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Free tax extensions Publication 970 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionComparison table. Free tax extensions Ordering forms and publications. Free tax extensions Tax questions. Free tax extensions Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 970, such as legislation enacted after it was published, go to www. Free tax extensions irs. Free tax extensions gov/pub970. Free tax extensions What's New Lifetime learning credit. Free tax extensions  For 2013, the amount of your lifetime learning credit is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). Free tax extensions You cannot claim a credit if your MAGI is $63,000 or more ($127,000 or more if you file a joint return). Free tax extensions This is an increase from the 2012 limits of $52,000 and $62,000 ($104,000 and $124,000 if filing a joint return). Free tax extensions For more information, see chapter 3, Lifetime Learning Credit . Free tax extensions Business deduction for work-related education. Free tax extensions  For 2013, if you drive your car to and from school and qualify to deduct transportation expenses, the amount you can deduct for miles driven from January 1, 2013 through December 31, 2013 is 56. Free tax extensions 5 cents per mile. Free tax extensions See chapter 12, Business Deduction for Work-Related Education , for more information. Free tax extensions Reminders Form 1098-T, Tuition Statement. Free tax extensions  When figuring an education credit or the tuition and fees deduction, use only the amounts you paid and are deemed to have paid during the tax year for qualified education expenses. Free tax extensions In most cases, the student should receive Form 1098-T from the eligible educational institution by January 31, 2014. Free tax extensions An institution my choose to report either payments received during calendar year 2013 (box 1), or amounts billed during the calendar year 2013 (box 2), for qualified education expenses. Free tax extensions However, the amounts in boxes 1 and 2 of Form 1098-T might be different than the amount you actually paid and are deemed to have paid. Free tax extensions In addition, the Form 1098-T should give you other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements, or refunds, and whether the student was enrolled at least half-time or was a graduate student. Free tax extensions The eligible educational institution may ask for a completed Form W-9S, Request for Student's or Borrower's Taxpayer Identification Number and Certification, or similar statement to obtain the student's name, address, and taxpayer identification number. Free tax extensions Hope Scholarship Credit. Free tax extensions  For 2013, the Hope Scholarship Credit is not available. Free tax extensions However, you may be able to claim an American opportunity or lifetime learning credit. Free tax extensions See chapter 2, American Opportunity Credit , and chapter 3, Lifetime Learning Credit , for more information. Free tax extensions Estimated tax payments. Free tax extensions  If you have taxable income from any of your education benefits and the payer does not withhold enough income tax, you may need to make estimated tax payments. Free tax extensions For more information, see Publication 505, Tax Withholding and Estimated Tax. Free tax extensions Photographs of missing children. Free tax extensions  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Free tax extensions Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Free tax extensions You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Free tax extensions Introduction This publication explains tax benefits that may be available to you if you are saving for or paying education costs for yourself or, in many cases, another student who is a member of your immediate family. Free tax extensions Most benefits apply only to higher education. Free tax extensions What is in this publication. Free tax extensions    Chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions , explains the tax treatment of various types of educational assistance, including scholarships, fellowships, and tuition reductions. Free tax extensions   Two tax credits for which you may be eligible are explained in chapter 2, American Opportunity Credit , and chapter 3, Lifetime Learning Credit . Free tax extensions These benefits, which reduce the amount of income tax you may have to pay, are: The American opportunity credit, and The lifetime learning credit. Free tax extensions    Ten other types of benefits are explained in chapters 4 through 12. Free tax extensions These benefits, which reduce the amount of income tax you may have to pay, are: Deduct student loan interest; Receive tax-free treatment of a canceled student loan; Receive tax-free student loan repayment assistance; Deduct tuition and fees for education; Establish and contribute to a Coverdell education savings account (ESA), which features tax-free earnings; Participate in a qualified tuition program (QTP), which features tax-free earnings; Take early distributions from any type of individual retirement arrangement (IRA) for education costs without paying the 10% additional tax on early distributions; Cash in savings bonds for education costs without having to pay tax on the interest; Receive tax-free educational benefits from your employer; and Take a business deduction for work-related education. Free tax extensions Note. Free tax extensions You generally cannot claim more than one of the benefits described in the list above for the same qualifying education expense. Free tax extensions Comparison table. Free tax extensions   Some of the features of these benefits are highlighted in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 , later, in this publication. Free tax extensions This general comparison table may guide you in determining which benefits you may be eligible for and which chapters you may want to read. Free tax extensions When you figure your taxes, you may want to compare these tax benefits so you can choose the method(s) that gives you the lowest tax liability. Free tax extensions If you qualify, you may find that a combination of credit(s) and deduction(s) gives you the lowest tax. Free tax extensions Analyzing your tax withholding. Free tax extensions   After you estimate your education tax benefits for the year, you may be able to reduce the amount of your federal income tax withholding. Free tax extensions Also, you may want to recheck your withholding during the year if your personal or financial situation changes. Free tax extensions See Publication 919, How Do I Adjust My Tax Withholding, for more information. Free tax extensions Glossary. Free tax extensions   In this publication, wherever appropriate, we have tried to use the same or similar terminology when referring to the basic components of each education benefit. Free tax extensions Some of the terms used are: Qualified education expenses, Eligible educational institution, and Modified adjusted gross income. Free tax extensions   Even though the same term, such as qualified education expenses, is used to label a basic component of many of the education benefits, the same expenses are not necessarily allowed for each benefit. Free tax extensions For example, the cost of room and board is a qualified education expense for the qualified tuition program, but not for the education savings bond program. Free tax extensions   Many of the terms used in the publication are defined in the glossary near the end of the publication. Free tax extensions The glossary is not intended to be a substitute for reading the chapter on a particular education benefit, but it will give you an overview of how certain terms are used in discussing the different benefits. Free tax extensions Comments and suggestions. Free tax extensions   We welcome your comments about this publication and your suggestions for future editions. Free tax extensions   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Free tax extensions NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Free tax extensions Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Free tax extensions   You can send your comments from www. Free tax extensions irs. Free tax extensions gov/formspubs/. Free tax extensions Click on “More Information” and then on “Comment on Tax Forms and Publications”. Free tax extensions   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Free tax extensions Ordering forms and publications. Free tax extensions   Visit www. Free tax extensions irs. Free tax extensions gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Free tax extensions Internal Revenue Service 1201 N. Free tax extensions Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Free tax extensions   If you have a tax question, check the information available on IRS. Free tax extensions gov or call 1-800-829-1040. Free tax extensions We cannot answer tax questions sent to either of the above addresses. Free tax extensions Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 550 Investment Income and Expenses 590 Individual Retirement Arrangements (IRAs) Form (and Instructions) 1040 U. Free tax extensions S. Free tax extensions Individual Income Tax Return 1040A U. Free tax extensions S. Free tax extensions Individual Income Tax Return 1040EZ Income Tax Return for Single and Joint Filers With No Dependents 1040NR U. Free tax extensions S. Free tax extensions Nonresident Alien Income Tax Return 1040NR-EZ U. Free tax extensions S. Free tax extensions Income Tax Return for Certain Nonresident Aliens With No Dependents 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 5329 Additional Taxes on Qualified Plans and Other Tax-Favored Accounts 8815 Exclusion of Interest From Series EE and I U. Free tax extensions S. Free tax extensions Savings Bonds Issued After 1989 8863 Education Credits 8917 Tuition and Fees Deduction Schedule A (Form 1040) Itemized Deductions  See chapter 13, How To Get Tax Help , for information about getting these publications and forms. Free tax extensions Prev  Up  Next   Home   More Online Publications
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Tax Relief for Victims of April Storms and Floods in Montana

