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Forms To File 2011 Taxes

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Forms To File 2011 Taxes

Forms to file 2011 taxes 27. Forms to file 2011 taxes   Tax Benefits for Work-Related Education Table of Contents What's New Introduction Useful Items - You may want to see: Qualifying Work-Related EducationEducation Required by Employer or by Law Education To Maintain or Improve Skills Education To Meet Minimum Requirements Education That Qualifies You for a New Trade or Business What Expenses Can Be DeductedUnclaimed reimbursement. Forms to file 2011 taxes Transportation Expenses Travel Expenses No Double Benefit Allowed Reimbursements Deducting Business ExpensesSelf-Employed Persons Employees Performing Artists and Fee-Basis Officials Impairment-Related Work Expenses Recordkeeping What's New Standard mileage rate. Forms to file 2011 taxes  Generally, if you claim a business deduction for work-related education and you drive your car to and from school, the amount you can deduct for miles driven from January 1, 2013, through December 31, 2013, is 56½ cents per mile. Forms to file 2011 taxes For more information, see Transportation Expenses under What Expenses Can Be Deducted. Forms to file 2011 taxes Introduction This chapter discusses work-related education expenses that you may be able to deduct as business expenses. Forms to file 2011 taxes To claim such a deduction, you must: Itemize your deductions on Schedule A (Form 1040) if you are an employee, File Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040) if you are self-employed, and Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education . Forms to file 2011 taxes If you are an employee and can itemize your deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. Forms to file 2011 taxes Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses (except for impairment-related work expenses of disabled individuals) is greater than 2% of your adjusted gross income. Forms to file 2011 taxes See chapter 28. Forms to file 2011 taxes If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. Forms to file 2011 taxes Your work-related education expenses may also qualify you for other tax benefits, such as the American opportunity and lifetime learning credits (see chapter 35). Forms to file 2011 taxes You may qualify for these other benefits even if you do not meet the requirements listed earlier. Forms to file 2011 taxes Also, keep in mind that your work-related education expenses may qualify you to claim more than one tax benefit. Forms to file 2011 taxes Generally, you may claim any number of benefits as long as you use different expenses to figure each one. Forms to file 2011 taxes When you figure your taxes, you may want to compare these tax benefits so you can choose the method(s) that give you the lowest tax liability. Forms to file 2011 taxes Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 970 Tax Benefits for Education Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses Schedule A (Form 1040) Itemized Deductions Qualifying Work-Related Education You can deduct the costs of qualifying work-related education as business expenses. Forms to file 2011 taxes This is education that meets at least one of the following two tests. Forms to file 2011 taxes The education is required by your employer or the law to keep your present salary, status, or job. Forms to file 2011 taxes The required education must serve a bona fide business purpose of your employer. Forms to file 2011 taxes The education maintains or improves skills needed in your present work. Forms to file 2011 taxes However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it: Is needed to meet the minimum educational requirements of your present trade or business, or Is part of a program of study that will qualify you for a new trade or business. Forms to file 2011 taxes You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree. Forms to file 2011 taxes Use Figure 27-A, later, as a quick check to see if your education qualifies. Forms to file 2011 taxes Education Required by Employer or by Law Once you have met the minimum educational requirements for your job, your employer or the law may require you to get more education. Forms to file 2011 taxes This additional education is qualifying work-related education if all three of the following requirements are met. Forms to file 2011 taxes It is required for you to keep your present salary, status, or job, The requirement serves a bona fide business purpose of your employer, and The education is not part of a program that will qualify you for a new trade or business. Forms to file 2011 taxes When you get more education than your employer or the law requires, the additional education can be qualifying work-related education only if it maintains or improves skills required in your present work. Forms to file 2011 taxes See Education To Maintain or Improve Skills , later. Forms to file 2011 taxes Example. Forms to file 2011 taxes You are a teacher who has satisfied the minimum requirements for teaching. Forms to file 2011 taxes Your employer requires you to take an additional college course each year to keep your teaching job. Forms to file 2011 taxes If the courses will not qualify you for a new trade or business, they are qualifying work-related education even if you eventually receive a master's degree and an increase in salary because of this extra education. Forms to file 2011 taxes Education To Maintain or Improve Skills If your education is not required by your employer or the law, it can be qualifying work-related education only if it maintains or improves skills needed in your present work. Forms to file 2011 taxes This could include refresher courses, courses on current developments, and academic or vocational courses. Forms to file 2011 taxes Example. Forms to file 2011 taxes You repair televisions, radios, and stereo systems for XYZ Store. Forms to file 2011 taxes To keep up with the latest changes, you take special courses in radio and stereo service. Forms to file 2011 taxes These courses maintain and improve skills required in your work. Forms to file 2011 taxes Maintaining skills vs. Forms to file 2011 taxes qualifying for new job. Forms to file 2011 taxes   Education to maintain or improve skills needed in your present work is not qualifying education if it will also qualify you for a new trade or business. Forms to file 2011 taxes Education during temporary absence. Forms to file 2011 taxes   If you stop working for a year or less in order to get education to maintain or improve skills needed in your present work and then return to the same general type of work, your absence is considered temporary. Forms to file 2011 taxes Education that you get during a temporary absence is qualifying work-related education if it maintains or improves skills needed in your present work. Forms to file 2011 taxes Example. Forms to file 2011 taxes You quit your biology research job to become a full-time biology graduate student for one year. Forms to file 2011 taxes If you return to work in biology research after completing the courses, the education is related to your present work even if you do not go back to work with the same employer. Forms to file 2011 taxes Education during indefinite absence. Forms to file 2011 taxes   If you stop work for more than a year, your absence from your job is considered indefinite. Forms to file 2011 taxes Education during an indefinite absence, even if it maintains or improves skills needed in the work from which you are absent, is considered to qualify you for a new trade or business. Forms to file 2011 taxes Therefore, it is not qualifying work-related education. Forms to file 2011 taxes Education To Meet Minimum Requirements Education you need to meet the minimum educational requirements for your present trade or business is not qualifying work-related education. Forms to file 2011 taxes The minimum educational requirements are determined by: Laws and regulations, Standards of your profession, trade, or business, and Your employer. Forms to file 2011 taxes Once you have met the minimum educational requirements that were in effect when you were hired, you do not have to meet any new minimum educational requirements. Forms to file 2011 taxes This means that if the minimum requirements change after you were hired, any education you need to meet the new requirements can be qualifying education. Forms to file 2011 taxes You have not necessarily met the minimum educational requirements of your trade or business simply because you are already doing the work. Forms to file 2011 taxes Example 1. Forms to file 2011 taxes You are a full-time engineering student. Forms to file 2011 taxes Although you have not received your degree or certification, you work part-time as an engineer for a firm that will employ you as a full-time engineer after you finish college. Forms to file 2011 taxes Although your college engineering courses improve your skills in your present job, they are also needed to meet the minimum job requirements for a full-time engineer. Forms to file 2011 taxes The education is not qualifying work-related education. Forms to file 2011 taxes Example 2. Forms to file 2011 taxes You are an accountant and you have met the minimum educational requirements of your employer. Forms to file 2011 taxes Your employer later changes the minimum educational requirements and requires you to take college courses to keep your job. Forms to file 2011 taxes These additional courses can be qualifying work-related education because you have already satisfied the minimum requirements that were in effect when you were hired. Forms to file 2011 taxes Requirements for Teachers States or school districts usually set the minimum educational requirements for teachers. Forms to file 2011 taxes The requirement is the college degree or the minimum number of college hours usually required of a person hired for that position. Forms to file 2011 taxes If there are no requirements, you will have met the minimum educational requirements when you become a faculty member. Forms to file 2011 taxes The determination of whether you are a faculty member of an educational institution must be made on the basis of the particular practices of the institution. Forms to file 2011 taxes You generally will be considered a faculty member when one or more of the following occurs. Forms to file 2011 taxes You have tenure. Forms to file 2011 taxes Your years of service count toward obtaining tenure. Forms to file 2011 taxes You have a vote in faculty decisions. Forms to file 2011 taxes Your school makes contributions for you to a retirement plan other than social security or a similar program. Forms to file 2011 taxes Example 1. Forms to file 2011 taxes The law in your state requires beginning secondary school teachers to have a bachelor's degree, including 10 professional education courses. Forms to file 2011 taxes In addition, to keep the job a teacher must complete a fifth year of training within 10 years from the date of hire. Forms to file 2011 taxes If the employing school certifies to the state Department of Education that qualified teachers cannot be found, the school can hire persons with only 3 years of college. Forms to file 2011 taxes However, to keep their jobs, these teachers must get a bachelor's degree and the required professional education courses within 3 years. Forms to file 2011 taxes Under these facts, the bachelor's degree, whether or not it includes the 10 professional education courses, is considered the minimum educational requirement for qualification as a teacher in your state. Forms to file 2011 taxes If you have all the required education except the fifth year, you have met the minimum educational requirements. Forms to file 2011 taxes The fifth year of training is qualifying work-related education unless it is part of a program of study that will qualify you for a new trade or business. Forms to file 2011 taxes Figure 27-A Does Your Work-Related Education Qualify? Please click here for the text description of the image. Forms to file 2011 taxes Figure 27-A. Forms to file 2011 taxes Does Your Work-Related Education Qualify?" Example 2. Forms to file 2011 taxes Assume the same facts as in Example 1 except that you have a bachelor's degree and only six professional education courses. Forms to file 2011 taxes The additional four education courses can be qualifying work-related education. Forms to file 2011 taxes Although you do not have all the required courses, you have already met the minimum educational requirements. Forms to file 2011 taxes Example 3. Forms to file 2011 taxes Assume the same facts as in Example 1 except that you are hired with only 3 years of college. Forms to file 2011 taxes The courses you take that lead to a bachelor's degree (including those in education) are not qualifying work-related education. Forms to file 2011 taxes They are needed to meet the minimum educational requirements for employment as a teacher. Forms to file 2011 taxes Example 4. Forms to file 2011 taxes You have a bachelor's degree and you work as a temporary instructor at a university. Forms to file 2011 taxes At the same time, you take graduate courses toward an advanced degree. Forms to file 