxes. File back taxes free online However, you can deduct as taxes charges for maintenance, repairs, or interest charges related to the improvements. File back taxes free online Example. File back taxes free online Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected landowners for the cost of the conversion. File back taxes free online Add the assessment to your property's basis. File back taxes free online In this example, the assessment is a depreciable asset. File back taxes free online Deducting vs. File back taxes free online Capitalizing Costs Do not add to your basis costs you can deduct as current expenses. File back taxes free online For example, amounts paid for incidental repairs or maintenance that are deductible as business expenses cannot be added to basis. File back taxes free online However, you can choose either to deduct or to capitalize certain other costs. File back taxes free online If you capitalize these costs, include them in your basis. File back taxes free online If you deduct them, do not include them in your basis. File back taxes free online See Uniform Capitalization Rules earlier. File back taxes free online The costs you can choose to deduct or to capitalize include the following. File back taxes free online Carrying charges, such as interest and taxes, that you pay to own property, except carrying charges that must be capitalized under the uniform capitalization rules; Research and experimentation costs; Intangible drilling and development costs for oil, gas, and geothermal wells; Exploration costs for new mineral deposits; Mining development costs for a new mineral deposit; Costs of establishing, maintaining, or increasing the circulation of a newspaper or other periodical; and Costs of removing architectural and transportation barriers to people with disabilities and the elderly. File back taxes free online If you claim the disabled access credit, you must reduce the amount you deduct or capitalize by the amount of the credit. File back taxes free online For more information about deducting or capitalizing costs, see chapter 7 in Publication 535. File back taxes free online Table 1. File back taxes free online Examples of Increases and Decreases to Basis Increases to Basis Decreases to Basis Capital improvements:   Putting an addition on your home   Replacing an entire roof  Paving your driveway  Installing central air conditioning Rewiring your home Exclusion from income of subsidies for energy conservation measures  Casualty or theft loss deductions and insurance reimbursements  Vehicle credits Assessments for local improvements: Water connections Sidewalks Roads Section 179 deduction  Casualty losses: Restoring damaged property Depreciation  Nontaxable corporate distributions Legal fees:  Cost of defending and perfecting a title   Zoning costs   Decreases to Basis The following are some items that reduce the basis of property. File back taxes free online Section 179 deduction; Nontaxable corporate distributions; Deductions previously allowed (or allowable) for amortization, depreciation, and depletion; Exclusion of subsidies for energy conservation measures; Vehicle credits; Residential energy credits; Postponed gain from sale of home; Investment credit (part or all) taken; Casualty and theft losses and insurance reimbursement; Certain canceled debt excluded from income; Rebates from a manufacturer or seller; Easements; Gas-guzzler tax; Adoption tax benefits; and Credit for employer-provided child care. File back taxes free online Some of these items are discussed next. File back taxes free online Casualties and Thefts If you have a casualty or theft loss, decrease the basis in your property by any insurance or other reimbursement and by any deductible loss not covered by insurance. File back taxes free online You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use. File back taxes free online To make this determination, compare the repaired property to the property before the casualty. File back taxes free online For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts. File back taxes free online Easements The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. File back taxes free online It reduces the basis of the affected part of the property. File back taxes free online 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. File back taxes free online Vehicle Credits Unless you elect not to claim the qualified plug-in electric vehicle credit, the alternative motor vehicle credit, or the qualified plug-in electric drive motor vehicle credit, you may have to reduce the basis of each qualified vehicle by certain amounts reported. File back taxes free online For more information, see Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit; Form 8910, Alternative Motor Vehicle Credit; Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit;and the related instructions. File back taxes free online Gas-Guzzler Tax Decrease the basis in your car by the gas-guzzler (fuel economy) tax if you begin using the car within 1 year of the date of its first sale for ultimate use. File back taxes free online This rule also applies to someone who later buys the car and begins using it not more than 1 year after the original sale for ultimate use. File back taxes free online If the car is imported, the one-year period begins on the date of entry or withdrawal of the car from the warehouse if that date is later than the date of the first sale for ultimate use. File back taxes free online Section 179 Deduction If you take the section 179 deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. File back taxes free online For more information about the section 179 deduction, see Publication 946. File back taxes free online Exclusion of Subsidies for Energy Conservation Measures You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of any energy conservation measure for a dwelling unit. File back taxes free online Reduce the basis of the property for which you received the subsidy by the excluded amount. File back taxes free online For more information on this subsidy, see Publication 525. File