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Free Federal 1040ez Efile

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Free Federal 1040ez Efile

Free federal 1040ez efile Publication 600 - Main Contents Table of Contents Actual Expenses Optional Sales Tax Tables Instructions for the State and Local General Sales Tax Deduction WorksheetWhat if you lived in more than one state? What if you lived in more than one locality? What if your local general sales tax rate changed during 2006? What if you lived in more than one locality in the same state during 2006? Actual Expenses Generally, you can deduct the actual state and local general sales taxes (including compensating use taxes) you paid in 2006 if the tax rate was the same as the general sales tax rate. Free federal 1040ez efile However, sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate. Free federal 1040ez efile If you paid sales tax on a motor vehicle at a rate higher than the general sales tax rate, you can deduct only the amount of tax that you would have paid at the general sales tax rate on that vehicle. Free federal 1040ez efile Motor vehicles include cars, motorcycles, motor homes, recreational vehicles, sport utility vehicles, trucks, vans, and off-road vehicles. Free federal 1040ez efile Also include any state and local general sales taxes paid for a leased motor vehicle. Free federal 1040ez efile Do not include sales taxes paid on items used in your trade or business. Free federal 1040ez efile To deduct your actual expenses, enter the amount on Schedule A, line 5, and enter “ST” on the dotted line to the left of the line 5 entry space. Free federal 1040ez efile You must keep your actual receipts showing general sales taxes paid to use this method. Free federal 1040ez efile Refund of general sales taxes. Free federal 1040ez efile   If you received a refund of state or local general sales taxes in 2006 for amounts paid in 2006, reduce your actual 2006 state and local general sales taxes by this amount. Free federal 1040ez efile If you received a refund of state or local general sales taxes in 2006 for prior year purchases, do not reduce your 2006 state and local general sales taxes by this amount. Free federal 1040ez efile But if you deducted your actual state and local general sales taxes in the earlier year and the deduction reduced your tax, you may have to include the refund in income on Form 1040, line 21. Free federal 1040ez efile See Recoveries in Pub. Free federal 1040ez efile 525 for details. Free federal 1040ez efile Optional Sales Tax Tables Instead of using your actual expenses, you can use the tables on pages 5 through 7 to figure your state and local general sales tax deduction. Free federal 1040ez efile You may also be able to add the state and local general sales taxes paid on certain specified items. Free federal 1040ez efile To figure your state and local general sales tax deduction using the tables, complete the worksheet below. Free federal 1040ez efile If your filing status is married filing separately, both you and your spouse elect to deduct sales taxes, and your spouse elects to use the optional sales tax tables, you also must use the tables to figure your state and local general sales tax deduction. Free federal 1040ez efile State and Local General Sales Tax Deduction Worksheet (See the instructions that begin on page 3. Free federal 1040ez efile ) Before you begin: See the instructions for line 1 on page 3 if: You lived in more than one state during 2006, or You had any nontaxable income in 2006. Free federal 1040ez efile   1. Free federal 1040ez efile Enter your state general sales taxes from the applicable table on page 5 or 6 (see page 3 of the instructions) 1. Free federal 1040ez efile $     Next. Free federal 1040ez efile If, for all of 2006, you lived only in Connecticut, the District of Columbia, Hawaii, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Rhode Island, Virginia, or West Virginia, skip lines 2 through 5, enter -0- on line 6, and go to line 7. Free federal 1040ez efile Otherwise, go to line 2       2. Free federal 1040ez efile Did you live in Alaska, Arizona, Arkansas (Texarkana only), California (Los Angeles County only), Colorado, Georgia, Illinois, Louisiana, New York State, or North Carolina in 2006?         No. Free federal 1040ez efile Enter -0-                   Yes. Free federal 1040ez efile Enter your local general sales taxes from the applicable table on page 7 (see page 3 of the instructions)     2. Free federal 1040ez efile $       3. Free federal 1040ez efile Did your locality impose a local general sales tax in 2006? Residents of California, Nevada, and Texarkana, Arkansas, see page 3 of the instructions             No. Free federal 1040ez efile Skip lines 3 through 5, enter -0- on line 6, and go to line 7             Yes. Free federal 1040ez efile Enter your local general sales tax rate, but omit the percentage sign. Free federal 1040ez efile For example, if your local general sales tax rate was 2. Free federal 1040ez efile 5%, enter 2. Free federal 1040ez efile 5. Free federal 1040ez efile If your local general sales tax rate changed or you lived in more than one locality in the same state during 2006, see page 3 of the instructions. Free federal 1040ez efile (If you do not know your local general sales tax rate, contact your local government. Free federal 1040ez efile ) 3. Free federal 1040ez efile . Free federal 1040ez efile       4. Free federal 1040ez efile Did you enter -0- on line 2 above?             No. Free federal 1040ez efile Skip lines 4 and 5 and go to line 6             Yes. Free federal 1040ez efile Enter your state general sales tax rate (shown in the table heading for your state), but omit the percentage sign. Free federal 1040ez efile For example, if your state general sales tax rate is 6%, enter 6. Free federal 1040ez efile 0 4. Free federal 1040ez efile . Free federal 1040ez efile       5. Free federal 1040ez efile Divide line 3 by line 4. Free federal 1040ez efile Enter the result as a decimal (rounded to at least three places) 5. Free federal 1040ez efile . Free federal 1040ez efile       6. Free federal 1040ez efile Did you enter -0- on line 2 above?             