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Free turbotax 2011 download 4. Free turbotax 2011 download   Sales and Trades of Investment Property Table of Contents IntroductionNominees. Free turbotax 2011 download Topics - This chapter discusses: Useful Items - You may want to see: What Is a Sale or Trade?Dividend versus sale or trade. Free turbotax 2011 download Worthless Securities Constructive Sales of Appreciated Financial Positions Section 1256 Contracts Marked to Market Basis of Investment PropertyCost Basis Basis Other Than Cost Adjusted Basis Stocks and Bonds How To Figure Gain or LossFair market value. Free turbotax 2011 download Debt paid off. Free turbotax 2011 download Payment of cash. Free turbotax 2011 download Special Rules for Mutual Funds Nontaxable TradesLike-Kind Exchanges Corporate Stocks Exchange of Shares In One Mutual Fund For Shares In Another Mutual Fund Insurance Policies and Annuities U. Free turbotax 2011 download S. Free turbotax 2011 download Treasury Notes or Bonds Transfers Between Spouses Related Party TransactionsGain on Sale or Trade of Depreciable Property Capital Gains and LossesCapital or Ordinary Gain or Loss Holding Period Nonbusiness Bad Debts Short Sales Wash Sales Options Straddles Sales of Stock to ESOPs or Certain Cooperatives Rollover of Gain From Publicly Traded Securities Gains on Qualified Small Business Stock Exclusion of Gain From DC Zone Assets Reporting Capital Gains and LossesException 1. Free turbotax 2011 download Exception 2. Free turbotax 2011 download Section 1256 contracts and straddles. Free turbotax 2011 download Market discount bonds. Free turbotax 2011 download File Form 1099-B or Form 1099-S with the IRS. Free turbotax 2011 download Capital Losses Capital Gain Tax Rates Special Rules for Traders in SecuritiesHow To Report Introduction This chapter explains the tax treatment of sales and trades of investment property. Free turbotax 2011 download Investment property. Free turbotax 2011 download   This is property that produces investment income. Free turbotax 2011 download Examples include stocks, bonds, and Treasury bills and notes. Free turbotax 2011 download Property used in a trade or business is not investment property. Free turbotax 2011 download Form 1099-B. Free turbotax 2011 download   If you sold property such as stocks, bonds, mutual funds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. Free turbotax 2011 download You should receive the statement by February 15 of the next year. Free turbotax 2011 download It will show the gross proceeds from the sale. Free turbotax 2011 download The IRS will also get a copy of Form 1099-B from the broker. Free turbotax 2011 download   Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. Free turbotax 2011 download If you sold a covered security in 2013, your broker will send you a Form 1099-B (or substitute statement) that shows your basis. Free turbotax 2011 download This will help you complete Form 8949. Free turbotax 2011 download Generally, a covered security is a security you acquired after 2010, with certain exceptions explained in the Instructions for Form 8949. Free turbotax 2011 download    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in this chapter. Free turbotax 2011 download Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). Free turbotax 2011 download Nominees. Free turbotax 2011 download   If someone receives gross proceeds as a nominee for you, that person will give you a Form 1099-B, which will show gross proceeds received on your behalf. Free turbotax 2011 download   If you receive a Form 1099-B that includes gross proceeds belonging to another person, see Nominees , later under Reporting Capital Gains and Losses for more information. Free turbotax 2011 download Other property transactions. Free turbotax 2011 download   Certain transfers of property are discussed in other IRS publications. Free turbotax 2011 download These include: Sale of your main home, discussed in Publication 523, Selling Your Home; Installment sales, covered in Publication 537; Various types of transactions involving business property, discussed in Publication 544, Sales and Other Dispositions of Assets; Transfers of property at death, covered in Publication 559; and Disposition of an interest in a passive activity, discussed in Publication 925. Free turbotax 2011 download Topics - This chapter discusses: What Is a Sale or Trade? , Basis of Investment Property , Adjusted Basis , How To Figure Gain or Loss , Nontaxable trades , Transfers Between Spouses , Related Party Transactions , Capital Gains and Losses , Reporting Capital Gains and Losses , and Special Rules for Traders in Securities . Free turbotax 2011 download Useful Items - You may want to see: Publication 551 Basis of Assets Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 6781 Gains and Losses From Section 1256 Contracts and Straddles 8582 Passive Activity Loss Limitations 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Free turbotax 2011 download What Is a Sale or Trade? This section explains what is a sale or trade. Free turbotax 2011 download It also explains certain transactions and events that are treated as sales or trades. Free turbotax 2011 download A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. Free turbotax 2011 download A trade is a transfer of property for other property or services, and may be taxed in the same way as a sale. Free turbotax 2011 download Sale and purchase. Free turbotax 2011 download   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. Free turbotax 2011 download The sale and purchase are two separate transactions. Free turbotax 2011 download But see Like-Kind Exchanges under Nontaxable Trades, later. Free turbotax 2011 download Redemption of stock. Free turbotax 2011 download   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. Free turbotax 2011 download Dividend versus sale or trade. Free turbotax 2011 download   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. Free turbotax 2011 download Both direct and indirect ownership of stock will be considered. Free turbotax 2011 download The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend — see Dividends and Other Distributions in chapter 1, There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. Free turbotax 2011 download Redemption or retirement of bonds. Free turbotax 2011 download   A redemption or retirement of bonds or notes at their maturity generally is treated as a sale or trade. Free turbotax 2011 download See Stocks, stock rights, and bonds and Discounted Debt Instruments under Capital or Ordinary Gain or Loss, later. Free turbotax 2011 download   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. Free turbotax 2011 download For details, see Regulations section 1. Free turbotax 2011 download 1001-3. Free turbotax 2011 download Surrender of stock. Free turbotax 2011 download   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. Free turbotax 2011 download The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. Free turbotax 2011 download Trade of investment property for an annuity. Free turbotax 2011 download   The transfer of investment property to a corporation, trust, fund, foundation, or other organization, in exchange for a fixed annuity contract that will make guaranteed annual payments to you for life, is a taxable trade. Free turbotax 2011 download If the present value of the annuity is more than your basis in the property traded, you have a taxable gain in the year of the trade. Free turbotax 2011 download Figure the present value of the annuity according to factors used by commercial insurance companies issuing annuities. Free turbotax 2011 download Transfer by inheritance. Free turbotax 2011 download   The transfer of property of a decedent to the executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or other disposition. Free turbotax 2011 download No taxable gain or deductible loss results from the transfer. Free turbotax 2011 download Termination of certain rights and obligations. Free turbotax 2011 download   The cancellation, lapse, expiration, or other termination of a right or obligation (other than a securities futures contract) with respect to property that is a capital asset (or that would be a capital asset if you acquired it) is treated as a sale. Free turbotax 2011 download Any gain or loss is treated as a capital gain or loss. Free turbotax 2011 download   This rule does not apply to the retirement of a debt instrument. Free turbotax 2011 download See Redemption or retirement of bonds , earlier. Free turbotax 2011 download Worthless Securities Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. Free turbotax 2011 download This affects whether your capital loss is long term or short term. Free turbotax 2011 download See Holding Period , later. Free turbotax 2011 download Worthless securities also include securities that you abandon after March 12, 2008. Free turbotax 2011 download To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. Free turbotax 2011 download All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. Free turbotax 2011 download If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. Free turbotax 2011 download Do not deduct them in the year the stock became worthless. Free turbotax 2011 download How to report loss. Free turbotax 2011 download   Report worthless securities in Form 8949, Part I or Part II, whichever applies. Free turbotax 2011 download    