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Free Federal 1040ez Efile

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Free Federal 1040ez Efile

Free federal 1040ez efile 13. Free federal 1040ez efile   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. Free federal 1040ez efile It is divided into the following sections. Free federal 1040ez efile Cost basis. Free federal 1040ez efile Adjusted basis. Free federal 1040ez efile Basis other than cost. Free federal 1040ez efile Your basis is the amount of your investment in property for tax purposes. Free federal 1040ez efile Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. Free federal 1040ez efile Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. Free federal 1040ez efile If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Free federal 1040ez efile Only the basis allocated to the business or investment use of the property can be depreciated. Free federal 1040ez efile Your original basis in property is adjusted (increased or decreased) by certain events. Free federal 1040ez efile For example, if you make improvements to the property, increase your basis. Free federal 1040ez efile If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. Free federal 1040ez efile Keep accurate records of all items that affect the basis of your property. Free federal 1040ez efile For more information on keeping records, see chapter 1. Free federal 1040ez efile Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. Free federal 1040ez efile The cost is the amount you pay in cash, debt obligations, other property, or services. Free federal 1040ez efile Your cost also includes amounts you pay for the following items: Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if you assume liability for the seller). Free federal 1040ez efile In addition, the basis of real estate and business assets may include other items. Free federal 1040ez efile Loans with low or no interest. Free federal 1040ez efile    If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus any amount considered to be unstated interest. Free federal 1040ez efile You generally have unstated interest if your interest rate is less than the applicable federal rate. Free federal 1040ez efile   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Free federal 1040ez efile Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Free federal 1040ez efile If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Free federal 1040ez efile Lump sum purchase. Free federal 1040ez efile   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. Free federal 1040ez efile Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. Free federal 1040ez efile Figure the basis of each asset by multiplying the lump sum by a fraction. Free federal 1040ez efile The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Free federal 1040ez efile    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. Free federal 1040ez efile Fair market value (FMV). Free federal 1040ez efile   FMV is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the necessary facts. Free federal 1040ez efile Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. Free federal 1040ez efile Assumption of mortgage. Free federal 1040ez efile   If you buy property and assume (or buy the property subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. Free federal 1040ez efile Settlement costs. Free federal 1040ez efile   Your basis includes the settlement fees and closing costs you paid for buying the property. Free federal 1040ez efile (A fee for buying property is a cost that must be paid even if you buy the property for cash. Free federal 1040ez efile ) Do not include fees and costs for getting a loan on the property in your basis. Free federal 1040ez efile   The following are some of the settlement fees or closing costs you can include in the basis of your property. Free federal 1040ez efile Abstract fees (abstract of title fees). Free federal 1040ez efile Charges for installing utility services. Free federal 1040ez efile Legal fees (including fees for the title search and preparation of the sales contract and deed). Free federal 1040ez efile Recording fees. Free federal 1040ez efile Survey fees. Free federal 1040ez efile Transfer taxes. Free federal 1040ez efile Owner's title insurance. Free federal 1040ez efile Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Free federal 1040ez efile   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Free federal 1040ez efile   The following are some of the settlement fees and closing costs you cannot include in the basis of property. Free federal 1040ez efile Casualty insurance premiums. Free federal 1040ez efile Rent for occupancy of the property before closing. Free federal 1040ez efile Charges for utilities or other services related to occupancy of the property before closing. Free federal 1040ez efile Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. Free federal 1040ez efile Fees for refinancing a mortgage. Free federal 1040ez efile Real estate taxes. Free federal 1040ez efile   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Free federal 1040ez efile You cannot deduct them as an expense. Free federal 1040ez efile    If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. Free federal 1040ez efile Do not include that amount in the basis of your property. Free federal 1040ez efile If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Free federal 1040ez efile Points. Free federal 1040ez efile   If you pay points to get a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. Free federal 1040ez efile Generally, you deduct the points over the term of the loan. Free federal 1040ez efile For more information on how to deduct points, see chapter 23. Free federal 1040ez efile Points on home mortgage. Free federal 1040ez efile   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. Free federal 1040ez efile If certain requirements are met, you can deduct the points in full for the year in which they are paid. Free federal 1040ez efile Reduce the basis of your home by any seller-paid points. Free federal 1040ez efile Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. Free federal 1040ez efile The result is the adjusted basis. Free federal 1040ez efile Increases to Basis Increase the basis of any property by all items properly added to a capital account. Free federal 1040ez efile Examples of items that increase basis are shown in Table 13-1. Free federal 1040ez efile These include the items discussed below. Free federal 1040ez efile Improvements. Free federal 1040ez efile   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. Free federal 1040ez efile For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. Free federal 1040ez efile Assessments for local improvements. Free federal 1040ez efile   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. Free federal 1040ez efile Do not deduct them as taxes. Free federal 1040ez efile However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. Free federal 1040ez efile Example. Free federal 1040ez efile Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. Free federal 1040ez efile Add the assessment to your property's basis. Free federal 1040ez efile In this example, the assessment is a depreciable asset. Free federal 1040ez efile Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. Free federal 1040ez efile Examples of items that decrease basis are shown in Table 13-1. Free federal 1040ez efile These include the items discussed below. Free federal 1040ez efile Table 13-1. Free federal 1040ez efile Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. Free federal 1040ez efile   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. Free federal 1040ez efile    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. Free federal 1040ez efile   For more information on casualty and theft losses, see chapter 25. Free federal 1040ez efile