Updated 8/24/2011 to include Blaine, Broadwater, Carter, Chouteau, Fallon, Flathead, Golden Valley, Madison, Park, Phillips, Pondera, Powell, Rosebud, Toole, and Wibaux counties and the Fort Peck Reservation.

COIDMTWY-2011-24, July 28, 2011

DENVER— Victims of severe storms and flooding beginning on April 3, 2011 in parts of Montana may qualify for tax relief from the Internal Revenue Service.

The President has declared Big Horn, Blaine, Broadwater, Carbon, Carter, Cascade, Chouteau, Custer, Fallon, Fergus, Flathead, Garfield, Golden Valley, Hill, Jefferson, Judith Basin, Lewis and Clark, Madison, Musselshell, Park, Petroleum, Phillips, Pondera, Powell, Rosebud, Sweet Grass, Toole, Valley, Wibaux, and Yellowstone Counties and the Blackfeet Indian Reservation, Crow Indian Reservation, Fort Belknap Reservation, and Fort Peck Reservation a federal disaster area. Individuals who reside or have a business in these localities may qualify for tax relief.

As a result, the IRS postponed until June 30, 2011, certain deadlines for taxpayers who live or have a business in the disaster area. This includes the April 18 deadline for filing 2010 individual income tax returns, making income tax payments and making 2010 contributions to an individual retirement account (IRA). It also includes the April 18 and June 15 deadlines for making estimated tax payments.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after April 3 and on or before April 18, 2011, as long as the deposits were made by April 18, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The areas listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until June 30, 2011 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after April 3 and on or before June 30.

The IRS also gives affected taxpayers until June 30 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (August 20, 2007), that are due to be performed on or after April 3 and on or before June 30.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after April 3 and on or before April 18, provided the taxpayer made these deposits by April 18.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.
Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation, "Montana/Severe Storms and Flooding," at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information:

Disaster Assistance and Emergency Relief for Individuals and Businesses

Recent IRS Disaster Relief Announcements

Page Last Reviewed or Updated: 25-Apr-2013

The Free Tax Extensions

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