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File Tax Extension For 2011

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File Tax Extension For 2011

File tax extension for 2011 Publication 957 - Main Content Table of Contents 1. File tax extension for 2011 What is Back Pay?Reporting Back Pay Back Pay Under a Statute Nonstatutory Back Pay Format for Report to the SSA Questions 2. File tax extension for 2011 Special Wage PaymentsReporting Special Wage Payments Reporting Nonstatutory (Nonqualified) Stock Options as Special Wage Payments Nonqualified Deferred Compensation and Section 457 Plans Additional Reporting Examples for Nonqualified Deferred Compensation (NQDC) PlansSpecial rule for box 11 of Form W-2 (distributions and deferral in the same year). File tax extension for 2011 1. File tax extension for 2011 What is Back Pay? Back pay is pay received in a tax year(s) for actual or deemed employment in an earlier tax year(s). File tax extension for 2011 For social security coverage and benefit purposes, all back pay, whether or not under a statute, is wages if it is payment for covered employment. File tax extension for 2011 Damages for personal injury, interest, penalties, and legal fees included with back pay awards are not wages. File tax extension for 2011 Report all back pay. File tax extension for 2011 However, the tax year(s) for which back pay is credited as wages for social security purposes is different if it is awarded under a statute. File tax extension for 2011 See Back Pay Under a Statute , later, for more information. File tax extension for 2011 Reporting Back Pay The Internal Revenue Service (IRS) and the SSA consider back pay awards to be wages. File tax extension for 2011 However, for income tax purposes, the IRS treats all back pay as wages in the year paid. File tax extension for 2011 Employers should use Form W-2, Wage and Tax Statement, or electronic wage reports to report back pay as wages in the year they actually pay the employee. File tax extension for 2011 The SSA no longer accepts reports on tapes, cartridges, and diskettes. File tax extension for 2011 Example. File tax extension for 2011 In 2012, Terry Morris earned wages of $50,000. File tax extension for 2011 In the same year, she received $100,000 in settlement of a back pay case against her employer that covered the periods January 2007 through December 2011. File tax extension for 2011 Her employer properly reflected social security wages of $110,100 and Medicare wages of $150,000 on her 2012 Form W-2. File tax extension for 2011 However, if an employer did not include back pay wages on a previously filed Form W-2, magnetic media, or electronically filed wage report, the employer should prepare a wage correction report, Form W-2c, Corrected Wage and Tax Statement, or electronically filed report, to add the back pay award to the wages previously reported. File tax extension for 2011 Example. File tax extension for 2011 If, in the above example, Terry Morris' employer had prepared her 2012 Form W-2 reporting social security and Medicare wages of only $50,000 each, the employer would have to correct that report. File tax extension for 2011 A Form W-2c correcting the 2012 Form W-2 would show previously reported social security and Medicare wages of $50,000 and the correct amount of $110,100 for social security wages and $150,000 for Medicare wages. File tax extension for 2011 SSA treatment of back pay under a statute. File tax extension for 2011   Under the law, the SSA credits back pay awarded under a statute to an individual's earnings record in the period(s) the wages should have been paid. File tax extension for 2011 This is important because wages not credited to the proper year may result in lower social security benefits or failure to meet the requirements for benefits. File tax extension for 2011   However, back pay under statute payments will remain posted to the employee's social security earnings record in the year reported on Form W-2 (or Form W-2c) unless the employer or employee notifies the SSA (in a separate, special report) of the back pay under a statute payment. File tax extension for 2011 Then, the SSA can allocate the statutory back pay to the appropriate periods. File tax extension for 2011   If a back pay award is not made under a statute, the SSA credits back pay as wages in the year paid. File tax extension for 2011    If employers do notify the SSA of this payment, they should prepare a special report (with the information noted below) and send it to: Social Security Administration Attn: CPS Back Pay Staff 7-B-15 SWT 1500 Woodlawn Drive Baltimore, MD 21241-0001 Be sure to send this special report to the above address because the SSA handles it separately from other reports. File tax extension for 2011    If you paid the back pay award in the same tax year to which it applies, report the wages on that year's Form W-2. File tax extension for 2011 No further action is necessary. File tax extension for 2011 Example. File tax extension for 2011 In 2012, Judy Wilson received a salary of $30,000 and a back pay under statute award of $2,000 for the period January through June 2012. File tax extension for 2011 Her employer properly reported wages of $32,000 for social security and Medicare on her 2012 Form W-2. File tax extension for 2011 No further action is necessary. File tax extension for 2011 Information the SSA needs to properly credit back pay under a statute (special report). File tax extension for 2011   After you complete the special report, you or the employee should send it to the SSA when or after you submit the Form W-2 (on paper or electronically) to the SSA for the year you pay the statutory back pay to the employee. File tax extension for 2011 There is no statute of limitations on the filing of the special report to enable the SSA to allocate the wages. File tax extension for 2011 The special report must include the following information. File tax extension for 2011 The employer's name, address, and employer identification number (EIN). File tax extension for 2011 A signed statement citing the federal or state statute under which the payment was made. File tax extension for 2011 If the statute is not identified, the SSA will assume the payment was not under a statute and will not allocate to earlier period(s). File tax extension for 2011 The name and telephone number of a person to contact. File tax extension for 2011 The SSA may have additional questions concerning the back pay case or the individual employee's information. File tax extension for 2011 A list of employees receiving the payment and the following information for each employee: The tax year you paid and reported the back pay. File tax extension for 2011 The employee's social security number (SSN). File tax extension for 2011 The employee's name (as shown on his or her social security card). File tax extension for 2011 The amount of the back pay award excluding any amounts specifically designated otherwise, for example, damages for personal injury, interest, penalties, and legal fees. File tax extension for 2011 The period(s) the back pay award covers (beginning and ending dates—month and year). File tax extension for 2011 The other wages paid subject to social security and/or Medicare taxes and reported in the same year as the back pay award (if none, show zero)*. File tax extension for 2011 Do not include the back pay award shown in that wage report. File tax extension for 2011 If you originally submitted the report under an establishment number, show that number and the amount of money that is to remain under that establishment number. File tax extension for 2011 The amount to allocate to each reporting period*. File tax extension for 2011 This includes any amount you want allocated (if applicable) to the tax year of the award payment. File tax extension for 2011 If you do not give the SSA specific amounts to allocate, the SSA does the allocation by dividing the back pay award by the number of months or years covered by the award. File tax extension for 2011 *Note. File tax extension for 2011   For periods before January 1, 1978 (before January 1, 1981, for state and local government employers covered by a Section 218 agreement), show the wage amounts for each calendar quarter ending March 31, June 30, September 30, and December 31. File tax extension for 2011 For all tax years, show and identify the social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) separately. File tax extension for 2011 MQGE is applicable to federal employees beginning in 1983, and for certain state and local government employees beginning in 1986. File tax extension for 2011 For tax years 1991 and later, list the social security and Medicare wages separately. File tax extension for 2011 If you originally reported the individual's wages under an establishment or payroll record unit number, show the amount of wages to remain in the award year for that number and furnish that number to the SSA along with the EIN. File tax extension for 2011 Back Pay Under a Statute Back pay awarded under a statute is a payment by an employer following an award, determination, or agreement approved or sanctioned by a court or government agency responsible for enforcing a federal or state statute that protects an employee's right to employment or wages. File tax extension for 2011 Examples of pertinent statutes include: Age Discrimination in Employment Act, Americans with Disabilities Act, Equal Pay Act, Fair Labor Standards Act, National Labor Relations Act, State minimum wage laws, and State statutes that protect rights to employment and wages. File tax extension for 2011 Payments based on laws that have a similar effect to those listed above also may qualify as payments made under a statute. File tax extension for 2011 Back pay awards, under some of the statutes listed above, may be compensation for personal injury and not pay for employment. File tax extension for 2011 Such awards are not wages for social security coverage purposes. File tax extension for 2011 If a court-approved or sanctioned settlement agreement states that the agreement is not an admission of discrimination, liability, or act of wrongdoing, the statement does not change the nature of a back pay award. File tax extension for 2011 The payments made in such a settlement may still be back pay and wages under the rules discussed here. File tax extension for 2011 Nonstatutory Back Pay A payment for back wages negotiated between an employer and employee without an award, determination, or agreement approved or sanctioned by a court or government agency, the payment is not made under a statute. File tax extension for 2011 Delayed wage payments and retroactive pay increases resulting from union negotiation or payments under local ordinances or regulations are back pay and are wages. File tax extension for 2011 However, they are not payments made under a statute. File tax extension for 2011 If you are uncertain whether the back pay award was under a qualified statute, you may need to contact your personnel department or legal counsel or the attorney who filed the suit. File tax extension for 2011 Format for Report to the SSA Use the format shown in Table 1, later, to send the SSA the information needed to properly credit back pay under a statute. File tax extension for 2011 In a cover letter, include: Name and address of the employer, Statute under which you paid the back pay, Name and telephone number of the employer contact, and Signature of the reporting official. File tax extension for 2011 Under certain circumstances, back pay may be a special wage payment and excluded from wages counted under the social security earnings test. File tax extension for 2011 If