No. Free federal 1040ez efile Multiply line 2 by line 3   6. Free federal 1040ez efile $     Yes. Free federal 1040ez efile Multiply line 1 by line 5. Free federal 1040ez efile If you lived in more than one locality in the same state during 2006, see page 4 of the instructions           7. Free federal 1040ez efile Enter your state and local general sales taxes paid on specified items, if any (see page 4 of the instructions) 7. Free federal 1040ez efile $   8. Free federal 1040ez efile Deduction for general sales taxes. Free federal 1040ez efile Add lines 1, 6, and 7. Free federal 1040ez efile Enter the result here and the total from all your state and local general sales tax deduction worksheets, if you completed more than one, on Schedule A, line 5. Free federal 1040ez efile Be sure to enter “ST” on the dotted line to the left of the entry space 8. Free federal 1040ez efile $     Instructions for the State and Local General Sales Tax Deduction Worksheet Line 1. Free federal 1040ez efile    If you lived in the same state for all of 2006, enter the applicable amount, based on your 2006 income and exemptions, from the optional state sales tax table for your state on page 5 or 6. Free federal 1040ez efile Read down the “At least-But less than” columns for your state and find the line that includes your 2006 income. Free federal 1040ez efile If married filing separately, do not include your spouse's income. Free federal 1040ez efile Your 2006 income is the amount shown on your Form 1040, line 38, plus any nontaxable items, such as the following. Free federal 1040ez efile Tax-exempt interest. Free federal 1040ez efile Veterans' benefits. Free federal 1040ez efile Nontaxable combat pay. Free federal 1040ez efile Workers' compensation. Free federal 1040ez efile Nontaxable part of social security and railroad retirement benefits. Free federal 1040ez efile Nontaxable part of IRA, pension, or annuity distributions. Free federal 1040ez efile Do not include rollovers. Free federal 1040ez efile Public assistance payments. Free federal 1040ez efile The exemptions column refers to the number of exemptions claimed on Form 1040, line 6d. Free federal 1040ez efile Do not include any additional exemptions you listed on Form 8914 for individuals displaced by Hurricane Katrina. Free federal 1040ez efile What if you lived in more than one state?    If you lived in more than one state during 2006, look up the table amount for each state using the above rules. Free federal 1040ez efile If there is no table for your state, the table amount is considered to be zero. Free federal 1040ez efile Multiply the table amount for each state you lived in by a fraction. Free federal 1040ez efile The numerator of the fraction is the number of days you lived in the state during 2006 and the denominator is the total number of days in the year (365). Free federal 1040ez efile Enter the total of the prorated table amounts for each state on line 1. Free federal 1040ez efile However, if you also lived in a locality during 2006 that imposed a local general sales tax, do not enter the total on line 1. Free federal 1040ez efile Instead, complete a separate worksheet for each state you lived in and enter the prorated amount for that state on line 1. Free federal 1040ez efile Example. Free federal 1040ez efile You lived in State A from January 1 through August 31, 2006 (243 days), and in State B from September 1 through December 31, 2006 (122 days). Free federal 1040ez efile The table amount for State A is $500. Free federal 1040ez efile The table amount for State B is $400. Free federal 1040ez efile You would figure your state general sales tax as follows. Free federal 1040ez efile State A: $500 x 243/365 = $333   State B: $400 x 122/365 = 134   Total = $467   If none of the localities in which you lived during 2006 imposed a local general sales tax, enter $467 on line 1 of your worksheet. Free federal 1040ez efile Otherwise, complete a separate worksheet for State A and State B. Free federal 1040ez efile Enter $333 on line 1 of the State A worksheet and $134 on line 1 of the State B worksheet. Free federal 1040ez efile Line 2. Free federal 1040ez efile   If you checked the “No” box, enter -0- on line 2, and go to line 3. Free federal 1040ez efile If you checked the “Yes” box and lived in the same locality for all of 2006, enter the applicable amount, based on your 2006 income and exemptions, from the optional local sales tax table for your locality on page 7. Free federal 1040ez efile Read down the “At least-But less than” columns for your locality and find the line that includes your 2006 income. Free federal 1040ez efile See the line 1 instructions on this page to figure your 2006 income. Free federal 1040ez efile The exemptions column refers to the number of exemptions claimed on Form 1040, line 6d. Free federal 1040ez efile Do not include any additional exemptions you listed on Form 8914 for individuals displaced by Hurricane Katrina. Free federal 1040ez efile What if you lived in more than one locality?   If you lived in more than one locality during 2006, look up the table amount for each locality using the above rules. Free federal 1040ez efile If there is no table for your locality, the table amount is considered to be zero. Free federal 1040ez efile Multiply the table amount for each locality you lived in by a fraction. Free federal 1040ez efile The numerator of the fraction is the number of days you lived in the locality during 2006 and the denominator is the total number of days in the year (365). Free federal 1040ez efile If you lived in more than one locality in the same state and the local general sales tax rate was the same for each locality, enter the total of the prorated table amounts for each locality in that state on line 2. Free federal 1040ez efile Otherwise, complete a separate worksheet for lines 2 through 6 for each locality and enter each prorated table amount on line 2 of the applicable worksheet. Free federal 1040ez efile Example. Free federal 1040ez efile You lived in Locality 1 from January 1 through August 31, 2006 (243 days), and in Locality 2 from September 1 through December 31, 2006 (122 days). Free federal 1040ez efile The table amount for Locality 1 is $100. Free federal 1040ez efile The table amount for Locality 2 is $150. Free federal 1040ez efile You would figure the amount to enter on line 2 as follows. Free federal 1040ez efile Note that this amount may not equal your local sales tax deduction, which is figured on line 6 of the worksheet. Free federal 1040ez efile Locality 1: $100 x 243/365 = $67   Locality 2: $150 x 122/365 = 50   Total = $117   Line 3. Free federal 1040ez efile   If you lived in California, check the “No” box if your combined state and local general sales tax rate is 7. Free federal 1040ez efile 25%. Free federal 1040ez efile Otherwise, check the “Yes” box and include on line 3 only the part of the combined rate that is more than 7. Free federal 1040ez efile 25%. Free federal 1040ez efile   If you lived in Nevada, check the “No” box if your combined state and local general sales tax rate is 6. Free federal 1040ez efile 5%. Free federal 1040ez efile Otherwise, check the “Yes” box and include on line 3 only the part of the combined rate that is more than 6. Free federal 1040ez efile 5%. Free federal 1040ez efile   If you lived in Texarkana, Arkansas, check the “Yes” box and enter “4. Free federal 1040ez efile 0” on line 3. Free federal 1040ez efile Your local general sales tax rate of 4. Free federal 1040ez efile 0% includes the additional 1. Free federal 1040ez efile 0% Arkansas state sales tax rate for Texarkana and the 1. Free federal 1040ez efile 5% sales tax rate for Miller County. Free federal 1040ez efile What if your local general sales tax rate changed during 2006?    