Depreciation and section 179 deduction. Free federal 1040ez efile   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. Free federal 1040ez efile   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. Free federal 1040ez efile Example. Free federal 1040ez efile You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. Free federal 1040ez efile You added an improvement to the duplex that cost $10,000. Free federal 1040ez efile In February last year, the duplex was damaged by fire. Free federal 1040ez efile Up to that time, you had been allowed depreciation of $23,000. Free federal 1040ez efile You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. Free federal 1040ez efile You deducted a casualty loss of $1,000 on your income tax return for last year. Free federal 1040ez efile You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. Free federal 1040ez efile You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. Free federal 1040ez efile Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. Free federal 1040ez efile Your basis in the land is its original cost of $5,000. Free federal 1040ez efile Easements. Free federal 1040ez efile   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. Free federal 1040ez efile It reduces the basis of the affected part of the property. Free federal 1040ez efile If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Free federal 1040ez efile   If the gain is on a capital asset, see chapter 16 for information about how to report it. Free federal 1040ez efile If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. Free federal 1040ez efile Exclusion of subsidies for energy conservation measures. Free federal 1040ez efile   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. Free federal 1040ez efile Reduce the basis of the property for which you received the subsidy by the excluded amount. Free federal 1040ez efile For more information about this subsidy, see chapter 12. Free federal 1040ez efile Postponed gain from sale of home. Free federal 1040ez efile    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. Free federal 1040ez efile For more information on the rules for the sale of a home, see chapter 15. Free federal 1040ez efile Basis Other Than Cost There are many times when you cannot use cost as basis. Free federal 1040ez efile In these cases, the fair market value or the adjusted basis of the property can be used. Free federal 1040ez efile Fair market value (FMV) and adjusted basis were discussed earlier. Free federal 1040ez efile Property Received for Services If you receive property for your services, include the FMV of the property in income. Free federal 1040ez efile The amount you include in income becomes your basis. Free federal 1040ez efile If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Free federal 1040ez efile Restricted property. Free federal 1040ez efile   If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested. Free federal 1040ez efile However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. Free federal 1040ez efile Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). Free federal 1040ez efile For more information, see Restricted Property in Publication 525. Free federal 1040ez efile Bargain purchases. Free federal 1040ez efile   A bargain purchase is a purchase of an item for less than its FMV. Free federal 1040ez efile If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. Free federal 1040ez efile Your basis in the property is its FMV (your purchase price plus the amount you include in income). Free federal 1040ez efile   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. Free federal 1040ez efile However, your basis in the property is still its FMV. Free federal 1040ez efile See Employee Discounts in Publication 15-B. Free federal 1040ez efile Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Free federal 1040ez efile A taxable gain or deductible loss also is known as a recognized gain or loss. Free federal 1040ez efile If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. Free federal 1040ez efile Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. Free federal 1040ez efile Similar or related property. Free federal 1040ez efile   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. Free federal 1040ez efile Decrease the basis by the following. Free federal 1040ez efile Any loss you recognize on the involuntary conversion. Free federal 1040ez efile Any money you receive that you do not spend on similar property. Free federal 1040ez efile Increase the basis by the following. Free federal 1040ez efile Any gain you recognize on the involuntary conversion. Free federal 1040ez efile Any cost of acquiring the replacement property. Free federal 1040ez efile Money or property not similar or related. Free federal 1040ez efile    If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the conversion. Free federal 1040ez efile Example. Free federal 1040ez efile The state condemned your property. Free federal 1040ez efile The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. Free federal 1040ez efile You realized a gain of $5,000 ($31,000 − $26,000). Free federal 1040ez efile You bought replacement property similar in use to the converted property for $29,000. Free federal 1040ez efile You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Free federal 1040ez efile Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Free federal 1040ez efile The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. Free federal 1040ez efile   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Free federal 1040ez efile Basis for depreciation. Free federal 1040ez efile   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Free federal 1040ez efile For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Free federal 1040ez efile Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Free federal 1040ez efile If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. Free federal 1040ez efile See Nontaxable Trades in chapter 14. Free federal 1040ez efile Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Free federal 1040ez efile To qualify as a like-kind exchange, the property traded and the property received must be both of the following. Free federal 1040ez efile Qualifying property. Free federal 1040ez efile Like-kind property. Free federal 1040ez efile The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. Free federal 1040ez efile If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. Free federal 1040ez efile Qualifying property. Free federal 1040ez efile   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. Free federal 1040ez efile Like-kind property. Free federal 1040ez efile   There must be an exchange of like-kind property. Free federal 1040ez efile Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Free federal 1040ez efile The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. Free federal 1040ez efile Example. Free federal 1040ez efile You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. Free federal 1040ez efile The dealer allows you $2,000 on the old truck, and you pay $4,800. Free federal 1040ez efile This is a like-kind exchange. Free federal 1040ez efile The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). Free federal 1040ez efile If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). Free federal 1040ez efile The basis of the new truck is the price you pay the dealer. Free federal 1040ez efile Partially nontaxable exchanges. Free federal 1040ez efile   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Free federal 1040ez efile The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. Free federal 1040ez efile Decrease the basis by the following amounts. Free federal 1040ez efile Any money you receive. Free federal 1040ez efile Any loss you recognize on the exchange. Free federal 1040ez efile Increase the basis by the following amounts. Free federal 1040ez efile Any