you pay back pay to an employee age 61 or older, report it to the SSA in accordance with this section. File tax extension for 2011 Read Special Wage Payments, later, for additional reporting instructions. File tax extension for 2011 Questions If you have questions concerning back pay under a statute, call the SSA at 1-800-772-6270. File tax extension for 2011 Exception. File tax extension for 2011   If you are a state or local government employer who was covered by an agreement under Section 218 of the Social Security Act before January 1, 1987, and you paid a back pay award before January 1, 1987, which you did not report to the SSA, contact your state Social Security Administrator's office. File tax extension for 2011 Table 1. File tax extension for 2011 Format for Report (Under Covering Letter) to Request SSA to Allocate Back Pay Under Statute Wages Employer's EIN: xx-xxxxxxx Tax Year in Which Award Payment Was Paid: 2012 (1) SSN and Employee Name (2)1 Award Amount and Period(s) (3)2,3 Other Soc. File tax extension for 2011 Sec. File tax extension for 2011 /Med. File tax extension for 2011 Wages Paid In Award Year (4)3 Allocation     Soc. File tax extension for 2011 Sec. File tax extension for 2011 Med. File tax extension for 2011 /MQGE Year Soc. File tax extension for 2011 Sec. File tax extension for 2011 Med. File tax extension for 2011 /MQGE xxx-xx-xxxx HELEN T. File tax extension for 2011 SMITH $100,000 1/2009 - 12/2012 $40,000 $40,000 2009 2010 2011 2012 $20,000 25,000 27,000 28,000 $20,000 25,000 27,000 28,000 xxx-xx-xxxx SAM W. File tax extension for 2011 EVANS 30,000 7/89-12/91 -0- -0- 1989 1990 1991   6,000 12,000 12,000 xxx-xx-xxxx ROLAND S. File tax extension for 2011 ADAMS 15,000 7/80-12/81 -0- -0- 9/80 12/80 1981 3,500 3,500 8,000   1Exclude amounts specifically designated as damages, penalties, etc. File tax extension for 2011  2Exclude the amount of back pay, if any, included in that amount. File tax extension for 2011  3For periods before January 1, 1978 (and for state and local government (Section 218) employers before January 1, 1981), show the wage amounts by calendar quarters. File tax extension for 2011 The social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) must be shown separately FOR ALL YEARS. File tax extension for 2011 (Wages subject ONLY to MQGE would be shown in the Medicare/MQGE column; no wages would be shown in the Soc. File tax extension for 2011 Sec. File tax extension for 2011 column. File tax extension for 2011 ) For tax years 1991 and later, the social security and Medicare wages must be listed separately. File tax extension for 2011 Explanation of examples. File tax extension for 2011 Helen T. File tax extension for 2011 Smith–The back pay award, excluding interest, was $100,000 for the periods 1/2009-12/2012. File tax extension for 2011 In 2012, this employee was also paid $40,000 in other wages. File tax extension for 2011 (Her Form W-2 for 2012 reported $110,100 for social security and $140,000 for Medicare. File tax extension for 2011 The SSA allocation will result in adjusted posted wages of $68,000 for social security and $68,000 for Medicare for 2012. File tax extension for 2011 ) Sam W. File tax extension for 2011 Evans–The back pay award was $30,000 for the periods 7/89-12/91. File tax extension for 2011 This employee was hired in 1989 and was subject to MQGE only. File tax extension for 2011 He was no longer employed by this governmental employer in 2012. File tax extension for 2011 (His Form W-2 for 2012 reported $30,000 for social security and $30,000 for Medicare. File tax extension for 2011 After the SSA allocation, he will not have any net posted wages for 2012. File tax extension for 2011 ) Roland S. File tax extension for 2011 Adams–The back pay award was $15,000 for the periods 7/80-12/81. File tax extension for 2011 He was no longer employed by this state and local government (Section 218) employer in 2012. File tax extension for 2011 (His Form W-2 for 2012 reported $15,000 for social security and $15,000 for Medicare; after the SSA allocation, he will not have any net posted wages for 2012. File tax extension for 2011 ) If the state Social Security Administrator's office needs more information, they can contact the SSA at the following address:   Social Security Administration Office of Income Security Programs Office of Earnings and Program Integrity Policy 6401 Security Boulevard 2506 OPS Baltimore, MD 21235 2. File tax extension for 2011 Special Wage Payments A special wage payment (SWP) is an amount paid by an employer to an employee (or former employee) for services performed in a prior year. File tax extension for 2011 Employers should report to the SSA special wage payments made to employees and former employees who are recipients of social security retirement benefits. File tax extension for 2011 Special wage payments made to a retired employee receiving social security or to an employee who continues to work while receiving social security benefits may reduce the benefits the individual receives if not reported to the SSA. File tax extension for 2011 Special wage payments may include (but are not limited to): Accumulated sick and vacation pay, Back pay, Bonuses, Deferred compensation, Payments because of retirement, Sales commissions, Severance pay, and Stock options. File tax extension for 2011 Note. File tax extension for 2011 Payments made after retirement that are part of the normal payroll cycle should not be routinely reported as special wage payments. File tax extension for 2011 Earnings Test. File tax extension for 2011   Benefits paid to a social security beneficiary under full retirement age may be reduced if the beneficiary continues to work. File tax extension for 2011 The SSA uses the information in boxes 1, 3, and 5 of Form W-2 to determine the beneficiary's current year earnings. File tax extension for 2011 Special wage payments, which are for services performed in a prior year, will increase the current year earnings on Form W-2, which also may result in a reduction in the beneficiary's benefits. File tax extension for 2011 If a benefit is reduced because of a special wage payment, the beneficiary must get documentation from the employer before the SSA can restore the deducted portion. File tax extension for 2011 Therefore, employer reports of special wage payments help prevent incorrect benefit reductions. File tax extension for 2011 Reporting Special Wage Payments Employers must report special wage payments for income tax purposes and social security and Medicare taxes in the year received. File tax extension for 2011 Report income, social security, and/or Medicare taxes for special wage payments on Form W-2. File tax extension for 2011 See Nonqualified Deferred Compensation and Section 457 Plans, later, for reporting nonqualified deferred compensation plan deferrals and payments on Form W-2. File tax extension for 2011 In addition, report to the SSA special wage payments made during the reporting year to retired employees and employees who continue to work while receiving social security benefits. File tax extension for 2011 Submit reports after the close of the tax year. File tax extension for 2011 To avoid delays in processing, submit reports in time to reach the SSA by April 1. File tax extension for 2011 Use one of the following reporting methods. File tax extension for 2011 Electronic reporting. File tax extension for 2011   Special wage payment files can be sent electronically by logging onto Business Services Online (BSO) via the socialsecurity. File tax extension for 2011 gov website. File tax extension for 2011 BSO enables organizations and authorized individuals to conduct business with and submit confidential information to the Social Security Administration. File tax extension for 2011 You must register to use this website. File tax extension for 2011 The web address is www. File tax extension for 2011 socialsecurity. File tax extension for 2011 gov/bso/bsowelcome. File tax extension for 2011 htm. File tax extension for 2011   Use the specifications and record layout shown in  Table 2, later. File tax extension for 2011 Only one file at a time may be submitted. File tax extension for 2011 If your file is large (>10MB), or you have a slow internet connection, the transmission will be faster if the file is zipped. File tax extension for 2011 A zipped file contains a file that has been compressed to reduce its file size. File tax extension for 2011 WinZip and PKZIP are examples of acceptable compression packages. File tax extension for 2011   Electronic submissions not meeting the specifications in Table 2 will be rejected. File tax extension for 2011 Paper listing. File tax extension for 2011   A paper listing can be used to report special wage payments to several employees. File tax extension for 2011 Use the format shown in Table 3, later. File tax extension for 2011 Submit paper listings to the local SSA office nearest your place of business. File tax extension for 2011 Visit www. File tax extension for 2011 socialsecurity. File tax extension for 2011 gov/locator to find a Social Security office near you. File tax extension for 2011 Form SSA-131. File tax extension for 2011   Use Form SSA-131 to report special wage payments made to an employee. File tax extension for 2011 Also use this form to report nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in box 11 of Form W-2. File tax extension for 2011    This image is too large to be displayed in the current screen. File tax extension for 2011 Please click the link to view the image. File tax extension for 2011 Publication 957 Reporting Back Pay to the Social Security Administration Instructions for Form SSA–131   EMPLOYER INSTRUCTIONS FOR COMPLETING SPECIAL WAGE PAYMENT FORM 1. File tax extension for 2011 Provide the EIN that was used or will be used to report the employee's wages on the Form W-2. File tax extension for 2011 2. File tax extension for 2011 Enter the date the employee retired. File tax extension for 2011 Enter “Not Retired” if the employee has not retired. File tax extension for 2011 3. File tax extension for 2011 Enter the date that the employee last performed services; was not expected to return to work; and was not subject to recall to render additional services. File tax extension for 2011 This date should be the same as or earlier than the date in item “2”. File tax extension for 2011 Enter “Not Retired” if the employee has not retired. File tax extension for 2011 4. File tax extension for 2011 Enter the wages that were paid to the employee in the tax year that were for services that were performed in years prior to the tax year or that were paid on account of retirement. File tax extension for 2011  Examples (not all inclusive) of payments to be included: Payments in lieu of vacation that were earned in a year prior to the tax year. File tax extension for 2011 Accumulated sick payments which were paid in a lump sum based on “retirement” as the sole condition of payment. File tax extension for 2011 Accumulated sick payments paid at or after the date in item 3, which were earned in a year prior to the tax year. File tax extension for 2011 Payments “on account of retirement”–dismissal, severance or termination pay paid because of retirement. File tax extension for 2011 Bonuses which are paid pursuant to a prior contract, agreement or promise causing the employee to expect such payments regularly; or announced to induce the employee to work more steadily, rapidly or efficiently or to remain with the employer. File tax extension for 2011 Stock Options. File tax extension for 2011   Do not include in item “4” payments: For annual, sick, holiday, or vacation pay if used (absence from work) prior to the