If you checked the “Yes” box and your local general sales tax rate changed during 2006, figure the rate to enter on line 3 as follows. Free federal 1040ez efile Multiply each tax rate for the period it was in effect by a fraction. Free federal 1040ez efile The numerator of the fraction is the number of days the rate was in effect during 2006 and the denominator is the total number of days in the year (365). Free federal 1040ez efile Enter the total of the prorated tax rates on line 3. Free federal 1040ez efile Example. Free federal 1040ez efile Locality 1 imposed a 1% local general sales tax from January 1 through September 30, 2006 (273 days). Free federal 1040ez efile The rate increased to 1. Free federal 1040ez efile 75% for the period from October 1 through December 31, 2006 (92 days). Free federal 1040ez efile You would enter “1. Free federal 1040ez efile 189” on line 3, figured as follows. Free federal 1040ez efile January 1 - September 30: 1. Free federal 1040ez efile 00 x 273/365 = 0. Free federal 1040ez efile 748   October 1 - December 31: 1. Free federal 1040ez efile 75 x 92/365 = 0. Free federal 1040ez efile 441   Total = 1. Free federal 1040ez efile 189   What if you lived in more than one locality in the same state during 2006?    Complete a separate worksheet for lines 2 through 6 for each locality in your state if you lived in more than one locality in the same state during 2006 and either of the following applies. Free federal 1040ez efile Each locality did not have the same local general sales tax rate. Free federal 1040ez efile You lived in Texarkana, AR, or Los Angeles County, CA. Free federal 1040ez efile   To figure the amount to enter on line 3 of the worksheet for each locality in which you lived (except a locality for which you used the table on page 7 to figure your local general sales tax deduction), multiply the local general sales tax rate by a fraction. Free federal 1040ez efile The numerator of the fraction is the number of days you lived in the locality during 2006 and the denominator is the total number of days in the year (365). Free federal 1040ez efile Example. Free federal 1040ez efile You lived in Locality 1 from January 1 through August 31, 2006 (243 days), and in Locality 2 from September 1 through December 31, 2006 (122 days). Free federal 1040ez efile The local general sales tax rate for Locality 1 is 1%. Free federal 1040ez efile The rate for Locality 2 is 1. Free federal 1040ez efile 75%. Free federal 1040ez efile You would enter “0. Free federal 1040ez efile 666” on line 3 for the Locality 1 worksheet and “0. Free federal 1040ez efile 585” for the Locality 2 worksheet, figured as follows. Free federal 1040ez efile Locality 1: 1. Free federal 1040ez efile 00 x 243/365 = 0. Free federal 1040ez efile 666   Locality 2: 1. Free federal 1040ez efile 75 x 122/365 = 0. Free federal 1040ez efile 585   Line 6. Free federal 1040ez efile   If you lived in more than one locality in the same state during 2006, you should have completed line 1 only on the first worksheet for that state and separate worksheets for lines 2 through 6 for any other locality within that state in which you lived during 2006. Free federal 1040ez efile If you checked the “Yes” box on line 6 of any of those worksheets, multiply line 5 of that worksheet by the amount that you entered on line 1 for that state on the first worksheet. Free federal 1040ez efile Line 7. Free federal 1040ez efile    Enter on line 7 any state and local general sales taxes paid on the following specified items. Free federal 1040ez efile If you are completing more than one worksheet, include the total for line 7 on only one of the worksheets. Free federal 1040ez efile A motor vehicle (including a car, motorcycle, motor home, recreational vehicle, sport utility vehicle, truck, van, and off-road vehicle). Free federal 1040ez efile Also include any state and local general sales taxes paid for a leased motor vehicle. Free federal 1040ez efile If the state sales tax rate on these items is higher than the general sales tax rate, only include the amount of tax you would have paid at the general sales tax rate. Free federal 1040ez efile An aircraft or boat, if the tax rate was the same as the general sales tax rate. Free federal 1040ez efile A home (including a mobile home or prefabricated home) or substantial addition to or major renovation of a home, but only if the tax rate was the same as the general sales tax rate and any of the following applies. Free federal 1040ez efile Your state or locality imposes a general sales tax directly on the sale of a home or on the cost of a substantial addition or major renovation. Free federal 1040ez efile You purchased the materials to build a home or substantial addition or to perform a major renovation and paid the sales tax directly. Free federal 1040ez efile Under your state law, your contractor is considered your agent in the construction of the home or substantial addition or the performance of a major renovation. Free federal 1040ez efile The contract must state that the contractor is authorized to act in your name and must follow your directions on construction decisions. Free federal 1040ez efile In this case, you will be considered to have purchased any items subject to a sales tax and to have paid the sales tax directly. Free federal 1040ez efile   Do not include sales taxes paid on items used in your trade or business. Free federal 1040ez efile If you received a refund of state or local general sales taxes in 2006, see Refund of general sales taxes on page 1. Free federal 1040ez efile Prev  Up  Next   Home   More Online Publications
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Contact My Local Office in Kansas