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. Free turbotax 2011 download See Form 8949 and the Instructions for Form 8949. Free turbotax 2011 download Filing a claim for refund. Free turbotax 2011 download   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. Free turbotax 2011 download You must use Form 1040X, Amended U. Free turbotax 2011 download S. Free turbotax 2011 download Individual Income Tax Return, to amend your return for the year the security became worthless. Free turbotax 2011 download You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. Free turbotax 2011 download (Claims not due to worthless securities or bad debts generally must be filed within 3 years from the date a return is filed, or 2 years from the date the tax is paid, whichever is later. Free turbotax 2011 download ) For more information about filing a claim, see Publication 556. Free turbotax 2011 download Constructive Sales of Appreciated Financial Positions You are treated as having made a constructive sale when you enter into certain transactions involving an appreciated financial position (defined later) in stock, a partnership interest, or certain debt instruments. Free turbotax 2011 download You must recognize gain as if the position were disposed of at its fair market value on the date of the constructive sale. Free turbotax 2011 download This gives you a new holding period for the position that begins on the date of the constructive sale. Free turbotax 2011 download Then, when you close the transaction, you reduce your gain (or increase your loss) by the gain recognized on the constructive sale. Free turbotax 2011 download Constructive sale. Free turbotax 2011 download   You are treated as having made a constructive sale of an appreciated financial position if you: Enter into a short sale of the same or substantially identical property, Enter into an offsetting notional principal contract relating to the same or substantially identical property, Enter into a futures or forward contract to deliver the same or substantially identical property (including a forward contract that provides for cash settlement), or Acquire the same or substantially identical property (if the appreciated financial position is a short sale, an offsetting notional principal contract, or a futures or forward contract). Free turbotax 2011 download   You are also treated as having made a constructive sale of an appreciated financial position if a person related to you enters into a transaction described above with a view toward avoiding the constructive sale treatment. Free turbotax 2011 download For this purpose, a related person is any related party described under Related Party Transactions , later in this chapter. Free turbotax 2011 download Exception for nonmarketable securities. Free turbotax 2011 download   You are not treated as having made a constructive sale solely because you entered into a contract for sale of any stock, debt instrument, or partnership interest that is not a marketable security if it settles within 1 year of the date you enter into it. Free turbotax 2011 download Exception for certain closed transactions. Free turbotax 2011 download   Do not treat a transaction as a constructive sale if all of the following are true. Free turbotax 2011 download You closed the transaction on or before the 30th day after the end of your tax year. Free turbotax 2011 download You held the appreciated financial position throughout the 60-day period beginning on the date you closed the transaction. Free turbotax 2011 download Your risk of loss was not reduced at any time during that 60-day period by holding certain other positions. Free turbotax 2011 download   If a closed transaction is reestablished in a substantially similar position during the 60-day period beginning on the date the first transaction was closed, this exception still applies if the reestablished position is closed before the 30th day after the end of your tax year in which the first transaction was closed and, after that closing, (2) and (3) above are true. Free turbotax 2011 download   This exception also applies to successive short sales of an entire appreciated financial position. Free turbotax 2011 download For more information, see Revenue Ruling 2003-1 in Internal Revenue Bulletin 2003-3. Free turbotax 2011 download This bulletin is available at www. Free turbotax 2011 download irs. Free turbotax 2011 download gov/pub/irs-irbs/irb03-03. Free turbotax 2011 download pdf. Free turbotax 2011 download Appreciated financial position. Free turbotax 2011 download   This is any interest in stock, a partnership interest, or a debt instrument (including a futures or forward contract, a short sale, or an option) if disposing of the interest would result in a gain. Free turbotax 2011 download Exceptions. Free turbotax 2011 download   An appreciated financial position does not include the following. Free turbotax 2011 download Any position from which all of the appreciation is accounted for under marked-to-market rules, including section 1256 contracts (described later under Section 1256 Contracts Marked to Market ). Free turbotax 2011 download Any position in a debt instrument if: The position unconditionally entitles the holder to receive a specified principal amount, The interest payments (or other similar amounts) with respect to the position are payable at a fixed rate or a variable rate described in Regulations section 1. Free turbotax 2011 download 860G-1(a)(3), and The position is not convertible, either directly or indirectly, into stock of the issuer (or any related person). Free turbotax 2011 download Any hedge with respect to a position described in (2). Free turbotax 2011 download Certain trust instruments treated as stock. Free turbotax 2011 download   For the constructive sale rules, an interest in an actively traded trust is treated as stock unless substantially all of the value of the property held by the trust is debt that qualifies for the exception to the definition of an appreciated financial position (explained in (2) above). Free turbotax 2011 download Sale of appreciated financial position. Free turbotax 2011 download   A transaction treated as a constructive sale of an appreciated financial position is not treated as a constructive sale of any other appreciated financial position, as long as you continue to hold the original position. Free turbotax 2011 download However, if you hold another appreciated financial position and dispose of the original position before closing the transaction that resulted in the constructive sale, you are treated as if, at the same time, you constructively sold the other appreciated financial position. Free turbotax 2011 download Section 1256 Contracts Marked to Market If you hold a section 1256 contract at the end of the tax year, you generally must treat it as sold at its fair market value on the last business day of the tax year. Free turbotax 2011 download Section 1256 Contract A section 1256 contract is any: Regulated futures contract, Foreign currency contract, Nonequity option, Dealer equity option, or Dealer securities futures contract. Free turbotax 2011 download Exceptions. Free turbotax 2011 download   A section 1256 contract does not include: Interest rate swaps, Currency swaps, Basis swaps, Interest rate caps, Interest rate floors, Commodity swaps, Equity swaps, Equity index swaps, Credit default swaps, or Similar agreements. Free turbotax 2011 download For more details, including definitions of these terms, see section 1256. Free turbotax 2011 download Regulated futures contract. Free turbotax 2011 download   This is a contract that: Provides that amounts which must be deposited to, or can be withdrawn from, your margin account depend on daily market conditions (a system of marking to market), and Is traded on, or subject to the rules of, a qualified board of exchange. Free turbotax 2011 download A qualified board of exchange is a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission, any board of trade or exchange approved by the Secretary of the Treasury, or a national securities exchange registered with the Securities and Exchange Commission. Free turbotax 2011 download Foreign currency contract. Free turbotax 2011 download   This is a contract that: Requires delivery of a foreign currency that has positions traded through regulated futures contracts (or settlement of which depends on the value of that type of foreign currency), Is traded in the interbank market, and Is entered into at arm's length at a price determined by reference to the price in the interbank market. Free turbotax 2011 download   Bank forward contracts with maturity dates longer than the maturities ordinarily available for regulated futures contracts are considered to meet the definition of a foreign currency contract if the above three conditions are satisfied. Free turbotax 2011 download   Special rules apply to certain foreign currency transactions. Free turbotax 2011 download These transactions may result in ordinary gain or loss treatment. Free turbotax 2011 download For details, see Internal Revenue Code section 988 and Regulations sections 1. Free turbotax 2011 download 988-1(a)(7) and 1. Free turbotax 2011 download 988-3. Free turbotax 2011 download Nonequity option. Free turbotax 2011 download   This is any listed option (defined later) that is not an equity option. Free turbotax 2011 download Nonequity options include debt options, commodity futures options, currency