date of retirement (earlier of items “2” or “3”). File tax extension for 2011 That were reported or will be reported under “Nonqualified Plans” on the Form W-2. File tax extension for 2011 That were deducted from the employee's wages and paid to a deferred compensation plan (e. File tax extension for 2011 g. File tax extension for 2011 , 401k). File tax extension for 2011 Employees health and dental plan benefits (non-covered/non-taxable for Social Security Wages). File tax extension for 2011 Bonuses earned and paid in the tax year. File tax extension for 2011 5. File tax extension for 2011 Check whether payments listed in item 4 will be made for years after the tax year. File tax extension for 2011 If yes, please show the amounts and years in which these will be paid, if known. File tax extension for 2011 6. File tax extension for 2011 Nonqualified deferred compensation and section 457 plans only. File tax extension for 2011 If you were unable to report nonqualified deferred compensation or section 457 plan payments and deferrals (contributions) on Form W-2 because both payments and deferrals occurred during the year, show the amount of wages earned by the employee during the tax year. File tax extension for 2011 Generally, the wages earned will be the compensation reported in block 1 of Form W-2 less payments from a nonqualified deferred compensation (or 457) plan, but including any amounts deferred under the plan during the tax year (See IRS Publication 957). File tax extension for 2011 Paperwork/Privacy Act Notice: This report is authorized by regulation 20 CFR 404. File tax extension for 2011 702. File tax extension for 2011 The information that you provide will be used in making a determination regarding the amount of Social Security benefits payable to the above named individual. File tax extension for 2011 While your response is voluntary, if you do not respond we may not be able to make a correct determination regarding the amount of Social Security benefits payable to the above named individual for the year in question. File tax extension for 2011 We may also use the information you give us when we match records by computer. File tax extension for 2011 Matching programs compare our records with those of other Federal, State, or local government agencies. File tax extension for 2011 Many agencies may use matching programs to find or prove that a person qualifies for benefits paid by the Federal Government. File tax extension for 2011 The law allows us to do this even if you do not agree to it. File tax extension for 2011 Explanations about these and other reasons why information you provide us may be used or given out are available in Social Security Offices. File tax extension for 2011 If you want to learn more about this, contact any Social Security Office. File tax extension for 2011 The Paperwork Reduction Act: This information collection meets the clearance requirements of 44 U. File tax extension for 2011 S. File tax extension for 2011 C. File tax extension for 2011 §3507, as amended by Section 2 of the Paperwork Reduction Act of 1995. File tax extension for 2011 You are not required to answer these questions unless we display a valid Office of Management and Budget control number. File tax extension for 2011 We estimate that it will take you about 20 minutes to read the instructions, gather the necessary facts, and answer the questions. File tax extension for 2011 Form SSA-131 (8-2001) EF (06-2002)   Submit Form SSA-131 to the SSA office nearest your place of business. File tax extension for 2011 Or, the employee can submit it to the SSA office handling the claim. File tax extension for 2011 You or the employee must submit this form before the SSA can exclude the special wage payments for purposes of the earnings test. File tax extension for 2011 If reporting on more than one employee, complete a separate Form SSA-131 for each employee or use the paper listing format (except for reporting nonqualified and section 457 plan deferrals and payments) in Table 3. File tax extension for 2011 Do not report payments from nonqualified deferred compensation or section 457 plans that were reported in box 11 of Form W-2. File tax extension for 2011 Use Form SSA-131 if deferrals to and payments from nonqualified or section 457 plans occurred during the tax year. File tax extension for 2011 Reporting Nonstatutory (Nonqualified) Stock Options as Special Wage Payments A nonstatutory (nonqualified) option to purchase stock which is exercised in a year after the year in which the option was earned is a special wage payment. File tax extension for 2011 It should not count for the social security earnings test. File tax extension for 2011 Nonstatutory (nonqualified) options exercised as special wage payments by retired employees or employees who continue to work while receiving social security benefits should be reported by employers using the above reporting methods. File tax extension for 2011 Nonqualified Deferred Compensation and Section 457 Plans A nonqualified deferred compensation plan is a plan or arrangement established and maintained by an employer for one or more of its employees that provides for the deferral of compensation, but does not meet the requirements for a tax-qualified deferred compensation plan. File tax extension for 2011 For social security and Medicare purposes, deferred compensation plans for employees of state and local governments (section 457 plans) are treated the same as nonqualified plans. File tax extension for 2011 Nonqualified and section 457 plans are reported differently than other special wage payments. File tax extension for 2011 See Reporting Amounts Deferred to Nonqualified and Section 457 Plans below for specific instructions. File tax extension for 2011 Reporting Amounts Deferred to Nonqualified and Section 457 Plans Generally, when the related services are performed, nonqualified deferred compensation is subject to social security and Medicare tax when deferred. File tax extension for 2011 However, if nonqualified and section 457 plans contain provisions that delay the employee's right to receive payments from the plan, a period of substantial risk of forfeiture exists. File tax extension for 2011 The plans' deferrals, or contributions, are not subject to social security and Medicare taxes until the period of substantial risk of forfeiture ends. File tax extension for 2011 No risk of forfeiture. File tax extension for 2011   If there is no risk of forfeiture, report wage amounts deferred to a nonqualified deferred compensation or section 457 plan in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. File tax extension for 2011 Example. File tax extension for 2011 Company X's nonqualified deferred compensation plan allows the deferral of up to $20,000 of employee salaries each year. File tax extension for 2011 The plan has no risk of forfeiture. File tax extension for 2011 In 2012, Employee A defers $20,000 to the plan from a total salary of $200,000. File tax extension for 2011 Form W-2 Completion Amount Box 1 $200,000 Box 3* 110,100 Box 5 200,000 *Wage base maximum for tax year 2012 Risk of forfeiture lapses before retirement. File tax extension for 2011   If the substantial risk of forfeiture lapses before the employee retires, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. File tax extension for 2011 The accumulated deferrals are reported along with any other social security and Medicare wages earned during the year. File tax extension for 2011   Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. File tax extension for 2011 If the employee continues working, future deferrals are social security and Medicare wages when they are earned. File tax extension for 2011    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. File tax extension for 2011 Risk of forfeiture lapses at retirement. File tax extension for 2011   When an employee's right to a payment is contingent upon working until retirement, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, as social security and/or Medicare wages in the year of retirement. File tax extension for 2011 Add the amount to other wages paid in that year, and enter in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. File tax extension for 2011   Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. File tax extension for 2011    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. File tax extension for 2011 Example—risk of forfeiture. File tax extension for 2011 At the end of the risk-of-forfeiture period for Company Y's nonqualified deferred compensation plan, Employee B's accumulated deferrals, plus interest earned by the plan, are $120,000, not including B's $20,000 deferral for this year. File tax extension for 2011 B's wages, including this year's deferred amount, are $80,000. File tax extension for 2011 Form W-2 Completion Amount Box 1 $60,000 Box 3* 110,100 Box 5 200,000 Box 11 120,000 *Wage base maximum for tax year 2012 Reporting Payments From Nonqualified and Nongovernmental Section 457 Plans When an employee or former employee retires and begins receiving payments (distributions) from a nonqualified or nongovernmental section 457 plan, report the payments in boxes 1 and 11 of Form W-2. File tax extension for 2011 Report payments (distributions) from a governmental section 457 plan on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. File tax extension for 2011 Example. File tax extension for 2011 Employee D retired from the XYZ company and began receiving social security benefits. File tax extension for 2011 XYZ paid D a $12,000 bonus upon retirement for sales made in a prior year, and D received $25,000 in payments from XYZ's nonqualified deferred compensation plan. File tax extension for 2011 In addition, D agreed to continue performing services for XYZ, but on a part-time basis for wages of $15,000 per year. File tax extension for 2011 D made no deferrals to the nonqualified plan this year. File tax extension for 2011 Form W-2 Completion Amount Box 1 $52,000 Box 3 27,000 Box 5 27,000 Box 11 25,000 Report the $12,000 bonus to the SSA using electronic reporting, a paper listing, or Form SSA-131. File tax extension for 2011 For more information, see Reporting Special Wage Payments , earlier. File tax extension for 2011 Reporting Payments and Deferrals in the Same Year Do not complete box 11 when payments (distributions) are made from a nonqualified plan and deferrals are reported in boxes 3 and/or 5 of Form W-2 (including current year deferrals). File tax extension for 2011 Report to the SSA on Form SSA-131 the total amount the employee earned during the tax year. File tax extension for 2011 Normally, the amount earned is the amount reported in box 1 of Form W-2 less payments from a nonqualified or section 457 plan, but including any amounts deferred under the plan during the tax year. File tax extension for 2011 See Form SSA-131 and its instructions, earlier. File tax extension for 2011 Example. File tax extension for 2011 Employee K retired this year from Company XYZ and began receiving social security benefits. File tax extension for 2011 During the year he earned wages of $50,000 and deferred $35,000 of the wages into the company's nonqualified deferred compensation plan. File tax extension for 2011 K also received $75,000 in payments from the company's nonqualified plan. File tax extension for 2011 Form W-2 Completion Amount Special Wage Payment $75,000 Wages 50,000 Minus: deferral 35,000 Total reported in Box 1 $90,000     Wages including deferral reported in  Boxes 3 and 5 $50,000     Leave Box 11 blank. File tax extension for 2011 File Form SSA-131 -0-     Form SSA-131 Completion Amount from Box 1 of Form W-2 $90,000 Minus: payments from a nonqualified plan 