back taxes free online Depreciation 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. File back taxes free online 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. File back taxes free online If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. File back taxes free online Unless a timely election is made not to deduct the special depreciation allowance for property placed in service after September 10, 2001, decrease the property's basis by the special depreciation allowance you deducted or could have deducted. File back taxes free online If you deducted more depreciation than you should have, decrease your basis by the amount equal to the depreciation you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for the year. File back taxes free online In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation capitalized under the uniform capitalization rules. File back taxes free online For information on figuring depreciation, see Publication 946. File back taxes free online If you are claiming depreciation on a business vehicle, see Publication 463. File back taxes free online If the car is not used more than 50% for business during the tax year, you may have to recapture excess depreciation. File back taxes free online Include the excess depreciation in your gross income and add it to your basis in the property. File back taxes free online For information on the computation of excess depreciation, see chapter 4 in Publication 463. File back taxes free online Canceled Debt Excluded From Income 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. File back taxes free online A debt includes any indebtedness for which you are liable or which attaches to property you hold. File back taxes free online You can exclude canceled debt from income in the following situations. File back taxes free online Debt canceled in a bankruptcy case or when you are insolvent, Qualified farm debt, and Qualified real property business debt (provided you are not a C corporation). File back taxes free online If you exclude from income canceled debt under situation (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. File back taxes free online However, in situation (3), you must reduce the basis of your depreciable property by the excluded amount. File back taxes free online For more information about canceled debt in a bankruptcy case or during insolvency, see Publication 908, Bankruptcy Tax Guide. File back taxes free online For more information about canceled debt that is qualified farm debt, see chapter 3 in Publication 225. File back taxes free online For more information about qualified real property business debt, see chapter 5 in Publication 334, Tax Guide for Small Business. File back taxes free online Postponed Gain From Sale of Home If you postponed gain from the sale of your main home before May 7, 1997, you must reduce the basis of your new home by the postponed gain. File back taxes free online For more information on the rules for the sale of a home, see Publication 523. File back taxes free online Adoption Tax Benefits If you claim an adoption credit for the cost of improvements you added to the basis of your home, decrease the basis of your home by the credit allowed. File back taxes free online This also applies to amounts you received under an employer's adoption assistance program and excluded from income. File back taxes free online For more information Form 8839, Qualified Adoption Expenses. File back taxes free online Employer-Provided Child Care If you are an employer, you can claim the employer-provided child care credit on amounts you paid or incurred to acquire, construct, rehabilitate, or expand property used as part of your qualified child care facility. File back taxes free online You must reduce your basis in that property by the credit claimed. File back taxes free online For more information, see Form 8882, Credit for Employer-Provided Child Care Facilities and Services. File back taxes free online Adjustments to Basis Example In January 2005, you paid $80,000 for real property to be used as a factory. File back taxes free online You also paid commissions of $2,000 and title search and legal fees of $600. File back taxes free online You allocated the total cost of $82,600 between the land and the building—$10,325 for the land and $72,275 for the building. File back taxes free online Immediately you spent $20,000 in remodeling the building before you placed it in service. File back taxes free online You were allowed depreciation of $14,526 for the years 2005 through 2009. File back taxes free online In 2008 you had a $5,000 casualty loss from a that was not covered by insurance on the building. File back taxes free online You claimed a deduction for this loss. File back taxes free online You spent $5,500 to repair the damages and extend the useful life of the building. File back taxes free online The adjusted basis of the building on January 1, 2010, is figured as follows: Original cost of building including fees and commissions $72,275 Adjustments to basis:     Add:         Improvements 20,000   Repair of damages 5,500       $97,775 Subtract:       Depreciation $14,526     Deducted casualty loss 5,000 19,526 Adjusted basis on January 1, 2010 $78,249 The basis of the land, $10,325, remains unchanged. File back taxes free online It is not affected by any of the above adjustments. File back taxes free online Basis Other Than Cost There are many times when you cannot use cost as basis. File back taxes free online In these cases, the fair market value or the adjusted basis of property may be used. File back taxes free online Adjusted basis is discussed earlier. File back taxes free online Fair market value (FMV). File back taxes free online   FMV is the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. File back taxes free online Sales of similar property on or about the same date may be helpful in figuring the property's FMV. File back taxes free online Property Received for Services If you receive property for services, include the property's FMV in income. File back taxes free online The