options, and broad-based stock index options. Free turbotax 2011 download A broad-based stock index is based on the value of a group of diversified stocks or securities (such as the Standard and Poor's 500 index). Free turbotax 2011 download Warrants based on a stock index that are economically, substantially identical in all material respects to options based on a stock index are treated as options based on a stock index. Free turbotax 2011 download Cash-settled options. Free turbotax 2011 download   Cash-settled options based on a stock index and either traded on or subject to the rules of a qualified board of exchange are nonequity options if the Securities and Exchange Commission (SEC) determines that the stock index is broad based. Free turbotax 2011 download   This rule does not apply to options established before the SEC determines that the stock index is broad based. Free turbotax 2011 download Listed option. Free turbotax 2011 download   This is any option traded on, or subject to the rules of, a qualified board or exchange (as discussed earlier under Regulated futures contract). Free turbotax 2011 download A listed option, however, does not include an option that is a right to acquire stock from the issuer. Free turbotax 2011 download Dealer equity option. Free turbotax 2011 download   This is any listed option that, for an options dealer: Is an equity option, Is bought or granted by that dealer in the normal course of the dealer's business activity of dealing in options, and Is listed on the qualified board of exchange where that dealer is registered. Free turbotax 2011 download   An “options dealer” is any person registered with an appropriate national securities exchange as a market maker or specialist in listed options. Free turbotax 2011 download Equity option. Free turbotax 2011 download   This is any option: To buy or sell stock, or That is valued directly or indirectly by reference to any stock or narrow-based security index. Free turbotax 2011 download  Equity options include options on a group of stocks only if the group is a narrow-based stock index. Free turbotax 2011 download Dealer securities futures contract. Free turbotax 2011 download   For any dealer in securities futures contracts or options on those contracts, this is a securities futures contract (or option on such a contract) that: Is entered into by the dealer (or, in the case of an option, is purchased or granted by the dealer) in the normal course of the dealer's activity of dealing in this type of contract (or option), and Is traded on a qualified board or exchange (as defined under Regulated futures contract , earlier). Free turbotax 2011 download A securities futures contract that is not a dealer securities futures contract is treated as described later under Securities Futures Contracts . Free turbotax 2011 download Marked-to-Market Rules A section 1256 contract that you hold at the end of the tax year will generally be treated as sold at its fair market value on the last business day of the tax year, and you must recognize any gain or loss that results. Free turbotax 2011 download That gain or loss is taken into account in figuring your gain or loss when you later dispose of the contract, as shown in the example under 60/40 rule, below. Free turbotax 2011 download Hedging exception. Free turbotax 2011 download   The marked-to-market rules do not apply to hedging transactions. Free turbotax 2011 download See Hedging Transactions , later. Free turbotax 2011 download 60/40 rule. Free turbotax 2011 download   Under the marked-to-market system, 60% of your capital gain or loss will be treated as a long-term capital gain or loss, and 40% will be treated as a short-term capital gain or loss. Free turbotax 2011 download This is true regardless of how long you actually held the property. Free turbotax 2011 download Example. Free turbotax 2011 download On June 22, 2012, you bought a regulated futures contract for $50,000. Free turbotax 2011 download On December 31, 2012 (the last business day of your tax year), the fair market value of the contract was $57,000. Free turbotax 2011 download You recognized a $7,000 gain on your 2012 tax return, treated as 60% long-term and 40% short-term capital gain. Free turbotax 2011 download On February 1, 2013, you sold the contract for $56,000. Free turbotax 2011 download Because you recognized a $7,000 gain on your 2012 return, you recognize a $1,000 loss ($57,000 − $56,000) on your 2013 tax return, treated as 60% long-term and 40% short-term capital loss. Free turbotax 2011 download Limited partners or entrepreneurs. Free turbotax 2011 download   The 60/40 rule does not apply to dealer equity options or dealer securities futures contracts that result in capital gain or loss allocable to limited partners or limited entrepreneurs (defined later under Hedging Transactions ). Free turbotax 2011 download Instead, these gains or losses are treated as short term. Free turbotax 2011 download Terminations and transfers. Free turbotax 2011 download   The marked-to-market rules also apply if your obligation or rights under section 1256 contracts are terminated or transferred during the tax year. Free turbotax 2011 download In this case, use the fair market value of each section 1256 contract at the time of termination or transfer to determine the gain or loss. Free turbotax 2011 download Terminations or transfers may result from any offsetting, delivery, exercise, assignment, or lapse of your obligation or rights under section 1256 contracts. Free turbotax 2011 download Loss carryback election. Free turbotax 2011 download   An individual having a net section 1256 contracts loss (defined later), generally can elect to carry this loss back 3 years instead of carrying it over to the next year. Free turbotax 2011 download See How To Report , later, for information about reporting this election on your return. Free turbotax 2011 download   The loss carried back to any year under this election cannot be more than the net section 1256 contracts gain in that year. Free turbotax 2011 download In addition, the amount of loss carried back to an earlier tax year cannot increase or produce a net operating loss for that year. Free turbotax 2011 download   The loss is carried to the earliest carryback year first, and any unabsorbed loss amount can then be carried to each of the next 2 tax years. Free turbotax 2011 download In each carryback year, treat 60% of the carryback amount as a long-term capital loss and 40% as a short-term capital loss from section 1256 contracts. Free turbotax 2011 download   If only a portion of the net section 1256 contracts loss is absorbed by carrying the loss back, the unabsorbed portion can be carried forward, under the capital loss carryover rules, to the year following the loss. Free turbotax 2011 download (See Capital Losses under Reporting Capital Gains and Losses, later. Free turbotax 2011 download ) Figure your capital loss carryover as if, for the loss year, you had an additional short-term capital gain of 40% of the amount of net section 1256 contracts loss absorbed in the carryback years and an additional long-term capital gain of 60% of the absorbed loss. Free turbotax 2011 download In the carryover year, treat any capital loss carryover from losses on section 1256 contracts as if it were a loss from section 1256 contracts for that year. Free turbotax 2011 download Net section 1256 contracts loss. Free turbotax 2011 download   This loss is the lesser of: The net capital loss for your tax year determined by taking into account only the gains and losses from section 1256 contracts, or The capital loss carryover to the next tax year determined without this election. Free turbotax 2011 download Net section 1256 contracts gain. Free turbotax 2011 download   This gain is the lesser of: The capital gain net income for the carryback year determined by taking into account only gains and losses from section 1256 contracts, or The capital gain net income for that year. Free turbotax 2011 download  Figure your net section 1256 contracts gain for any carryback year without regard to the net section 1256 contracts loss for the loss year or any later tax year. Free turbotax 2011 download Traders in section 1256 contracts. Free turbotax 2011 download   Gain or loss from the trading of section 1256 contracts is capital gain or loss subject to the marked-to-market rules. Free turbotax 2011 download However, this does not apply to contracts held for purposes of hedging property if any loss from the property would be an ordinary loss. Free turbotax 2011 download Treatment of underlying property. Free turbotax 2011 download   The determination of whether an individual's gain or loss from any property is ordinary or capital gain or loss is made without regard to the fact that the individual is actively engaged in dealing in or trading section 1256 contracts related to that property. Free turbotax 2011 download How To Report If you disposed of regulated futures or foreign currency contracts in 2013 (or had unrealized profit or loss on these contracts that were open at the end of 2012 or 2013), you should receive Form 1099-B, or substitute statement, from your broker. Free turbotax 2011 download Form 6781. Free turbotax 2011 download   Use Part I of Form 6781 to report your gains and losses from all section 1256 contracts that are open at the end of the year or that were closed out during the year. Free turbotax 2011 download This