75,000 Plus: amounts deferred into the plan during the year 35,000 Total wages earned for purposes of Form SSA-131 (item 6) $50,000 Additional Reporting Examples for Nonqualified Deferred Compensation (NQDC) Plans It is not necessary to show amounts deferred during the year under an NQDC plan subject to section 409A. File tax extension for 2011 If you report section 409A deferrals, show the amount in box 12 of Form W-2 using code Y. File tax extension for 2011 For more information, see Notice 2008-115, 2008-52 I. File tax extension for 2011 R. File tax extension for 2011 B. File tax extension for 2011 1367, available at www. File tax extension for 2011 irs. File tax extension for 2011 gov/irb/2008-52_IRB/ar10. File tax extension for 2011 html. File tax extension for 2011 Special reporting rules apply when an NQDC plan is not compliant with section 409A (when there has been a “plan failure”). File tax extension for 2011 Income included under section 409A from an NQDC plan is reported in box 1 and box 12 of Form W-2 using code Z. File tax extension for 2011 See Notice 2008-115. File tax extension for 2011 The following examples use small dollar amounts for illustrative purposes. File tax extension for 2011 However, the amount reported in box 3 of Form W-2 is always limited by the social security earnings wage base (for example, $110,100 for 2012). File tax extension for 2011 The term “vested” in the following examples means that the amount deferred is not subject to a substantial risk of forfeiture. File tax extension for 2011 Conversely, the term “not vested” means that the amount deferred is subject to a substantial risk of forfeiture. File tax extension for 2011 The examples assume that the NQDC plan is in compliance with section 409A, and that amounts deferred under the plan are not includible in gross income as they are deferred. File tax extension for 2011 For purposes of the examples, it is assumed that the regular pay of the employee is remuneration for employment and wages for employment tax purposes except to the extent the deferral of a portion of the regular pay results in a reduction in wages. File tax extension for 2011 Example 1: Deferral that is immediately vested (no substantial risk of forfeiture) with no distributions and no vesting of prior-year deferrals. File tax extension for 2011 For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into her employer’s NQDC plan. File tax extension for 2011 The deferral of $20 was vested upon deferral and there was an employer match of $10 under the plan, which was also vested. File tax extension for 2011 Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10. File tax extension for 2011 Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 vested deferral) $180 Box 3 ($200 Regular pay plus $10 Employer match, vested) 210 Box 5 ($200 Regular pay plus $10 Employer match, vested) 210 Box 11 -0- Example 2: Deferral with delayed vesting (substantial risk of forfeiture) of employee and employer portions (no distributions and no vesting of prior-year deferrals). File tax extension for 2011 For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s nonqualified deferred compensation plan. File tax extension for 2011 The deferral of $20 was not vested upon deferral, and there was an employer match of $10 under the plan, which was also not vested. File tax extension for 2011 Regular pay = $200; Deferral, not vested = $20; Employer match, not vested = $10. File tax extension for 2011 Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 Deferral, not vested) $180 Box 3 ($200 Regular pay minus $20 Deferral, not vested) 180 Box 5 ($200 Regular pay minus $20 Deferral, not vested) 180 Box 11 -0- Example 3: Deferral that is immediately vested with prior-year deferrals and investment earnings on the prior-year deferrals that are now vesting (no distributions). File tax extension for 2011 For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s nonqualified deferred compensation plan. File tax extension for 2011 The deferral of $20 was vested upon deferral. File tax extension for 2011 During the year, $100 of prior-year deferrals and $15 of investment earnings on the $100 of prior-year deferrals became vested. File tax extension for 2011 Regular pay = $200; Deferral, vested = $20; Vesting of prior-year deferrals = $100; Vesting of investment earnings on $100 of prior-year deferral = $15. File tax extension for 2011 Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 Deferral, vested) $180 Box 3 ($200 Regular pay plus $100 vested prior-year deferral plus $15 earnings on deferral) 315 Box 5 ($200 Regular pay plus $100 vested prior-year deferral plus $15 vested investment earnings on prior year deferral) 315 Box 11 ($100 vested prior-year deferral plus $15 earnings) 115 Example 4: No deferrals but there are distributions (no vesting of prior-year deferrals). File tax extension for 2011 For the year, the employee’s regular pay was $100, and the employee deferred no pay into the employer’s NQDC plan. File tax extension for 2011 There was no vesting of prior-year deferrals under the plan. File tax extension for 2011 During the year, there were total distributions of $50 from the plan to the employee. File tax extension for 2011 Regular pay = $100; Distribution = $50. File tax extension for 2011 Form W-2 Completion Amount Box 1 ($100 Regular pay plus $50 Distribution) $150 Box 3 ($100 Regular pay ) 100 Box 5 ($100 Regular pay) 100 Box 11 ($50 Distribution) 50 Special rule for box 11 of Form W-2 (distributions and deferral in the same year). File tax extension for 2011   If, in the same year, there are NQDC distributions and there are deferrals that are reportable in boxes 3 and/or 5 (current or prior-year deferrals) of Form W-2, do not complete box 11. File tax extension for 2011 Instead, report on Form SSA-131 the total amount the employee earned during the year. File tax extension for 2011 * Submit the SSA-131 to the nearest SSA office or give it to the employee. File tax extension for 2011   *Generally, the amount earned by the employee during the tax year for purposes of item 6 of Form SSA-131 is the amount reported in box 1 of Form W-2 plus current-year deferrals that are vested (employee and employer portions) less distributions. File tax extension for 2011 Do not consider prior-year deferrals that are vesting in the current year. File tax extension for 2011 If there was a plan failure, the box 1 amount in this calculation should be as if there were no plan failure. File tax extension for 2011 Example 5: Deferral that is immediately vested and there are distributions (no vesting of prior-year deferrals). File tax extension for 2011 For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. File tax extension for 2011 There was also an employer match of $10. File tax extension for 2011 The deferral and employer match were vested upon deferral. File tax extension for 2011 There was no vesting of prior-year deferrals under the plan. File tax extension for 2011 During the year, there were total distributions of $50 from the plan to the employee. File tax extension for 2011 Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10; Distribution = $50. File tax extension for 2011 Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 Deferral, vested) $230 Boxes 3 and 5 ($200 Regular pay plus $10 vested employer match) 210 Leave Box 11 blank. File tax extension for 2011 File Form SSA-131 -0-     Form SSA-131 Completion Item 6 - amount of wages earned by the employee during the tax year ($230 from Box 1 of Form W-2 minus $50 Distribution plus $30 vested current year employee deferral and employer match) $210 Example 6: Deferral with delayed vesting and there are distributions (no vesting of prior-year deferrals). File tax extension for 2011 For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. File tax extension for 2011 The deferral was not vested upon deferral. File tax extension for 2011 There was no vesting of prior-year deferrals under the plan. File tax extension for 2011 During the year, there were total distributions of $50 from the plan to the employee. File tax extension for 2011 Regular pay = $200; Deferral, not vested = $20; Distribution = $50. File tax extension for 2011 Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 Deferral, not vested) $230 Boxes 3 and 5 ($200 Regular pay minus $20 deferral that is not vested) 180 Box 11 ($50 Distribution). File tax extension for 2011 50 Example 7: Deferral that is immediately vested and there are distributions (also vesting of prior-year deferrals and earnings on those prior-year deferrals). File tax extension for 2011 For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. File tax extension for 2011 The deferral was vested upon deferral. File tax extension for 2011 There was vesting of $100 of prior-year deferrals and $15 of earnings on the $100 prior-year deferral under the plan. File tax extension for 2011 During the year, there were total distributions of $50 from the plan to the employee. File tax extension for 2011 Regular pay = $200; Deferral, vested = $20; Distribution = $50; Vesting of prior-year deferrals ($100) and earnings on those prior-year deferrals ($15) = $115. File tax extension for 2011 Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 vested deferral $230 Boxes 3 and 5 ($200 Regular pay Plus $115 vested prior deferral (with vested earnings on the deferral)) 315 Leave Box 11 blank. File tax extension for 2011 File Form SSA-131 -0-     Form SSA-131 Completion Item 6, amount of wages earned by the employee during the tax year ($230 from Box 1 of Form W-2 minus $50 Distribution plus $20 vested current year deferral) $200 Example 8: Deferral with delayed vesting and there are distributions (vesting of prior-year deferrals, including employer matches, and earnings on those deferrals). File tax extension for 2011 For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. File tax extension for 2011 The deferral was not vested upon deferral. File tax extension for 2011 There was also vesting of prior-year deferrals and employer matches and earnings on these amounts under the plan ($115). File tax extension for 2011 During the year, there were total distributions of $50 from the plan to the employee. File tax extension for 2011 Regular pay = $200; Deferral, not vested = $20; Distribution = $50; Vesting of prior-year deferrals and employer match = $100 plus earnings on that $100 of $15. File tax extension for 2011 Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 regular pay minus $20 Deferral, not vested) $230 Boxes 3 and 5 ($200 Regular pay plus $115 vested prior-year deferral and prior year employer match and earning on the prior year amounts minus $20 deferral that is not vested) 295 Leave Box 11 blank. File tax extension for 2011 File Form SSA-131 -0-     Form SSA-131 Completion Item 6 ($230 Amount from Box 1 of Form W-2 minus $50 Distribution) $180 Table 2. File tax extension for 2011 Specifications for Electronic Reporting of Special Wage Payments Record Position  Field Size   Description Start End 1 3 3 Record Type—must include only the capital letters “SWP” 4 12 9 SSN—must be numeric and may not be all zeros 13 27 15 Last Name—all capitals and no punctuation; may have blanks on right only 28 38 11 First Name—all capitals and no punctuation; may have blanks on right only 39 39 1 Middle Initial—must be either a capital letter or blank 40 48 9 EIN—must be numeric and may not be all zeros 49 59 11 Payment—must be numeric; may not be all zeros; last two digits on right are assumed to be cents; no period or dollar sign 60 63 4 Payment Year—must be only a four-digit year 64 66 3 SSA Office Code—must be numeric and may be all zeros 67 67 1 Payment Type Code—must be the capital letter “T” 68 117 50 Filler  The record format is a fixed length of 117. File tax extension for 2011  The file format is ASCII. File tax extension for 2011  Submit only one file at a time. File tax extension for 2011   Table 3. File tax extension for 2011 Sample—Paper Listing for Reporting Special Wage Payments to Several Employees Report of Special Wage PaymentsTax Year: Page of A. File tax extension for 2011 Employer Name: EIN:   Address: Contact Name:     Phone: ( )   . File tax extension for 2011 1) B. File tax extension for 2011 Employee Name: (Last) (First) (MI)   C. File tax extension for 2011 SSN: D. File tax extension for 2011 SWP:$ E. File tax extension for 2011 Type: Other: 2) B. File tax extension for 2011 Employee Name: (Last) (First) (MI)   C. File tax extension for 2011 SSN: D. File tax extension for 2011 SWP:$ E. File tax extension for 2011 Type: Other: 3) B. File tax extension for 2011 Employee Name: (Last) (First) (MI)   C. File tax extension for 2011 SSN: D. File tax extension for 2011 SWP:$ E. File tax extension for 2011 Type: Other: 4) B. File tax extension for 2011 Employee Name: (Last) (First) (MI)   C. File tax extension for 2011 SSN: D. File tax extension for 2011 SWP:$ E. File tax extension for 2011 Type: Other: 5) B. File tax extension for 2011 Employee Name: (Last) (First) (MI)   C. File tax extension for 2011 SSN: D. File tax extension for 2011 SWP:$ E. File tax extension for 2011 Type: Other:     INSTRUCTIONS:   Enter tax year and page number. File tax extension for 2011   A. File tax extension for 2011 Employer name, employer identification number (EIN), address, the name of a contact person, and a phone number where the contact person can be reached during normal business hours. File tax extension for 2011   B. File tax extension for 2011 Employee's name. File tax extension for 2011   C. File tax extension for 2011 Employee's social security number (SSN). File tax extension for 2011   D. File tax extension for 2011 Total amount of special wage payments made to the employee. File tax extension for 2011   E. File tax extension for 2011 Type of special wage payment from the following list: (1) Vacation Pay, (2) Sick Pay, (3) Severance Pay,  (4) Bonus, (5) Deferred Compensation, (6) Stock Options, and (7) Other—Please explain. File tax extension for 2011   Do not use a paper listing for nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in block 11 of Form W-2. File tax extension for 2011 (Get Form SSA-131. File tax extension for 2011 )                 Prev  Up  Next   Home   More Online Publications
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File tax extension for 2011 6. File tax extension for 2011   Basis of Assets Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Cost BasisReal Property Allocating the Basis Uniform Capitalization Rules Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostTaxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Received as a Gift Property Transferred From a Spouse Inherited Property Property Distributed From a Partnership or Corporation Introduction Your basis is the amount of your investment in property for tax purposes. File tax extension for 2011 Use basis to figure the gain or loss on the sale, exchange, or other disposition of property. File tax extension for 2011 Also use basis to figure depreciation, amortization, depletion, and casualty losses. File tax extension for 2011 If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. File tax extension for 2011 Only the basis allocated to the business or investment use of the property can be depreciated. File tax extension for 2011 Your original basis in property is adjusted (increased or decreased) by certain events. File tax extension for 2011 For example, if you make improvements to the property, increase your basis. File tax extension for 2011 If you take deductions for depreciation, or casualty losses, or claim certain credits, reduce your basis. File tax extension for 2011 Keep accurate records of all items that affect the basis of your assets. File tax extension for 2011 For information on keeping records, see chapter 1. File tax extension for 2011 Topics - This chapter discusses: Cost basis Adjusted basis Basis other than cost Useful Items - You may want to see: Publication 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property See chapter 16 for information about getting publications and forms. File tax extension for 2011 Cost Basis The basis of property you buy is usually its cost. File tax extension for 2011 Cost is the amount you pay in cash, debt obligations, other property, or services. File tax extension for 2011 Your cost includes amounts you pay for sales tax, freight, installation, and testing. File tax extension for 2011 The basis of real estate and business assets will include other items, discussed later. File tax extension for 2011 Basis generally does not include interest payments. File tax extension for 2011 However, see Carrying charges and Capitalized interest in chapter 4 of Publication 535. File tax extension for 2011 You also may have to capitalize (add to basis) certain other costs related to buying or producing property. File tax extension for 2011 Under the uniform capitalization rules, discussed later, you may have to capitalize direct costs and certain indirect costs of producing property. File tax extension for 2011 Loans with low or no interest. File tax extension for 2011   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 tax extension for 2011 You generally have unstated interest if your interest rate is less than the applicable federal rate. File tax extension for 2011 See the discussion of unstated interest in Publication 537, Installment Sales. File tax extension for 2011 Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. File tax extension for 2011 If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. File tax extension for 2011 Some of these expenses are discussed next. File tax extension for 2011 Lump sum purchase. File tax extension for 2011   If you buy improvements, such as buildings, and the land on which they stand for a lump sum, allocate your cost basis between the land and improvements. File tax extension for 2011 Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. File tax extension for 2011 Figure the basis of each asset by multiplying the lump sum by a fraction. File tax extension for 2011 The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. File tax extension for 2011 Fair market value (FMV). File tax extension for 2011   FMV is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. File tax extension for 2011 Sales of similar property on or about the same date may help in figuring the FMV of the property. File tax extension for 2011 If you are not certain of the FMV of the land and improvements, you can allocate the basis according to their assessed values for real estate tax purposes. File tax extension for 2011 Real estate taxes. File tax extension for 2011   If you pay the real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. File tax extension for 2011   If you reimburse the seller for taxes the seller paid for you, you generally can deduct that amount as a tax expense. File tax extension for 2011 Whether or not you reimburse the seller, do not include that amount in the basis of your property. File tax extension for 2011 Settlement costs. File tax extension for 2011   Your basis includes the settlement fees and closing costs for buying the property. File tax extension for 2011 See Publication 551 for a detailed list of items you can and cannot include in basis. File tax extension for 2011   Do not include fees and costs for getting a loan on the property. File tax extension for 2011 Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. File tax extension for 2011 Points. File tax extension for 2011   If you pay points to get a loan (including a mortgage, second mortgage, or line-of-credit), do not add the points to the basis of the related property. File tax extension for 2011 You may be able to deduct the points currently or over the term of the loan. File tax extension for 2011 For more information about deducting points, see Points in chapter 4 of Publication 535. File tax extension for 2011 Assumption of a mortgage. File tax extension for 2011   If you buy property and assume (or buy the property subject to) an existing mortgage, your basis includes the amount you pay for the property plus the amount you owe on the mortgage. File tax extension for 2011 Example. File tax extension for 2011 If you buy a farm for $100,000 cash and assume a mortgage of $400,000, your basis is $500,000. File tax extension for 2011 Constructing assets. File tax extension for 2011   If you build property or have assets built for you, your expenses for this construction are part of your basis. File tax extension for 2011 Some of these expenses include the following costs: Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. File tax extension for 2011   In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses. File tax extension for 2011 You must capitalize them (include them in the asset's basis). File tax extension for 2011 Employee wages paid for the construction work, reduced by any employment credits allowed. File tax extension for 2011 Depreciation on equipment you own while it is used in the construction. File tax extension for 2011 Operating and maintenance costs for equipment used in the construction. File tax extension for 2011 The cost of business supplies and materials used in the construction. File tax extension for 2011    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 tax extension for 2011 Allocating the Basis In some instances, the rules for determining basis apply to a group of assets acquired in the same transaction or to property that consists of separate items. File tax extension for 2011 To determine the basis of these assets or separate items, there must be an allocation of basis. File tax extension for 2011 Group of assets acquired. File tax extension for 2011   If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. File tax extension for 2011 Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. File tax extension for 2011 You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. File tax extension for 2011 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 tax extension for 2011 Farming business acquired. File tax extension for 2011   If you buy a group of assets that makes up a farming business, there are special rules you must use to allocate the purchase price among the assets. File tax extension for 2011 Generally, reduce the purchase price by any cash received. File tax extension for 2011 Allocate the remaining purchase price to the other business assets received in proportion to (but not more than) their FMV and in a certain order. File tax extension for 2011 See Trade or Business Acquired under Allocating the Basis in Publication 551 for more information. File tax extension for 2011 Transplanted embryo. File tax extension for 2011   If you buy a cow that is pregnant with a transplanted embryo, allocate to the basis of the cow the part of the purchase price equal to the FMV of the cow without the implant. File tax extension for 2011 Allocate the rest of the purchase price to the basis of the calf. File tax extension for 2011 Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense. File tax extension for 2011 Uniform Capitalization Rules Under the uniform capitalization rules, you must include certain direct and indirect costs in the basis of property you produce or in your inventory costs, rather than claim them as a current deduction. File tax extension for 2011 You recover these costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. File