amount you include in income becomes your basis. File back taxes free online 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. File back taxes free online Bargain Purchases A bargain purchase is a purchase of an item for less than its FMV. File back taxes free online If, as compensation for services, you purchase goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. File back taxes free online Your basis in the property is its FMV (your purchase price plus the amount you include in income). File back taxes free online If the difference between your purchase price and the FMV represents a qualified employee discount, do not include the difference in income. File back taxes free online However, your basis in the property is still its FMV. File back taxes free online See Employee Discounts in Publication 15-B. File back taxes free online Restricted Property If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested unless you make the election discussed later. File back taxes free online Property becomes substantially vested when your rights in the property or the rights of any person to whom you transfer the property are not subject to a substantial risk of forfeiture. File back taxes free online There is substantial risk of forfeiture when the rights to full enjoyment of the property depend on the future performance of substantial services by any person. File back taxes free online When the property becomes substantially vested, include the FMV, less any amount you paid for the property, in income. File back taxes free online Example. File back taxes free online Your employer gives you stock for services performed under the condition that you will have to return the stock unless you complete 5 years of service. File back taxes free online The stock is under a substantial risk of forfeiture and is not substantially vested when you receive it. File back taxes free online You do not report any income until you have completed the 5 years of service that satisfy the condition. File back taxes free online Fair market value. File back taxes free online   Figure the FMV of property you received without considering any restriction except one that by its terms will never end. File back taxes free online Example. File back taxes free online You received stock from your employer for services you performed. File back taxes free online If you want to sell the stock while you are still employed, you must sell the stock to your employer at book value. File back taxes free online At your retirement or death, you or your estate must offer to sell the stock to your employer at its book value. File back taxes free online This is a restriction that by its terms will never end and you must consider it when you figure the FMV. File back taxes free online Election. File back taxes free online   You can choose to include in your gross income the FMV of the property at the time of transfer, less any amount you paid for it. File back taxes free online If you make this choice, the substantially vested rules do not apply. File back taxes free online Your basis is the amount you paid plus the amount you included in income. File back taxes free online   See the discussion of Restricted Property in Publication 525 for more information. File back taxes free online Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. File back taxes free online A taxable gain or deductible loss is also known as a recognized gain or loss. File back taxes free online If you receive property in exchange for other property in a taxable exchange, the basis of property you receive is usually its FMV at the time of the exchange. File back taxes free online A taxable exchange occurs when you receive cash or property not similar or related in use to the property exchanged. File back taxes free online Example. File back taxes free online You trade a tract of farm land with an adjusted basis of $3,000 for a tractor that has an FMV of $6,000. File back taxes free online You must report a taxable gain of $3,000 for the land. File back taxes free online The tractor has a basis of $6,000. File back taxes free online Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, you can figure the basis of the replacement property you receive using the basis of the converted property. File back taxes free online Similar or related property. File back taxes free online   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the old property's basis on the date of the conversion. File back taxes free online However, make the following adjustments. File back taxes free online Decrease the basis by the following. File back taxes free online Any loss you recognize on the conversion, and Any money you receive that you do not spend on similar property. File back taxes free online Increase the basis by the following. File back taxes free online Any gain you recognize on the conversion, and Any cost of acquiring the replacement property. File back taxes free online Money or property not similar or related. File back taxes free online   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 new property is its cost decreased by the gain not recognized on the conversion. File back taxes free online Example. File back taxes free online The state condemned your property. File back taxes free online The property had an adjusted basis of $26,000 and the state paid you $31,000 for it. File back taxes free online You realized a gain of $5,000 ($31,000 − $26,000). File back taxes free online You bought replacement property similar in use to the converted property for $29,000. File back taxes free online You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. File back taxes free online Your gain not recognized is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. File back taxes free online The basis of the new property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of the replacement property $26,000 Allocating the basis. File back taxes free online   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. File back taxes free online Example. File back taxes free online The state in the previous