2011 taxes The rules of the university state that you can become a faculty member only if you get a graduate degree. Forms to file 2011 taxes Also, you can keep your job as an instructor only as long as you show satisfactory progress toward getting this degree. Forms to file 2011 taxes You have not met the minimum educational requirements to qualify you as a faculty member. Forms to file 2011 taxes The graduate courses are not qualifying work-related education. Forms to file 2011 taxes Certification in a new state. Forms to file 2011 taxes   Once you have met the minimum educational requirements for teachers for your state, you are considered to have met the minimum educational requirements in all states. Forms to file 2011 taxes This is true even if you must get additional education to be certified in another state. Forms to file 2011 taxes Any additional education you need is qualifying work-related education. Forms to file 2011 taxes You have already met the minimum requirements for teaching. Forms to file 2011 taxes Teaching in another state is not a new trade or business. Forms to file 2011 taxes Example. Forms to file 2011 taxes You hold a permanent teaching certificate in State A and are employed as a teacher in that state for several years. Forms to file 2011 taxes You move to State B and are promptly hired as a teacher. Forms to file 2011 taxes You are required, however, to complete certain prescribed courses to get a permanent teaching certificate in State B. Forms to file 2011 taxes These additional courses are qualifying work-related education because the teaching position in State B involves the same general kind of work for which you were qualified in State A. Forms to file 2011 taxes Education That Qualifies You for a New Trade or Business Education that is part of a program of study that will qualify you for a new trade or business is not qualifying work-related education. Forms to file 2011 taxes This is true even if you do not plan to enter that trade or business. Forms to file 2011 taxes If you are an employee, a change of duties that involves the same general kind of work is not a new trade or business. Forms to file 2011 taxes Example 1. Forms to file 2011 taxes You are an accountant. Forms to file 2011 taxes Your employer requires you to get a law degree at your own expense. Forms to file 2011 taxes You register at a law school for the regular curriculum that leads to a law degree. Forms to file 2011 taxes Even if you do not intend to become a lawyer, the education is not qualifying because the law degree will qualify you for a new trade or business. Forms to file 2011 taxes Example 2. Forms to file 2011 taxes You are a general practitioner of medicine. Forms to file 2011 taxes You take a 2-week course to review developments in several specialized fields of medicine. Forms to file 2011 taxes The course does not qualify you for a new profession. Forms to file 2011 taxes It is qualifying work-related education because it maintains or improves skills required in your present profession. Forms to file 2011 taxes Example 3. Forms to file 2011 taxes While working in the private practice of psychiatry, you enter a program to study and train at an accredited psychoanalytic institute. Forms to file 2011 taxes The program will lead to qualifying you to practice psychoanalysis. Forms to file 2011 taxes The psychoanalytic training does not qualify you for a new profession. Forms to file 2011 taxes It is qualifying work-related education because it maintains or improves skills required in your present profession. Forms to file 2011 taxes Bar or CPA Review Course Review courses to prepare for the bar examination or the certified public accountant (CPA) examination are not qualifying work-related education. Forms to file 2011 taxes They are part of a program of study that can qualify you for a new profession. Forms to file 2011 taxes Teaching and Related Duties All teaching and related duties are considered the same general kind of work. Forms to file 2011 taxes A change in duties in any of the following ways is not considered a change to a new business. Forms to file 2011 taxes Elementary school teacher to secondary school teacher. Forms to file 2011 taxes Teacher of one subject, such as biology, to teacher of another subject, such as art. Forms to file 2011 taxes Classroom teacher to guidance counselor. Forms to file 2011 taxes Classroom teacher to school administrator. Forms to file 2011 taxes What Expenses Can Be Deducted If your education meets the requirements described earlier under Qualifying Work-Related Education , you can generally deduct your education expenses as business expenses. Forms to file 2011 taxes If you are not self-employed, you can deduct business expenses only if you itemize your deductions. Forms to file 2011 taxes You cannot deduct expenses related to tax-exempt and excluded income. Forms to file 2011 taxes Deductible expenses. Forms to file 2011 taxes   The following education expenses can be deducted. Forms to file 2011 taxes Tuition, books, supplies, lab fees, and similar items. Forms to file 2011 taxes Certain transportation and travel costs. Forms to file 2011 taxes Other education expenses, such as costs of research and typing when writing a paper as part of an educational program. Forms to file 2011 taxes Nondeductible expenses. Forms to file 2011 taxes   You cannot deduct personal or capital expenses. Forms to file 2011 taxes For example, you cannot deduct the dollar value of vacation time or annual leave you take to attend classes. Forms to file 2011 taxes This amount is a personal expense. Forms to file 2011 taxes Unclaimed reimbursement. Forms to file 2011 taxes   If you do not claim reimbursement that you are entitled to receive from your employer, you cannot deduct the expenses that apply to that unclaimed reimbursement. Forms to file 2011 taxes Example. Forms to file 2011 taxes Your employer agrees to pay your education expenses if you file a voucher showing your expenses. Forms to file 2011 taxes You do not file a voucher, and you do not get reimbursed. Forms to file 2011 taxes Because you did not file a voucher, you cannot deduct the expenses on your tax return. Forms to file 2011 taxes Transportation Expenses If your education qualifies, you can deduct local transportation costs of going directly from work to school. Forms to file 2011 taxes If you are regularly employed and go to school on a temporary basis, you can also deduct the costs of returning from school to home. Forms to file 2011 taxes Temporary basis. Forms to file 2011 taxes   You go to school on a temporary basis if either of the following situations applies to you. Forms to file 2011 taxes Your attendance at school is realistically expected to last 1 year or less and does indeed last for 1 year or less. Forms to file 2011 taxes Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. Forms to file 2011 taxes Your attendance is temporary up to the date you determine it will last more than 1 year. Forms to file 2011 taxes Note. Forms to file 2011 taxes If you are in either situation (1) or (2), your attendance is not temporary if facts and circumstances indicate otherwise. Forms to file 2011 taxes Attendance not on a temporary basis. Forms to file 2011 taxes   You do not go to school on a temporary basis if either of the following situations apply to you. Forms to file 2011 taxes Your attendance at school is realistically expected to last more than 1 year. Forms to file 2011 taxes It does not matter how long you actually attend. Forms to file 2011 taxes Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. Forms to file 2011 taxes Your attendance is not temporary after the date you determine it will last more than 1 year. Forms to file 2011 taxes Deductible Transportation Expenses If you are regularly employed and go directly from home to school on a temporary basis, you can deduct the round-trip costs of transportation between your home and school. Forms to file 2011 taxes This is true regardless of the location of the school, the distance traveled, or whether you attend school on nonwork days. Forms to file 2011 taxes Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. Forms to file 2011 taxes Transportation expenses do not include amounts spent for travel, meals, or lodging while you are away from home overnight. Forms to file 2011 taxes Example 1. Forms to file 2011 taxes You regularly work in a nearby town, and go directly from work to home. Forms to file 2011 taxes You also attend school every work night for 3 months to take a course that improves your job skills. Forms to file 2011 taxes Since you are attending school on a temporary basis, you can deduct your daily round-trip transportation expenses in going between home and school. Forms to file 2011 taxes This is true regardless of the distance traveled. Forms to file 2011 taxes Example 2. Forms to file 2011 taxes Assume the same facts as in Example 1 except that on certain nights you go directly from work to school and then home. Forms to file 2011 taxes You can deduct your transportation expenses from your regular work site to school and then home. Forms to file 2011 taxes Example 3. Forms to file 2011 taxes Assume the same facts as in Example 1 except that you attend the school for 9 months on Saturdays, nonwork days. Forms to file 2011 taxes Since you are attending school on a temporary basis, you can deduct your round-trip transportation expenses in going between home and school. Forms to file 2011 taxes Example 4. Forms to file 2011 taxes Assume the same facts as in Example 1 except that you attend classes twice a week for 15 months. Forms to file 2011 taxes Since your attendance in school is not considered temporary, you cannot deduct your transportation expenses in going between home and school. Forms to file 2011 taxes If you go directly from work to school, you can deduct the one-way transportation expenses of going from work to school. Forms to file 2011 taxes If you go from work to home to school and return home, your transportation expenses cannot be more than if you had gone directly from work to school. Forms to file 2011 taxes Using your car. Forms to file 2011 taxes   If you use your car (whether you own or lease it) for transportation to school, you can deduct your actual expenses or use the standard mileage rate to figure the amount you can deduct. Forms to file 2011 taxes The standard mileage rate for miles driven from January 1, 2013, through December 31, 2013 is 56½ cents per mile. Forms to file 2011 taxes Whichever method you use, you can also deduct parking fees and tolls. Forms to file 2011 taxes See chapter 26 for information on deducting your actual expenses of using a car. Forms to file 2011 taxes Travel Expenses You can deduct expenses for travel, meals (see 50% limit on meals , later), and lodging if you travel overnight mainly to obtain qualifying work-related education. Forms to file 2011 taxes Travel expenses for qualifying work-related education are treated the same as travel expenses for other employee business purposes. Forms to file 2011 taxes For more information, see chapter 26. Forms to file 2011 taxes You cannot deduct expenses for personal activities, such as sightseeing, visiting, or entertaining. Forms to file 2011 taxes Mainly personal travel. Forms to file 2011 taxes   If your travel away from home is mainly personal, you cannot deduct all of your expenses for travel, meals, and lodging. Forms to file 2011 taxes You can deduct only your expenses for lodging and 50% of your expenses for meals during the time you attend the qualified educational activities. Forms to file 2011 taxes   Whether a trip's purpose is mainly personal or educational depends upon the facts and circumstances. Forms to file 2011 taxes An important factor is the comparison of time spent on personal activities with time spent on educational activities. Forms to file 2011 taxes If you spend more time on personal activities, the trip is considered mainly educational only if you can show a substantial nonpersonal reason for traveling to a particular location. Forms to file 2011 taxes Example 1. Forms to file 2011 taxes John works in Newark, New Jersey. Forms to file 2011 taxes He traveled to Chicago to take a deductible 1-week course at the request of his employer. Forms to file 2011 taxes His main reason for going to Chicago was to take the course. Forms to file 2011 taxes While there, he took a sight-seeing trip, entertained some friends, and took a side trip to Pleasantville for a day. Forms to file 2011 taxes Since the trip was mainly for business, John can deduct his round-trip airfare to Chicago. Forms to file 2011 taxes He cannot deduct his transportation expenses of going to Pleasantville. Forms to file 2011 taxes He can deduct only the meals (subject to the 50% limit) and lodging connected with his educational activities. Forms to file 2011 taxes Example 2. Forms to file 2011 taxes Sue works in Boston. Forms to file 2011 taxes She went to a university in Michigan to take a course for work. Forms to file 2011 taxes The course is qualifying work-related education. Forms to file 2011 taxes She took one course, which is one-fourth of a full course load of study. Forms to file 2011 taxes She spent the rest of the time on personal activities. Forms