additional costs you incur. Free federal 1040ez efile Any gain you recognize on the exchange. Free federal 1040ez efile If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Free federal 1040ez efile Allocation of basis. Free federal 1040ez efile   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Free federal 1040ez efile The rest is the basis of the like-kind property. Free federal 1040ez efile More information. Free federal 1040ez efile   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. Free federal 1040ez efile Basis for depreciation. Free federal 1040ez efile   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. Free federal 1040ez efile For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Free federal 1040ez efile Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. Free federal 1040ez efile The same rule applies to a transfer by your former spouse that is incident to divorce. Free federal 1040ez efile However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. Free federal 1040ez efile If the property transferred to you is a series E, series EE, or series I U. Free federal 1040ez efile S. Free federal 1040ez efile savings bond, the transferor must include in income the interest accrued to the date of transfer. Free federal 1040ez efile Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. Free federal 1040ez efile For more information on these bonds, see chapter 7. Free federal 1040ez efile At the time of the transfer, the transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. Free federal 1040ez efile For more information about the transfer of property from a spouse, see chapter 14. Free federal 1040ez efile Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. Free federal 1040ez efile FMV less than donor's adjusted basis. Free federal 1040ez efile   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Free federal 1040ez efile Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Free federal 1040ez efile Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. Free federal 1040ez efile See Adjusted Basis , earlier. Free federal 1040ez efile Example. Free federal 1040ez efile You received an acre of land as a gift. Free federal 1040ez efile At the time of the gift, the land had an FMV of $8,000. Free federal 1040ez efile The donor's adjusted basis was $10,000. Free federal 1040ez efile After you received the property, no events occurred to increase or decrease your basis. Free federal 1040ez efile If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. Free federal 1040ez efile If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. Free federal 1040ez efile If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Free federal 1040ez efile Business property. Free federal 1040ez efile   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Free federal 1040ez efile FMV equal to or greater than donor's adjusted basis. Free federal 1040ez efile   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Free federal 1040ez efile Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. Free federal 1040ez efile   Also, for figuring gain or loss from a sale or other disposition or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. Free federal 1040ez efile See Adjusted Basis , earlier. Free federal 1040ez efile   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. Free federal 1040ez efile Figure the increase by multiplying the gift tax paid by a fraction. Free federal 1040ez efile The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Free federal 1040ez efile   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Free federal 1040ez efile The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Free federal 1040ez efile Example. Free federal 1040ez efile In 2013, you received a gift of property from your mother that had an FMV of $50,000. Free federal 1040ez efile Her adjusted basis was $20,000. Free federal 1040ez efile The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Free federal 1040ez efile She paid a gift tax of $7,320 on the property. Free federal 1040ez efile Your basis is $26,076, figured as follows: Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000     Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . Free federal 1040ez efile 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. Free federal 1040ez efile If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Free federal 1040ez efile However, your basis cannot exceed the FMV of the gift at the time it was given to you. Free federal 1040ez efile Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. Free federal 1040ez efile The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. Free federal 1040ez efile The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. Free federal 1040ez efile The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. Free federal 1040ez efile If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Free federal 1040ez efile For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Free federal 1040ez efile Property inherited from a decedent who died in 2010. Free federal 1040ez efile   If you inherited property from a decedent who died in 2010, special rules may apply. Free federal 1040ez efile For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Free federal 1040ez efile Community property. Free federal 1040ez efile   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. Free federal 1040ez efile When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. Free federal 1040ez efile For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. Free federal 1040ez efile Example. Free federal 1040ez efile You and your spouse owned community property that had a basis of $80,000. Free federal 1040ez efile When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Free federal 1040ez efile The FMV of the community interest was $100,000. Free federal 1040ez efile The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Free federal 1040ez efile The basis of the other half to your spouse's heirs is also $50,000. Free federal 1040ez efile For more information about community property, see Publication 555, Community Property. Free federal 1040ez efile Property Changed From Personal to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you can begin to depreciate the property at the time of the change. Free federal 1040ez efile To do so, you must figure its basis for depreciation at the time of the change. Free federal 1040ez efile An example of changing property held for personal use to business or rental use would be renting out your former personal residence. Free federal 1040ez efile Basis for depreciation. Free federal 1040ez efile   The basis for depreciation is the lesser of the following amounts. Free federal 1040ez efile The FMV of the property on the date of the change. Free federal 1040ez efile Your adjusted basis on the date of the change. Free federal 1040ez efile Example. Free federal 1040ez efile Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. Free federal 1040ez efile You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. Free federal 1040ez efile Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Free federal 1040ez efile Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Free federal 1040ez efile On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Free federal 1040ez efile The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). Free federal 1040ez efile Sale of property. Free federal 1040ez efile   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. Free federal 1040ez efile Gain. Free federal 1040ez efile   The basis for figuring a gain is your adjusted basis in the property when you sell the property. Free federal 1040ez efile Example. Free federal 1040ez efile Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. Free federal 1040ez efile Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Free federal 1040ez efile Loss. Free federal 1040ez efile   