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

 City Street Address  Days/Hours of Service  Telephone* 
Overland Park  6717 Shawnee Mission Pkwy
Overland Park, KS 66202 

Monday-Friday - 8:30 a.m.- 4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(816) 966-2840 
Topeka  120 S.E. Sixth Ave.
Topeka, KS 66603 

Monday-Friday - 8:30 a.m.- 4:30 p.m.

 

Services Provided

(785) 235-3053 
Wichita  555 N. Woodlawn
Building 4
Wichita, KS 67208 

Monday-Friday - 8:30 a.m.- 4:30 p.m.

 

Services Provided

(316) 352-7401 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

For information on where to file your tax return please see Where to File Addresses.

The Taxpayer Advocate Service: Call (316) 651-2100 in Wichita or 1-877-777-4778 elsewhere, or see  Publication 1546 , The Taxpayer Advocate Service of the IRS. For further information, see  Tax Topic 104.

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
271 W. 3rd St N.
Wichita, KS 67202

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

The Free Federal 1040ez Efile

Free federal 1040ez efile 1. Free federal 1040ez efile   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. Free federal 1040ez efile Amount realized on a recourse debt. Free federal 1040ez efile 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. Free federal 1040ez efile S. Free federal 1040ez efile Individual Income Tax Return 1040X Amended U. Free federal 1040ez efile S. Free federal 1040ez efile 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. Free federal 1040ez efile However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Free federal 1040ez efile See chapter 5 for information about getting publications and forms. Free federal 1040ez efile Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Free federal 1040ez efile An exchange is a transfer of property for other property or services. Free federal 1040ez efile The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. Free federal 1040ez efile Sale or lease. Free federal 1040ez efile    Some agreements that seem to be leases may really be conditional sales contracts. Free federal 1040ez efile The intention of the parties to the agreement can help you distinguish between a sale and a lease. Free federal 1040ez efile   There is no test or group of tests to prove what the parties intended when they made the agreement. Free federal 1040ez efile You should consider each agreement based on its own facts and circumstances. Free federal 1040ez efile For more information, see chapter 3 in Publication 535, Business Expenses. Free federal 1040ez efile Cancellation of a lease. Free federal 1040ez efile    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. Free federal 1040ez efile 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. Free federal 1040ez efile Copyright. Free federal 1040ez efile    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. Free federal 1040ez efile 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. Free federal 1040ez efile Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. Free federal 1040ez efile   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. Free federal 1040ez efile For more information, see Section 1231 Gains and Losses in chapter 3. Free federal 1040ez efile Easement. Free federal 1040ez efile   The amount received for granting an easement is subtracted from the basis of the property. Free federal 1040ez efile 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. Free federal 1040ez efile 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. Free federal 1040ez efile   Any amount received that is more than the basis to be reduced is a taxable gain. Free federal 1040ez efile The transaction is reported as a sale of property. Free federal 1040ez efile   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. Free federal 1040ez efile 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. Free federal 1040ez efile   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. Free federal 1040ez efile 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. Free federal 1040ez efile See Gain or Loss From Condemnations, later. Free federal 1040ez efile Property transferred to satisfy debt. Free federal 1040ez efile   A transfer of property to satisfy a debt is an exchange. Free federal 1040ez efile Note's maturity date extended. Free federal 1040ez efile   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. Free federal 1040ez efile Also, it is not considered a closed and completed transaction that would result in a gain or loss. Free federal 1040ez efile 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. Free federal 1040ez efile Each case must be determined by its own facts. Free federal 1040ez efile For more information, see Regulations section 1. Free federal 1040ez efile 1001-3. Free federal 1040ez efile Transfer on death. Free federal 1040ez efile   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. Free federal 1040ez efile No taxable gain or deductible loss results from the transfer. Free federal 1040ez efile Bankruptcy. Free federal 1040ez efile   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. Free federal 1040ez efile Consequently, the transfer generally does not result in gain or loss. Free federal 1040ez efile For more information, see Publication 908, Bankruptcy Tax Guide. Free federal 1040ez efile Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. Free federal 1040ez efile A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. Free federal 1040ez efile A loss is the adjusted basis of the property that is more than the amount you realize. Free federal 1040ez efile   Table 1-1. Free federal 1040ez efile How To Figure Whether You Have a Gain or Loss IF your. Free federal 1040ez efile . Free federal 1040ez efile . Free federal 1040ez efile THEN you have a. Free federal 1040ez efile . Free federal 1040ez efile . Free federal 1040ez efile Adjusted basis is more than the amount realized, Loss. Free federal 1040ez efile Amount realized is more than the adjusted basis, Gain. Free federal 1040ez efile Basis. Free federal 1040ez efile   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. Free federal 1040ez efile The basis of property you buy is usually its cost. Free federal 1040ez efile 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. Free federal 1040ez efile See Basis Other Than Cost in Publication 551, Basis of Assets. Free federal 1040ez efile 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. Free federal 1040ez efile See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Free federal 1040ez efile Adjusted basis. Free federal 1040ez efile   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. Free federal 1040ez efile Increases include costs of any improvements having a useful life of more than 1 year. Free federal 1040ez efile Decreases include depreciation and casualty losses. Free federal 1040ez efile For more details and additional examples, see Adjusted Basis in Publication 551. Free federal 1040ez efile Amount realized. Free federal 1040ez efile   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. Free federal 1040ez efile 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. Free federal 1040ez efile Fair market value. Free federal 1040ez efile   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. Free federal 1040ez efile If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. Free federal 1040ez efile If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. Free federal 1040ez efile Example. Free federal 1040ez efile You used a building in your business that cost you $70,000. Free federal 1040ez efile You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. Free federal 1040ez efile You sold the building for $100,000 plus property having an FMV of $20,000. Free federal 1040ez efile The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. Free federal 1040ez efile The selling expenses were $4,000. Free federal 1040ez efile Your gain on the sale is figured as follows. Free federal 1040ez efile 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. Free federal 1040ez efile   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. Free federal 1040ez efile Recognized gains must be included in gross income. Free federal 1040ez efile Recognized losses are deductible from gross income. Free federal 1040ez efile However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. Free federal 1040ez efile See Nontaxable Exchanges, later. Free federal 1040ez efile 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. Free federal 1040ez efile Interest in property. Free federal 1040ez efile   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. Free federal 1040ez efile 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. Free federal 1040ez efile Your basis in the property is disregarded. Free federal 1040ez efile This rule does not apply if all interests in the property are disposed of at the same time. Free federal 1040ez efile Example 1. Free federal 1040ez efile Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. Free federal 1040ez efile You decide to sell your life interest in the farm. Free federal 1040ez efile The entire amount you receive is a recognized gain. Free federal 1040ez efile Your basis in the farm is disregarded. Free federal 1040ez efile Example 2. Free federal 1040ez efile The facts are the same as in Example 1, except that your brother joins you in selling the farm. Free federal 1040ez efile The entire interest in the property is sold, so your basis in the farm is not disregarded. Free federal 1040ez efile Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. Free federal 1040ez efile Canceling a sale of real property. Free federal 1040ez efile   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. Free federal 1040ez efile If the buyer returns the property in the year of sale, no gain or loss is recognized. Free federal 1040ez efile 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. Free federal 1040ez efile 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. Free federal 1040ez efile When the property is returned in a later year, you acquire a new basis in the property. Free federal 1040ez efile That basis is equal to the amount you pay to the buyer. Free federal 1040ez efile 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. Free federal 1040ez efile You have a gain if the amount realized is more than your adjusted basis in the property. Free federal 1040ez efile However, you do not have a loss if the amount realized is less than the adjusted basis of the property. Free federal 1040ez efile Bargain sales to charity. Free federal 1040ez efile   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. Free federal 1040ez efile 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. Free federal 1040ez efile The adjusted basis of the part sold is figured as follows. Free federal 1040ez efile 