to file 2011 taxes Her reasons for taking the course in Michigan were all personal. Forms to file 2011 taxes Sue's trip is mainly personal because three-fourths of her time is considered personal time. Forms to file 2011 taxes She cannot deduct the cost of her round-trip train ticket to Michigan. Forms to file 2011 taxes She can deduct one-fourth of the meals (subject to the 50% limit) and lodging costs for the time she attended the university. Forms to file 2011 taxes Example 3. Forms to file 2011 taxes Dave works in Nashville and recently traveled to California to take a 2-week seminar. Forms to file 2011 taxes The seminar is qualifying work-related education. Forms to file 2011 taxes While there, he spent an extra 8 weeks on personal activities. Forms to file 2011 taxes The facts, including the extra 8-week stay, show that his main purpose was to take a vacation. Forms to file 2011 taxes Dave cannot deduct his round-trip airfare or his meals and lodging for the 8 weeks. Forms to file 2011 taxes He can deduct only his expenses for meals (subject to the 50% limit) and lodging for the 2 weeks he attended the seminar. Forms to file 2011 taxes Cruises and conventions. Forms to file 2011 taxes   Certain cruises and conventions offer seminars or courses as part of their itinerary. Forms to file 2011 taxes Even if the seminars or courses are work-related, your deduction for travel may be limited. Forms to file 2011 taxes This applies to: Travel by ocean liner, cruise ship, or other form of luxury water transportation, and Conventions outside the North American area. Forms to file 2011 taxes   For a discussion of the limits on travel expense deductions that apply to cruises and conventions, see Luxury Water Travel and Conventions in chapter 1 of Publication 463. Forms to file 2011 taxes 50% limit on meals. Forms to file 2011 taxes   You can deduct only 50% of the cost of your meals while traveling away from home to obtain qualifying work-related education. Forms to file 2011 taxes You cannot have been reimbursed for the meals. Forms to file 2011 taxes   Employees must use Form 2106 or Form 2106-EZ to apply the 50% limit. Forms to file 2011 taxes Travel as Education You cannot deduct the cost of travel as a form of education even if it is directly related to your duties in your work or business. Forms to file 2011 taxes Example. Forms to file 2011 taxes You are a French language teacher. Forms to file 2011 taxes While on sabbatical leave granted for travel, you traveled through France to improve your knowledge of the French language. Forms to file 2011 taxes You chose your itinerary and most of your activities to improve your French language skills. Forms to file 2011 taxes You cannot deduct your travel expenses as education expenses. Forms to file 2011 taxes This is true even if you spent most of your time learning French by visiting French schools and families, attending movies or plays, and engaging in similar activities. Forms to file 2011 taxes No Double Benefit Allowed You cannot do either of the following. Forms to file 2011 taxes Deduct work-related education expenses as business expenses if you benefit from these expenses under any other provision of the law, for example, the tuition and fees deduction (see chapter 35). Forms to file 2011 taxes Deduct work-related education expenses paid with tax-free scholarship, grant, or employer-provided educational assistance. Forms to file 2011 taxes See Adjustments to Qualifying Work-Related Education Expenses , next. Forms to file 2011 taxes Adjustments to Qualifying Work-Related Education Expenses If you pay qualifying work-related education expenses with certain tax-free funds, you cannot claim a deduction for those amounts. Forms to file 2011 taxes You must reduce the qualifying expenses by the amount of such expenses allocable to the tax-free educational assistance. Forms to file 2011 taxes For more information, see chapter 12 of Publication 970. Forms to file 2011 taxes Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see chapter 1 of Publication 970), The tax-free part of Pell grants (see chapter 1 of Publication 970), The tax-free part of employer-provided educational assistance (see chapter 11 of Publication 970), Veterans' educational assistance (see chapter 1 of Publication 970), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received for education assistance. Forms to file 2011 taxes Amounts that do not reduce qualifying work-related education expenses. Forms to file 2011 taxes   Do not reduce the qualifying work-related education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Forms to file 2011 taxes   Also, do not reduce the qualifying work-related education expenses by any scholarship or fellowship reported as income on the student's return or any scholarship which, by its terms, cannot be applied to qualifying work-related education expenses. Forms to file 2011 taxes Reimbursements How you treat reimbursements depends on the arrangement you have with your employer. Forms to file 2011 taxes There are two basic types of reimbursement arrangements—accountable plans and nonaccountable plans. Forms to file 2011 taxes You can tell the type of plan you are reimbursed under by the way the reimbursement is reported on your Form W-2. Forms to file 2011 taxes For information on how to treat reimbursements under both accountable and nonaccountable plans, see Reimbursements in chapter 26. Forms to file 2011 taxes Deducting Business Expenses Self-employed persons and employees report business expenses differently. Forms to file 2011 taxes The following information explains what forms you must use to deduct the cost of your qualifying work-related education as a business expense. Forms to file 2011 taxes Self-Employed Persons If you are self-employed, report the cost of your qualifying work-related education on the appropriate form used to report your business income and expenses (generally Schedule C, C-EZ, or F). Forms to file 2011 taxes If your educational expenses include expenses for a car or truck, travel, or meals, report those expenses the same way you report other business expenses for those items. Forms to file 2011 taxes See the instructions for the form you file for information on how to complete it. Forms to file 2011 taxes Employees If you are an employee, you can deduct the cost of qualifying work-related education only if you: Did not receive (and were not entitled to receive) any reimbursement from your employer, Were reimbursed under a nonaccountable plan (amount is included in box 1 of Form W-2), or Received reimbursement under an accountable plan, but the amount received was less than your expenses for which you claimed reimbursement. Forms to file 2011 taxes If either (1) or (2) applies, you can deduct the total qualifying cost. Forms to file 2011 taxes If (3) applies, you can deduct only the qualifying costs that were more than your reimbursement. Forms to file 2011 taxes In order to deduct the cost of your qualifying work-related education as a business expense, include the amount with your deduction for any other employee business expenses on Schedule A (Form 1040), line 21. Forms to file 2011 taxes (Special rules for expenses of certain performing artists and fee-basis officials and for impairment-related work expenses are explained later. Forms to file 2011 taxes ) This deduction (except for impairment-related work expenses of disabled individuals) is subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions. Forms to file 2011 taxes See chapter 28. Forms to file 2011 taxes Form 2106 or 2106-EZ. Forms to file 2011 taxes   To figure your deduction for employee business expenses, including qualifying work-related education, you generally must complete Form 2106 or Form 2106-EZ. Forms to file 2011 taxes Form not required. Forms to file 2011 taxes   Do not complete either Form 2106 or Form 2106-EZ if: If amounts included in box 1 of your Form W-2, are not considered reimbursements, and You are not claiming travel, transportation, meal, or entertainment expenses. Forms to file 2011 taxes   If you meet both of these requirements, enter the expenses directly on Schedule A (Form 1040), line 21. Forms to file 2011 taxes (Special rules for expenses of certain performing artists and fee-basis officials and for impairment-related work expenses are explained later. Forms to file 2011 taxes ) Using Form 2106-EZ. Forms to file 2011 taxes   This form is shorter and easier to use than Form 2106. Forms to file 2011 taxes Generally, you can use this form if: All reimbursements, if any, are included in box 1 of your Form W-2, and You are using the standard mileage rate if you are claiming vehicle expenses. Forms to file 2011 taxes   If you do not meet both of these requirements, use Form 2106. Forms to file 2011 taxes Performing Artists and Fee-Basis Officials If you are a qualified performing artist, or a state (or local) government official who is paid in whole or in part on a fee basis, you can deduct the cost of your qualifying work-related education as an adjustment to gross income rather than as an itemized deduction. Forms to file 2011 taxes Include the cost of your qualifying work-related education with any other employee business expenses on Form 1040, line 24. Forms to file 2011 taxes You do not have to itemize your deductions on Schedule A (Form 1040), and, therefore, the deduction is not subject to the 2%-of-adjusted-gross-income limit. Forms to file 2011 taxes You must complete Form 2106 or 2106-EZ to figure your deduction, even if you meet the requirements described earlier under Form not required . Forms to file 2011 taxes For more information on qualified performing artists, see chapter 6 of Publication 463. Forms to file 2011 taxes Impairment-Related Work Expenses If you are disabled and have impairment-related work expenses that are necessary for you to be able to get qualifying work-related education, you can deduct these expenses on Schedule A (Form 1040), line 28. Forms to file 2011 taxes They are not subject to the 2%-of-adjusted-gross-income limit. Forms to file 2011 taxes To deduct these expenses, you must complete Form 2106 or 2106-EZ even if you meet the requirements described earlier under Form not required . Forms to file 2011 taxes For more information on impairment-related work expenses, see chapter 6 of Publication 463. Forms to file 2011 taxes Recordkeeping You must keep records as proof of any deduction claimed on your tax return. Forms to file 2011 taxes Generally, you should keep your records for 3 years from the date of filing the tax return and claiming the deduction. Forms to file 2011 taxes For specific information about keeping records of business expenses, see Recordkeeping in chapter 26. Forms to file 2011 taxes Prev  Up  Next   Home   More Online Publications
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The Forms To File 2011 Taxes

Forms to file 2011 taxes 1. Forms to file 2011 taxes   Gain or Loss Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesGain or Loss From Sales and Exchanges Abandonments Foreclosures and RepossessionsAmount realized on a nonrecourse debt. Forms to file 2011 taxes Amount realized on a recourse debt. Forms to file 2011 taxes Involuntary ConversionsCondemnations Nontaxable ExchangesLike-Kind Exchanges Other Nontaxable Exchanges Transfers to Spouse Rollover of Gain From Publicly Traded Securities Gains on Sales of Qualified Small Business Stock Exclusion of Gain From Sale of DC Zone Assets Topics - This chapter discusses: Sales and exchanges Abandonments Foreclosures and repossessions Involuntary conversions Nontaxable exchanges Transfers to spouse Rollovers and exclusions for certain capital gains Useful Items - You may want to see: Publication 523 Selling Your Home 537 Installment Sales 547 Casualties, Disasters, and Thefts 550 Investment Income and Expenses 551 Basis of Assets 908 Bankruptcy Tax Guide 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1040 U. Forms to file 2011 taxes S. Forms to file 2011 taxes Individual Income Tax Return 1040X Amended U. Forms to file 2011 taxes S. Forms to file 2011 taxes Individual Income Tax Return 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets Although the discussions in this chapter may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. Forms to file 2011 taxes However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Forms to file 2011 taxes See chapter 5 for information about getting publications and forms. Forms to file 2011 taxes Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Forms to file 2011 taxes An exchange is a transfer of property for other property or services. Forms to file 2011 taxes The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. Forms to file 2011 taxes Sale or lease. Forms to file 2011 taxes    Some agreements that seem to be leases may really be conditional sales contracts. Forms to file 2011 taxes The intention of the parties to the agreement can help you distinguish between a sale and a lease. Forms to file 2011 taxes   There is no test or group of tests to prove what the parties intended when they made the agreement. Forms to file 2011 taxes You should consider each agreement based on its own facts and circumstances. Forms to file 2011 taxes For more information, see chapter 3 in