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Free federal 1040ez efile Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Free federal 1040ez efile Example. Free federal 1040ez efile Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. Free federal 1040ez efile In this case, you would start with the FMV on the date of the change to rental use ($180,000), because it is less than the adjusted basis of $203,000 ($178,000 + $25,000 (land)) on that date. Free federal 1040ez efile Reduce that amount ($180,000) by the depreciation deductions ($37,500). Free federal 1040ez efile The basis for loss is $142,500 ($180,000 − $37,500). Free federal 1040ez efile Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. Free federal 1040ez efile If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. Free federal 1040ez efile You must adjust the basis of stocks for certain events that occur after purchase. Free federal 1040ez efile For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. Free federal 1040ez efile This rule applies only when the additional stock received is identical to the stock held. Free federal 1040ez efile Also reduce your basis when you receive nontaxable distributions. Free federal 1040ez efile They are a return of capital. Free federal 1040ez efile Example. Free federal 1040ez efile In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. Free federal 1040ez efile In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. Free federal 1040ez efile In 2013 XYZ declared a 2-for-1 stock split. Free federal 1040ez efile You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. Free federal 1040ez efile Other basis. Free federal 1040ez efile   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. Free federal 1040ez efile For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Free federal 1040ez efile Identifying stocks or bonds sold. Free federal 1040ez efile   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stocks or bonds. Free federal 1040ez efile If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Free federal 1040ez efile For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Free federal 1040ez efile Mutual fund shares. Free federal 1040ez efile   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. Free federal 1040ez efile For more information, see Publication 550. Free federal 1040ez efile Bond premium. Free federal 1040ez efile   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. Free federal 1040ez efile See Bond Premium Amortization in chapter 3 of Publication 550 for more information. Free federal 1040ez efile Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. Free federal 1040ez efile Original issue discount (OID) on debt instruments. Free federal 1040ez efile   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. Free federal 1040ez efile See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. Free federal 1040ez efile Tax-exempt obligations. Free federal 1040ez efile    OID on tax-exempt obligations is generally not taxable. Free federal 1040ez efile However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. Free federal 1040ez efile The accrued OID is added to the basis of the obligation to determine your gain or loss. Free federal 1040ez efile See chapter 4 of Publication 550. Free federal 1040ez efile Prev  Up  Next   Home   More Online Publications
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The Free Federal 1040ez Efile

Free federal 1040ez efile Publication 3402 - Main Content Table of Contents What is a Limited Liability Company? Classification of an LLC LLCs Classified as Partnerships LLCs Classified as Disregarded Entities LLCs Classified as Corporations Subsequent Elections How To Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What is a Limited Liability Company? For purposes of this publication, a limited liability company (LLC) is a business entity organized in the United States under state law. Free federal 1040ez efile Unlike a partnership, all of the members of an LLC have limited personal liability for its debts. Free federal 1040ez efile An LLC may be classified for federal income tax purposes as a partnership, corporation, or an entity disregarded as separate from its owner by applying the rules in Regulations section 301. Free federal 1040ez efile 7701-3. Free federal 1040ez efile The information in this publication applies to LLCs in general, and different rules may apply to special situations, including banks, insurance companies, or nonprofit organizations that are LLCs or that own LLCs. Free federal 1040ez efile Check your state's requirements and the federal tax regulations for further information. Free federal 1040ez efile Classification of an LLC Default classification rules. Free federal 1040ez efile   An LLC with at least two members is classified as a partnership for federal income tax purposes. Free federal 1040ez efile An LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes). Free federal 1040ez efile Also, an LLC's federal tax classification can subsequently change under certain default rules discussed later. Free federal 1040ez efile Elected classification. Free federal 1040ez efile   If an LLC does not choose to be classified under the above default classifications, it can elect to be classified as an association taxable as a corporation or as an S corporation. Free federal 1040ez efile After an LLC has determined its federal tax classification, it can later elect to change that classification. Free federal 1040ez efile For details, see Subsequent Elections, later. Free federal 1040ez efile LLCs Classified as Partnerships If an LLC has at least two members and is classified as a partnership, it generally must file Form 1065, U. Free federal 1040ez efile S. Free federal 1040ez efile Return of Partnership Income. Free federal 1040ez efile Generally, an LLC classified as a partnership is subject to the same filing and reporting requirements as partnerships. Free federal 1040ez efile For certain purposes, members of an LLC are treated as limited partners in a limited partnership. Free federal 1040ez efile For example, LLC members are treated as limited partners for purposes of material participation under the passive activity limitation rules (see Temporary Regulation section 1. Free federal 1040ez efile 469-5T(e)). Free federal 1040ez efile See the Instructions for Form 1065 for reporting rules that apply specifically to LLCs. Free federal 1040ez efile Member manager. Free federal 1040ez efile   Only a member manager of an LLC can sign the partnership tax return. Free federal 1040ez efile And only a member manager can represent the LLC as the tax matters partner under the consolidated audit proceedings in sections 6221 through 6234. Free federal 1040ez efile A member manager is any owner of an interest in the LLC who, alone or together with others, has the continuing authority to make the management decisions necessary to conduct the business for which the LLC was formed. Free federal 1040ez efile If there are no elected or designated member managers, each owner is treated as a member manager. Free federal 1040ez efile Change in default classification. Free federal 1040ez efile   If the number of members in an LLC classified as a partnership is reduced to only one member, it becomes an entity disregarded as separate from its owner under Regulations section 301. Free federal 1040ez efile 7701-3(f)(2). Free federal 1040ez efile However, if the LLC has made an election to be classified as a corporation (discussed later) and that elective classification is in effect at the time of the change in membership, the default classification as a disregarded entity will not apply. Free federal 1040ez efile   Other tax consequences of a change in membership, such as recognition of gain or loss, are determined by the transactions through which an interest in the LLC is acquired or disposed of. Free federal 