example condemned your unimproved real property and the replacement property you bought was improved real property with both land and buildings. File back taxes free online Allocate the replacement property's $26,000 basis between land and buildings based on their respective costs. File back taxes free online More information. File back taxes free online   For more information about condemnations, see Involuntary Conversions in Publication 544. File back taxes free online For more information about casualty and theft losses, see Publication 547. File back taxes free online Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. File back taxes free online If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. File back taxes free online A nontaxable gain or loss is also known as an unrecognized gain or loss. File back taxes free online Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. File back taxes free online 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. File back taxes free online There must also be an exchange of like-kind property. File back taxes free online For more information, see Like-Kind Exchanges in Publication 544. File back taxes free online The basis of the property you receive is the same as the basis of the property you gave up. File back taxes free online Example. File back taxes free online You exchange real estate (adjusted basis $50,000, FMV $80,000) held for investment for other real estate (FMV $80,000) held for investment. File back taxes free online Your basis in the new property is the same as the basis of the old ($50,000). File back taxes free online Exchange expenses. File back taxes free online   Exchange expenses are generally the closing costs you pay. File back taxes free online They include such items as brokerage commissions, attorney fees, deed preparation fees, etc. File back taxes free online Add them to the basis of the like-kind property received. File back taxes free online Property plus cash. File back taxes free online   If you trade property in a like-kind exchange and also pay money, the basis of the property received is the basis of the property you gave up increased by the money you paid. File back taxes free online Example. File back taxes free online You trade in a truck (adjusted basis $3,000) for another truck (FMV $7,500) and pay $4,000. File back taxes free online Your basis in the new truck is $7,000 (the $3,000 basis of the old truck plus the $4,000 paid). File back taxes free online Special rules for related persons. File back taxes free online   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. File back taxes free online Each person must report any gain or loss not recognized on the original exchange. File back taxes free online Each person reports it on the tax return filed for the year in which the later disposition occurs. File back taxes free online If this rule applies, the basis of the property received in the original exchange will be its fair market value. File back taxes free online   These rules generally do not apply to the following kinds of property dispositions. File back taxes free online Dispositions due to the death of either related person, Involuntary conversions, and Dispositions in which neither the original exchange nor the subsequent disposition had as a main purpose the avoidance of federal income tax. File back taxes free online Related persons. File back taxes free online   Generally, related persons are ancestors, lineal descendants, brothers and sisters (whole or half), and a spouse. File back taxes free online   For other related persons (for example, two corporations, an individual and a corporation, a grantor and fiduciary, etc. File back taxes free online ), see Nondeductible Loss in chapter 2 of Publication 544. File back taxes free online Exchange of business property. File back taxes free online   Exchanging the assets of one business for the assets of another business is a multiple property exchange. File back taxes free online For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. File back taxes free online Partially Nontaxable Exchange A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like property. File back taxes free online The basis of the property you receive is the same as the basis of the property you gave up, with the following adjustments. File back taxes free online Decrease the basis by the following amounts. File back taxes free online Any money you receive, and Any loss you recognize on the exchange. File back taxes free online Increase the basis by the following amounts. File back taxes free online Any additional costs you incur, and Any gain you recognize on the exchange. File back taxes free online If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. File back taxes free online Example. File back taxes free online You traded a truck (adjusted basis $6,000) for a new truck (FMV $5,200) and $1,000 cash. File back taxes free online You realized a gain of $200 ($6,200 − $6,000). File back taxes free online This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($5,200 + $1,000 – $6,000). File back taxes free online You include all the gain in income (recognized gain) because the gain is less than the cash received. File back taxes free online Your basis in the new truck is: Adjusted basis of old truck $6,000 Minus: Cash received (adjustment 1(a)) 1,000   $5,000 Plus: Gain recognized (adjustment 2(b)) 200 Basis of new truck $5,200 Allocation of basis. File back taxes free online   Allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. File back taxes free online The rest is the basis of the like property. File back taxes free online Example. File back taxes free online You had an adjusted basis of $15,000 in real estate you held for investment. File back taxes free online You exchanged it for other real estate to be held for investment with an FMV of $12,500, a truck with an FMV of $3,000, and $1,000 cash. File back taxes free online The truck is unlike property. File back taxes free online You realized a gain of $1,500 ($16,500 − $15,000). File back taxes free online This is the