Publication 535, Business Expenses. Forms to file 2011 taxes Cancellation of a lease. Forms to file 2011 taxes    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. Forms to file 2011 taxes Payments received by a landlord (lessor) for the cancellation of a lease are essentially a substitute for rental payments and are taxed as ordinary income in the year in which they are received. Forms to file 2011 taxes Copyright. Forms to file 2011 taxes    Payments you receive for granting the exclusive use of (or right to exploit) a copyright throughout its life in a particular medium are treated as received from the sale of property. Forms to file 2011 taxes It does not matter if the payments are a fixed amount or a percentage of receipts from the sale, performance, exhibition, or publication of the copyrighted work, or an amount based on the number of copies sold, performances given, or exhibitions made. Forms to file 2011 taxes Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. Forms to file 2011 taxes   If the copyright was used in your trade or business and you held it longer than a year, the gain or loss may be a section 1231 gain or loss. Forms to file 2011 taxes For more information, see Section 1231 Gains and Losses in chapter 3. Forms to file 2011 taxes Easement. Forms to file 2011 taxes   The amount received for granting an easement is subtracted from the basis of the property. Forms to file 2011 taxes If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. Forms to file 2011 taxes If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received. Forms to file 2011 taxes   Any amount received that is more than the basis to be reduced is a taxable gain. Forms to file 2011 taxes The transaction is reported as a sale of property. Forms to file 2011 taxes   If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property. Forms to file 2011 taxes However, if you make a qualified conservation contribution of a restriction or easement granted in perpetuity, it is treated as a charitable contribution and not a sale or exchange, even though you keep a beneficial interest in the property affected by the easement. Forms to file 2011 taxes   If you grant an easement on your property (for example, a right-of-way over it) under condemnation or threat of condemnation, you are considered to have made a forced sale, even though you keep the legal title. Forms to file 2011 taxes Although you figure gain or loss on the easement in the same way as a sale of property, the gain or loss is treated as a gain or loss from a condemnation. Forms to file 2011 taxes See Gain or Loss From Condemnations, later. Forms to file 2011 taxes Property transferred to satisfy debt. Forms to file 2011 taxes   A transfer of property to satisfy a debt is an exchange. Forms to file 2011 taxes Note's maturity date extended. Forms to file 2011 taxes   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. Forms to file 2011 taxes Also, it is not considered a closed and completed transaction that would result in a gain or loss. Forms to file 2011 taxes However, an extension will be treated as a taxable exchange of the outstanding note for a new and materially different note if the changes in the terms of the note are significant. Forms to file 2011 taxes Each case must be determined by its own facts. Forms to file 2011 taxes For more information, see Regulations section 1. Forms to file 2011 taxes 1001-3. Forms to file 2011 taxes Transfer on death. Forms to file 2011 taxes   The transfer of property of a decedent to an executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or exchange or other disposition. Forms to file 2011 taxes No taxable gain or deductible loss results from the transfer. Forms to file 2011 taxes Bankruptcy. Forms to file 2011 taxes   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. Forms to file 2011 taxes Consequently, the transfer generally does not result in gain or loss. Forms to file 2011 taxes For more information, see Publication 908, Bankruptcy Tax Guide. Forms to file 2011 taxes Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. Forms to file 2011 taxes A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. Forms to file 2011 taxes A loss is the adjusted basis of the property that is more than the amount you realize. Forms to file 2011 taxes   Table 1-1. Forms to file 2011 taxes How To Figure Whether You Have a Gain or Loss IF your. Forms to file 2011 taxes . Forms to file 2011 taxes . Forms to file 2011 taxes THEN you have a. Forms to file 2011 taxes . Forms to file 2011 taxes . Forms to file 2011 taxes Adjusted basis is more than the amount realized, Loss. Forms to file 2011 taxes Amount realized is more than the adjusted basis, Gain. Forms to file 2011 taxes Basis. Forms to file 2011 taxes   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. Forms to file 2011 taxes The basis of property you buy is usually its cost. Forms to file 2011 taxes However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. Forms to file 2011 taxes See Basis Other Than Cost in Publication 551, Basis of Assets. Forms to file 2011 taxes Special rules apply to property acquired from a decedent who died in 2010 and the executor made the election to file Form 8939, Allocation of Increase in Basis for Property Received From a Decedent. Forms to file 2011 taxes See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Forms to file 2011 taxes Adjusted basis. Forms to file 2011 taxes   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. Forms to file 2011 taxes Increases include costs of any improvements having a useful life of more than 1 year. Forms to file 2011 taxes Decreases include depreciation and casualty losses. Forms to file 2011 taxes For more details and additional examples, see Adjusted Basis in Publication 551. Forms to file 2011 taxes Amount realized. Forms to file 2011 taxes   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (defined below) of all property or services you receive. Forms to file 2011 taxes The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Forms to file 2011 taxes Fair market value. Forms to file 2011 taxes   Fair market value (FMV) is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. Forms to file 2011 taxes If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. Forms to file 2011 taxes If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. Forms to file 2011 taxes Example. Forms to file 2011 taxes You used a building in your business that cost you $70,000. Forms to file 2011 taxes You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. Forms to file 2011 taxes You sold the building for $100,000 plus property having an FMV of $20,000. Forms to file 2011 taxes The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. Forms to file 2011 taxes The selling expenses were $4,000. Forms to file 2011 taxes Your gain on the sale is figured as follows. Forms to file 2011 taxes Amount realized:     Cash $100,000   FMV of property received 20,000   Real estate taxes assumed by buyer 3,000   Mortgage assumed by  buyer 17,000   Total 140,000   Minus: Selling expenses 4,000 $136,000 Adjusted basis:     Cost of building $70,000   Improvements 20,000   Total $90,000   Minus: Depreciation 10,000   Adjusted basis   $80,000 Gain on sale $56,000 Amount recognized. Forms to file 2011 taxes   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. Forms to file 2011 taxes Recognized gains must be included in gross income. Forms to file 2011 taxes Recognized losses are deductible from gross income. Forms to file 2011 taxes However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. Forms to file 2011 taxes See Nontaxable Exchanges, later. Forms to file 2011 taxes Also, a loss from the sale or other disposition of property held for personal use is not deductible, except in the case of a casualty or theft. Forms to file 2011 taxes Interest in property. Forms to file 2011 taxes   The amount you realize from the disposition of a life interest in property, an interest in property for a set number of years, or an income interest in a trust is a recognized gain under certain circumstances. Forms to file 2011 taxes If you received the interest as a gift, inheritance, or in a transfer from a spouse or former spouse incident to a divorce, the amount realized is a recognized gain. Forms to file 2011 taxes Your basis in the property is disregarded. Forms to file 2011 taxes This rule does not apply if all interests in the property are disposed of at the same time. Forms to file 2011 taxes Example 1. Forms to file 2011 taxes Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. Forms to file 2011 taxes You decide to sell your life interest in the farm. Forms to file 2011 taxes The entire amount you receive is a recognized gain. Forms to file 2011 taxes Your basis in the farm is disregarded. Forms to file 2011 taxes Example 2. Forms to file 2011 taxes The facts are the same as in Example 1, except that your brother joins you in selling the farm. Forms to file 2011 taxes The entire interest in the property is sold, so your basis in the farm is not disregarded. Forms to file 2011 taxes Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. Forms to file 2011 taxes Canceling a sale of real property. Forms to file 2011 taxes   If you sell real property under a sales contract that allows the buyer to return the property for a full refund and the buyer does so, you may not have to recognize gain or loss on the sale. Forms to file 2011 taxes If the buyer returns the property in the year of sale, no gain or loss is recognized. Forms to file 2011 taxes This cancellation of the sale in the same year it occurred places both you and the buyer in the same positions you were in before the sale. Forms to file 2011 taxes If the buyer returns the property in a later tax year, you must recognize gain (or loss, if allowed) in the year of the sale. Forms to file 2011 taxes When the property is returned in a later year, you acquire a new basis in the property. Forms to file 2011 taxes That basis is equal to the amount you pay to the buyer. Forms to file 2011 taxes Bargain Sale If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. Forms to file 2011 taxes You have a gain if the amount realized is more than your adjusted basis in the property. Forms to file 2011 taxes However, you do not have a loss if the amount realized is less than the adjusted basis of the property. Forms to file 2011 taxes Bargain sales to charity. Forms to file 2011 taxes   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. Forms to file 2011 taxes If a charitable deduction for the contribution is allowable, you must allocate your adjusted basis in the property between the part sold and the part contributed based on the fair market value of each. Forms to file 2011 taxes The adjusted basis of the part sold is figured as follows. Forms to file 2011 taxes Adjusted basis of entire property × Amount realized (fair market value of part sold)   Fair market value of entire property   Based on this allocation rule, you will have a gain even if the amount realized is not more than your adjusted basis in the property. Forms to file 2011 taxes This allocation rule does not apply if a charitable contribution deduction is not allowable. Forms to file 2011 taxes   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. Forms to file 2011 taxes Example. Forms to file 2011 taxes You sold property with a fair market value of $10,000 to a charitable organization for $2,000 and are allowed a deduction for your contribution. Forms to file 2011 taxes Your adjusted basis in the property is $4,000. Forms to file 2011 taxes Your gain on the sale is $1,200, figured as follows. Forms to file 2011 taxes Sales price $2,000 Minus: Adjusted basis of part sold ($4,000 × ($2,000 ÷ $10,000)) 800 Gain on the sale $1,200 Property Used Partly for Business or Rental Generally, if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property. Forms to file 2011 taxes You must subtract depreciation you took or could have taken from the basis of the business or rental part. Forms to file 2011 taxes However, see the special rule below for a home used partly for business or rental. Forms to file 2011 taxes You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. Forms to file 2011 taxes Gain or loss on the business or rental part of the property may be a capital gain or loss or an ordinary gain or loss, as discussed in chapter 3 under Section 1231 Gains and Losses. Forms to file 2011 taxes Any gain on the personal part of the property is a capital gain. Forms to file 2011 taxes You cannot deduct a loss on the personal part. Forms to file 2011 taxes Home used partly for business or rental. Forms to file 2011 taxes    If you use property partly as a home and partly for business or to produce rental income, the computation and treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. Forms to file 2011 taxes See Property Used Partly for Business or Rental, in Publication 523. Forms to file 2011 taxes Property Changed to Business or Rental Use You cannot deduct a loss on the sale of property you purchased or constructed for use as your home and used as your home until the time of sale. Forms to file 2011 taxes You can deduct a loss on the sale of property you acquired for use as your home but changed to business or rental