includes the amount shown in box 10 of Form 1099-B. Free turbotax 2011 download Then enter the net amount of these gains and losses on Schedule D (Form 1040), line 4 or line 11, as appropriate. Free turbotax 2011 download Include a copy of Form 6781 with your income tax return. Free turbotax 2011 download   If the Form 1099-B you receive includes a straddle or hedging transaction, defined later, it may be necessary to show certain adjustments on Form 6781. Free turbotax 2011 download Follow the Form 6781 instructions for completing Part I. Free turbotax 2011 download Loss carryback election. Free turbotax 2011 download   To carry back your loss under the election procedures described earlier, file Form 1040X or Form 1045, Application for Tentative Refund, for the year to which you are carrying the loss with an amended Form 6781 and an amended Schedule D (Form 1040) attached. Free turbotax 2011 download Follow the instructions for completing Form 6781 for the loss year to make this election. Free turbotax 2011 download Hedging Transactions The marked-to-market rules, described earlier, do not apply to hedging transactions. Free turbotax 2011 download A transaction is a hedging transaction if both of the following conditions are met. Free turbotax 2011 download You entered into the transaction in the normal course of your trade or business primarily to manage the risk of: Price changes or currency fluctuations on ordinary property you hold (or will hold), or Interest rate or price changes, or currency fluctuations, on your current or future borrowings or ordinary obligations. Free turbotax 2011 download You clearly identified the transaction as being a hedging transaction before the close of the day on which you entered into it. Free turbotax 2011 download This hedging transaction exception does not apply to transactions entered into by or for any syndicate. Free turbotax 2011 download A syndicate is a partnership, S corporation, or other entity (other than a regular corporation) that allocates more than 35% of its losses to limited partners or limited entrepreneurs. Free turbotax 2011 download A limited entrepreneur is a person who has an interest in an enterprise (but not as a limited partner) and who does not actively participate in its management. Free turbotax 2011 download However, an interest is not considered held by a limited partner or entrepreneur if the interest holder actively participates (or did so for at least 5 full years) in the management of the entity, or is the spouse, child (including a legally adopted child), grandchild, or parent of an individual who actively participates in the management of the entity. Free turbotax 2011 download Hedging loss limit. Free turbotax 2011 download   If you are a limited partner or entrepreneur in a syndicate, the amount of a hedging loss you can claim is limited. Free turbotax 2011 download A “hedging loss” is the amount by which the allowable deductions in a tax year that resulted from a hedging transaction (determined without regard to the limit) are more than the income received or accrued during the tax year from this transaction. Free turbotax 2011 download   Any hedging loss allocated to you for the tax year is limited to your taxable income for that year from the trade or business in which the hedging transaction occurred. Free turbotax 2011 download Ignore any hedging transaction items in determining this taxable income. Free turbotax 2011 download If you have a hedging loss that is disallowed because of this limit, you can carry it over to the next tax year as a deduction resulting from a hedging transaction. Free turbotax 2011 download   If the hedging transaction relates to property other than stock or securities, the limit on hedging losses applies if the limited partner or entrepreneur is an individual. Free turbotax 2011 download   The limit on hedging losses does not apply to any hedging loss to the extent that it is more than all your unrecognized gains from hedging transactions at the end of the tax year that are from the trade or business in which the hedging transaction occurred. Free turbotax 2011 download The term “unrecognized gain” has the same meaning as defined under Loss Deferral Rules in Straddles, later. Free turbotax 2011 download Sale of property used in a hedge. Free turbotax 2011 download   Once you identify personal property as being part of a hedging transaction, you must treat gain from its sale or exchange as ordinary income, not capital gain. Free turbotax 2011 download Self-Employment Income Gains and losses derived in the ordinary course of a commodity or option dealer's trading in section 1256 contracts and property related to these contracts are included in net earnings from self-employment. Free turbotax 2011 download See the Instructions for Schedule SE (Form 1040). Free turbotax 2011 download In addition, the rules relating to contributions to self-employment retirement plans apply. Free turbotax 2011 download For information on retirement plan contributions, see Publication 560 and Publication 590. Free turbotax 2011 download Basis of Investment Property Basis is a way of measuring your investment in property for tax purposes. Free turbotax 2011 download You must know the basis of your property to determine whether you have a gain or loss on its sale or other disposition. Free turbotax 2011 download Investment property you buy normally has an original basis equal to its cost. Free turbotax 2011 download If you get property in some way other than buying it, such as by gift or inheritance, its fair market value may be important in figuring the basis. Free turbotax 2011 download Cost Basis The basis of property you buy is usually its cost. Free turbotax 2011 download The cost is the amount you pay in cash, debt obligations, or other property or services. Free turbotax 2011 download Unstated interest. Free turbotax 2011 download   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. Free turbotax 2011 download You generally have unstated interest if your interest rate is less than the applicable federal rate. Free turbotax 2011 download For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Free turbotax 2011 download Basis Other Than Cost There are times when you must use a basis other than cost. Free turbotax 2011 download In these cases, you may need to know the property's fair market value or the adjusted basis of the previous owner. Free turbotax 2011 download Fair market value. Free turbotax 2011 download   This is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Free turbotax 2011 download Sales of similar property, around the same date, may be helpful in figuring fair market value. Free turbotax 2011 download Property Received for Services If you receive investment property for services, you must include the property's fair market value in income. Free turbotax 2011 download The amount you include in income then becomes your basis in the property. Free turbotax 2011 download If the services were performed for a price that was agreed to beforehand, this price will be accepted as the fair market value of the property if there is no evidence to the contrary. Free turbotax 2011 download Restricted property. Free turbotax 2011 download   If you receive, as payment for services, property that is subject to certain restrictions, your basis in the property generally is its fair market value when it becomes substantially vested. Free turbotax 2011 download Property becomes substantially vested when it is transferable or is no longer subject to substantial risk of forfeiture, whichever happens first. Free turbotax 2011 download See Restricted Property in Publication 525 for more information. Free turbotax 2011 download Bargain purchases. Free turbotax 2011 download   If you buy investment property at less than fair market value, as payment for services, you must include the difference in income. Free turbotax 2011 download Your basis in the property is the price you pay plus the amount you include in income. Free turbotax 2011 download Property Received in Taxable Trades If you received investment property in trade for other property, the basis of the new property is its fair market value at the time of the trade unless you received the property in a nontaxable trade. Free turbotax 2011 download Example. Free turbotax 2011 download You trade A Company stock for B Company stock having a fair market value of $1,200. Free turbotax 2011 download If the adjusted basis of the A Company stock is less than $1,200, you have a taxable gain on the trade. Free turbotax 2011 download If the adjusted basis of the A Company stock is more than $1,200, you have a deductible loss on the trade. Free turbotax 2011 download The basis of your B Company stock is $1,200. Free turbotax 2011 download If you later sell the B Company stock for $1,300, you will have a gain of $100. Free turbotax 2011 download Property Received in Nontaxable Trades If you have a nontaxable trade, you do not recognize gain or loss until you dispose of the property you received in the trade. Free turbotax 2011 download See Nontaxable Trades , later. Free turbotax 2011 download The basis of property you received in a nontaxable or partly nontaxable trade is generally the same as the adjusted basis of the property you gave up. Free turbotax 2011 download Increase this amount by any cash you paid, additional costs you had, and any gain recognized. Free turbotax 2011 download Reduce this amount by