1040ez efile If a partnership that becomes a disregarded entity as a result of a decrease in the number of members makes an election to be classified as a corporation, the applicable deemed transactions discussed under Subsequent Elections, later, apply. Free federal 1040ez efile Example 1. Free federal 1040ez efile Ethel and Francis are members of an LLC classified as a partnership for federal tax purposes. Free federal 1040ez efile Each holds an equal membership interest. Free federal 1040ez efile The LLC does not hold any unrealized receivables or substantially appreciated inventory. Free federal 1040ez efile Ethel sells her entire interest in the LLC to Francis for $10,000. Free federal 1040ez efile After the sale, the business is continued by the LLC, which is owned solely by Francis. Free federal 1040ez efile No entity classification election is made after the sale to treat the LLC as a corporation for federal tax purposes. Free federal 1040ez efile The partnership terminates when Francis buys Ethel's entire interest. Free federal 1040ez efile Ethel must treat the transaction as the sale of a partnership interest and must report gain or loss, if any, resulting from the sale of her partnership interest. Free federal 1040ez efile For purposes of determining the tax treatment of Francis, the partnership is deemed to make a liquidating distribution of all of its assets to Ethel and Francis, and after this distribution, Francis is treated as acquiring the assets deemed to have been distributed to Ethel in liquidation of Ethel's partnership interest. Free federal 1040ez efile Francis's basis in the assets attributable to Ethel's one-half interest in the partnership is $10,000, the purchase price for Ethel's partnership interest. Free federal 1040ez efile Upon the termination of the partnership, Francis is considered to receive a distribution of those assets attributable to Francis's former interest in the partnership. Free federal 1040ez efile Francis must recognize gain or loss, if any, on the deemed distribution of the assets to the extent required by Internal Revenue Code section 731(a). Free federal 1040ez efile See Partnership Distributions in Publication 541. Free federal 1040ez efile Example 2. Free federal 1040ez efile George and Henrietta are members of an LLC classified as a partnership for federal tax purposes. Free federal 1040ez efile Each holds an equal membership interest. Free federal 1040ez efile The LLC does not hold any unrealized receivables or substantially appreciated inventory. Free federal 1040ez efile George and Henrietta each sell their entire interests in the LLC to Ian, an unrelated person, in exchange for $10,000. Free federal 1040ez efile After the sale, the business is continued by the LLC, which is owned solely by Ian. Free federal 1040ez efile No entity classification election is made after the sale to treat the LLC as a corporation for federal tax purposes. Free federal 1040ez efile The partnership terminates when Ian purchases the entire interests of George and Henrietta in the LLC. Free federal 1040ez efile George and Henrietta must report gain or loss, if any, resulting from the sale of their partnership interests. Free federal 1040ez efile For purposes of classifying the acquisition by Ian, the partnership is deemed to make a liquidating distribution of its assets to George and Henrietta. Free federal 1040ez efile Immediately following this distribution, Ian is deemed to acquire, by purchase, all of the former partnership's assets. Free federal 1040ez efile   For more details on the preceding two examples, see Revenue Ruling 99-6, 1999-6 I. Free federal 1040ez efile R. Free federal 1040ez efile B. Free federal 1040ez efile 6. Free federal 1040ez efile You can find Revenue Ruling 99-6 at www. Free federal 1040ez efile irs. Free federal 1040ez efile gov/pub/irs-irbs/irb99-06. Free federal 1040ez efile pdf. Free federal 1040ez efile LLCs Classified as Disregarded Entities If an LLC has only one member and is classified as an entity disregarded as separate from its owner, its income, deductions, gains, losses, and credits are reported on the owner's income tax return. Free federal 1040ez efile For example, if the owner of the LLC is an individual, the LLC's income and expenses would be reported on the following schedules filed with the owner's Form 1040: Schedule C, Profit or Loss from Business (Sole Proprietorship); Schedule C-EZ, Net Profit From Business (Sole Proprietorship); Schedule E, Supplemental Income and Loss; or Schedule F, Profit or Loss From Farming. Free federal 1040ez efile Employment tax and certain excise taxes. Free federal 1040ez efile   A single-member LLC that is classified as a disregarded entity for income tax purposes is treated as a separate entity for purposes of employment tax and certain excise taxes. Free federal 1040ez efile For wages paid after January 1, 2009, the single-member LLC is required to use its name and employer identification number (EIN) for reporting and payment of employment taxes. Free federal 1040ez efile A single-member LLC is also required to use its name and EIN to register for excise tax activities on Form 637; pay and report excise taxes reported on Forms 720, 730, 2290, and 11-C; and claim any refunds, credits, and payments on Form 8849. Free federal 1040ez efile See the employment and excise tax returns for more information. Free federal 1040ez efile Self-employment tax rule for disregarded entity LLCs. Free federal 1040ez efile   An individual owner of a single-member LLC classified as a disregarded entity is not an employee of the LLC. Free federal 1040ez efile Instead, the owner is subject to tax on the net earnings from self-employment of the LLC which is treated in the same manner as a sole-proprietorship. Free federal 1040ez efile Example 3. Free federal 1040ez efile LLC is a disregarded entity owned by Irene. Free federal 1040ez efile LLC has three employees (Kent, Patricia, and Tex) and pays wages. Free federal 1040ez efile LLC is treated as an entity separate from its owner for purposes of employment taxes. Free federal 1040ez efile For the wages paid to Kent, Patricia, and Tex, LLC is liable for income tax withholding, Federal Insurance Contributions Act (FICA) taxes, and Federal Unemployment Tax Act (FUTA) taxes. Free federal 1040ez efile In addition, LLC must file under its name and EIN the applicable employment tax returns; make timely employment tax deposits; and file with the Social Security Administration and furnish to LLC's employees (Kent, Patricia, and Tex) Forms W-2, Wage and Tax Statement. Free federal 1040ez efile Irene is self-employed for purposes of the self-employment tax. Free federal 1040ez efile Thus, Irene is subject to self-employment tax on her net earnings from self-employment with respect to LLC's activities. Free federal 1040ez efile Irene is not an employee of LLC for purposes of employment taxes. Free federal 1040ez efile Because LLC is treated as a sole proprietorship of Irene for income tax purposes, Irene must report the income and expenses from LLC on her Schedule C. Free federal 1040ez efile Irene will figure the tax due on her net earnings from self-employment on Schedule SE. Free federal 1040ez efile Irene can also deduct one-half of her self-employment tax on line 27 of her Form 1040. Free federal 1040ez efile Taxpayer identification number. Free federal 1040ez efile   For all income tax purposes, a single-member LLC classified as a disregarded entity must use the owner's social security number (SSN) or EIN. Free federal 1040ez efile This includes all information returns and reporting related to income tax. Free federal 1040ez efile For example, if a disregarded entity LLC that is owned by an individual is required to provide a Form W-9, Request for Taxpayer Identification Number and Certification, the LLC must provide the owner's SSN or EIN, not the LLC's EIN. Free