property and used as business or rental property at the time of sale. Forms to file 2011 taxes However, if the adjusted basis of the property at the time of the change was more than its fair market value, the loss you can deduct is limited. Forms to file 2011 taxes Figure the loss you can deduct as follows. Forms to file 2011 taxes Use the lesser of the property's adjusted basis or fair market value at the time of the change. Forms to file 2011 taxes Add to (1) the cost of any improvements and other increases to basis since the change. Forms to file 2011 taxes Subtract from (2) depreciation and any other decreases to basis since the change. Forms to file 2011 taxes Subtract the amount you realized on the sale from the result in (3). Forms to file 2011 taxes If the amount you realized is more than the result in (3), treat this result as zero. Forms to file 2011 taxes The result in (4) is the loss you can deduct. Forms to file 2011 taxes Example. Forms to file 2011 taxes You changed your main home to rental property 5 years ago. Forms to file 2011 taxes At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. Forms to file 2011 taxes This year, you sold the property for $55,000. Forms to file 2011 taxes You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. Forms to file 2011 taxes Although your loss on the sale is $7,380 [($75,000 − $12,620) − $55,000], the amount you can deduct as a loss is limited to $2,380, figured as follows. Forms to file 2011 taxes Lesser of adjusted basis or fair market value at time of the change $70,000 Plus: Cost of any improvements and any other additions to basis after the change -0-   70,000 Minus: Depreciation and any other decreases to basis after the change 12,620   57,380 Minus: Amount you realized from the sale 55,000 Deductible loss $2,380 Gain. Forms to file 2011 taxes   If you have a gain on the sale, you generally must recognize the full amount of the gain. Forms to file 2011 taxes You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. Forms to file 2011 taxes   You may be able to exclude all or part of the gain if you owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Forms to file 2011 taxes However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. Forms to file 2011 taxes   For more information, see Business Use or Rental of Home in Publication 523. Forms to file 2011 taxes In addition, special rules apply if the home sold was acquired in a like-kind exchange. Forms to file 2011 taxes See Special Situations in Publication 523. Forms to file 2011 taxes Also see Like-Kind Exchanges, later. Forms to file 2011 taxes Abandonments The abandonment of property is a disposition of property. Forms to file 2011 taxes You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. Forms to file 2011 taxes Generally, abandonment is not treated as a sale or exchange of the property. Forms to file 2011 taxes If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Forms to file 2011 taxes If your adjusted basis is more than the amount you realize (if any), then you have a loss. Forms to file 2011 taxes Loss from abandonment of business or investment property is deductible as a loss. Forms to file 2011 taxes A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Forms to file 2011 taxes This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. Forms to file 2011 taxes If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. Forms to file 2011 taxes The abandonment loss is deducted in the tax year in which the loss is sustained. Forms to file 2011 taxes If the abandoned property is secured by debt, special rules apply. Forms to file 2011 taxes The tax consequences of abandonment of property that is secured by debt depend on whether you are personally liable for the debt (recourse debt) or you are not personally liable for the debt (nonrecourse debt). Forms to file 2011 taxes For more information, including examples, see chapter 3 of Publication 4681. Forms to file 2011 taxes You cannot deduct any loss from abandonment of your home or other property held for personal use only. Forms to file 2011 taxes Cancellation of debt. Forms to file 2011 taxes   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you may realize ordinary income equal to the canceled debt. Forms to file 2011 taxes This income is separate from any loss realized from abandonment of the property. Forms to file 2011 taxes   You must report this income on your tax return unless one of the following applies. Forms to file 2011 taxes The cancellation is intended as a gift. Forms to file 2011 taxes The debt is qualified farm debt. Forms to file 2011 taxes The debt is qualified real property business debt. Forms to file 2011 taxes You are insolvent or bankrupt. Forms to file 2011 taxes The debt is qualified principal residence indebtedness. Forms to file 2011 taxes File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. Forms to file 2011 taxes For more information, including other exceptions and exclusion, see Publication 4681. Forms to file 2011 taxes Forms 1099-A and 1099-C. Forms to file 2011 taxes   If you abandon property that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your loss from the abandonment. Forms to file 2011 taxes However, if your debt is canceled and the lender must file Form 1099-C, the lender may include the information about the abandonment on that form instead of on Form 1099-A, and send you Form 1099-C only. Forms to file 2011 taxes The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Forms to file 2011 taxes For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Forms to file 2011 taxes Foreclosures and Repossessions If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Forms to file 2011 taxes The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Forms to file 2011 taxes This is true even if you voluntarily return the property to the lender. Forms to file 2011 taxes You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. Forms to file 2011 taxes Buyer's (borrower's) gain or loss. Forms to file 2011 taxes   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Forms to file 2011 taxes The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Forms to file 2011 taxes See Gain or Loss From Sales and Exchanges, earlier. Forms to file 2011 taxes You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. Forms to file 2011 taxes Amount realized on a nonrecourse debt. Forms to file 2011 taxes   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full debt canceled by the transfer. Forms to file 2011 taxes The full canceled debt is included even if the fair market value of the property is less than the canceled debt. Forms to file 2011 taxes Example 1. Forms to file 2011 taxes Chris bought a new car for $15,000. Forms to file 2011 taxes He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. Forms to file 2011 taxes Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. Forms to file 2011 taxes The credit company repossessed the car because he stopped making loan payments. Forms to file 2011 taxes The balance due after taking into account the payments Chris made was $10,000. Forms to file 2011 taxes The fair market value of the car when repossessed was $9,000. Forms to file 2011 taxes The amount Chris realized on the repossession is $10,000. Forms to file 2011 taxes That is the outstanding amount of the debt canceled by the repossession, even though the car's fair market value is less than $10,000. Forms to file 2011 taxes Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). Forms to file 2011 taxes He has a $5,000 nondeductible loss. Forms to file 2011 taxes Example 2. Forms to file 2011 taxes Abena paid $200,000 for her home. Forms to file 2011 taxes She paid $15,000 down and borrowed the remaining $185,000 from a bank. Forms to file 2011 taxes Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. Forms to file 2011 taxes The bank foreclosed on the loan because Abena stopped making payments. Forms to file 2011 taxes When the bank foreclosed on the loan, the balance due was $180,000, the fair market value of the house was $170,000, and Abena's adjusted basis was $175,000 due to a casualty loss she had deducted. Forms to file 2011 taxes The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. Forms to file 2011 taxes She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). Forms to file 2011 taxes She has a $5,000 realized gain. Forms to file 2011 taxes Amount realized on a recourse debt. Forms to file 2011 taxes   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Forms to file 2011 taxes You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Forms to file 2011 taxes The amount realized does not include the canceled debt that is your income from cancellation of debt. Forms to file 2011 taxes See Cancellation of debt, below. Forms to file 2011 taxes Seller's (lender's) gain or loss on repossession. Forms to file 2011 taxes   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Forms to file 2011 taxes For more information, see Repossession in Publication 537. Forms to file 2011 taxes    Table 1-2. Forms to file 2011 taxes Worksheet for Foreclosures and Repossessions Part 1. Forms to file 2011 taxes Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Forms to file 2011 taxes Complete this part only  if you were personally liable for the debt. Forms to file 2011 taxes Otherwise,  go to Part 2. Forms to file 2011 taxes   1. Forms to file 2011 taxes Enter the amount of outstanding debt immediately before the transfer of   property reduced by any amount for which you remain personally liable after   the transfer of property   2. Forms to file 2011 taxes Enter the fair market value of the transferred property   3. Forms to file 2011 taxes Ordinary income from cancellation of debt upon foreclosure or    repossession. Forms to file 2011 taxes * Subtract line 2 from line 1. Forms to file 2011 taxes   If less than zero, enter zero   Part 2. Forms to file 2011 taxes Figure your gain or loss from foreclosure or repossession. Forms to file 2011 taxes   4. Forms to file 2011 taxes If you completed Part 1, enter the smaller of line 1 or line 2. Forms to file 2011 taxes   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. Forms to file 2011 taxes Enter any proceeds you received from the foreclosure sale   6. Forms to file 2011 taxes Add lines 4 and 5   7. Forms to file 2011 taxes Enter the adjusted basis of the transferred property   8. Forms to file 2011 taxes Gain or loss from foreclosure or repossession. Forms to file 2011 taxes Subtract line 7  from line 6   * The income may not be taxable. Forms to file 2011 taxes See Cancellation of debt. Forms to file 2011 taxes Cancellation of debt. Forms to file 2011 taxes   If property that is repossessed or foreclosed on secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the fair market value of the property. Forms to file 2011 taxes This income is separate from any gain or loss realized from the foreclosure or repossession. Forms to file 2011 taxes Report the income from cancellation of a debt related to a business or rental activity as business or rental income. Forms to file 2011 taxes    You can use Table 1-2 to figure your income from cancellation of debt. Forms to file 2011 taxes   You must report this income on your tax return unless one of the following applies. Forms to file 2011 taxes The cancellation is intended as a gift. Forms to file 2011 taxes The debt is qualified farm debt. Forms to file 2011 taxes The debt is qualified real property business debt. Forms to file 2011 taxes You are insolvent or bankrupt. Forms to file 2011 taxes The debt is qualified principal residence indebtedness. Forms to file 2011 taxes File Form 982 to report the income exclusion. Forms to file 2011 taxes Example 1. Forms to file 2011 taxes Assume the same facts as in Example 1 under Amount realized on a nonrecourse debt, earlier, except Chris is personally liable for the car loan (recourse debt). Forms to file 2011 taxes In this case, the amount he realizes is $9,000. Forms to file 2011 taxes This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). Forms to file 2011 taxes Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). Forms to file 2011 taxes He has a $6,000 nondeductible loss. Forms to file 2011 taxes He also is treated as receiving ordinary income from cancellation of debt. Forms to file 2011 taxes That income is $1,000 ($10,000 − $9,000). Forms to file 2011 taxes This is the part of the canceled debt not included in the amount realized. Forms to file 2011 taxes Example 2. Forms to file 2011 taxes Assume the same facts as in Example 2 under Amount realized on a nonrecourse debt, earlier, except Abena is personally liable for the loan (recourse debt). Forms to file 2011 taxes In this case, the amount she realizes is $170,000. Forms to file 2011 taxes This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). Forms to file 2011 taxes Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). Forms to file 2011 taxes She has a $5,000 nondeductible loss. Forms to file 2011 taxes She also is treated as receiving ordinary income from cancellation of debt. Forms to file 2011 taxes (The debt is not exempt from tax as discussed under Cancellation of debt, above. Forms to file 2011 taxes ) That income is $10,000 ($180,000 − $170,000). Forms to file 2011 taxes This is