any cash or unlike property you received, any loss recognized, and any liability of yours that was assumed or treated as assumed. Free turbotax 2011 download Property Received From Your Spouse If property is transferred to you from your spouse (or former spouse, if the transfer is incident to your divorce), your basis is the same as your spouse's or former spouse's adjusted basis just before the transfer. Free turbotax 2011 download See Transfers Between Spouses , later. Free turbotax 2011 download Recordkeeping. Free turbotax 2011 download The transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of the transfer. Free turbotax 2011 download Property Received as a Gift To figure your basis in property that you received as a gift, you must know its adjusted basis to the donor just before it was given to you, its fair market value at the time it was given to you, the amount of any gift tax paid on it, and the date it was given to you. Free turbotax 2011 download Fair market value less than donor's adjusted basis. Free turbotax 2011 download   If the fair market value of the property at the time of the gift was less than the donor's adjusted basis just before the gift, your basis for gain on its sale or other disposition is the same as the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. Free turbotax 2011 download Your basis for loss is its fair market value at the time of the gift plus or minus any required adjustments to basis during the period you hold the property. Free turbotax 2011 download No gain or loss. Free turbotax 2011 download   If you use the basis for figuring a gain and the result is a loss, and then use the basis for figuring a loss and the result is a gain, you will have neither a gain nor a loss. Free turbotax 2011 download Example. Free turbotax 2011 download You receive a gift of investment property having an adjusted basis of $10,000 at the time of the gift. Free turbotax 2011 download The fair market value at the time of the gift is $9,000. Free turbotax 2011 download You later sell the property for $9,500. Free turbotax 2011 download You have neither gain nor loss. Free turbotax 2011 download Your basis for figuring gain is $10,000, and $9,500 minus $10,000 results in a $500 loss. Free turbotax 2011 download Your basis for figuring loss is $9,000, and $9,500 minus $9,000 results in a $500 gain. Free turbotax 2011 download Fair market value equal to or more than donor's adjusted basis. Free turbotax 2011 download   If the fair market value of the property at the time of the gift was equal to or more than the donor's adjusted basis just before the gift, your basis for gain or loss on its sale or other disposition is the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. Free turbotax 2011 download Also, you may be allowed to add to the donor's adjusted basis all or part of any gift tax paid, depending on the date of the gift. Free turbotax 2011 download Gift received before 1977. Free turbotax 2011 download   If you received property as a gift before 1977, your basis in the property is the donor's adjusted basis increased by the total gift tax paid on the gift. Free turbotax 2011 download However, your basis cannot be more than the fair market value of the gift at the time it was given to you. Free turbotax 2011 download Example 1. Free turbotax 2011 download You were given XYZ Company stock in 1976. Free turbotax 2011 download At the time of the gift, the stock had a fair market value of $21,000. Free turbotax 2011 download The donor's adjusted basis was $20,000. Free turbotax 2011 download The donor paid a gift tax of $500 on the gift. Free turbotax 2011 download Your basis for gain or loss is $20,500, the donor's adjusted basis plus the amount of gift tax paid. Free turbotax 2011 download Example 2. Free turbotax 2011 download The facts are the same as in Example 1 except that the gift tax paid was $1,500. Free turbotax 2011 download Your basis is $21,000, the donor's adjusted basis plus the gift tax paid, but limited to the fair market value of the stock at the time of the gift. Free turbotax 2011 download Gift received after 1976. Free turbotax 2011 download   If you received property as a gift after 1976, your basis is the donor's adjusted basis increased by the part of the gift tax paid that was for the net increase in value of the gift. Free turbotax 2011 download You figure this part by multiplying the gift tax paid on the gift by a fraction. Free turbotax 2011 download The numerator (top part) is the net increase in value of the gift and the denominator (bottom part) is the amount of the gift. Free turbotax 2011 download   The net increase in value of the gift is the fair market value of the gift minus the donor's adjusted basis. Free turbotax 2011 download The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Free turbotax 2011 download Example. Free turbotax 2011 download In 2013, you received a gift of property from your mother. Free turbotax 2011 download At the time of the gift, the property had a fair market value of $101,000 and an adjusted basis to her of $40,000. Free turbotax 2011 download The amount of the gift for gift tax purposes was $87,000 ($101,000 minus the $14,000 annual exclusion), and your mother paid a gift tax of $21,000. Free turbotax 2011 download You figure your basis in the following way: Fair market value $101,000 Minus: Adjusted basis 40,000 Net increase in value of gift $61,000 Gift tax paid $21,000 Multiplied by . Free turbotax 2011 download 701 ($61,000 ÷ $87,000) . Free turbotax 2011 download 701 Gift tax due to net increase in value $14,721 Plus: Adjusted basis of property to  your mother 40,000 Your basis in the property $54,721 Part sale, part gift. Free turbotax 2011 download   If you get property in a transfer that is partly a sale and partly a gift, your basis is the larger of the amount you paid for the property or the transferor's adjusted basis in the property at the time of the transfer. Free turbotax 2011 download Add to that amount the amount of any gift tax paid on the gift, as described in the preceding discussion. Free turbotax 2011 download For figuring loss, your basis is limited to the property's fair market value at the time of the transfer. Free turbotax 2011 download Gift tax information. Free turbotax 2011 download   For information on gift tax, see Publication 950, Introduction to Estate and Gift Taxes. Free turbotax 2011 download For information on figuring the amount of gift tax to add to your basis, see Property Received as a Gift in Publication 551. Free turbotax 2011 download Property Received as Inheritance Before or after 2010. Free turbotax 2011 download   If you inherited property from a decedent who died before or after 2010, or who died in 2010 and the executor of the decedent's estate elected not to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, your basis in that property generally is its fair market value (its appraised value on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return) on: The date of the decedent's death, or The later alternate valuation date if the estate qualifies for, and elects to use, alternate valuation. Free turbotax 2011 download If no Form 706 was filed, use the appraised value on the date of death for state inheritance or transmission taxes. Free turbotax 2011 download For stocks and bonds, if no Form 706 was filed and there are no state inheritance or transmission taxes, see the Form 706 instructions for figuring the fair market value of the stocks and bonds on the date of the decedent's death. Free turbotax 2011 download Appreciated property you gave the decedent. Free turbotax 2011 download   Your basis in certain appreciated property that you inherited is the decedent's adjusted basis in the property immediately before death rather than its fair market value. Free turbotax 2011 download This applies to appreciated property that you or your spouse gave the decedent as a gift during the 1-year period ending on the date of death. Free turbotax 2011 download Appreciated property is any property whose fair market value on the day you gave it to the decedent was more than its adjusted basis. Free turbotax 2011 download More information. Free turbotax 2011 download   See Publication 551 for more information on the basis of inherited property, including community property, property held by a surviving tenant in a joint tenancy or tenancy by the entirety, a qualified joint interest, and a farm or closely held business. Free turbotax 2011 download Inherited in 2010 and executor elected to file Form 8939. Free turbotax 2011 download   If you inherited property from a decedent who died in 2010 and the executor made the election to file Form 8939, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to figure your basis. Free turbotax 2011 download Adjusted Basis Before you can figure any gain or loss on a sale, exchange, or other disposition of property or figure allowable depreciation, depletion, or amortization, you usually must make certain adjustments (increases and decreases) to the basis of the property. Free turbotax 2011 download The result of these adjustments to the basis is the adjusted basis. Free turbotax 2011 download Adjustments to the basis of stocks and bonds are explained in the following discussion. Free turbotax 2011 download For information about other adjustments to basis, see Publication 551. Free turbotax 2011 download Stocks and Bonds The basis of stocks or bonds you own generally