federal 1040ez efile   However, most new single-member LLCs classified as a disregarded entity will need to obtain an EIN for the LLC. Free federal 1040ez efile An LLC will need an EIN if it has any employees or if it will be required to file any of the excise tax forms listed above (see Employment tax and certain excise taxes earlier). Free federal 1040ez efile See Form SS-4, Application for Employer Identification Number, for information on applying for an EIN. Free federal 1040ez efile Change in default classification. Free federal 1040ez efile   If a single-member LLC classified as a disregarded entity for income tax purposes acquires an additional member, it becomes a partnership under Regulations section 301. Free federal 1040ez efile 7701-3(f)(2). Free federal 1040ez efile However, if the LLC has made an election to be classified as a corporation (discussed later) and that elective classification is in effect at the time of the change in membership, the default classification as a partnership will not apply. Free federal 1040ez efile   Other tax consequences of a change in membership, such as recognition of gain or loss, are determined by the transactions through which an interest in the LLC is acquired or disposed of. Free federal 1040ez efile If a disregarded entity that becomes a partnership as a result of an increase in the number of members makes an election to be classified as a corporation, the applicable deemed transactions discussed in Subsequent Elections, later, apply. Free federal 1040ez efile Example 4. Free federal 1040ez efile Bart, who is not related to Alain, buys 50% of Alain's interest in an LLC that is a disregarded entity for $5,000. Free federal 1040ez efile Alain does not contribute any portion of the $5,000 to the LLC. Free federal 1040ez efile Alain and Bart continue to operate the business of the LLC as co-owners of the LLC. Free federal 1040ez efile The LLC is converted to a partnership when the new member, Bart, buys an interest in the disregarded entity from the owner, Alain. Free federal 1040ez efile Bart's buying a 50% interest in Alain's ownership interest in the LLC is treated as Bart's buying a 50% interest in each of the LLC's assets, which are treated as owned directly by Alain for federal income tax purposes. Free federal 1040ez efile Immediately thereafter, Alain and Bart are treated as contributing their respective interests in those assets to a partnership in exchange for ownership interests in the partnership. Free federal 1040ez efile Alain recognizes gain or loss from the deemed sale to Bart of the 50% interest in the assets. Free federal 1040ez efile Neither Alain nor Bart recognizes any gain or loss as a result of the deemed contribution of the assets to the partnership. Free federal 1040ez efile Example 5. Free federal 1040ez efile Charles, who is not related to Danielle, contributes $10,000 to an LLC owned by Danielle for a 50% ownership interest in the LLC. Free federal 1040ez efile The LLC uses all of the contributed cash in its business. Free federal 1040ez efile Charles and Danielle continue to operate the business of the LLC as co-owners of the LLC. Free federal 1040ez efile The LLC is converted from a disregarded entity to a partnership when Charles contributes cash to the LLC. Free federal 1040ez efile Charles's contribution is treated as a contribution to a partnership in exchange for an ownership interest in the partnership. Free federal 1040ez efile Danielle is treated as contributing all of the assets of the LLC to the partnership in exchange for a partnership interest. Free federal 1040ez efile Neither Charles nor Danielle recognizes gain or loss as a result of the conversion of the disregarded entity to a partnership. Free federal 1040ez efile   For more details on the preceding two examples, see Revenue Ruling 99-5, 1999-6 I. Free federal 1040ez efile R. Free federal 1040ez efile B. Free federal 1040ez efile 8. Free federal 1040ez efile You can find Revenue Ruling 99-5 at www. Free federal 1040ez efile irs. Free federal 1040ez efile gov/pub/irs-irbs/irb99-06. Free federal 1040ez efile pdf. Free federal 1040ez efile LLCs Classified as Corporations An LLC with either a single member or more than one member can elect to be classified as a corporation rather than be classified as a partnership or disregarded entity under the default rules discussed earlier. Free federal 1040ez efile File Form 8832, Entity Classification Election, to elect classification as a C corporation. Free federal 1040ez efile File Form 2553, Election by a Small Business Corporation, to elect classification as an S corporation. Free federal 1040ez efile LLCs electing classification as an S corporation are not required to file Form 8832 to elect classification as a corporation before filing Form 2553. Free federal 1040ez efile By filing Form 2553, an LLC is deemed to have elected classification as a corporation in addition to the S corporation classification. Free federal 1040ez efile If the LLC elects to be classified as a corporation by filing Form 8832, a copy of the LLC's Form 8832 must be attached to the federal income tax return of each direct and indirect owner of the LLC for the tax year of the owner that includes the date on which the election took effect. Free federal 1040ez efile Example 6. Free federal 1040ez efile Classification as a corporation without an S election. Free federal 1040ez efile Wanda and Sylvester are members of an LLC. Free federal 1040ez efile They agree that the LLC should be classified as a corporation but do not want to elect to have the LLC be treated as an S corporation. Free federal 1040ez efile The LLC must file Form 8832. Free federal 1040ez efile Example 7. Free federal 1040ez efile Classification as a corporation with an S election. Free federal 1040ez efile Evelyn and Carol are members of an LLC. Free federal 1040ez efile They agree that the LLC should be classified as an S corporation. Free federal 1040ez efile The LLC must file Form 2553 instead of Form 8832. Free federal 1040ez efile If the LLC is classified as a corporation, it must file a corporation income tax return. Free federal 1040ez efile If it is a C corporation, it is taxed on its taxable income and distributions to the members are includible in the members' gross income to the extent of the corporation's earnings and profits (double taxation). Free federal 1040ez efile If it is an S corporation, the corporation is generally not subject to any income tax and the income, deductions, gains, losses, and credits of the corporation “pass through” to the members. Free federal 1040ez efile Corporations generally file either: Form 1120, U. Free federal 1040ez efile S. Free federal 1040ez efile Corporation Income Tax Return; or Form 1120S, U. Free federal 1040ez efile S. Free federal 1040ez efile Income Tax Return for an S Corporation. Free federal 1040ez efile For more information on the income taxation of corporations and their shareholders, see Publication 542, Corporations. Free federal 1040ez efile For more information on the income taxation of S corporations and their shareholders, see the Instructions for Form 1120S, U. Free federal 1040ez efile S. Free federal 1040ez efile Income Tax Return for an S Corporation. Free federal 1040ez efile Subsequent Elections An LLC can elect to change its classification. Free federal 1040ez efile Generally, once an LLC has elected to change its classification, it cannot elect again to change it classification during the 60 months after the effective date of the election. Free federal 1040ez efile An election by a newly formed LLC that is effective on the date of formation is not considered a change for purposes of this limitation. Free federal 1040ez efile For more information and exceptions, see Regulations section 301. Free federal 1040ez efile 7701-3(c) and the Form 8832 instructions. Free federal 1040ez efile An election