the part of the canceled debt not included in the amount realized. Forms to file 2011 taxes Forms 1099-A and 1099-C. Forms to file 2011 taxes   A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A showing the information you need to figure your gain or loss. Forms to file 2011 taxes However, if the lender also cancels part of your debt and must file Form 1099-C, the lender may include the information about the foreclosure or repossession on that form instead of on Form 1099-A and send you Form 1099-C only. Forms to file 2011 taxes The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Forms to file 2011 taxes For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Forms to file 2011 taxes Involuntary Conversions An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. Forms to file 2011 taxes Involuntary conversions are also called involuntary exchanges. Forms to file 2011 taxes Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. Forms to file 2011 taxes You report the gain or deduct the loss on your tax return for the year you realize it. Forms to file 2011 taxes You cannot deduct a loss from an involuntary conversion of property you held for personal use unless the loss resulted from a casualty or theft. Forms to file 2011 taxes However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. Forms to file 2011 taxes Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. Forms to file 2011 taxes Your basis for the new property is the same as your basis for the converted property. Forms to file 2011 taxes This means that the gain is deferred until a taxable sale or exchange occurs. Forms to file 2011 taxes If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can elect to postpone reporting the gain on the property purchased. Forms to file 2011 taxes This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. Forms to file 2011 taxes If you have a gain or loss from the destruction or theft of property, see Publication 547. Forms to file 2011 taxes Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. Forms to file 2011 taxes The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. Forms to file 2011 taxes The owner receives a condemnation award (money or property) in exchange for the property taken. Forms to file 2011 taxes A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. Forms to file 2011 taxes Example. Forms to file 2011 taxes A local government authorized to acquire land for public parks informed you that it wished to acquire your property. Forms to file 2011 taxes After the local government took action to condemn your property, you went to court to keep it. Forms to file 2011 taxes But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. Forms to file 2011 taxes This is a condemnation of private property for public use. Forms to file 2011 taxes Threat of condemnation. Forms to file 2011 taxes   A threat of condemnation exists if a representative of a government body or a public official authorized to acquire property for public use informs you that the government body or official has decided to acquire your property. Forms to file 2011 taxes You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. Forms to file 2011 taxes   The sale of your property to someone other than the condemning authority will also qualify as an involuntary conversion, provided you have reasonable grounds to believe that your property will be condemned. Forms to file 2011 taxes If the buyer of this property knows at the time of purchase that it will be condemned and sells it to the condemning authority, this sale also qualifies as an involuntary conversion. Forms to file 2011 taxes Reports of condemnation. Forms to file 2011 taxes   A threat of condemnation exists if you learn of a decision to acquire your property for public use through a report in a newspaper or other news medium, and this report is confirmed by a representative of the government body or public official involved. Forms to file 2011 taxes You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. Forms to file 2011 taxes If you relied on oral statements made by a government representative or public official, the Internal Revenue Service (IRS) may ask you to get written confirmation of the statements. Forms to file 2011 taxes Example. Forms to file 2011 taxes Your property lies along public utility lines. Forms to file 2011 taxes The utility company has the authority to condemn your property. Forms to file 2011 taxes The company informs you that it intends to acquire your property by negotiation or condemnation. Forms to file 2011 taxes A threat of condemnation exists when you receive the notice. Forms to file 2011 taxes Related property voluntarily sold. Forms to file 2011 taxes   A voluntary sale of your property may be treated as a forced sale that qualifies as an involuntary conversion if the property had a substantial economic relationship to property of yours that was condemned. Forms to file 2011 taxes A substantial economic relationship exists if together the properties were one economic unit. Forms to file 2011 taxes You also must show that the condemned property could not reasonably or adequately be replaced. Forms to file 2011 taxes You can elect to postpone reporting the gain by buying replacement property. Forms to file 2011 taxes See Postponement of Gain, later. Forms to file 2011 taxes Gain or Loss From Condemnations If your property was condemned or disposed of under the threat of condemnation, figure your gain or loss by comparing the adjusted basis of your condemned property with your net condemnation award. Forms to file 2011 taxes If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. Forms to file 2011 taxes You can postpone reporting gain from a condemnation if you buy replacement property. Forms to file 2011 taxes If only part of your property is condemned, you can treat the cost of restoring the remaining part to its former usefulness as the cost of replacement property. Forms to file 2011 taxes See Postponement of Gain, later. Forms to file 2011 taxes If your net condemnation award is less than your adjusted basis, you have a loss. Forms to file 2011 taxes If your loss is from property you held for personal use, you cannot deduct it. Forms to file 2011 taxes You must report any deductible loss in the tax year it happened. Forms to file 2011 taxes You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. Forms to file 2011 taxes Main home condemned. Forms to file 2011 taxes   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. Forms to file 2011 taxes You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). Forms to file 2011 taxes For information on this exclusion, see Publication 523. Forms to file 2011 taxes If your gain is more than you can exclude but you buy replacement property, you may be able to postpone reporting the rest of the gain. Forms to file 2011 taxes See Postponement of Gain, later. Forms to file 2011 taxes Table 1-3. Forms to file 2011 taxes Worksheet for Condemnations Part 1. Forms to file 2011 taxes Gain from severance damages. Forms to file 2011 taxes  If you did not receive severance damages, skip Part 1 and go to Part 2. Forms to file 2011 taxes   1. Forms to file 2011 taxes Enter gross severance damages received   2. Forms to file 2011 taxes Enter your expenses in getting severance damages   3. Forms to file 2011 taxes Subtract line 2 from line 1. Forms to file 2011 taxes If less than zero, enter -0-   4. Forms to file 2011 taxes Enter any special assessment on remaining property taken out of your award   5. Forms to file 2011 taxes Net severance damages. Forms to file 2011 taxes Subtract line 4 from line 3. Forms to file 2011 taxes If less than zero, enter -0-   6. Forms to file 2011 taxes Enter the adjusted basis of the remaining property   7. Forms to file 2011 taxes Gain from severance damages. Forms to file 2011 taxes Subtract line 6 from line 5. Forms to file 2011 taxes If less than zero, enter -0-   8. Forms to file 2011 taxes Refigured adjusted basis of the remaining property. Forms to file 2011 taxes Subtract line 5 from line 6. Forms to file 2011 taxes If less than zero, enter -0-   Part 2. Forms to file 2011 taxes Gain or loss from condemnation award. Forms to file 2011 taxes   9. Forms to file 2011 taxes Enter the gross condemnation award received   10. Forms to file 2011 taxes Enter your expenses in getting the condemnation award   11. Forms to file 2011 taxes If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. Forms to file 2011 taxes If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. Forms to file 2011 taxes Otherwise, enter -0-   12. Forms to file 2011 taxes Add lines 10 and 11   13. Forms to file 2011 taxes Net condemnation award. Forms to file 2011 taxes Subtract line 12 from line 9   14. Forms to file 2011 taxes Enter the adjusted basis of the condemned property   15. Forms to file 2011 taxes Gain from condemnation award. Forms to file 2011 taxes If line 14 is more than line 13, enter -0-. Forms to file 2011 taxes Otherwise, subtract line 14 from  line 13 and skip line 16   16. Forms to file 2011 taxes Loss from condemnation award. Forms to file 2011 taxes Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. Forms to file 2011 taxes )   Part 3. Forms to file 2011 taxes Postponed gain from condemnation. Forms to file 2011 taxes  (Complete only if line 7 or line 15 is more than zero and you bought qualifying replacement property or made expenditures to restore the usefulness of your remaining property. Forms to file 2011 taxes )   17. Forms to file 2011 taxes If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. Forms to file 2011 taxes Otherwise, enter -0-   18. Forms to file 2011 taxes If line 15 is more than zero, enter the amount from line 13. Forms to file 2011 taxes Otherwise, enter -0-   19. Forms to file 2011 taxes Add lines 17 and 18. Forms to file 2011 taxes If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. Forms to file 2011 taxes Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. Forms to file 2011 taxes Subtract line 20 from line 19. Forms to file 2011 taxes If less than zero, enter -0-   22. Forms to file 2011 taxes If you completed Part 1, add lines 7 and 15. Forms to file 2011 taxes Otherwise, enter the amount from line 15. Forms to file 2011 taxes If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. Forms to file 2011 taxes Recognized gain. Forms to file 2011 taxes Enter the smaller of line 21 or line 22. Forms to file 2011 taxes   24. Forms to file 2011 taxes Postponed gain. Forms to file 2011 taxes Subtract line 23 from line 22. Forms to file 2011 taxes If less than zero, enter -0-   Condemnation award. Forms to file 2011 taxes   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. Forms to file 2011 taxes The award is also the amount you are paid for the sale of your property under threat of condemnation. Forms to file 2011 taxes Payment of your debts. Forms to file 2011 taxes   Amounts taken out of the award to pay your debts are considered paid to you. Forms to file 2011 taxes Amounts the government pays directly to the holder of a mortgage or lien against your property are part of your award, even if the debt attaches to the property and is not your personal liability. Forms to file 2011 taxes Example. Forms to file 2011 taxes The state condemned your property for public use. Forms to file 2011 taxes The award was set at $200,000. Forms to file 2011 taxes The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. Forms to file 2011 taxes You are considered to have received the entire $200,000 as a condemnation award. Forms to file 2011 taxes Interest on award. Forms to file 2011 taxes   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. Forms to file 2011 taxes You must report the interest separately as ordinary income. Forms to file 2011 taxes Payments to relocate. Forms to file 2011 taxes   Payments you receive to relocate and replace housing because you have been displaced from your home, business, or farm as a result of federal or federally assisted programs are not part of the condemnation award. Forms to file 2011 taxes Do not include them in your income. Forms to file 2011 taxes Replacement housing payments used to buy new property are included in the property's basis as part of your cost. Forms to file 2011 taxes Net condemnation award. Forms to file 2011 taxes   A net condemnation award is the total award you received, or are considered to have received, for the condemned property minus your expenses of obtaining the award. Forms to file 2011 taxes If only a part of your property was condemned, you also must reduce the award by any special assessment levied against the part of the property you retain. Forms to file 2011 taxes This is discussed later under Special assessment taken out of award. Forms to file 2011 taxes Severance damages. Forms to file 2011 taxes    Severance damages are not part of the award paid for the property condemned. Forms to file 2011 taxes They are paid to you if part of your property is condemned and the value of the part you keep is decreased because of the condemnation. Forms to file 2011 taxes   For example, you may receive severance damages if your property is subject to flooding because you sell flowage easement rights (the condemned property) under threat of condemnation. Forms to file 2011 taxes Severance damages also may be given to you if, because part of your property is condemned for a highway, you must replace fences, dig new wells or ditches, or plant trees to restore your remaining property to the same usefulness it had before the condemnation. Forms to file 2011 taxes   The contracting parties should agree on the specific amount of severance damages in writing. Forms to file 2011 taxes If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. Forms to file 2011 taxes   You cannot make a completely new allocation of the total award after the transaction is completed. Forms to file 2011 taxes However, you can show how much of the award both parties intended for severance damages. Forms to file 2011 taxes The severance damages part of the award is determined from all the facts and circumstances. Forms to file 2011 taxes Example. Forms to file 2011 taxes You sold part of your property to the state under threat of condemnation. Forms to file 2011 taxes The contract you and the condemning authority signed showed only the total purchase price. Forms to file 2011 taxes It did not specify a fixed sum for severance damages. Forms to file 2011 taxes However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. Forms to file 2011 taxes You may treat this part as severance damages. Forms to file 2011 taxes Treatment of severance damages. Forms to file 2011 taxes   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. Forms to file 2011 taxes Use them to reduce the basis of the remaining property. Forms to file 2011 taxes If the amount of severance damages is based on damage to a specific part of the property you kept, reduce the basis of only that part by the net severance damages. Forms to file 2011 taxes   If your net severance damages are more than the basis of your retained property, you have a gain. Forms to file 2011 taxes You may be able to postpone reporting the gain. Forms to file 2011 taxes See Postponement of Gain, later. Forms to file 2011 taxes    You can use Part 1 of Table 1-3 to figure any gain from severance damages and to refigure the adjusted basis of the remaining part of your property. Forms to file 2011 taxes Net severance damages. Forms to file 2011 taxes   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. Forms to file 2011 taxes You then reduce them by any special assessment (described later) levied against the remaining part of the property and retained out of the award by the condemning authority. Forms to file 2011 taxes The balance is your net severance damages. Forms to file 2011 taxes Expenses of obtaining a condemnation award and severance damages. Forms to file 2011 taxes   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. Forms to file 2011 taxes Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. Forms to file 2011 taxes If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. Forms to file 2011 taxes Example. Forms to file 2011 taxes You receive a condemnation award and severance damages. Forms to file 2011 taxes One-fourth of the total was designated as severance damages in your agreement with the condemning authority. Forms to file 2011 taxes You had legal expenses for the entire condemnation proceeding. Forms to file 2011 taxes You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. Forms to file 2011 taxes You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. Forms to file 2011 taxes Special assessment retained out of award. Forms to file 2011 taxes   When only part of your property is condemned, a special assessment levied against the remaining property may be retained by the governing body out of your condemnation award. Forms to file 2011 taxes An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. Forms to file 2011 taxes Examples of improvements that may cause a special assessment are widening a street and installing a sewer. Forms to file 2011 taxes   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. Forms to file 2011 taxes Example. Forms to file 2011 taxes To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. Forms to file 2011 taxes You were awarded $5,000 for this and spent $300 to get the award. Forms to file 2011 taxes Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. Forms to file 2011 taxes The city then paid you only $4,300. Forms to file 2011 taxes Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). Forms to file 2011 taxes If the $700 special assessment was not retained out of the award and you were paid $5,000, your net award would be $4,700 ($5,000 − $300). Forms to file 2011 taxes The net award would not change, even if you later paid the assessment from the amount you received. Forms to file 2011 taxes Severance damages received. Forms to file 2011 taxes   If severance damages are included in the condemnation proceeds, the special assessment retained out of the severance damages is first used to reduce the severance damages. Forms to file 2011 taxes Any balance of the special assessment is used to reduce the condemnation award. Forms to file 2011 taxes Example. Forms to file 2011 taxes You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. Forms to file 2011 taxes You spent $300 to obtain the severance damages. Forms to file 2011 taxes A special assessment of $800 was retained out of the award. Forms to file 2011 taxes The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. Forms to file 2011 taxes Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. Forms to file 2011 taxes Part business or rental. Forms to file 2011 taxes   If you used part of your condemned property as your home and part as business or rental property, treat each part as a separate property. Forms to file 2011 taxes Figure your gain or loss separately because gain or loss on each part may be treated differently. Forms to file 2011 taxes   Some examples of this type of property are a building in which you live and operate a grocery, and a building in which you live on the first floor and rent out the second floor. Forms to file 2011 taxes Example. Forms to file 2011 taxes You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. Forms to file 2011 taxes You rented half the building and lived in the other half. Forms to file 2011 taxes You paid $25,000 for the building and spent an additional $1,000 for a new roof. Forms to file 2011 taxes You claimed allowable depreciation of $4,600 on the rental half. Forms to file 2011 taxes You spent $200 in legal expenses to obtain the condemnation award. Forms to file 2011 taxes Figure your gain or loss as follows. Forms to file 2011 taxes     Resi- dential Part Busi- ness Part 1) Condemnation award received $12,000 $12,000 2) Minus: Legal expenses, $200 100 100 3) Net condemnation award $11,900 $11,900 4) Adjusted basis:       ½ of original cost, $25,000 $12,500 $12,500   Plus: ½ of cost of roof, $1,000 500 500   Total $13,000 $13,000 5) Minus: Depreciation   4,600 6) Adjusted basis, business part   $8,400 7) (Loss) on residential property ($1,100)   8) Gain on business property $3,500 The loss on the residential part of the property is not deductible. Forms to file 2011 taxes Postponement of Gain Do not report the gain on condemned property if you receive only property that is similar or related in service or use to the condemned property. Forms to file 2011 taxes Your basis for the new property is the same as your basis for the old. Forms to file 2011 taxes Money or unlike property received. Forms to file 2011 taxes   You ordinarily must report the gain if you receive money or unlike property. Forms to file 2011 taxes You can elect to postpone reporting the gain if you buy property that is similar or related in service or use to the condemned property within the replacement period, discussed later. Forms to file 2011 taxes You also can elect to postpone reporting the gain if you buy a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the condemned property. Forms to file 2011 taxes See Controlling interest in a corporation, later. Forms to file 2011 taxes   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. Forms to file 2011 taxes If the cost of the replacement property is less than the amount realized, you must report the gain up to the unspent part of the amount realized. Forms to file 2011 taxes   The basis of the replacement property is its cost, reduced by the postponed gain. Forms to file 2011 taxes Also, if your replacement property is stock in a corporation that owns property similar or related in service or use, the corporation generally will reduce its basis in its assets by the amount by which you reduce your basis in the stock. Forms to file 2011 taxes See Controlling interest in a corporation, later. Forms to file 2011 taxes You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. Forms to file 2011 taxes Postponing gain on severance damages. Forms to file 2011 taxes   If you received severance damages for part of your property because another part was condemned and you buy replacement property, you can elect to postpone reporting gain. Forms to file 2011 taxes See Treatment of severance damages, earlier. Forms to file 2011 taxes You can postpone reporting all your gain if the replacement property costs at least as much as your net severance damages plus your net condemnation award (if resulting in gain). Forms to file 2011 taxes   You also can make this election if you spend the severance damages, together with other money you received for the condemned property (if resulting in gain), to acquire nearby property that will allow you to continue your business. Forms to file 2011 taxes If suitable nearby property is not available and you are forced to sell the remaining property and relocate in order to continue your business, see Postponing gain on the sale of related property, next. Forms to file 2011 taxes   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. Forms to file 2011 taxes Postponing gain on the sale of related property. Forms to file 2011 taxes   If you sell property that is related to the condemned property and then buy replacement property, you can elect to postpone reporting gain on the sale. Forms to file 2011 taxes You must meet the requirements explained earlier under Related property voluntarily sold. Forms to file 2011 taxes You can postpone reporting all your gain if the replacement property costs at least as much as the amount realized from the sale plus your net condemnation award (if resulting in gain) plus your net severance damages, if any (if resulting in gain). Forms to file 2011 taxes Buying replacement property from a related person. Forms to file 2011 taxes   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. Forms to file 2011 taxes For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. Forms to file 2011 taxes   This rule applies to the following taxpayers. Forms to file 2011 taxes C corporations. Forms to file 2011 taxes Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. Forms to file 2011 taxes All others (including individuals, partnerships (other than those in (2)), and S corporations) if the total realized gain for the tax year on all involuntarily converted properties on which there is realized gain of more than $100,000. Forms to file 2011 taxes   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. Forms to file 2011 taxes If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Forms to file 2011 taxes If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Forms to file 2011 taxes Exception. Forms to file 2011 taxes   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. Forms to file 2011 taxes Advance payment. Forms to file 2011 taxes   If you pay a contractor in advance to build your replacement property, you have not bought replacement property unless it is finished before the end of the replacement period (discussed later). Forms to file 2011 taxes Replacement property. Forms to file 2011 taxes   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. Forms to file 2011 taxes You do not have to use the actual funds from the condemnation award to acquire the replacement property. Forms to file 2011 taxes Property you acquire by gift or inheritance does not qualify as replacement property. Forms to file 2011 taxes Similar or related in service or use. Forms to file 2011 taxes   Your replacement property must be similar or related in service or use to the property it replaces. Forms to file 2011 taxes   If the condemned property is real property you held for productive use in your trade or business or for investment (other than property held mainly for sale), like-kind property to be held either for productive use in trade or business or for investment will be treated as property similar or related in service or use. Forms to file 2011 taxes For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. Forms to file 2011 taxes Owner-user. Forms to file 2011 taxes   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. Forms to file 2011 taxes Example. Forms to file 2011 taxes Your home was condemned and you invested the proceeds from the condemnation in a grocery store. Forms to file 2011 taxes Your replacement property is not similar or related in service or use to the condemned property. Forms to file 2011 taxes To be similar or related in service or use, your replacement property must also be used by you as your home. Forms to file 2011 taxes Owner-investor. Forms to file 2011 taxes   If you are an owner-investor, similar or related in service or use means that any replacement property must have the same relationship of services or uses to you as the property it replaces. Forms to file 2011 taxes You decide this by determining all the following information. Forms to file 2011 taxes Whether the properties are of similar service to you. Forms to file 2011 taxes The nature of the business risks connected with the properties. Forms to file 2011 taxes What the properties demand of you in the way of management, service, and relations to your tenants. Forms to file 2011 taxes Example. Forms to file 2011 taxes You owned land and a building you rented to a manufacturing company. Forms to file 2011 taxes The building was condemned. Forms to file 2011 taxes During the replacement period, you had a new building built on other land you already owned. Forms to file 2011 taxes You rented out the new building for use as a wholesale grocery warehouse. Forms to file 2011 taxes The replacement property is also rental property, so the two properties are considered similar or related in service or use if there is a similarity in all the following areas. Forms to file 2011 taxes Your management activities. Forms to file 2011 taxes The amount and kind of services you provide to your tenants. Forms to file 2011 taxes The nature of your business risks connected with the properties. Forms to file 2011 taxes Leasehold replaced with fee simple property. Forms to file 2011 taxes   Fee simple property you will use in your trade or business or for investment can qualify as replacement property that is similar or related in service or use to a condemned leasehold if you use it in the same business and for the identical purpose as the condemned leasehold. Forms to file 2011 taxes   A fee simple property interest generally is a property interest that entitles the owner to the entire property with unconditional power to dispose of it during his or her lifetime. Forms to file 2011 taxes A leasehold is property held under a lease, usually for a term of years. Forms to file 2011 taxes Outdoor advertising display replaced with real property. Forms to file 2011 taxes   You can elect to treat an outdoor advertising display as real property. Forms to file 2011 taxes If you make this election and you replace the display with real property in which you hold a different kind of interest, your replacement property can qualify as like-kind property. Forms to file 2011 taxes For example, real property bought to replace a destroyed billboard and leased property on which the billboard was located qualify as property of a like-kind. Forms to file 2011 taxes   You can make this election only if you did not claim a section 179 deduction for the display. Forms to file 2011 taxes You cannot cancel this election unless you get the consent of the IRS. Forms to file 2011 taxes   An outdoor advertising display is a sign or device rigidly assembled and permanently attached to the ground, a building, or any other permanent structure used to display a commercial or other advertisement to the public. Forms to file 2011 taxes Substituting replacement property. Forms to file 2011 taxes   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. Forms to file 2011 taxes But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. Forms to file 2011 taxes Controlling interest in a corporation. Forms to file 2011 taxes   You can replace property by acquiring a controlling interest in a corporation that owns property similar or related in service or use to your condemned property. Forms to file 2011 taxes You have controlling interest if you own stock having at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation. Forms to file 2011 taxes Basis adjustment to corporation's property. Forms to file 2011 taxes   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. Forms to file 2011 taxes You are not required to reduce the adjusted basis of the corporation's properties below your adjusted basis in the corporation's stock (determined after reduction by your postponed gain). Forms to file 2011 taxes   Allocate this reduction to the following classes of property in the order shown below. Forms to file 2011 taxes Property that is similar or related in service or use to the condemned property. Forms to file 2011 taxes Depreciable property not reduced in (1). Forms to file 2011 taxes All other property. Forms to file 2011 taxes If two or more properties fall in the same class, allocate the reduction to each property in proportion to the adjusted basis of all the properties in that class. Forms to file 2011 taxes The reduced basis of any single property cannot be less than zero. Forms to file 2011 taxes Main home replaced. Forms to file 2011 taxes   If your gain from a condemnation of your main home is more than you can exclude from your income (see Main home condemned under Gain or Loss From Condemnations, earlier), you can postpone reporting the rest of the gain by buying replacement property that is similar or related in service or use. Forms to file 2011 taxes The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. Forms to file 2011 taxes   You must reduce the basis of your replacement property by the postponed gain. Forms to file 2011 taxes Also, if you postpone reporting any part of your gain under these rules, you are treated as having owned and used the replacement property as your main home for the period you owned and used the condemned property as your main home. Forms to file 2011 taxes Example. Forms to file 2011 taxes City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. Forms to file 2011 taxes The city paid you a condemnation award of $400,000. Forms to file 2011 taxes Your adjusted basis in the property was $80,000. Forms to file 2011 taxes You realize a gain of $320,000 ($400,000 − $80,000). Forms to file 2011 taxes You purchased a new home for $100,000. Forms to file 2011 taxes You can exclude $250,000 of the realized gain from your gross income. Forms to file 2011 taxes The amount realized is then treated as being $150,000 ($400,000 − $250,000) and the gain realized is $70,000 ($150,000 amount realized − $80,000 adjusted basis). Forms to file 2011 taxes You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). Forms to file 2011 taxes The remaining $20,000 of realized gain is postponed. Forms to file 2011 taxes Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). Forms to file 2011 taxes Replacement period. Forms to file 2011 taxes   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. Forms to file 2011 taxes This is the replacement period. Forms to file 2011 taxes   The replacement period for a condemnation begins on the earlier of the following dates. Forms to file 2011 taxes The date on which you disposed of the condemned property. Forms to file 2011 taxes The date on which the threat of condemnation began. Forms to file 2011 taxes   The replacement period generally ends 2 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Forms to file 2011 taxes However, see the exceptions below. Forms to file 2011 taxes Three-year replacement period for certain property. Forms to file 2011 taxes   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Forms to file 2011 taxes However, this 3-year replacement period cannot be used if you replace the condemned property by acquiring control of a corporation owning property that is similar or related in service or use. Forms to file 2011 taxes Five-year replacement period for certain property. Forms to file 2011 taxes   The replacement period ends 5 years after the end of the first tax year in which any part of the gain is realized on the compulsory or involuntary conversion of the following qualified property. Forms to file 2011 taxes Property in any Midwestern disaster area compulsorily or involuntarily converted on or after the applicable disaster date as a result of severe storms, tornadoes, or flooding, but only if substantially all of the use of the replacement property is in a Midwestern disaster area. Forms to file 2011 taxes Property in the Kansas disaster area compulsorily or involuntarily converted after May 3, 2007, but only if substantially all of the use of the replacement property is in the Kansas disaster area. Forms to file 2011 taxes Property in the Hurricane Katrina disaster area compulsorily or involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, but only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Forms to file 2011 taxes Extended replacement period for taxpayers affected by other federally declared disasters. Forms to file 2011 taxes    If you are affected by a federally declared disaster, the IRS may grant disaster relief by extending the periods to perform certain tax-related acts for 2013, including the replacement period, by up to one year. Forms to file 2011 taxes For more information visit www. Forms to file 2011 taxes irs. Forms to file 2011 taxes gov/uac/Tax-Relief-in-Disaster-Situations. Forms to file 2011 taxes Weather-related sales of livestock in an area eligible for federal assistance. Forms to file 2011 taxes   Generally, if the sale or exchange of livestock is due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. Forms to file 2011 taxes    If the weather-related conditions continue for longer than 3 years, the replacement period may be extended on a regional basis until the end of your first drought-free year for the applicable region. Forms to file 2011 taxes See Notice 2006-82. Forms to file 2011 taxes You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. Forms to file 2011 taxes irs. Forms to file 2011 taxes gov/irb/2006-39_IRB/ar13. Forms to file 2011 taxes html. Forms to file 2011 taxes    Each year, the IRS publishes a list of counties, districts, cities, or parishes for which exceptional, extreme, or severe drought was reported during the preceding 12 months. Forms to file 2011 taxes If you qualified for a 4-year replacement period for livestock sold or exchanged on account of drought and your replacement period is scheduled to expire at the end of 2013 (or at the end of the tax year that includes August 31, 2013), see Notice 2013-62. Forms to file 2011 taxes You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. Forms to file 2011 taxes irs. Forms to file 2011 taxes gov/irb/2013-45_IRB/ar04. Forms to file 2011 taxes html. Forms to file 2011 taxes The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. Forms to file 2011 taxes Determining when gain is realized. Forms to file 2011 taxes   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. Forms to file 2011 taxes If the condemning authority makes deposits with the court, you realize gain when you withdraw (or have the right to withdraw) amounts that are more than your basis. Forms to file 2011 taxes   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. Forms to file 2011 taxes A replacement will be too late if you wait for a final determination that does not take place in the applicable replacement period after you first realize gain. Forms to file 2011 taxes   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. Forms to file 2011 taxes All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. Forms to file 2011 taxes All or part of the award is actually or constructively received. Forms to file 2011 taxes For example, if you have an absolute right to a part of a condemnation award when it is deposited with the court, the amount deposited accrues in the year the deposit is made even though the full amount of the award is still contested. Forms to file 2011 taxes Replacement property bought before the condemnation. Forms to file 2011 taxes   If you buy your replacement property after there is a threat of condemnation but before the actual condemnation and you still hold the replacement property at the time of the condemnation, you have bought your replacement property within the replacement period. Forms to file 2011 taxes Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. Forms to file 2011 taxes Example. Forms to file 2011 taxes On April 3, 2012, city authorities notified you that your property would be condemned. Forms to file 2011 taxes On June 5, 2012, you acquired property to replace the property to be condemned. Forms to file 2011 taxes You still had the new property when the city took possession of your old property on September 4, 2013. Forms to file 2011 taxes You have made a replacement within the replacement period. Forms to file 2011 taxes Extension. Forms to file 2011 taxes   You can request an extension of the replacement period from the IRS director for your area. Forms to file 2011 taxes You should apply before the end of the replacement period. Forms to file 2011 taxes Your request should explain in detail why you need an extension. Forms to file 2011 taxes The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. Forms to file 2011 taxes An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. Forms to file 2011 taxes   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. Forms to file 2011 taxes Extensions are usually limited to a period of 1 year or less. Forms to file 2011 taxes The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. Forms to file 2011 taxes If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri