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Freetax Usa

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Freetax Usa

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

Freetax usa 6. Freetax usa   How To Get Tax Help Table of Contents Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Freetax usa Free help with your tax return. Freetax usa   You can get free help preparing your return nationwide from IRS-certified volunteers. Freetax usa The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Freetax usa The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Freetax usa Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Freetax usa In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Freetax usa To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Freetax usa gov, download the IRS2Go app, or call 1-800-906-9887. Freetax usa   As part of the TCE program, AARP offers the Tax-Aide counseling program. Freetax usa To find the nearest AARP Tax-Aide site, visit AARP's website at www. Freetax usa aarp. Freetax usa org/money/taxaide or call 1-888-227-7669. Freetax usa For more information on these programs, go to IRS. Freetax usa gov and enter “VITA” in the search box. Freetax usa Internet. Freetax usa    IRS. Freetax usa gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Freetax usa Download the free IRS2Go app from the iTunes app store or from Google Play. Freetax usa Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Freetax usa Check the status of your 2013 refund with the Where's My Refund? application on IRS. Freetax usa gov or download the IRS2Go app and select the Refund Status option. Freetax usa The IRS issues more than 9 out of 10 refunds in less than 21 days. Freetax usa Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Freetax usa You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Freetax usa The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Freetax usa Use the Interactive Tax Assistant (ITA) to research your tax questions. Freetax usa No need to wait on the phone or stand in line. Freetax usa The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Freetax usa When you reach the response screen, you can print the entire interview and the final response for your records. Freetax usa New subject areas are added on a regular basis. Freetax usa  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Freetax usa gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Freetax usa You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Freetax usa The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Freetax usa When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Freetax usa Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Freetax usa You can also ask the IRS to mail a return or an account transcript to you. Freetax usa Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Freetax usa gov or by calling 1-800-908-9946. Freetax usa Tax return and tax account transcripts are generally available for the current year and the past three years. Freetax usa Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Freetax usa Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Freetax usa If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Freetax usa Check the status of your amended return using Where's My Amended Return? Go to IRS. Freetax usa gov and enter Where's My Amended Return? in the search box. Freetax usa You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Freetax usa It can take up to 3 weeks from the date you mailed it to show up in our system. Freetax usa Make a payment using one of several safe and convenient electronic payment options available on IRS. Freetax usa gov. Freetax usa Select the Payment tab on the front page of IRS. Freetax usa gov for more information. Freetax usa Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Freetax usa Figure your income tax withholding with the IRS Withholding Calculator on IRS. Freetax usa gov. Freetax usa Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Freetax usa Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Freetax usa gov. Freetax usa Request an Electronic Filing PIN by going to IRS. Freetax usa gov and entering Electronic Filing PIN in the search box. Freetax usa Download forms, instructions and publications, including accessible versions for people with disabilities. Freetax usa Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Freetax usa gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Freetax usa An employee can answer questions about your tax account or help you set up a payment plan. Freetax usa Before you visit, check the Office Locator on IRS. Freetax usa gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Freetax usa If you have a special need, such as a disability, you can request an appointment. Freetax usa Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Freetax usa Apply for an Employer Identification Number (EIN). Freetax usa Go to IRS. Freetax usa gov and enter Apply for an EIN in the search box. Freetax usa Read the Internal Revenue Code, regulations, or other official guidance. Freetax usa Read Internal Revenue Bulletins. Freetax usa Sign up to receive local and national tax news and more by email. Freetax usa Just click on “subscriptions” above the search box on IRS. Freetax usa gov and choose from a variety of options. Freetax usa Phone. Freetax usa    You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Freetax usa Download the free IRS2Go app from the iTunes app store or from Google Play. Freetax usa Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. Freetax usa gov, or download the IRS2Go app. Freetax usa Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Freetax usa The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Freetax usa Most VITA and TCE sites offer free electronic filing. Freetax usa Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Freetax usa Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Freetax usa Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. Freetax usa If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Freetax usa The IRS issues more than 9 out of 10 refunds in less than 21 days. Freetax usa Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Freetax usa Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. Freetax usa The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Freetax usa Note, the above information is for our automated hotline. Freetax usa Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. Freetax usa Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Freetax usa You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Freetax usa It can take up to 3 weeks from the date you mailed it to show up in our system. Freetax usa Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). Freetax usa You should receive your order within 10 business days. Freetax usa Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. Freetax usa If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. Freetax usa Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Freetax usa The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Freetax usa These individuals can also contact the IRS through relay services such as the Federal Relay Service. Freetax usa Walk-in. Freetax usa   You can find a selection of forms, publications and services — in-person. Freetax usa Products. Freetax usa You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Freetax usa Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Freetax usa Services. Freetax usa You can walk in to your local TAC for face-to-face tax help. Freetax usa An employee can answer questions about your tax account or help you set up a payment plan. Freetax usa Before visiting, use the Office Locator tool on IRS. Freetax usa gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. Freetax usa Mail. Freetax usa   You can send your order for forms, instructions, and publications to the address below. Freetax usa You should receive a response within 10 business days after your request is received. Freetax usa Internal Revenue Service 1201 N. Freetax usa Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. Freetax usa The Taxpayer Advocate Service (TAS) is your voice at the IRS. Freetax usa Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Freetax usa   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. Freetax usa We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. Freetax usa You face (or your business is facing) an immediate threat of adverse action. Freetax usa You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Freetax usa   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Freetax usa Here's why we can help: TAS is an independent organization within the IRS. Freetax usa Our advocates know how to work with the IRS. Freetax usa Our services are free and tailored to meet your needs. Freetax usa We have offices in every state, the District of Columbia, and Puerto Rico. Freetax usa   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at Taxpayer Advocate, or call us toll-free at 1-877-777-4778. Freetax usa   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Freetax usa If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. Freetax usa Low Income Taxpayer Clinics (LITCs). Freetax usa   Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Freetax usa Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Freetax usa Visit www. Freetax usa TaxpayerAdvocate. Freetax usa irs. Freetax usa gov or see IRS Publication 4134, Low Income Taxpayer Clinic List. Freetax usa Prev  Up  Next   Home   More Online Publications