tax extension for 2011 Generally, you are subject to the uniform capitalization rules if you do any of the following: Produce real or tangible personal property, or Acquire property for resale. File tax extension for 2011 However, this rule does not apply to personal property if your average annual gross receipts for the 3-tax-year period ending with the year preceding the current tax year are $10 million or less. File tax extension for 2011 You produce property if you construct, build, install, manufacture, develop, improve, or create the property. File tax extension for 2011 You are not subject to the uniform capitalization rules if the property is produced for personal use. File tax extension for 2011 In a farming business, you produce property if you raise or grow any agricultural or horticultural commodity, including plants and animals. File tax extension for 2011 Plants. File tax extension for 2011   A plant produced in a farming business includes the following items: A fruit, nut, or other crop-bearing tree; An ornamental tree; A vine; A bush; Sod; and The crop or yield of a plant that will have more than one crop or yield. File tax extension for 2011 Animals. File tax extension for 2011   An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life. File tax extension for 2011 The direct and indirect costs of producing plants or animals include preparatory costs and preproductive period costs. File tax extension for 2011 Preparatory costs include the acquisition costs of the seed, seedling, plant, or animal. File tax extension for 2011 For plants, preproductive period costs include the costs of items such as irrigation, pruning, frost protection, spraying, and harvesting. File tax extension for 2011 For animals, preproductive period costs include the costs of items such as feed, maintaining pasture or pen areas, breeding, veterinary services, and bedding. File tax extension for 2011 Exceptions. File tax extension for 2011   In a farming business, the uniform capitalization rules do not apply to: Any animal, Any plant with a preproductive period of 2 years or less, or Any costs of replanting certain plants lost or damaged due to casualty. File tax extension for 2011   Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. File tax extension for 2011 See Accrual Method Required under Accounting Methods in chapter 2. File tax extension for 2011   In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. File tax extension for 2011 If you make this election, special rules apply. File tax extension for 2011 This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. File tax extension for 2011 This election also does not apply to any costs incurred for the planting, cultivation, maintenance, or development of any citrus or almond grove (or any part thereof) within the first 4 years the trees were planted. File tax extension for 2011    If you elect not to use the uniform capitalization rules, you must use the alternative depreciation system for all property used in any of your farming businesses and placed in service in any tax year during which the election is in effect. File tax extension for 2011 See chapter 7, for additional information on depreciation. File tax extension for 2011 Example. File tax extension for 2011 You grow trees that have a preproductive period of more than 2 years. File tax extension for 2011 The trees produce an annual crop. File tax extension for 2011 You are an individual and the uniform capitalization rules apply to your farming business. File tax extension for 2011 You must capitalize the direct costs and an allocable part of indirect costs incurred due to the production of the trees. File tax extension for 2011 You are not required to capitalize the costs of producing the annual crop because its preproductive period is 2 years or less. File tax extension for 2011 Preproductive period of more than 2 years. File tax extension for 2011   The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. File tax extension for 2011 Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. File tax extension for 2011 Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years. File tax extension for 2011 More information. File tax extension for 2011   For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1. File tax extension for 2011 263A-4. File tax extension for 2011 Table 6-1. File tax extension for 2011 Plants With a Preproductive Period of More Than 2 Years Plants producing the following crops or yields have a nationwide weighted average preproductive period of more than 2 years. File tax extension for 2011 Almonds Apples Apricots Avocados Blueberries Cherries Chestnuts Coffee beans Currants Dates Figs Grapefruit Grapes Guavas Kiwifruit Kumquats Lemons Limes Macadamia nuts Mangoes Nectarines Olives Oranges Peaches Pears Pecans Persimmons Pistachio nuts Plums Pomegranates Prunes Tangelos Tangerines Tangors Walnuts Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the cost basis or basis other than cost (discussed later) of the property. File tax extension for 2011 The adjustments to the original basis are increases or decreases to the cost basis or other basis which result in the adjusted basis of the property. File tax extension for 2011 Increases to Basis Increase the basis of any property by all items properly added to a capital account. File tax extension for 2011 These include the cost of any improvements having a useful life of more than 1 year. File tax extension for 2011 The following costs increase the basis of property. File tax extension for 2011 The cost of extending utility service lines to property. File tax extension for 2011 Legal fees, such as the cost of defending and perfecting title. File tax extension for 2011 Legal fees for seeking a decrease in an assessment levied against property to pay for local improvements. File tax extension for 2011 Assessments for items such as paving roads and building ditches that increase the value of the property assessed. File tax extension for 2011 Do not deduct these expenses as taxes. File tax extension for 2011 However, you can deduct as taxes amounts assessed for maintenance or repairs, or for meeting interest charges related to the improvements. File tax extension for 2011 If you make additions or improvements to business property, depreciate the basis of each addition or improvement as separate depreciable property using the rules that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. File tax extension for 2011 See chapter 7. File tax extension for 2011 Deducting vs. File tax extension for 2011 capitalizing costs. File tax extension for 2011   Do not add to your basis costs you can deduct as current expenses. File tax extension for 2011 For example, amounts paid for incidental repairs or maintenance are deductible as business expenses and are not added to basis. File tax extension for 2011 However, you can elect either to deduct or to capitalize certain other costs. File tax extension for 2011 See chapter 7 in Publication 535. File tax extension for 2011 Decreases to Basis The following are some items that reduce the basis of property. File tax extension for 2011 Section 179 deduction. File tax extension for 2011 Deductions previously allowed or allowable for amortization, depreciation, and depletion. File tax extension for 2011 Alternative motor vehicle credit. File tax extension for 2011 See Form 8910. File tax extension for 2011 Alternative fuel vehicle refueling property credit. File tax extension for 2011 See Form 8911. File tax extension for 2011 Residential energy efficient property credits. File tax extension for 2011 See Form 5695. File tax extension for 2011 Investment credit (part or all) taken. File tax extension for 2011 Casualty and theft losses and insurance reimbursements. File tax extension for 2011 Payments you receive for granting an easement. File tax extension for 2011 Exclusion from income of subsidies for energy conservation measures. File tax extension for 2011 Certain canceled debt excluded from income. File tax extension for 2011 Rebates from a manufacturer or seller. File tax extension for 2011 Patronage dividends received from a cooperative association as a result of a purchase of property. File tax extension for 2011 See Patronage Dividends in chapter 3. File tax extension for 2011 Gas-guzzler tax. File tax extension for 2011 See Form 6197. File tax extension for 2011 Some of these items are discussed next. File tax extension for 2011 For a more detailed list of items that decrease basis, see section 1016 of the Internal Revenue Code and Publication 551. File tax extension for 2011 Depreciation and section 179 deduction. File tax extension for 2011   The adjustments you must make to the basis of the property if you take the section 179 deduction or depreciate the property are explained next. File tax extension for 2011 For more information on these deductions, see chapter 7. File tax extension for 2011 Section 179 deduction. File tax extension for 2011   If you take the section 179 expense deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. File tax extension for 2011 Depreciation. File tax extension for 2011   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 tax extension for 2011 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 tax extension for 2011 If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. File tax extension for 2011   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for any year. File tax extension for 2011   See chapter 7 for information on figuring the depreciation you should have claimed. File tax extension for 2011   In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation you must capitalize under the uniform capitalization rules. File tax extension for 2011 Casualty and theft losses. File tax extension for 2011   If you have a casualty or theft loss, decrease the basis of the property by any insurance or other reimbursement. File tax extension for 2011 Also, decrease it by any deductible loss not covered by insurance. File tax extension for 2011 See chapter 11 for information about figuring your casualty or theft loss. File tax extension for 2011   You must increase your basis in the property by the amount you spend on clean-up costs (such as debris removal) and repairs that restore the property to its pre-casualty condition. File tax extension for 2011 To make this determination, compare the repaired property to the property before the casualty. File tax extension for 2011 Easements. File tax extension for 2011   The amount you receive for granting an easement is usually considered to be proceeds from the sale of an interest in the real property. File tax extension for 2011 It reduces the basis of the affected part of the property. File tax extension for 2011 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 tax extension for 2011 See Easements and rights-of-way in chapter 3. File tax extension for 2011 Exclusion from income of subsidies for energy conservation measures. File tax extension for 2011   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. File tax extension for 2011 Reduce the basis of the property by the excluded amount. File tax extension for 2011 Canceled debt excluded from income. File tax extension for 2011   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 tax extension for 2011 A debt includes any indebtedness for which you are liable or which attaches to property you hold. File tax extension for 2011   You can exclude your canceled debt from income if the debt is any of the following. File tax extension for 2011 Debt canceled in a bankruptcy case or when you are insolvent. File tax extension for 2011 Qualified farm debt. File tax extension for 2011 Qualified