to change classification can have significant tax consequences based on the following transactions that are deemed to occur as a result of the election. Free federal 1040ez efile Partnership to corporation. Free federal 1040ez efile   An election to change classification from a partnership to a corporation will be treated as if the partnership contributed all of its assets and liabilities to the corporation in exchange for stock and the partnership then immediately liquidated by distributing the stock to its partners. Free federal 1040ez efile   For more information, see Partnership Distributions in Publication 541 and Property Exchanged for Stock in Publication 542. Free federal 1040ez efile Corporation to partnership. Free federal 1040ez efile   An election to change classification from a corporation to a partnership will be treated as if the corporation distributed all of its assets and liabilities to its shareholders in liquidation and the shareholders then immediately contributed all of the distributed assets and liabilities to a new partnership. Free federal 1040ez efile   For more information, see Contribution of Property in Publication 541 and Distributions to Shareholders in Publication 542. Free federal 1040ez efile Corporation to disregarded entity. Free federal 1040ez efile   An election to change classification from a corporation to a disregarded entity will be treated as if the corporation distributed all of its assets and liabilities to its single owner in liquidation. Free federal 1040ez efile   For more information, see Distributions to Shareholders in Publication 542. Free federal 1040ez efile Disregarded entity to corporation. Free federal 1040ez efile   An election to change classification from a disregarded entity to a corporation will be treated as if the owner of the disregarded entity contributed all of the assets and liabilities to the corporation in exchange for stock. Free federal 1040ez efile   For more information, see Property Exchanged for Stock in Publication 542. Free federal 1040ez efile How To Get More Information This section describes the help the IRS and other federal agencies offer to taxpayers who operate their own businesses. Free federal 1040ez efile Internal Revenue Service You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. Free federal 1040ez efile By selecting the method that is best for you, you will have quick and easy access to tax help. Free federal 1040ez efile Contacting your Taxpayer Advocate. Free federal 1040ez efile   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. Free federal 1040ez efile   You can contact the TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059 to see if you are eligible for assistance. Free federal 1040ez efile You can also call or write to your local taxpayer advocate, whose phone number and address are listed in your local telephone directory and in Publication 1546, Taxpayer Advocate Service — Your Voice at the IRS. Free federal 1040ez efile You can file Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf. Free federal 1040ez efile For more information, go to www. Free federal 1040ez efile irs. Free federal 1040ez efile gov/advocate. Free federal 1040ez efile Low Income Taxpayer Clinics (LITCs). Free federal 1040ez efile   LITCs are independent organizations that provide low income taxpayers with representation in federal tax controversies with the IRS for free or for a nominal charge. Free federal 1040ez efile The clinics also provide tax education and outreach for taxpayers with limited English proficiency or who speak English as a second language. Free federal 1040ez efile Publication 4134, Low Income Taxpayer Clinic List, provides information on clinics in your area. Free federal 1040ez efile It is available at www. Free federal 1040ez efile irs. Free federal 1040ez efile gov or at your local IRS office. Free federal 1040ez efile Small business workshops. Free federal 1040ez efile   Small business workshops are designed to help the small business owner understand and fulfill their federal tax responsibilities. Free federal 1040ez efile Workshops are sponsored and presented by IRS partners who are federal tax specialists. Free federal 1040ez efile Workshop topics vary from a general overview of taxes to more specific topics such as recordkeeping and retirement plans. Free federal 1040ez efile Although most are free, some workshops have fees associated with them. Free federal 1040ez efile Any fees charged for a workshop are paid to the sponsoring organization, not the IRS. Free federal 1040ez efile   For more information, visit www. Free federal 1040ez efile irs. Free federal 1040ez efile gov/businesses/small. Free federal 1040ez efile Subscribe to e-news for small businesses. Free federal 1040ez efile   Join the e-News for Small Businesses mailing list to receive updates, reminders, and other information useful to small business owners and self employed individuals. Free federal 1040ez efile Visit the website at www. Free federal 1040ez efile irs. Free federal 1040ez efile gov/businesses/small and click on “Subscribe to e-News. Free federal 1040ez efile ” Free tax services. Free federal 1040ez efile   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. Free federal 1040ez efile It contains a list of free tax publications and describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. Free federal 1040ez efile   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. Free federal 1040ez efile Internet. Free federal 1040ez efile You can access the IRS website at www. Free federal 1040ez efile irs. Free federal 1040ez efile gov 24 hours a day, 7 days a week, to: E-file your return. Free federal 1040ez efile Find out about commercial tax preparation and e-file services available free to eligible taxpayers. Free federal 1040ez efile Check the status of your refund. Free federal 1040ez efile Go to www. Free federal 1040ez efile irs. Free federal 1040ez efile gov and click on Where's My Refund. Free federal 1040ez efile Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Free federal 1040ez efile If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Free federal 1040ez efile Have your tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Free federal 1040ez efile Download forms, instructions, and publications. Free federal 1040ez efile Order IRS products online. Free federal 1040ez efile Research your tax questions online. Free federal 1040ez efile Search publications online by topic or keyword. Free federal 1040ez efile View Internal Revenue Bulletins (IRBs) published in the last few years. Free federal 1040ez efile Figure your withholding allowances using the withholding calculator online at www. Free federal 1040ez efile irs. Free federal 1040ez efile gov/individuals. Free federal 1040ez efile Determine if Form 6251 must be filed using our Alternative Minimum Tax (AMT) Assistant. Free federal 1040ez efile Sign up to receive local and national tax news by email. Free federal 1040ez efile Get information on starting and operating a small business. Free federal 1040ez efile Phone. Free federal 1040ez efile Many services are available by phone. Free federal 1040ez efile Ordering forms, instructions, and publications. Free federal 1040ez efile Call 1-800-829-3676 to order current-year forms, instructions, and publications, and prior-year forms and instructions. Free federal 1040ez efile You should receive your order within 10 days. Free federal 1040ez efile Asking tax questions. Free federal 1040ez efile Call the IRS with your tax questions at 1-800-829-1040. Free federal 1040ez efile Solving problems. Free federal 1040ez efile You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. Free federal 1040ez efile An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Free federal 1040ez efile Call your local Taxpayer Assistance Center for an appointment. Free federal 1040ez efile To find the number, go