is the purchase price plus the costs of purchase, such as commissions and recording or transfer fees. Free turbotax 2011 download If you acquired stock or bonds other than by purchase, your basis is usually determined by fair market value or the previous owner's adjusted basis as discussed earlier under Basis Other Than Cost . Free turbotax 2011 download The basis of stock must be adjusted for certain events that occur after purchase. Free turbotax 2011 download For example, if you receive more stock from nontaxable stock dividends or stock splits, you must reduce the basis of your original stock. Free turbotax 2011 download You must also reduce your basis when you receive nondividend distributions (discussed in chapter 1). Free turbotax 2011 download These distributions, up to the amount of your basis, are a nontaxable return of capital. Free turbotax 2011 download The IRS partners with companies that offer Form 8949 and Schedule D (Form 1040) software that can import trades from many brokerage firms and accounting software to help you keep track of your adjusted basis in securities. Free turbotax 2011 download To find out more, go to www. Free turbotax 2011 download irs. Free turbotax 2011 download gov/Filing/Filing-Options. Free turbotax 2011 download Identifying stock or bonds sold. Free turbotax 2011 download   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. Free turbotax 2011 download Adequate identification. Free turbotax 2011 download   You will make an adequate identification if you show that certificates representing shares of stock from a lot that you bought on a certain date or for a certain price were delivered to your broker or other agent. Free turbotax 2011 download Broker holds stock. Free turbotax 2011 download   If you have left the stock certificates with your broker or other agent, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred at the time of the sale or transfer, and Receive a written confirmation of this from your broker or other agent within a reasonable time. Free turbotax 2011 download  Stock identified this way is the stock sold or transferred even if stock certificates from a different lot are delivered to the broker or other agent. Free turbotax 2011 download Single stock certificate. Free turbotax 2011 download   If you bought stock in different lots at different times and you hold a single stock certificate for this stock, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred when you deliver the certificate to your broker or other agent, and Receive a written confirmation of this from your broker or other agent within a reasonable time. Free turbotax 2011 download   If you sell part of the stock represented by a single certificate directly to the buyer instead of through a broker, you will make an adequate identification if you keep a written record of the particular stock that you intend to sell. Free turbotax 2011 download Bonds. Free turbotax 2011 download   These methods of identification also apply to bonds sold or transferred. Free turbotax 2011 download Identification not possible. Free turbotax 2011 download   If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Free turbotax 2011 download Except for certain mutual fund shares, discussed later, you cannot use the average price per share to figure gain or loss on the sale of the shares. Free turbotax 2011 download Example. Free turbotax 2011 download You bought 100 shares of stock of XYZ Corporation in 1998 for $10 a share. Free turbotax 2011 download In January 1999 you bought another 200 shares for $11 a share. Free turbotax 2011 download In July 1999 you gave your son 50 shares. Free turbotax 2011 download In December 2001 you bought 100 shares for $9 a share. Free turbotax 2011 download In April 2013 you sold 130 shares. Free turbotax 2011 download You cannot identify the shares you disposed of, so you must use the stock you acquired first to figure the basis. Free turbotax 2011 download The shares of stock you gave your son had a basis of $500 (50 × $10). Free turbotax 2011 download You figure the basis of the 130 shares of stock you sold in 2013 as follows: 50 shares (50 × $10) balance of stock bought in 1998 $ 500 80 shares (80 × $11) stock bought in January 1999 880 Total basis of stock sold in 2013 $1,380 Shares in a mutual fund or REIT. Free turbotax 2011 download    The basis of shares in a mutual fund (or other regulated investment company) or a real estate investment trust (REIT) is generally figured in the same way as the basis of other stock and usually includes any commissions or load charges paid for the purchase. Free turbotax 2011 download Example. Free turbotax 2011 download You bought 100 shares of Fund A for $10 a share. Free turbotax 2011 download You paid a $50 commission to the broker for the purchase. Free turbotax 2011 download Your cost basis for each share is $10. Free turbotax 2011 download 50 ($1,050 ÷ 100). Free turbotax 2011 download Commissions and load charges. Free turbotax 2011 download   The fees and charges you pay to acquire or redeem shares of a mutual fund are not deductible. Free turbotax 2011 download You can usually add acquisition fees and charges to your cost of the shares and thereby increase your basis. Free turbotax 2011 download A fee paid to redeem the shares is usually a reduction in the redemption price (sales price). Free turbotax 2011 download   You cannot add your entire acquisition fee or load charge to the cost of the mutual fund shares acquired if all of the following conditions apply. Free turbotax 2011 download You get a reinvestment right because of the purchase of the shares or the payment of the fee or charge. Free turbotax 2011 download You dispose of the shares within 90 days of the purchase date. Free turbotax 2011 download You acquire new shares in the same mutual fund or another mutual fund, for which the fee or charge is reduced or waived because of the reinvestment right you got when you acquired the original shares. Free turbotax 2011 download   The amount of the original fee or charge in excess of the reduction in (3) is added to the cost of the original shares. Free turbotax 2011 download The rest of the original fee or charge is added to the cost basis of the new shares (unless all three conditions above also apply to the purchase of the new shares). Free turbotax 2011 download Choosing average basis for mutual fund shares. Free turbotax 2011 download   You can choose to use the average basis of mutual fund shares if you acquired the identical shares at various times and prices, or you acquired the shares after 2010 in connection with a dividend reinvestment plan, and left them on deposit in an account kept by a custodian or agent. Free turbotax 2011 download The methods you can use to figure average basis are explained later. Free turbotax 2011 download Undistributed capital gains. Free turbotax 2011 download   If you had to include in your income any undistributed capital gains of the mutual fund or REIT, increase your basis in the stock by the difference between the amount you included and the amount of tax paid for you by the fund or REIT. Free turbotax 2011 download See Undistributed capital gains of mutual funds and REITs under Capital Gain Distributions in chapter 1. Free turbotax 2011 download Reinvestment right. Free turbotax 2011 download   This is the right to acquire mutual fund shares in the same or another mutual fund without paying a fee or load charge, or by paying a reduced fee or load charge. Free turbotax 2011 download      The original cost basis of mutual fund shares you acquire by reinvesting your distributions is the amount of the distributions used to purchase each full or fractional share. Free turbotax 2011 download This rule applies even if the distribution is an exempt-interest dividend that you do not report as income. Free turbotax 2011 download Table 4-1. Free turbotax 2011 download This is a worksheet you can use to keep track of the adjusted basis of your mutual fund shares. Free turbotax 2011 download Enter the cost per share when you acquire new shares and any adjustments to their basis when the adjustment occurs. Free turbotax 2011 download This worksheet will help you figure the adjusted basis when you sell or redeem shares. Free turbotax 2011 download Table 4-1. Free turbotax 2011 download Mutual Fund Record Mutual Fund Acquired1 Adjustment to Basis Per Share Adjusted2 Basis Per Share Sold or redeemed Date Number of Shares Cost Per Share Date Number of Shares                                                                                                                                                                                                                                                                         1 Include share received from reinvestment of distributions. Free turbotax 2011 download 2 Cost plus or minus adjustments. Free turbotax 2011 download Automatic investment service. Free turbotax 2011 download   If you participate in an automatic investment service, your basis for each share of stock, including fractional shares, bought by the bank or other agent is the purchase price plus a share of the broker's commission. Free turbotax 2011 download Dividend reinvestment plans. Free turbotax 2011 download   If you participate in a dividend reinvestment plan and receive stock from the corporation at a discount, your basis is the full fair market value of the stock on the dividend payment date. Free turbotax 