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. Free federal 1040ez efile This allocation rule does not apply if a charitable contribution deduction is not allowable. Free federal 1040ez efile   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. Free federal 1040ez efile Example. Free federal 1040ez efile 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. Free federal 1040ez efile Your adjusted basis in the property is $4,000. Free federal 1040ez efile Your gain on the sale is $1,200, figured as follows. Free federal 1040ez efile 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. Free federal 1040ez efile You must subtract depreciation you took or could have taken from the basis of the business or rental part. Free federal 1040ez efile However, see the special rule below for a home used partly for business or rental. Free federal 1040ez efile You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. Free federal 1040ez efile 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. Free federal 1040ez efile Any gain on the personal part of the property is a capital gain. Free federal 1040ez efile You cannot deduct a loss on the personal part. Free federal 1040ez efile Home used partly for business or rental. Free federal 1040ez efile    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. Free federal 1040ez efile See Property Used Partly for Business or Rental, in Publication 523. Free federal 1040ez efile 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. Free federal 1040ez efile 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. Free federal 1040ez efile 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. Free federal 1040ez efile Figure the loss you can deduct as follows. Free federal 1040ez efile Use the lesser of the property's adjusted basis or fair market value at the time of the change. Free federal 1040ez efile Add to (1) the cost of any improvements and other increases to basis since the change. Free federal 1040ez efile Subtract from (2) depreciation and any other decreases to basis since the change. Free federal 1040ez efile Subtract the amount you realized on the sale from the result in (3). Free federal 1040ez efile If the amount you realized is more than the result in (3), treat this result as zero. Free federal 1040ez efile The result in (4) is the loss you can deduct. Free federal 1040ez efile Example. Free federal 1040ez efile You changed your main home to rental property 5 years ago. Free federal 1040ez efile At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. Free federal 1040ez efile This year, you sold the property for $55,000. Free federal 1040ez efile You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. Free federal 1040ez efile 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. Free federal 1040ez efile 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. Free federal 1040ez efile   If you have a gain on the sale, you generally must recognize the full amount of the gain. Free federal 1040ez efile You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. Free federal 1040ez efile   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. Free federal 1040ez efile However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. Free federal 1040ez efile   For more information, see Business Use or Rental of Home in Publication 523. Free federal 1040ez efile In addition, special rules apply if the home sold was acquired in a like-kind exchange. Free federal 1040ez efile See Special Situations in Publication 523. Free federal 1040ez efile Also see Like-Kind Exchanges, later. Free federal 1040ez efile Abandonments The abandonment of property is a disposition of property. Free federal 1040ez efile 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. Free federal 1040ez efile Generally, abandonment is not treated as a sale or exchange of the property. Free federal 1040ez efile If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Free federal 1040ez efile If your adjusted basis is more than the amount you realize (if any), then you have a loss. Free federal 1040ez efile Loss from abandonment of business or investment property is deductible as a loss. Free federal 1040ez efile A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Free federal 1040ez efile This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. Free federal 1040ez efile If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. Free federal 1040ez efile The abandonment loss is deducted in the tax year in which the loss is sustained. Free federal 1040ez efile If the abandoned property is secured by debt, special rules apply. Free federal 1040ez efile 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). Free federal 1040ez efile For more information, including examples, see chapter 3 of Publication 4681. Free federal 1040ez efile You cannot deduct any loss from abandonment of your home or other property held for personal use only. Free federal 1040ez efile Cancellation of debt. Free federal 1040ez efile   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. Free federal 1040ez efile This income is separate from any loss realized from abandonment of the property. Free federal 1040ez efile   You must report this income on your tax return unless one of the following applies. Free federal 1040ez efile The cancellation is intended as a gift. Free federal 1040ez efile The debt is qualified farm debt. Free federal 1040ez efile The debt is qualified real property business debt. Free federal 1040ez efile You are insolvent or bankrupt. Free federal 1040ez efile The debt is qualified principal residence indebtedness. Free federal 1040ez efile File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. Free federal 1040ez efile For more information, including other exceptions and exclusion, see Publication 4681. Free federal 1040ez efile Forms 1099-A and 1099-C. Free federal 1040ez efile   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. Free federal 1040ez efile 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. Free federal 1040ez efile 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. Free federal 1040ez efile For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Free federal 1040ez efile 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. Free federal 1040ez efile The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Free federal 1040ez efile This is true even if you voluntarily return the property to the lender. Free federal 1040ez efile You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. Free federal 1040ez efile Buyer's (borrower's) gain or loss. Free federal 1040ez efile   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. Free federal 1040ez efile The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Free federal 1040ez efile See Gain or Loss From Sales and Exchanges, earlier. Free federal 1040ez efile You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. Free federal 1040ez efile Amount realized on a nonrecourse debt. Free federal 1040ez efile   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. Free federal 1040ez efile The full canceled debt is included even if the fair market value of the property is less than the canceled debt. Free federal 1040ez efile Example 1. Free federal 1040ez efile Chris bought a new car for $15,000. Free federal 1040ez efile He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. Free federal 1040ez efile Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. Free federal 1040ez efile The credit company repossessed the car because he stopped making loan payments. Free federal 1040ez efile The balance due after taking into account the payments Chris made was $10,000. Free federal 1040ez efile The fair market value of the car when repossessed was $9,000. Free federal 1040ez efile The amount Chris realized on the repossession is $10,000. Free federal 1040ez efile 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. Free federal 1040ez efile Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). Free federal 1040ez efile He has a $5,000 nondeductible loss. Free federal 1040ez efile Example 2. Free federal 1040ez efile Abena paid $200,000 for her home. Free federal 1040ez efile She paid $15,000 down and borrowed the remaining $185,000 from a bank. Free federal 1040ez efile Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. Free federal 1040ez efile The bank foreclosed on the loan because Abena stopped making payments. Free federal 1040ez efile 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. Free federal 1040ez efile The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. Free federal 1040ez efile She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). Free federal 1040ez efile She has a $5,000 realized gain. Free federal 1040ez efile Amount realized on a recourse debt. Free federal 1040ez efile   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. Free federal 1040ez efile 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. Free federal 1040ez efile The amount realized does not include the canceled debt that is your income from cancellation of debt. Free federal 1040ez efile See Cancellation of debt, below. Free federal 1040ez efile Seller's (lender's) gain or loss on repossession. Free federal 1040ez efile   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. Free federal 1040ez efile For more information, see Repossession in Publication 537. Free federal 1040ez efile    Table 1-2. Free federal 1040ez efile Worksheet for Foreclosures and Repossessions Part 1. Free federal 1040ez efile Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Free federal 1040ez efile Complete this part only  if you were personally liable for the debt. Free federal 1040ez efile Otherwise,  go to Part 2. Free federal 1040ez efile   1. Free federal 1040ez efile 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. Free federal 1040ez efile Enter the fair market value of the transferred property   3. Free federal 1040ez efile Ordinary income from cancellation of debt upon foreclosure or    repossession. Free federal 1040ez efile * Subtract line 2 from line 1. Free federal 1040ez efile   If less than zero, enter zero   Part 2. Free federal 1040ez efile Figure your gain or loss from foreclosure or repossession. Free federal 1040ez efile   4. Free federal 1040ez efile If you completed Part 1, enter the smaller of line 1 or line 2. Free federal 1040ez efile   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. Free federal 1040ez efile Enter any proceeds you received from the foreclosure sale   6. Free federal 1040ez efile Add lines 4 and 5   7. Free federal 1040ez efile Enter the adjusted basis of the transferred property   8. Free federal 1040ez efile Gain or loss from foreclosure or repossession. Free federal 1040ez efile Subtract line 7  from line 6   * The income may not be taxable. Free federal 1040ez efile See Cancellation of debt. Free federal 1040ez