FMV of the real estate received plus the FMV of the truck received plus the cash minus the adjusted basis of the real estate you traded ($12,500 + $3,000 + $1,000 – $15,000). File back taxes free online 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. File back taxes free online Your basis in the properties you received is figured as follows. File back taxes free online Adjusted basis of real estate transferred $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). File back taxes free online This is the truck's FMV. File back taxes free online The rest ($12,500) is the basis of the real estate. File back taxes free online 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. File back taxes free online Example. File back taxes free online You are a salesperson and you use one of your cars 100% for business. File back taxes free online You have used this car in your sales activities for 2 years and have depreciated it. File back taxes free online Your adjusted basis in the car is $22,600 and its FMV is $23,100. File back taxes free online You are interested in a new car, which sells for $28,000. File back taxes free online If you trade your old car and pay $4,900 for the new one, your basis for depreciation for the new car would be $27,500 ($4,900 plus the $22,600 basis of your old car). File back taxes free online However, you want a higher basis for depreciating the new car, so you agree to pay the dealer $28,000 for the new car if he will pay you $23,100 for your old car. File back taxes free online Because the two transactions are dependent on each other, you are treated as having exchanged your old car for the new one and paid $4,900 ($28,000 − $23,100). File back taxes free online Your basis for depreciating the new car is $27,500, the same as if you traded the old car. File back taxes free online Partial Business Use of Property If you have property used partly for business and partly for personal use, and you exchange it in a nontaxable exchange for property to be used wholly or partly in your business, the basis of the property you receive is figured as if you had exchanged two properties. File back taxes free online The first is an exchange of like-kind property. File back taxes free online The second is personal-use property on which gain is recognized and loss is not recognized. File back taxes free online First, figure your adjusted basis in the property as if you transferred two separate properties. File back taxes free online Figure the adjusted basis of each part of the property by taking into account any adjustments to basis. File back taxes free online Deduct the depreciation you took or could have taken from the adjusted basis of the business part. File back taxes free online Then figure the amount realized for your property and allocate it to the business and nonbusiness parts of the property. File back taxes free online The business part of the property is permitted to be exchanged tax free. File back taxes free online However, you must recognize any gain from the exchange of the nonbusiness part. File back taxes free online You are deemed to have received, in exchange for the nonbusiness part, an amount equal to its FMV on the date of the exchange. File back taxes free online The basis of the property you acquired is the total basis of the property transferred (adjusted to the date of the exchange), increased by any gain recognized on the nonbusiness part. File back taxes free online If the nonbusiness part of the property transferred is your main home, you may qualify to exclude from income all or part of the gain on that part. File back taxes free online For more information, see Publication 523. File back taxes free online Trade of car used partly in business. File back taxes free online   If you trade in a car you used partly in your business for another car you will use in your business, your basis for depreciation of the new car is not the same as your basis for figuring a gain or loss on its sale. File back taxes free online   For information on figuring your basis for depreciation, see Publication 463. File back taxes free online Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse (or former spouse if the transfer is incident to divorce), is the same as your spouse's adjusted basis. File back taxes free online However, adjust your basis for any gain recognized by your spouse or former spouse on property transferred in trust. File back taxes free online This rule applies only to a transfer of property in trust in which the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. File back taxes free online If the property transferred to you is a series E, series EE, or series I United States savings bond, the transferor must include in income the interest accrued to the date of transfer. File back taxes free online Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. File back taxes free online For more information on these bonds, see Publication 550. File back taxes free online At the time of the transfer, the transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of transfer. File back taxes free online For more information, see Publication 504, Divorced or Separated Individuals. File back taxes free online 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, its FMV at the time it was given to you, and any gift tax paid on it. File back taxes free online FMV Less Than Donor's Adjusted Basis 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. File back taxes free online Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustment to basis while you held the property. File back taxes free online Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property (see Adjusted Basis earlier). File back taxes free online 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 have a gain, you have neither gain nor loss on the sale or disposition of the property. File back taxes free online Example. File back taxes free online You received an acre of land as a gift. File back taxes free online At the time of the gift, the land had an FMV of $8,000. File back taxes free online The donor's