to www. Free federal 1040ez efile irs. Free federal 1040ez efile gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Free federal 1040ez efile TTY/TDD equipment. Free federal 1040ez efile If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. Free federal 1040ez efile TeleTax topics. Free federal 1040ez efile Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. Free federal 1040ez efile Refund information. Free federal 1040ez efile To check the status of your 2009 refund, call 1-800-829-1954 during business hours or 1-800-829-4477 (automated refund information 24 hours a day, 7 days a week). Free federal 1040ez efile Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Free federal 1040ez efile If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Free federal 1040ez efile Have your 2009 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Free federal 1040ez efile Refunds are sent out weekly on Fridays. Free federal 1040ez efile If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back. Free federal 1040ez efile Evaluating the quality of our telephone services. Free federal 1040ez efile To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. Free federal 1040ez efile One method is for a second IRS representative to listen in on or record random telephone calls. Free federal 1040ez efile Another is to ask some callers to complete a short survey at the end of the call. Free federal 1040ez efile Walk-in. Free federal 1040ez efile Many products and services are available on a walk-in basis. Free federal 1040ez efile Products. Free federal 1040ez efile You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Free federal 1040ez efile Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Free federal 1040ez efile Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. Free federal 1040ez efile Services. Free federal 1040ez efile You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. Free federal 1040ez efile An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Free federal 1040ez efile If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. Free federal 1040ez efile No appointment is necessary—just walk in. Free federal 1040ez efile If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. Free federal 1040ez efile A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. Free federal 1040ez efile If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested. Free federal 1040ez efile All other issues will be handled without an appointment. Free federal 1040ez efile To find the number of your local office, go to www. Free federal 1040ez efile irs. Free federal 1040ez efile gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Free federal 1040ez efile Mail. Free federal 1040ez efile You can send your order for forms, instructions, and publications to the address below. Free federal 1040ez efile You should receive a response within 10 days after your request is received. Free federal 1040ez efile Internal Revenue Service1201 N. Free federal 1040ez efile Mitsubishi MotorwayBloomington, IL 61705–6613 DVD for tax products. Free federal 1040ez efile You can order Publication 1796, IRS Tax Products DVD, and obtain: Current-year forms, instructions, and publications. Free federal 1040ez efile Prior-year forms, instructions, and publications. Free federal 1040ez efile Tax Map: an electronic research tool and finding aid. Free federal 1040ez efile Tax law frequently asked questions. Free federal 1040ez efile Tax Topics from the IRS telephone response system. Free federal 1040ez efile Internal Revenue Code—Title 26 of the U. Free federal 1040ez efile S. Free federal 1040ez efile Code. Free federal 1040ez efile Fill-in, print, and save features for most tax forms. Free federal 1040ez efile Internal Revenue Bulletins. Free federal 1040ez efile Toll-free and email technical support. Free federal 1040ez efile Two releases during the year. Free federal 1040ez efile – The first release will ship the beginning of January. Free federal 1040ez efile – The final release will ship the beginning of March. Free federal 1040ez efile Purchase the DVD from National Technical Information Service (NTIS) at www. Free federal 1040ez efile irs. Free federal 1040ez efile gov/cdorders for $30 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the DVD for $30 (plus a $6 handling fee). Free federal 1040ez efile Small Business Administration The Small Business Administration (SBA) offers training and educational programs, counseling services, financial programs, and contract assistance for small business owners. Free federal 1040ez efile The SBA also has publications and videos on a variety of business topics. Free federal 1040ez efile The following briefly describes assistance provided by the SBA. Free federal 1040ez efile Small Business Development Centers (SBDCs). Free federal 1040ez efile   SBDCs provide counseling, training, and technical services to current and prospective small business owners who cannot afford the services of a private consultant. Free federal 1040ez efile Help is available when beginning, improving, or expanding a small business. Free federal 1040ez efile Business Information Centers (BICs). Free federal 1040ez efile   BICs offer a small business reference library, management video tapes, and computer technology to help plan a business. Free federal 1040ez efile BICs also offer one-on-one assistance. Free federal 1040ez efile Individuals who are in business or are interested in starting a business can use BICs as often as they wish at no charge. Free federal 1040ez efile Service Corps of Retired Executives (SCORE). Free federal 1040ez efile   SCORE provides small business counseling and training to current and prospective small business owners. Free federal 1040ez efile SCORE is made up of current and former business people who offer their expertise and knowledge to help people start, manage, and expand a small business. Free federal 1040ez efile SCORE also offers a variety of small business workshops. Free federal 1040ez efile    Internet. Free federal 1040ez efile You can visit the SBA website at www. Free federal 1040ez efile sba. Free federal 1040ez efile gov. Free federal 1040ez efile While visiting the SBA website, you can find a variety of information of interest to small business owners. Free federal 1040ez efile    Phone. Free federal 1040ez efile Call the SBA Answer Desk at 1-800-UASK-SBA (1-800-827-5722) for general information about programs available to assist small business owners. Free federal 1040ez efile    Walk-in. Free federal 1040ez efile You can walk in to a Small Business Development Center or Business Information Center to request assistance with your small business. Free federal 1040ez efile To find the location nearest you, visit the SBA website or call the SBA Answer Desk. Free federal 1040ez efile Other Federal Agencies Other federal agencies also publish publications and pamphlets to assist small businesses. Free federal 1040ez efile Most of these are available from the Superintendent of Documents at the Government Printing Office. Free federal 1040ez efile You can get information and order these publications and pamphlets in several ways. Free federal 1040ez efile Internet. Free federal 1040ez efile You can visit the GPO website at www. Free federal 1040ez efile access. Free federal 1040ez efile gpo. Free federal 1040ez efile gov. Free federal 1040ez efile Mail. Free federal 1040ez efile Write to the GPO at the following address. Free federal 1040ez efile Superintendent of DocumentsU. Free federal 1040ez efile S. Free federal 1040ez efile Government Printing OfficeP. Free federal 1040ez efile O. Free federal 1040ez efile Box 979050St. Free federal 1040ez efile Louis, MO 63917-9000 Phone. Free federal 1040ez efile Call the GPO toll-free at 1-866-512-1800 or at 202-512-1800 from the Washington, DC area. Free federal 1040ez efile Prev  Up  Next   Home   More Online Publications