efile Cancellation of debt. Free federal 1040ez efile   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. Free federal 1040ez efile This income is separate from any gain or loss realized from the foreclosure or repossession. Free federal 1040ez efile Report the income from cancellation of a debt related to a business or rental activity as business or rental income. Free federal 1040ez efile    You can use Table 1-2 to figure your income from cancellation of debt. Free federal 1040ez efile   You must report this income on your tax return unless one of the following applies. Free federal 1040ez efile The cancellation is intended as a gift. Free federal 1040ez efile The debt is qualified farm debt. Free federal 1040ez efile The debt is qualified real property business debt. Free federal 1040ez efile You are insolvent or bankrupt. Free federal 1040ez efile The debt is qualified principal residence indebtedness. Free federal 1040ez efile File Form 982 to report the income exclusion. Free federal 1040ez efile Example 1. Free federal 1040ez efile 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). Free federal 1040ez efile In this case, the amount he realizes is $9,000. Free federal 1040ez efile This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). Free federal 1040ez efile Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). Free federal 1040ez efile He has a $6,000 nondeductible loss. Free federal 1040ez efile He also is treated as receiving ordinary income from cancellation of debt. Free federal 1040ez efile That income is $1,000 ($10,000 − $9,000). Free federal 1040ez efile This is the part of the canceled debt not included in the amount realized. Free federal 1040ez efile Example 2. Free federal 1040ez efile 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). Free federal 1040ez efile In this case, the amount she realizes is $170,000. Free federal 1040ez efile This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). Free federal 1040ez efile Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). Free federal 1040ez efile She has a $5,000 nondeductible loss. Free federal 1040ez efile She also is treated as receiving ordinary income from cancellation of debt. Free federal 1040ez efile (The debt is not exempt from tax as discussed under Cancellation of debt, above. Free federal 1040ez efile ) That income is $10,000 ($180,000 − $170,000). Free federal 1040ez efile This is the part of the canceled debt not included in the amount realized. Free federal 1040ez efile Forms 1099-A and 1099-C. Free federal 1040ez efile   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. Free federal 1040ez efile 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. Free federal 1040ez efile 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. Free federal 1040ez efile For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Free federal 1040ez efile 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. Free federal 1040ez efile Involuntary conversions are also called involuntary exchanges. Free federal 1040ez efile Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. Free federal 1040ez efile You report the gain or deduct the loss on your tax return for the year you realize it. Free federal 1040ez efile 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. Free federal 1040ez efile However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. Free federal 1040ez efile Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. Free federal 1040ez efile Your basis for the new property is the same as your basis for the converted property. Free federal 1040ez efile This means that the gain is deferred until a taxable sale or exchange occurs. Free federal 1040ez efile 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. Free federal 1040ez efile This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. Free federal 1040ez efile If you have a gain or loss from the destruction or theft of property, see Publication 547. Free federal 1040ez efile Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. Free federal 1040ez efile 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. Free federal 1040ez efile The owner receives a condemnation award (money or property) in exchange for the property taken. Free federal 1040ez efile A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. Free federal 1040ez efile Example. Free federal 1040ez efile A local government authorized to acquire land for public parks informed you that it wished to acquire your property. Free federal 1040ez efile After the local government took action to condemn your property, you went to court to keep it. Free federal 1040ez efile But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. Free federal 1040ez efile This is a condemnation of private property for public use. Free federal 1040ez efile Threat of condemnation. Free federal 1040ez efile   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. Free federal 1040ez efile You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. Free federal 1040ez efile   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. Free federal 1040ez efile 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. Free federal 1040ez efile Reports of condemnation. Free federal 1040ez efile   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. Free federal 1040ez efile You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. Free federal 1040ez efile 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. Free federal 1040ez efile Example. Free federal 1040ez efile Your property lies along public utility lines. Free federal 1040ez efile The utility company has the authority to condemn your property. Free federal 1040ez efile The company informs you that it intends to acquire your property by negotiation or condemnation. Free federal 1040ez efile A threat of condemnation exists when you receive the notice. Free federal 1040ez efile Related property voluntarily sold. Free federal 1040ez efile   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. Free federal 1040ez efile A substantial economic relationship exists if together the properties were one economic unit. Free federal 1040ez efile You also must show that the condemned property could not reasonably or adequately be replaced. Free federal 1040ez efile You can elect to postpone reporting the gain by buying replacement property. Free federal 1040ez efile See Postponement of Gain, later. Free federal 1040ez efile 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. Free federal 1040ez efile If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. Free federal 1040ez efile You can postpone reporting gain from a condemnation if you buy replacement property. Free federal 1040ez efile 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. Free federal 1040ez efile See Postponement of Gain, later. Free federal 1040ez efile If your net condemnation award is less than your adjusted basis, you have a loss. Free federal 1040ez efile If your loss is from property you held for personal use, you cannot deduct it. Free federal 1040ez efile You must report any deductible loss in the tax year it happened. Free federal 1040ez efile You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. Free federal 1040ez efile Main home condemned. Free federal 1040ez efile   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. Free federal 1040ez efile You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). Free federal 1040ez efile For information on this exclusion, see Publication 523. Free federal 1040ez efile 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. Free federal 1040ez efile See Postponement of Gain, later. Free federal 1040ez efile Table 1-3. Free federal 1040ez efile Worksheet for Condemnations Part 1. Free federal 1040ez efile Gain from severance damages. Free federal 1040ez efile  If you did not receive severance damages, skip Part 1 and go to Part 2. Free federal 1040ez efile   1. Free federal 1040ez efile Enter gross severance damages received   2. Free federal 1040ez efile Enter your expenses in getting severance damages   3. Free federal 1040ez efile Subtract line 2 from line 1. Free federal 1040ez efile If less than zero, enter -0-   4. Free federal 1040ez efile Enter any special assessment on remaining property taken out of your award   5. Free federal 1040ez efile Net severance damages. Free federal 1040ez efile Subtract line 4 from line 3. Free federal 1040ez efile If less than zero, enter -0-   6. Free federal 1040ez efile Enter the adjusted basis of the remaining property   7. Free federal 1040ez efile Gain from severance damages. Free federal 1040ez efile Subtract line 6 from line 5. Free federal 1040ez efile If less than zero, enter -0-   8. Free federal 1040ez efile Refigured adjusted basis of the remaining property. Free federal 1040ez efile Subtract line 5 from line 6. Free federal 1040ez efile If less than zero, enter -0-   Part 2. Free federal 1040ez efile Gain or loss from condemnation award. Free federal 1040ez efile   9. Free federal 1040ez efile Enter the gross condemnation award received   10. Free federal 1040ez efile Enter your expenses in getting the condemnation award   11. Free federal 1040ez efile If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. Free federal 1040ez efile If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. Free federal 1040ez efile Otherwise, enter -0-   12. Free federal 1040ez efile Add lines 10 and 11   13. Free federal 1040ez efile Net condemnation award. Free federal 1040ez efile Subtract line 12 from line 9   14. Free federal 1040ez efile Enter the adjusted basis of the condemned property   15. Free federal 1040ez efile Gain from condemnation award. Free federal 1040ez efile If line 14 is more than line 13, enter -0-. Free federal 1040ez efile Otherwise, subtract line 14 from  line 13 and skip line 16   16. Free federal 1040ez efile Loss from condemnation award. Free federal 1040ez efile Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. Free federal 1040ez efile )   Part 3. Free federal 1040ez efile Postponed gain from condemnation. Free federal 1040ez efile  (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. Free federal 1040ez efile )   17. Free federal 1040ez efile If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. Free federal 1040ez efile Otherwise, enter -0-   18. Free federal 1040ez efile If line 15 is more than zero, enter the amount from line 13. Free federal 1040ez efile Otherwise, enter -0-   19. Free federal 1040ez efile Add lines 17 and 18. Free federal 1040ez efile If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. Free federal 1040ez efile Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. Free federal 1040ez efile Subtract line 20 from line 19. Free federal 1040ez efile If less than zero, enter -0-   22. Free federal 1040ez efile If you completed Part 1, add lines 7 and 15. Free federal 