real property business debt (provided you are not a C corporation). File tax extension for 2011 Qualified principal residence indebtedness. File tax extension for 2011 Discharge of certain indebtedness of a qualified individual because of Midwestern disasters. File tax extension for 2011 If you exclude canceled debt described in (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. File tax extension for 2011 If you exclude canceled debt described in (3), you must only reduce the basis of your depreciable property by the excluded amount. File tax extension for 2011   For more information about canceled debt in a bankruptcy case, see Publication 908, Bankruptcy Tax Guide. File tax extension for 2011 For more information about insolvency and canceled debt that is qualified farm debt or qualified principal residence indebtedness, see chapter 3. File tax extension for 2011 For more information about qualified real property business debt, see Publication 334, Tax Guide for Small Business. File tax extension for 2011 For more information about canceled debt in Midwestern disaster areas, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. File tax extension for 2011 Basis Other Than Cost There are times when you cannot use cost as basis. File tax extension for 2011 In these situations, the fair market value or the adjusted basis of property may be used. File tax extension for 2011 Examples are discussed next. File tax extension for 2011 Property changed from personal to business or rental use. File tax extension for 2011   When you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. File tax extension for 2011 An example of changing property from personal to business use would be changing the use of your pickup truck that you originally purchased for your personal use to use in your farming business. File tax extension for 2011   The basis for depreciation is the lesser of: The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. File tax extension for 2011   If you later sell or dispose of this property, the basis you use will depend on whether you are figuring a gain or loss. File tax extension for 2011 The basis for figuring a gain is your adjusted basis in the property when you sell the property. File tax extension for 2011 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 tax extension for 2011 Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . File tax extension for 2011 Property received for services. File tax extension for 2011   If you receive property for services, include the property's FMV in income. File tax extension for 2011 The amount you include in income becomes your basis. File tax extension for 2011 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 tax extension for 2011 Example. File tax extension for 2011 George Smith is an accountant and also operates a farming business. File tax extension for 2011 George agreed to do some accounting work for his neighbor in exchange for a dairy cow. File tax extension for 2011 The accounting work and the cow are each worth $1,500. File tax extension for 2011 George must include $1,500 in income for his accounting services. File tax extension for 2011 George's basis in the cow is $1,500. File tax extension for 2011 Taxable Exchanges A taxable exchange is one in which the gain is taxable, or the loss is deductible. File tax extension for 2011 A taxable gain or deductible loss also is known as a recognized gain or loss. File tax extension for 2011 A taxable exchange occurs when you receive cash or get property that is not similar or related in use to the property exchanged. File tax extension for 2011 If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. File tax extension for 2011 Example. File tax extension for 2011 You trade a tract of farmland with an adjusted basis of $2,000 for a tractor that has an FMV of $6,000. File tax extension for 2011 You must report a taxable gain of $4,000 for the land. File tax extension for 2011 The tractor has a basis of $6,000. File tax extension for 2011 Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property you receive using the basis of the converted property. File tax extension for 2011 Similar or related property. File tax extension for 2011   If the replacement property is similar or related in service or use to the converted property, the replacement property's basis is the same as the old property's basis on the date of the conversion. File tax extension for 2011 However, make the following adjustments. File tax extension for 2011 Decrease the basis by the following amounts. File tax extension for 2011 Any loss you recognize on the involuntary conversion. File tax extension for 2011 Any money you receive that you do not spend on similar property. File tax extension for 2011 Increase the basis by the following amounts. File tax extension for 2011 Any gain you recognize on the involuntary conversion. File tax extension for 2011 Any cost of acquiring the replacement property. File tax extension for 2011 Money or property not similar or related. File tax extension for 2011   If you receive money or property not similar or related in service or use to the converted property and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the involuntary conversion. File tax extension for 2011 Allocating the basis. File tax extension for 2011   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. File tax extension for 2011 Basis for depreciation. File tax extension for 2011   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. File tax extension for 2011 For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. File tax extension for 2011 For more information about involuntary conversions, see chapter 11. File tax extension for 2011 Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. File tax extension for 2011 A nontaxable gain or loss also is known as an unrecognized gain or loss. File tax extension for 2011 If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. File tax extension for 2011 Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. File tax extension for 2011 For an exchange to qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. File tax extension for 2011 There must also be an exchange of like-kind property. File tax extension for 2011 For more information, see Like-Kind Exchanges in  chapter 8. File tax extension for 2011 The basis of the property you receive generally is the same as the adjusted basis of the property you gave up. File tax extension for 2011 Example 1. File tax extension for 2011 You traded a truck you used in your farming business for a new smaller truck to use in farming. File tax extension for 2011 The adjusted basis of the old truck was $10,000. File tax extension for 2011 The FMV of the new truck is $30,000. File tax extension for 2011 Because this is a nontaxable exchange, you do not recognize any gain, and your basis in the new truck is $10,000, the same as the adjusted basis of the truck you traded. File tax extension for 2011 Example 2. File tax extension for 2011 You trade a field cultivator (adjusted basis of $8,000) for a planter (FMV of $9,000). File tax extension for 2011 You use both the field cultivator and the planter in your farming business. File tax extension for 2011 The basis of the planter you receive is $8,000, the same as the field cultivator traded Exchange expenses. File tax extension for 2011   Exchange expenses generally are the closing costs that you pay. File tax extension for 2011 They include such items as brokerage commissions, attorney fees, and deed preparation fees. File tax extension for 2011 Add them to the basis of the like-kind property you receive. File tax extension for 2011 Property plus cash. File tax extension for 2011   If you trade property in a like-kind exchange and also pay money, the basis of the property you receive is the adjusted basis of the property you gave up plus the money you paid. File tax extension for 2011 Example. File tax extension for 2011 You trade in a truck (adjusted basis of $3,000) for another truck (FMV of $7,500) and pay $4,000. File tax extension for 2011 Your basis in the new truck is $7,000 (the $3,000 adjusted basis of the old truck plus the $4,000 cash). File tax extension for 2011 Special rules for related persons. File tax extension for 2011   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 tax extension for 2011 Each person must report any gain or loss not recognized on the original exchange unless the loss is not deductible under the related party rules. File tax extension for 2011 Each person reports it on the tax return filed for the year in which the later disposition occurred. File tax extension for 2011 If this rule applies, the basis of the property received in the original exchange will be its FMV. File tax extension for 2011 For more information, see chapter 8. File tax extension for 2011 Exchange of business property. File tax extension for 2011   Exchanging the property of one business for the property of another business generally is a multiple property exchange. File tax extension for 2011 For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. File tax extension for 2011 Basis for depreciation. File tax extension for 2011   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind transaction. File tax extension for 2011 For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. File tax extension for 2011 Partially Nontaxable Exchanges A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. File tax extension for 2011 The basis of the property you receive is the same as the adjusted basis of the property you gave up with the following adjustments. File tax extension for 2011 Decrease the basis by the following amounts. File tax extension for 2011 Any money you receive. File tax extension for 2011 Any loss you recognize on the exchange. File tax extension for 2011 Increase the basis by the following amounts. File tax extension for 2011 Any additional costs you incur. File tax extension for 2011 Any gain you recognize on the exchange. File tax extension for 2011 If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. File tax extension for 2011 Example 1. File tax extension for 2011 You trade farmland (basis of $100,000) for another tract of farmland (FMV of $110,000) and $30,000 cash. File tax extension for 2011 You realize a gain of $40,000. File tax extension for 2011 This is the FMV of the land received plus the cash minus the basis of the land you traded ($110,000 + $30,000 − $100,000). File tax extension for 2011 Include your gain in income (recognize gain) only to the extent of the cash received. File tax extension for 2011 Your basis in the land you received is figured as follows. File tax extension for 2011 Basis of land traded $100,000 Minus: Cash received (adjustment 1(a)) − 30,000   $70,000 Plus: Gain recognized (adjustment 2(b)) + 30,000 Basis of land received $100,000 Example 2. File tax extension for 2011 You trade a truck (adjusted basis of $22,750) for another truck (FMV of $20,000) and $10,000 cash. File tax extension for 2011 You realize a gain of $7,250. File tax extension for 2011 This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($20,000 + $10,000 − $22,750). File tax extension for 2011 You include all the gain in your income (recognize gain) because the gain is less than the cash you received. File tax extension for 2011 Your basis in the truck you received is figured as follows. File tax extension for 2011 Adjusted basis of truck traded $22,750 Minus: Cash received (adjustment 1(a)) −10,000   $12,750 Plus: Gain recognized (adjustment 2(b)) + 7,250 Basis of truck received $20,000 Allocation of basis. File tax extension for 2011   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. File tax