2011 download You must include the amount of the discount in your income. Free turbotax 2011 download Public utilities. Free turbotax 2011 download   If, before 1986, you excluded from income the value of stock you had received under a qualified public utility reinvestment plan, your basis in that stock is zero. Free turbotax 2011 download Stock dividends. Free turbotax 2011 download   Stock dividends are distributions made by a corporation of its own stock. Free turbotax 2011 download Generally, stock dividends are not taxable to you. Free turbotax 2011 download However, see Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1 for some exceptions. Free turbotax 2011 download If the stock dividends are not taxable, you must divide your basis for the old stock between the old and new stock. Free turbotax 2011 download New and old stock identical. Free turbotax 2011 download   If the new stock you received as a nontaxable dividend is identical to the old stock on which the dividend was declared, divide the adjusted basis of the old stock by the number of shares of old and new stock. Free turbotax 2011 download The result is your basis for each share of stock. Free turbotax 2011 download Example 1. Free turbotax 2011 download You owned one share of common stock that you bought for $45. Free turbotax 2011 download The corporation distributed two new shares of common stock for each share held. Free turbotax 2011 download You then had three shares of common stock. Free turbotax 2011 download Your basis in each share is $15 ($45 ÷ 3). Free turbotax 2011 download Example 2. Free turbotax 2011 download You owned two shares of common stock. Free turbotax 2011 download You bought one for $30 and the other for $45. Free turbotax 2011 download The corporation distributed two new shares of common stock for each share held. Free turbotax 2011 download You had six shares after the distribution—three with a basis of $10 each ($30 ÷ 3) and three with a basis of $15 each ($45 ÷ 3). Free turbotax 2011 download New and old stock not identical. Free turbotax 2011 download   If the new stock you received as a nontaxable dividend is not identical to the old stock on which it was declared, the basis of the new stock is calculated differently. Free turbotax 2011 download Divide the adjusted basis of the old stock between the old and the new stock in the ratio of the fair market value of each lot of stock to the total fair market value of both lots on the date of distribution of the new stock. Free turbotax 2011 download Example. Free turbotax 2011 download You bought a share of common stock for $100. Free turbotax 2011 download Later, the corporation distributed a share of preferred stock for each share of common stock held. Free turbotax 2011 download At the date of distribution, your common stock had a fair market value of $150 and the preferred stock had a fair market value of $50. Free turbotax 2011 download You figure the basis of the old and new stock by dividing your $100 basis between them. Free turbotax 2011 download The basis of your common stock is $75 (($150 ÷ $200) × $100), and the basis of the new preferred stock is $25 (($50 ÷ $200) × $100). Free turbotax 2011 download Stock bought at various times. Free turbotax 2011 download   Figure the basis of stock dividends received on stock you bought at various times and at different prices by allocating to each lot of stock the share of the stock dividends due to it. Free turbotax 2011 download Taxable stock dividends. Free turbotax 2011 download   If your stock dividend is taxable when you receive it, the basis of your new stock is its fair market value on the date of distribution. Free turbotax 2011 download The basis of your old stock does not change. Free turbotax 2011 download Stock splits. Free turbotax 2011 download   Figure the basis of stock splits in the same way as stock dividends if identical stock is distributed on the stock held. Free turbotax 2011 download Stock rights. Free turbotax 2011 download   A stock right is a right to acquire a corporation's stock. Free turbotax 2011 download It may be exercised, it may be sold if it has a market value, or it may expire. Free turbotax 2011 download Stock rights are rarely taxable when you receive them. Free turbotax 2011 download See Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1. Free turbotax 2011 download Taxable stock rights. Free turbotax 2011 download   If you receive stock rights that are taxable, the basis of the rights is their fair market value at the time of distribution. Free turbotax 2011 download The basis of the old stock does not change. Free turbotax 2011 download Nontaxable stock rights. Free turbotax 2011 download   If you receive nontaxable stock rights and allow them to expire, they have no basis. Free turbotax 2011 download   If you exercise or sell the nontaxable stock rights and if, at the time of distribution, the stock rights had a fair market value of 15% or more of the fair market value of the old stock, you must divide the adjusted basis of the old stock between the old stock and the stock rights. Free turbotax 2011 download Use a ratio of the fair market value of each to the total fair market value of both at the time of distribution. Free turbotax 2011 download   If the fair market value of the stock rights was less than 15%, their basis is zero. Free turbotax 2011 download However, you can choose to divide the basis of the old stock between the old stock and the stock rights. Free turbotax 2011 download To make the choice, attach a statement to your return for the year in which you received the rights, stating that you choose to divide the basis of the stock. Free turbotax 2011 download Basis of new stock. Free turbotax 2011 download   If you exercise the stock rights, the basis of the new stock is its cost plus the basis of the stock rights exercised. Free turbotax 2011 download Example. Free turbotax 2011 download You own 100 shares of ABC Company stock, which cost you $22 per share. Free turbotax 2011 download The ABC Company gave you 10 nontaxable stock rights that would allow you to buy 10 more shares at $26 per share. Free turbotax 2011 download At the time the stock rights were distributed, the stock had a market value of $30, not including the stock rights. Free turbotax 2011 download Each stock right had a market value of $3. Free turbotax 2011 download The market value of the stock rights was less than 15% of the market value of the stock, but you chose to divide the basis of your stock between the stock and the rights. Free turbotax 2011 download You figure the basis of the rights and the basis of the old stock as follows: 100 shares × $22 = $2,200, basis of old stock   100 shares × $30 = $3,000, market value of old stock   10 rights × $3 = $30, market value of rights   ($3,000 ÷ $3,030) × $2,200 = $2,178. Free turbotax 2011 download 22, new basis of old stock   ($30 ÷ $3,030) × $2,200 = $21. Free turbotax 2011 download 78, basis of rights   If you sell the rights, the basis for figuring gain or loss is $2. Free turbotax 2011 download 18 ($21. Free turbotax 2011 download 78 ÷ 10) per right. Free turbotax 2011 download If you exercise the rights, the basis of the stock you acquire is the price you pay ($26) plus the basis of the right exercised ($2. Free turbotax 2011 download 18), or $28. Free turbotax 2011 download 18 per share. Free turbotax 2011 download The remaining basis of the old stock is $21. Free turbotax 2011 download 78 per share. Free turbotax 2011 download Investment property received in liquidation. Free turbotax 2011 download   In general, if you receive investment property as a distribution in partial or complete liquidation of a corporation and if you recognize gain or loss when you acquire the property, your basis in the property is its fair market value at the time of the distribution. Free turbotax 2011 download S corporation stock. Free turbotax 2011 download   You must increase your basis in stock of an S corporation by your pro rata share of the following items. Free turbotax 2011 download All income items of the S corporation, including tax-exempt income, that are separately stated and passed through to you as a shareholder. Free turbotax 2011 download The nonseparately stated income of the S corporation. Free turbotax 2011 download The amount of the deduction for depletion (other than oil and gas depletion) that is more than the basis of the property being depleted. Free turbotax 2011 download   You must decrease your basis in stock of an S corporation by your pro rata share of the following items. Free turbotax 2011 download Distributions by the S corporation that were not included in your income. Free turbotax 2011 download All loss and deduction items of the S corporation that are separately stated and passed through to you. Free turbotax 2011 download Any nonseparately stated loss of the S corporation. Free turbotax 2011 download Any expense of the S corporation that is not deductible in figuring its taxable income and not properly chargeable to a capital account. Free turbotax 2011 download The amount of your deduction for depletion of oil and gas wells to the extent the deduction is not more than your share of the adjusted basis of the wells. Free turbotax 2011 download However, your basis in the stock cannot be reduced below zero. Free turbotax 2011 download Specialized small business investment company stock or partnership interest. Free turbotax 2011 download   If you bought this stock or interest as replacement property for publicly traded securities you sold at a gain, you must reduce the basis of the stock or interest by the amount of any postponed gain on that sale. Free turbotax 2011 download See Rollover of Gain From Publicly Traded Securities , later. Free turbotax 2011 download Qualified small business stock. Free turbotax 2011 download   If you bought this stock as replacement property for other qualified small business stock you sold at a gain, you must reduce the basis of this replacement stock by the amount of any postponed gain on the earlier sale. Free turbotax 2011 download See Gains on Qualified Small Business Stock , later. Free turbotax 2011 download Short sales. Free turbotax 2011 download   If you cannot deduct payments you make to a lender in lieu of dividends on stock used in a short sale, the amount you pay to the lender is a capital expense, and you must add it to the basis of the stock used to close the short sale. Free turbotax 2011 download   See Payments in lieu of dividends , later, for information about deducting payments in lieu of dividends. Free turbotax 2011 download Premiums on bonds. Free turbotax 2011 download   If you buy a bond at a premium, the premium is treated as part of your basis in the bond. Free turbotax 2011 download If you choose to amortize the premium paid on a taxable bond, you must reduce the basis of the bond by the amortized part of the premium each year over the life of the bond. Free turbotax 2011 download   Although you cannot deduct the premium on a tax-exempt bond, you must amortize it to determine your adjusted basis in the bond. Free turbotax 2011 download You must reduce the basis of the bond by the premium you amortized for the period you held the bond. Free turbotax 2011 download   See Bond Premium Amortization in chapter 3 for more information. Free turbotax 2011 download Market discount on bonds. Free turbotax 2011 download   If you include market discount on a bond in income currently, increase the basis of your bond by the amount of market discount you include in your income. Free turbotax 2011 download See Market Discount Bonds in chapter 1 for more information. Free turbotax 2011 download Bonds purchased at par value. Free turbotax 2011 download   A bond purchased at par value (face amount) has no premium or discount. Free turbotax 2011 download When you sell or otherwise dispose of the bond, you figure the gain or loss by comparing the bond proceeds to the purchase price of the bond. Free turbotax 2011 download Example. Free turbotax 2011 download You purchased a bond several years ago for its par value of $10,000. Free turbotax 2011 download You sold the bond this year for $10,100. Free turbotax 2011 download You have a gain of $100. Free turbotax 2011 download However, if you had sold the bond for $9,900, you would have a loss of $100. Free turbotax 2011 download Acquisition discount on short-term obligations. Free turbotax 2011 download   If you include acquisition discount on a short-term obligation in your income currently, increase the basis of the obligation by the amount of acquisition discount you include in your income. Free turbotax 2011 download See Discount on Short-Term Obligations in chapter 1 for more information. Free turbotax 2011 download Original issue discount (OID) on debt instruments. Free turbotax 2011 download   Increase the basis of a debt instrument by the OID you include in your income. Free turbotax 2011 download See Original Issue Discount (OID) in chapter 1. Free turbotax 2011 download Discounted tax-exempt obligations. Free turbotax 2011 download   OID on tax-exempt obligations is generally not taxable. Free turbotax 2011 download However, when you dispose of a tax-exempt obligation issued after September 3, 1982, that you acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. Free turbotax 2011 download The accrued OID is added to the basis of the obligation to determine your gain or loss. Free turbotax 2011 download   For information on determining OID on a long-term obligation, see Debt Instruments Issued After July 1, 1982, and Before 1985 or Debt Instruments Issued After 1984, whichever applies, in Publication 1212 under Figuring OID on Long-Term Debt Instruments. Free turbotax 2011 download   If the tax-exempt obligation has a maturity of 1 year or less, accrue OID under the rules for acquisition discount on short-term obligations. Free turbotax 2011 download See Discount on Short-Term Obligations in chapter 1. Free turbotax 2011 download Stripped tax-exempt obligation. Free turbotax 2011 download   If you acquired a stripped tax-exempt bond or coupon after October 22, 1986, you must accrue OID on it to determine its adjusted basis when you dispose of it. Free turbotax 2011 download For stripped tax-exempt bonds or coupons acquired after June 10, 1987, part of this OID may be taxable. Free turbotax 2011 download You accrue the OID on these obligations in the manner described in chapter 1 under Stripped Bonds and Coupons . Free turbotax 2011 download   Increase your basis in the stripped tax-exempt bond or coupon by the taxable and nontaxable accrued OID. Free turbotax 2011 download Also increase your basis by the interest that accrued (but was not paid and was not previously reflected in your basis) before the date you sold the bond or coupon. Free turbotax 2011 download In addition, for bonds acquired after June 10, 1987, add to your basis any accrued market discount not previously reflected in basis. Free turbotax 2011 download How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. Free turbotax 2011 download Gain. Free turbotax 2011 download   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. Free turbotax 2011 download Loss. Free turbotax 2011 download   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. Free turbotax 2011 download Amount realized. Free turbotax 2011 download   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). Free turbotax 2011 download Amount realized includes the money you receive plus the fair market value of any property or services you receive. Free turbotax 2011 download   If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. Free turbotax 2011 download For more information, see Publication 537. Free turbotax 2011 download   If a buyer of property issues a debt instrument to the seller of the property, the amount realized is determined by reference to the issue price of the debt instrument, which may or may not be the fair market value of the debt instrument. Free turbotax 2011 download See Regulations section 1. Free turbotax 2011 download 1001-1(g). Free turbotax 2011 download However, if the debt instrument was previously issued by a third party (one not part of the sale transaction), the fair market value of the debt instrument is used to determine the amount realized. Free turbotax 2011 download Fair market value. Free turbotax 2011 download   Fair market value is the price at which property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Free turbotax 2011 download Example. Free turbotax 2011 download You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. Free turbotax 2011 download Your gain is $3,000 ($10,000 – $7,000). Free turbotax 2011 download If you also receive a note for $6,000 that has an issue price of $6,000, your gain is $9,000 ($10,000 + $6,000 – $7,000). Free turbotax 2011 download Debt paid off. Free turbotax 2011 download   A debt against the property, or against you, that is paid off as a part of the transaction or that is assumed by the buyer must be included in the amount realized. Free turbotax 2011 download This is true even if neither you nor the buyer is personally liable for the debt. Free turbotax 2011 download For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. Free turbotax 2011 download Example. Free turbotax 2011 download You sell stock that you had pledged as security for a bank loan of $8,000. Free turbotax 2011 download Your basis in the stock is $6,000. Free turbotax 2011 download The buyer pays off your bank loan and pays you $20,000 in cash. Free turbotax 2011 download The amount realized is $28,000 ($20,000 + $8,000). Free turbotax 2011 download Your gain is $22,000 ($28,000 – $6,000). Free turbotax 2011 download Payment of cash. Free turbotax 2011 download   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. Free turbotax 2011 download Determine your gain or loss by subtracting the cash you pay and the adjusted basis of the property you trade in from the amount you realize. Free turbotax 2011 download If the result is a positive number, it is a gain. Free turbotax 2011 download If the result is a negative number, it is a loss. Free turbotax 2011 download No gain or loss. Free turbotax 2011 download   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. Free turbotax 2011 download In this case, you may have neither a gain nor a loss. Free turbotax 2011 download See No gain or loss in the discussion on the basis of property you received as a gift under Basis Other Than Cost, earlier. Free turbotax 2011 download Special Rules for Mutual Funds To figure your gain or loss when you dispose of mutual fund shares, you need to determine which shares were sold and the basis of those shares. Free turbotax 2011 download If your shares in a mutual fund were acquired all on the same day and for the same price, figuring their basis is not difficu
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