1040ez efile Otherwise, enter the amount from line 15. Free federal 1040ez efile If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. Free federal 1040ez efile Recognized gain. Free federal 1040ez efile Enter the smaller of line 21 or line 22. Free federal 1040ez efile   24. Free federal 1040ez efile Postponed gain. Free federal 1040ez efile Subtract line 23 from line 22. Free federal 1040ez efile If less than zero, enter -0-   Condemnation award. Free federal 1040ez efile   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. Free federal 1040ez efile The award is also the amount you are paid for the sale of your property under threat of condemnation. Free federal 1040ez efile Payment of your debts. Free federal 1040ez efile   Amounts taken out of the award to pay your debts are considered paid to you. Free federal 1040ez efile 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. Free federal 1040ez efile Example. Free federal 1040ez efile The state condemned your property for public use. Free federal 1040ez efile The award was set at $200,000. Free federal 1040ez efile The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. Free federal 1040ez efile You are considered to have received the entire $200,000 as a condemnation award. Free federal 1040ez efile Interest on award. Free federal 1040ez efile   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. Free federal 1040ez efile You must report the interest separately as ordinary income. Free federal 1040ez efile Payments to relocate. Free federal 1040ez efile   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. Free federal 1040ez efile Do not include them in your income. Free federal 1040ez efile Replacement housing payments used to buy new property are included in the property's basis as part of your cost. Free federal 1040ez efile Net condemnation award. Free federal 1040ez efile   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. Free federal 1040ez efile 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. Free federal 1040ez efile This is discussed later under Special assessment taken out of award. Free federal 1040ez efile Severance damages. Free federal 1040ez efile    Severance damages are not part of the award paid for the property condemned. Free federal 1040ez efile 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. Free federal 1040ez efile   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. Free federal 1040ez efile 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. Free federal 1040ez efile   The contracting parties should agree on the specific amount of severance damages in writing. Free federal 1040ez efile If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. Free federal 1040ez efile   You cannot make a completely new allocation of the total award after the transaction is completed. Free federal 1040ez efile However, you can show how much of the award both parties intended for severance damages. Free federal 1040ez efile The severance damages part of the award is determined from all the facts and circumstances. Free federal 1040ez efile Example. Free federal 1040ez efile You sold part of your property to the state under threat of condemnation. Free federal 1040ez efile The contract you and the condemning authority signed showed only the total purchase price. Free federal 1040ez efile It did not specify a fixed sum for severance damages. Free federal 1040ez efile However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. Free federal 1040ez efile You may treat this part as severance damages. Free federal 1040ez efile Treatment of severance damages. Free federal 1040ez efile   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. Free federal 1040ez efile Use them to reduce the basis of the remaining property. Free federal 1040ez efile 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. Free federal 1040ez efile   If your net severance damages are more than the basis of your retained property, you have a gain. Free federal 1040ez efile You may be able to postpone reporting the gain. Free federal 1040ez efile See Postponement of Gain, later. Free federal 1040ez efile    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. Free federal 1040ez efile Net severance damages. Free federal 1040ez efile   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. Free federal 1040ez efile 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. Free federal 1040ez efile The balance is your net severance damages. Free federal 1040ez efile Expenses of obtaining a condemnation award and severance damages. Free federal 1040ez efile   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. Free federal 1040ez efile Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. Free federal 1040ez efile If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. Free federal 1040ez efile Example. Free federal 1040ez efile You receive a condemnation award and severance damages. Free federal 1040ez efile One-fourth of the total was designated as severance damages in your agreement with the condemning authority. Free federal 1040ez efile You had legal expenses for the entire condemnation proceeding. Free federal 1040ez efile You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. Free federal 1040ez efile You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. Free federal 1040ez efile Special assessment retained out of award. Free federal 1040ez efile   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. Free federal 1040ez efile An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. Free federal 1040ez efile Examples of improvements that may cause a special assessment are widening a street and installing a sewer. Free federal 1040ez efile   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. Free federal 1040ez efile Example. Free federal 1040ez efile To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. Free federal 1040ez efile You were awarded $5,000 for this and spent $300 to get the award. Free federal 1040ez efile Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. Free federal 1040ez efile The city then paid you only $4,300. Free federal 1040ez efile Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). Free federal 1040ez efile 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). Free federal 1040ez efile The net award would not change, even if you later paid the assessment from the amount you received. Free federal 1040ez efile Severance damages received. Free federal 1040ez efile   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. Free federal 1040ez efile Any balance of the special assessment is used to reduce the condemnation award. Free federal 1040ez efile Example. Free federal 1040ez efile You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. Free federal 1040ez efile You spent $300 to obtain the severance damages. Free federal 1040ez efile A special assessment of $800 was retained out of the award. Free federal 1040ez efile The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. Free federal 1040ez efile Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. Free federal 1040ez efile Part business or rental. Free federal 1040ez efile   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. Free federal 1040ez efile Figure your gain or loss separately because gain or loss on each part may be treated differently. Free federal 1040ez efile   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. Free federal 1040ez efile Example. Free federal 1040ez efile You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. Free federal 1040ez efile You rented half the building and lived in the other half. Free federal 1040ez efile You paid $25,000 for the building and spent an additional $1,000 for a new roof. Free federal 1040ez efile You claimed allowable depreciation of $4,600 on the rental half. Free federal 1040ez efile You spent $200 in legal expenses to obtain the condemnation award. Free federal 1040ez efile Figure your gain or loss as follows. Free federal 1040ez efile     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. Free federal 1040ez efile 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. Free federal 1040ez efile Your basis for the new property is the same as your basis for the old. Free federal 1040ez efile Money or unlike property received. Free federal 1040ez efile   You ordinarily must report the gain if you receive money or unlike property. Free federal 1040ez efile 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. Free federal 1040ez efile 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. Free federal 1040ez efile See Controlling interest in a corporation, later. Free federal 1040ez efile   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. Free federal 1040ez efile 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. Free federal 1040ez efile   The basis of the replacement property is its cost, reduced by the postponed gain. Free federal 1040ez efile 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. Free federal 1040ez efile See Controlling interest in a corporation, later. Free federal 1040ez efile You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. Free federal 1040ez efile Postponing gain on severance damages. Free federal 1040ez efile   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. Free federal 1040ez efile See Treatment of severance damages, earlier. Free federal 1040ez efile 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). Free federal 1040ez efile   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. Free federal 1040ez efile 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. Free federal 1040ez efile   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. Free federal 1040ez efile Postponing gain on the sale of related property. Free federal 1040ez efile   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. Free federal 1040ez efile You must meet the requirements explained earlier under Related property voluntarily sold. Free federal 1040ez efile 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). Free federal 1040ez efile Buying replacement property from a related person. Free federal 1040ez efile   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. Free federal 1040ez efile For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. Free federal 1040ez efile   This rule applies to the following taxpayers. Free federal 1040ez efile C corporations. Free federal 1040ez efile Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. Free federal 1040ez efile 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. Free federal 1040ez efile   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. Free federal 1040ez efile If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Free federal 1040ez efile If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Free federal 1040ez efile Exception. Free federal 1040ez efile   