extension for 2011 The rest is the basis of the like-kind property. File tax extension for 2011 Example. File tax extension for 2011 You traded a tractor with an adjusted basis of $15,000 for another tractor that had an FMV of $12,500. File tax extension for 2011 You also received $1,000 cash and a truck that had an FMV of $3,000. File tax extension for 2011 The truck is unlike property. File tax extension for 2011 You realized a gain of $1,500. File tax extension for 2011 This is the FMV of the tractor received plus the FMV of the truck received plus the cash minus the adjusted basis of the tractor you traded ($12,500 + $3,000 + $1,000 − $15,000). File tax extension for 2011 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 tax extension for 2011 Your basis in the properties you received is figured as follows. File tax extension for 2011 Adjusted basis of old tractor $15,000 Minus: Cash received (adjustment 1(a)) − 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) + 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property—the truck ($3,000). File tax extension for 2011 This is the truck's FMV. File tax extension for 2011 The rest ($12,500) is the basis of the tractor. File tax extension for 2011 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 tax extension for 2011 Example. File tax extension for 2011 You used a tractor on your farm for 3 years. File tax extension for 2011 Its adjusted basis is $22,000 and its FMV is $40,000. File tax extension for 2011 You are interested in a new tractor, which sells for $60,000. File tax extension for 2011 Ordinarily, you would trade your old tractor for the new one and pay the dealer $20,000. File tax extension for 2011 Your basis for depreciating the new tractor would then be $42,000 ($20,000 + $22,000, the adjusted basis of your old tractor). File tax extension for 2011 However, you want a higher basis for depreciating the new tractor, so you agree to pay the dealer $60,000 for the new tractor if he will pay you $40,000 for your old tractor. File tax extension for 2011 Because the two transactions are dependent on each other, you are treated as having exchanged your old tractor for the new one and paid $20,000 ($60,000 − $40,000). File tax extension for 2011 Your basis for depreciating the new tractor is $42,000, the same as if you traded the old tractor. File tax extension for 2011 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. File tax extension for 2011 You also must know its FMV at the time it was given to you and any gift tax paid on it. File tax extension for 2011 FMV equal to or greater than donor's adjusted basis. File tax extension for 2011   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis when you received the gift. File tax extension for 2011 Increase your basis by all or part of any gift tax paid, depending on the date of the gift. File tax extension for 2011   Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. File tax extension for 2011 See Adjusted Basis , earlier. File tax extension for 2011   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. File tax extension for 2011 Figure the increase by multiplying the gift tax paid by the following fraction. File tax extension for 2011 Net increase in value of the gift Amount of the gift   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. File tax extension for 2011 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 tax extension for 2011 Example. File tax extension for 2011 In 2013, you received a gift of property from your mother that had an FMV of $50,000. File tax extension for 2011 Her adjusted basis was $20,000. File tax extension for 2011 The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). File tax extension for 2011 She paid a gift tax of $7,320. File tax extension for 2011 Your basis, $26,076, is figured as follows. File tax extension for 2011 Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000 Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . File tax extension for 2011 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. File tax extension for 2011 If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. File tax extension for 2011 However, your basis cannot exceed the FMV of the gift when it was given to you. File tax extension for 2011 FMV less than donor's adjusted basis. File tax extension for 2011   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 tax extension for 2011 Your basis for figuring gain is the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. File tax extension for 2011 Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. File tax extension for 2011 (See Adjusted Basis , earlier. File tax extension for 2011 )   If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither gain nor loss on the sale or other disposition of the property. File tax extension for 2011 Example. File tax extension for 2011 You received farmland as a gift from your parents when they retired from farming. File tax extension for 2011 At the time of the gift, the land had an FMV of $80,000. File tax extension for 2011 Your parents' adjusted basis was $100,000. File tax extension for 2011 After you received the land, no events occurred that would increase or decrease your basis. File tax extension for 2011 If you sell the land for $120,000, you will have a $20,000 gain because you must use the donor's adjusted basis at the time of the gift ($100,000) as your basis to figure a gain. File tax extension for 2011 If you sell the land for $70,000, you will have a $10,000 loss because you must use the FMV at the time of the gift ($80,000) as your basis to figure a loss. File tax extension for 2011 If the sales price is between $80,000 and $100,000, you have neither gain nor loss. File tax extension for 2011 For instance, if the sales price was $90,000 and you tried to figure a gain using the donor's adjusted basis ($100,000), you would get a $10,000 loss. File tax extension for 2011 If you then tried to figure a loss using the FMV ($80,000), you would get a $10,000 gain. File tax extension for 2011 Business property. File tax extension for 2011   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. File tax extension for 2011 Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. File tax extension for 2011 The same rule applies to a transfer by your former spouse if the transfer is incident to divorce. File tax extension for 2011 However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed plus the liabilities to which the property is subject are more than the adjusted basis of the property transferred. File tax extension for 2011 The transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. File tax extension for 2011 For more information, see Property Settlements in Publication 504, Divorced or Separated Individuals. File tax extension for 2011 Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. File tax extension for 2011 If a federal estate return is filed, you can use its appraised value. File tax extension for 2011 The FMV on the alternate valuation date, if the personal representative for the estate elects to use alternate valuation. File tax extension for 2011 For information on the alternate valuation, see the Instructions for Form 706. File tax extension for 2011 The decedent's adjusted basis in land to the extent of the value that is excluded from the decedent's taxable estate as a qualified conservation easement. File tax extension for 2011 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 tax extension for 2011 Special-use valuation method. File tax extension for 2011   Under certain conditions, when a person dies, the executor or personal representative of that person's estate may elect to value qualified real property at other than its FMV. File tax extension for 2011 If so, the executor or personal representative values the qualified real property based on its use as a farm or other closely held business. File tax extension for 2011 If the executor or personal representative elects this method of valuation for estate tax purposes, this value is the basis of the property for the qualified heirs. File tax extension for 2011 The qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. File tax extension for 2011   If you are a qualified heir who received special-use valuation property, increase your basis by any gain recognized by the estate or trust because of post-death appreciation. File tax extension for 2011 Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or on the alternate valuation date. File tax extension for 2011 Figure all FMVs without regard to the special-use valuation. File tax extension for 2011   You may be liable for an additional estate tax if, within 10 years after the death of the decedent, you transfer the property or the property stops being used as a farm. File tax extension for 2011 This tax does not apply if you dispose of the property in a like-kind exchange or in an involuntary conversion in which all of the proceeds are reinvested in qualified replacement property. File tax extension for 2011 The tax also does not apply if you transfer the property to a member of your family and certain requirements are met. File tax extension for 2011   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. File tax extension for 2011 To increase your basis, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of payment of the additional estate tax. File tax extension for 2011 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 tax extension for 2011 The increase in your basis is considered to have occurred immediately before the event that resulted in the additional estate tax. File tax extension for 2011   You make the election by filing, with Form 706-A, United States Additional Estate Tax Return, a statement that: Contains your (and the estate's) name, address, and taxpayer identification number; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which you are making the election; and Provides any additional information required by the Form 706-A instructions. File tax extension for 2011   For more information, see Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706-A, and the related instructions. File tax extension for 2011 Property inherited from a decedent who died in 2010. File tax extension for 2011   If you inherited property from a decedent who died in 2010, different rules may apply. File tax extension for 2011 See Publication 4895, Tax Treatment of Property Acquired From a Decendent Dying in 2010, for details. File tax extension for 2011 Property Distributed From a Partnership or Corporation The following rules apply to determine a partner's basis and a shareholder's basis in property distributed respectively from a partnership to the partner with respect to the partner's interest in the partnership and from a corporation to the shareholder with respect to the shareholder's ownership of stock in the corporation. File tax extension for 2011 Partner's basis. File tax extension for 2011   Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed by a partnership to the partner is its adjusted basis to the partnership immediately before the distribution. File tax extension for 2011 However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. File tax extension for 2011 For more information, see Partner's Basis for Distributed Property in Publication 541, Partnerships. File tax extension for 2011 Shareholder's basis. File tax extension for 2011   The basis of property distributed by a corporation to a shareholder is its fair market value. File tax extension for 2011 For more information about corporate distributions, see Distributions to Shareholders in Publication 542, Corporations. File tax extension for 2011 Prev  Up  Next   Home   More Online Publications