adjusted basis was $10,000. File back taxes free online After you received the land, no events occurred to increase or decrease your basis. File back taxes free online If you sell the land for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis ($10,000) at the time of the gift as your basis to figure gain. File back taxes free online If you sell the land for $7,000, you will have a $1,000 loss because you must use the FMV ($8,000) at the time of the gift as your basis to figure a loss. File back taxes free online If the sales price is between $8,000 and $10,000, you have neither gain nor loss. File back taxes free online For instance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis ($10,000), you would get a $1,000 loss. File back taxes free online If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain. File back taxes free online Business property. File back taxes free online   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduction is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. File back taxes free online FMV Equal to or More Than Donor's Adjusted Basis 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 at the time you received the gift. File back taxes free online Increase your basis by all or part of any gift tax paid, depending on the date of the gift. File back taxes free online 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 by any required adjustments to basis while you held the property. File back taxes free online See Adjusted Basis earlier. File back taxes free online Gift received before 1977. File back taxes free online   If you received a gift before 1977, increase your basis in the gift (the donor's adjusted basis) by any gift tax paid on it. File back taxes free online However, do not increase your basis above the FMV of the gift at the time it was given to you. File back taxes free online Example 1. File back taxes free online You were given a house in 1976 with an FMV of $21,000. File back taxes free online The donor's adjusted basis was $20,000. File back taxes free online The donor paid a gift tax of $500. File back taxes free online Your basis is $20,500, the donor's adjusted basis plus the gift tax paid. File back taxes free online Example 2. File back taxes free online If, in Example 1, the gift tax paid had been $1,500, your basis would be $21,000. File back taxes free online This is the donor's adjusted basis plus the gift tax paid, limited to the FMV of the house at the time you received the gift. File back taxes free online Gift received after 1976. File back taxes free online   If you received a gift after 1976, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. File back taxes free online Figure the increase by multiplying the gift tax paid by a fraction. File back taxes free online The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. File back taxes free online   The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. File back taxes free online 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. File back taxes free online For information on the gift tax, see Publication 950, Introduction to Estate and Gift Taxes. File back taxes free online Example. File back taxes free online In 2010, you received a gift of property from your mother that had an FMV of $50,000. File back taxes free online Her adjusted basis was $20,000. File back taxes free online The amount of the gift for gift tax purposes was $37,000 ($50,000 minus the $13,000 annual exclusion). File back taxes free online She paid a gift tax of $9,000. File back taxes free online Your basis, $27,290, is figured as follows: Fair market value $50,000 Minus: Adjusted basis 20,000 Net increase in value $30,000 Gift tax paid $9,000 Multiplied by ($30,000 ÷ $37,000) . File back taxes free online 81 Gift tax due to net increase in value $7,290 Adjusted basis of property to your mother 20,000 Your basis in the property $27,290 Inherited Property Special rules apply to property acquired from a decedent who died in 2010. File back taxes free online See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. File back taxes free online If you inherited property from a decedent who died before 2010, your basis in property you inherit from a decedent is generally one of the following. File back taxes free online The FMV of the property at the date of the individual's death. File back taxes free online The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. File back taxes free online For information on the alternate valuation date, see the Instructions for Form 706. File back taxes free online The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. File back taxes free online This method is discussed later. File back taxes free online The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. File back taxes free online For information on a qualified conservation easement, see the Instructions for Form 706. File back taxes free online 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. File back taxes free online For more information, see the Instructions for Form 706. File back taxes free online Appreciated property. File back taxes free online   The above rule does not apply to appreciated property you receive from a decedent if you or your spouse originally gave the property to the decedent within 1 year before the decedent's death. File back taxes free online Your basis in this property is the same as the decedent's adjusted basis in the property immediately before his or her death, rather than its FMV. File back taxes free online Appreciated property is any property whose FMV on the day it was given to the decedent is more than its adjusted basis. File back taxes free online Community Property In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. File back taxes free online When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. File back taxes free online For this rule to apply, at least half the value of the community property interest must be includable in the decedent's gross estate, whether or not the estate must file a return. File back taxes free online For example, you and your spouse owned community property that had a basis of $80,000. File back taxes free online When your spouse died, half the FMV of the community interest was includible in your spouse's estate. File back taxes free online The FMV of the community interest was $100,000. File back taxes free online The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). File back taxes free online The basis of the other half to your spouse's heirs is also $50,000. File back taxes free online For more information on community property, see Publication 555, Community Property. File back taxes free online Property Held by Surviving Tenant The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety. File back taxes free online Example. File back taxes free online John and Jim owned, as joint tenants with right of survivorship, business property they purchased for $30,000. File back taxes free online John furnished two-thirds of the purchase price and Jim furnished one-third. File back taxes free online Depreciation deductions allowed before John's death were $12,000. File back taxes free online Under local law, each had a half interest in the income from the property. File back taxes free online At the date of John's death, the property had an FMV of $60,000, two-thirds of which is includable in John's estate. File back taxes free online Jim figures his basis in the property at the date of John's death as follows: Interest Jim bought with his own funds—1/3 of $30,000 cost $10,000   Interest Jim received on John's death—2/3 of $60,000 FMV 40,000 $50,000 Minus: ½ of $12,000 depreciation before John's death 6,000 Jim's basis at the date of John's death $44,000 If Jim had not contributed any part of the purchase price, his basis at the date of John's death would be $54,000. File back taxes free online This is figured by subtracting from the $60,000 FMV, the $6,000 depreciation allocated to Jim's half interest before the date of death. File back taxes free online If under local law Jim had no interest in the income from the property and he contributed no part of the purchase price, his basis at John's death would be $60,000, the FMV of the property. File back taxes free online Qualified Joint Interest Include one-half of the value of a qualified joint interest in the decedent's gross estate. File back taxes free online It does not matter how much each spouse contributed to the purchase price. File back taxes free online Also, it does not matter which spouse dies first. File back taxes free online A qualified joint interest is any interest in property held by husband and wife as either of the following. File back taxes free online Tenants by the entirety, or Joint tenants with right of survivorship if husband and wife are the only joint tenants. File back taxes free online Basis. File back taxes free online   As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of your half of the property with certain adjustments. File back taxes free online Decrease the cost by any deductions allowed to you for depreciation and depletion. File back taxes free online Increase the reduced cost by your basis in the half you inherited. File back taxes free online Farm or Closely Held Business Under certain conditions, when a person dies the executor or personal representative of that person's estate can choose to value the qualified real property on other than its FMV. File back taxes free online If so, the executor or personal representative values the qualified real property based on its use as a farm or its use in a closely held business. File back taxes free online If the executor or personal representative chooses this method of valuation for estate tax purposes, that value is the basis of the property for the heirs. File back taxes free online Qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. File back taxes free online Special-use valuation. File back taxes free online   If you are a qualified heir who received special-use valuation property, your basis in the property is the estate's or trust's basis in that property immediately before the distribution. File back taxes free online Increase your basis by any gain recognized by the estate or trust because of post-death appreciation. File back taxes free online 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 the alternate valuation date. File back taxes free online Figure all FMVs without regard to the special-use valuation. File back taxes free online   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. File back taxes free online This tax is assessed if, within 10 years after the death of the decedent, you transfer the property to a person who is not a member of your family or the property stops being used as a farm or in a closely held business. File back taxes free online   To increase your basis in the property, 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 the payment of the additional estate tax. File back taxes free online 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. File back taxes free online The increase in your basis is considered to have occurred immediately before the event that results in the additional estate tax. File back taxes free online   You make the election by filing with Form 706-A a statement that does all of the following. File back taxes free online Contains your name, address, and taxpayer identification number and those of the estate; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which the election is made; and Provides any additional information required by the Instructions for Form 706-A. File back taxes free online   For more information, see the Instructions for Form 706 and the Instructions for Form 706-A. File back taxes free online Property Changed to Business or Rental Use If 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. File back taxes free online An example of changing property held for personal use to business use would be renting out your former main home. File back taxes free online Basis for depreciation. File back taxes free online   The basis for depreciation is the lesser of the following amounts. File back taxes free online The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. File back taxes free online Example. File back taxes free online Several years ago you paid $160,000 to have your home built on a lot that cost $25,000. File back taxes free online You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. File back taxes free online Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. File back taxes free online Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). File back taxes free online On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. File back taxes free online The basis for figuring depreciation on the house is its FMV on the date of change ($165,000) because it is less than your adjusted basis ($178,000). File back taxes free online Sale of property. File back taxes free online   If you later sell or dispose of property changed to business or rental use, the basis of the property you use will depend on whether you are figuring gain or loss. File back taxes free online Gain. File back taxes free online   The basis for figuring a gain is your adjusted basis when you sell the property. File back taxes free online Example. File back taxes free online Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. File back taxes free online Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). File back taxes free online Loss. File back taxes free online   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. File back taxes free online Then adjust this amount for the period after the change in the property's use, as discussed earlier under Adjusted Basis, to arrive at a basis for loss. File back taxes free online Example. File back taxes free online Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. File back taxes free online In this case, you would start with the FMV on the date of the change to rental use ($180,000) because it is less than the adjusted basis of $203,000 ($178,000 + $25,000) on that date. File back taxes free online Reduce that amount ($180,000) by the depreciation deductions to arrive at a basis for loss of $142,500 ($180,000 − $37,500). File back taxes free online How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. File back taxes free online By selecting the method that is best for you, you will have quick and easy access to tax help. File back taxes free online Contacting your Taxpayer Advocate. File back taxes free online   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. File back taxes free online We help taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving tax problems with the IRS; and those who believe that an IRS system or procedure is not working as it should. File back taxes free online Here are seven things every taxpayer should know about TAS. File back taxes free online TAS is your voice at the IRS. File back taxes free online Our service is free, confidential, and tailored to meet your needs. File back taxes free online You may be eligible for our help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should. File back taxes free online We help taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. File back taxes free online This includes businesses as well as individuals. File back taxes free online Our employees know the IRS and how to navigate it. File back taxes free online If you qualify for our help, we'll assign your case to an advocate who will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved. File back taxes free online We have at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. File back taxes free online You can call your local advocate, whose number is in your phone book, in Publication 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www. File back taxes free online irs. File back taxes free online gov/advocate. File back taxes free online You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059. File back taxes free online You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www. File back taxes free online taxtoolkit. File back taxes free online irs. File back taxes free online gov. File back taxes free online You can get updates on hot tax topics by visiting our YouTube channel at www. File back taxes free online youtube. File back taxes free online com/tasnta and our Facebook page at www. File back taxes free online facebook. File back taxes free online com/YourVoiceAtIRS, or by following our tweets at www. File back taxes free online twitter. File back taxes free online com/YourVoiceAtIRS. File back taxes free online Low Income Taxpayer Clinics (LITCs). File back taxes free online   The Low Income Taxpayer Clinic program serves individuals who have a problem with the IRS and whose income is below a certain level. File back taxes free online LITCs are independent from the IRS. File back taxes free online Most LITCs can provide representation before the IRS or in court on audits, tax collection disputes, and other issues for free or a small fee. File back taxes free online If an individual's native language is not English, some clinics can provide multilingual information about taxpayer rights and responsibilities. File back taxes free online For more information, see Publication 4134, Low Income Taxpayer Clinic List. File back taxes free online This publication is available at IRS. File back taxes free online gov, by calling 1-800-TAX-FORM (1-800-829-3676), or at your local IRS office. File back taxes free online Free tax services. File back taxes free online   Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. File back taxes free online Learn about free tax information from the IRS, including publications, services, and education and assistance programs. File back taxes free online The publication also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on the telephone. File back taxes free online The majority of the information and services listed in this publication are available to you free of charge. File back taxes free online If there is a fee associated with a resource or service, it is listed in the publication. File back taxes free online   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with d