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. Free federal 1040ez efile Advance payment. Free federal 1040ez efile   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). Free federal 1040ez efile Replacement property. Free federal 1040ez efile   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. Free federal 1040ez efile You do not have to use the actual funds from the condemnation award to acquire the replacement property. Free federal 1040ez efile Property you acquire by gift or inheritance does not qualify as replacement property. Free federal 1040ez efile Similar or related in service or use. Free federal 1040ez efile   Your replacement property must be similar or related in service or use to the property it replaces. Free federal 1040ez efile   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. Free federal 1040ez efile For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. Free federal 1040ez efile Owner-user. Free federal 1040ez efile   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. Free federal 1040ez efile Example. Free federal 1040ez efile Your home was condemned and you invested the proceeds from the condemnation in a grocery store. Free federal 1040ez efile Your replacement property is not similar or related in service or use to the condemned property. Free federal 1040ez efile To be similar or related in service or use, your replacement property must also be used by you as your home. Free federal 1040ez efile Owner-investor. Free federal 1040ez efile   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. Free federal 1040ez efile You decide this by determining all the following information. Free federal 1040ez efile Whether the properties are of similar service to you. Free federal 1040ez efile The nature of the business risks connected with the properties. Free federal 1040ez efile What the properties demand of you in the way of management, service, and relations to your tenants. Free federal 1040ez efile Example. Free federal 1040ez efile You owned land and a building you rented to a manufacturing company. Free federal 1040ez efile The building was condemned. Free federal 1040ez efile During the replacement period, you had a new building built on other land you already owned. Free federal 1040ez efile You rented out the new building for use as a wholesale grocery warehouse. Free federal 1040ez efile 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. Free federal 1040ez efile Your management activities. Free federal 1040ez efile The amount and kind of services you provide to your tenants. Free federal 1040ez efile The nature of your business risks connected with the properties. Free federal 1040ez efile Leasehold replaced with fee simple property. Free federal 1040ez efile   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. Free federal 1040ez efile   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. Free federal 1040ez efile A leasehold is property held under a lease, usually for a term of years. Free federal 1040ez efile Outdoor advertising display replaced with real property. Free federal 1040ez efile   You can elect to treat an outdoor advertising display as real property. Free federal 1040ez efile 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. Free federal 1040ez efile 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. Free federal 1040ez efile   You can make this election only if you did not claim a section 179 deduction for the display. Free federal 1040ez efile You cannot cancel this election unless you get the consent of the IRS. Free federal 1040ez efile   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. Free federal 1040ez efile Substituting replacement property. Free federal 1040ez efile   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. Free federal 1040ez efile But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. Free federal 1040ez efile Controlling interest in a corporation. Free federal 1040ez efile   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. Free federal 1040ez efile 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. Free federal 1040ez efile Basis adjustment to corporation's property. Free federal 1040ez efile   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. Free federal 1040ez efile 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). Free federal 1040ez efile   Allocate this reduction to the following classes of property in the order shown below. Free federal 1040ez efile Property that is similar or related in service or use to the condemned property. Free federal 1040ez efile Depreciable property not reduced in (1). Free federal 1040ez efile All other property. Free federal 1040ez efile 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. Free federal 1040ez efile The reduced basis of any single property cannot be less than zero. Free federal 1040ez efile Main home replaced. Free federal 1040ez efile   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. Free federal 1040ez efile The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. Free federal 1040ez efile   You must reduce the basis of your replacement property by the postponed gain. Free federal 1040ez efile 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. Free federal 1040ez efile Example. Free federal 1040ez efile City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. Free federal 1040ez efile The city paid you a condemnation award of $400,000. Free federal 1040ez efile Your adjusted basis in the property was $80,000. Free federal 1040ez efile You realize a gain of $320,000 ($400,000 − $80,000). Free federal 1040ez efile You purchased a new home for $100,000. Free federal 1040ez efile You can exclude $250,000 of the realized gain from your gross income. Free federal 1040ez efile 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). Free federal 1040ez efile You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). Free federal 1040ez efile The remaining $20,000 of realized gain is postponed. Free federal 1040ez efile Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). Free federal 1040ez efile Replacement period. Free federal 1040ez efile   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. Free federal 1040ez efile This is the replacement period. Free federal 1040ez efile   The replacement period for a condemnation begins on the earlier of the following dates. Free federal 1040ez efile The date on which you disposed of the condemned property. Free federal 1040ez efile The date on which the threat of condemnation began. Free federal 1040ez efile   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. Free federal 1040ez efile However, see the exceptions below. Free federal 1040ez efile Three-year replacement period for certain property. Free federal 1040ez efile   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. Free federal 1040ez efile 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. Free federal 1040ez efile Five-year replacement period for certain property. Free federal 1040ez efile   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. Free federal 1040ez efile 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. Free federal 1040ez efile 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. Free federal 1040ez efile 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. Free federal 1040ez efile Extended replacement period for taxpayers affected by other federally declared disasters. Free federal 1040ez efile    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. Free federal 1040ez efile For more information visit www. Free federal 1040ez efile irs. Free federal 1040ez efile gov/uac/Tax-Relief-in-Disaster-Situations. Free federal 1040ez efile Weather-related sales of livestock in an area eligible for federal assistance. Free federal 1040ez efile   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. Free federal 1040ez efile    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. Free federal 1040ez efile See Notice 2006-82. Free federal 1040ez efile You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. Free federal 1040ez efile irs. Free federal 1040ez efile gov/irb/2006-39_IRB/ar13. Free federal 1040ez efile html. Free federal 1040ez efile    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. Free federal 1040ez efile 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. Free federal 1040ez efile You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. Free federal 1040ez efile irs. Free federal 1040ez efile gov/irb/2013-45_IRB/ar04. Free federal 1040ez efile html. Free federal 1040ez efile The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. Free federal 1040ez efile Determining when gain is realized. Free federal 1040ez efile   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. Free federal 1040ez efile 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. Free federal 1040ez efile   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. Free federal 1040ez efile 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. Free federal 1040ez efile   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. Free federal 1040ez efile All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. Free federal 1040ez efile All or part of the award is actually or constructively received. Free federal 1040ez efile 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. Free federal 1040ez efile Replacement property bought before the condemnation. Free federal 1040ez efile   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. Free federal 1040ez efile Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. Free federal 1040ez efile Example. Free federal 1040ez efile On April 3, 2012, city authorities notified you that your property would be condemned. Free federal 1040ez efile On June 5, 2012, you acquired property to replace the property to be condemned. Free federal 1040ez efile You still had the new property when the city took possession of your old property on September 4, 2013. Free federal 1040ez efile You have made a replacement within the replacement period. Free federal 1040ez efile Extension. Free federal 1040ez efile   You can request an extension of the replacement period from the IRS director for your area. Free federal 1040ez efile You should apply before the end of the replacement period. Free federal 1040ez efile Your request should explain in detail why you need an extension. Free federal 1040ez efile The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. Free federal 1040ez efile An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. Free federal 1040ez efile   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. Free federal 1040ez efile Extensions are usually limited to a period of 1 year or less. Free federal 1040ez efile The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. Free federal 1040ez efile If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri