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How Do I File A 2011 Tax Return

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How Do I File A 2011 Tax Return

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How do i file a 2011 tax return Publication 551 - Main Content Table of Contents Cost BasisStocks and Bonds Real Property Business Assets Allocating the Basis Adjusted BasisIncreases to Basis Decreases to Basis Adjustments to Basis Example Basis Other Than CostProperty Received for Services Taxable Exchanges Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed to Business or Rental Use How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). How do i file a 2011 tax return Cost Basis The basis of property you buy is usually its cost. How do i file a 2011 tax return The cost is the amount you pay in cash, debt obligations, other property, or services. How do i file a 2011 tax return Your cost also includes amounts you pay for the following items. How do i file a 2011 tax return Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if assumed for the seller). How do i file a 2011 tax return  You may also have to capitalize (add to basis) certain other costs related to buying or producing property. How do i file a 2011 tax return Loans with low or no interest. How do i file a 2011 tax return   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. How do i file a 2011 tax return You generally have unstated interest if your interest rate is less than the applicable federal rate. How do i file a 2011 tax return For more information, see Unstated Interest and Original Issue Discount in Publication 537. How do i file a 2011 tax return Purchase of a business. How do i file a 2011 tax return   When you purchase a trade or business, you generally purchase all assets used in the business operations, such as land, buildings, and machinery. How do i file a 2011 tax return Allocate the price among the various assets, including any section 197 intangibles. How do i file a 2011 tax return See Allocating the Basis, later. How do i file a 2011 tax return Stocks and Bonds The basis of stocks or bonds you buy is generally the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. How do i file a 2011 tax return If you get stocks or bonds other than by purchase, your basis is usually determined by the fair market value (FMV) or the previous owner's adjusted basis of the stock. How do i file a 2011 tax return You must adjust the basis of stocks for certain events that occur after purchase. How do i file a 2011 tax return See Stocks and Bonds in chapter 4 of Publication 550 for more information on the basis of stock. How do i file a 2011 tax return Identifying stock or bonds sold. How do i file a 2011 tax return   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. How do i file a 2011 tax return 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. How do i file a 2011 tax return For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. How do i file a 2011 tax return Mutual fund shares. How do i file a 2011 tax return   If you sell mutual fund shares acquired at different times and prices, you can choose to use an average basis. How do i file a 2011 tax return For more information, see Publication 550. How do i file a 2011 tax return Real Property Real property, also called real estate, is land and generally anything built on or attached to it. How do i file a 2011 tax return If you buy real property, certain fees and other expenses become part of your cost basis in the property. How do i file a 2011 tax return Real estate taxes. How do i file a 2011 tax return   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. How do i file a 2011 tax return You cannot deduct them as taxes. How do i file a 2011 tax return   If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. How do i file a 2011 tax return Do not include that amount in the basis of the property. How do i file a 2011 tax return If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. How do i file a 2011 tax return Settlement costs. How do i file a 2011 tax return   Your basis includes the settlement fees and closing costs for buying property. How do i file a 2011 tax return You cannot include in your basis the fees and costs for getting a loan on property. How do i file a 2011 tax return A fee for buying property is a cost that must be paid even if you bought the property for cash. How do i file a 2011 tax return   The following items are some of the settlement fees or closing costs you can include in the basis of your property. How do i file a 2011 tax return Abstract fees (abstract of title fees); Charges for installing utility services; Legal fees (including title search and preparation of the sales contract and deed); Recording fees; Surveys; Transfer taxes; Owner's title insurance; and Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. How do i file a 2011 tax return   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. How do i file a 2011 tax return   The following items are some settlement fees and closing costs you cannot include in the basis of the property. How do i file a 2011 tax return Casualty insurance premiums. How do i file a 2011 tax return Rent for occupancy of the property before closing. How do i file a 2011 tax return Charges for utilities or other services related to occupancy of the property before closing. How do i file a 2011 tax return Charges connected with getting a loan. How do i file a 2011 tax return The following are examples of these charges. How do i file a 2011 tax return Points (discount points, loan origination fees). How do i file a 2011 tax return Mortgage insurance premiums. How do i file a 2011 tax return Loan assumption fees. How do i file a 2011 tax return Cost of a credit report. How do i file a 2011 tax return Fees for an appraisal required by a lender. How do i file a 2011 tax return Fees for refinancing a mortgage. How do i file a 2011 tax return If these costs relate to business property, items (1) through (3) are deductible as business expenses. How do i file a 2011 tax return Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan. How do i file a 2011 tax return Points. How do i file a 2011 tax return   If you pay points to obtain a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. How do i file a 2011 tax return Generally, you deduct the points over the term of the loan. How do i file a 2011 tax return For more information on how to deduct points, see Points in chapter 4 of Publication 535. How do i file a 2011 tax return Points on home mortgage. How do i file a 2011 tax return   Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. How do i file a 2011 tax return If certain requirements are met, you can deduct the points in full for the year in which they are paid. How do i file a 2011 tax return Reduce the basis of your home by any seller-paid points. How do i file a 2011 tax return For more information, see Points in Publication 936, Home Mortgage Interest Deduction. How do i file a 2011 tax return Assumption of mortgage. How do i file a 2011 tax return   If you buy property and assume (or buy subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. How do i file a 2011 tax return Example. How do i file a 2011 tax return If you buy a building for $20,000 cash and assume a mortgage of $80,000 on it, your basis is $100,000. How do i file a 2011 tax return Constructing assets. How do i file a 2011 tax return   If you build property or have assets built for you, your expenses for this construction are part of your basis. How do i file a 2011 tax return Some of these expenses include the following costs. How do i file a 2011 tax return Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. How do i file a 2011 tax return In addition, if you own a business and use your employees, material, and equipment to build an asset, do not deduct the following expenses. How do i file a 2011 tax return You must include them in the asset's basis. How do i file a 2011 tax return Employee wages paid for the construction work, reduced by any employment credits allowed; Depreciation on equipment you own while it is used in the construction; Operating and maintenance costs for equipment used in the construction; and The cost of business supplies and materials used in the construction. How do i file a 2011 tax return    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. How do i file a 2011 tax return Business Assets If you purchase property to use in your business, your basis is usually its actual cost to you. How do i file a 2011 tax return If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. How do i file a 2011 tax return In certain circumstances, you may be subject to the uniform capitalization rules, next. How do i file a 2011 tax return Uniform Capitalization Rules The uniform capitalization rules specify the costs you add to basis in certain circumstances. How do i file a 2011 tax return Activities subject to the rules. How do i file a 2011 tax return   You must use the uniform capitalization rules if you do any of the following in your trade or business or activity carried on for profit. How do i file a 2011 tax return Produce real or tangible personal property for use in the business or activity, Produce real or tangible personal property for sale to customers, or Acquire property for resale. How do i file a 2011 tax return However, this rule does not apply to personal property if your average annual gross receipts for the 3 previous tax years are $10 million or less. How do i file a 2011 tax return   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. How do i file a 2011 tax return Treat property produced for you under a contract as produced by you up to the amount you pay or costs you otherwise incur for the property. How do i file a 2011 tax return Tangible personal property includes films, sound recordings, video tapes, books, or similar property. How do i file a 2011 tax return    Under the uniform capitalization rules, you must capitalize all direct costs and an allocable part of most indirect costs you incur due to your production or resale activities. How do i file a 2011 tax return To capitalize means to include certain expenses in the basis of property you produce or in your inventory costs rather than deduct them as a current expense. How do i file a 2011 tax return You recover these costs through deductions for depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. How do i file a 2011 tax return   Any cost you cannot use to figure your taxable income for any tax year is not subject to the uniform capitalization rules. How do i file a 2011 tax return Example. How do i file a 2011 tax return If you incur a business meal expense for which your deduction would be limited to 50% of the cost of the meal, that amount is subject to the uniform capitalization rules. How do i file a 2011 tax return The nondeductible part of the cost is not subject to the uniform capitalization rules. How do i file a 2011 tax return More information. How do i file a 2011 tax return   For more information about these rules, see the regulations under section 263A of the Internal Revenue Code and Publication 538, Accounting Periods and Methods. How do i file a 2011 tax return Exceptions. How do i file a 2011 tax return   The following are not subject to the uniform capitalization rules. How do i file a 2011 tax return Property you produce that you do not use in your trade, business, or activity conducted for profit; Qualified creative expenses you pay or incur as a free-lance (self-employed) writer, photographer, or artist that are otherwise deductible on your tax return; Property you produce under a long-term contract, except for certain home construction contracts; Research and experimental expenses deductible under section 174 of the Internal Revenue Code; and Costs for personal property acquired for resale if your (or your predecessor's) average annual gross receipts for the 3 previous tax years do not exceed $10 million. How do i file a 2011 tax return For other exceptions to the uniform capitalization rules, see section 1. How do i file a 2011 tax return 263A-1(b) of the regulations. How do i file a 2011 tax return   For information on the special rules that apply to costs incurred in the business of farming, see chapter 6 of Publication 225, Farmer's Tax Guide. How do i file a 2011 tax return Intangible Assets Intangible assets include goodwill, patents, copyrights, trademarks, trade names, and franchises. How do i file a 2011 tax return The basis of an intangible asset is usually the cost to buy or create it. How do i file a 2011 tax return If you acquire multiple assets, for example a going business for a lump sum, see Allocating the Basis below to figure the basis of the individual assets. How do i file a 2011 tax return The basis of certain intangibles can be amortized. How do i file a 2011 tax return See chapter 8 of Publication 535 for information on the amortization of these costs. How do i file a 2011 tax return Patents. How do i file a 2011 tax return   The basis of a patent you get for an invention is the cost of development, such as research and experimental expenditures, drawings, working models, and attorneys' and governmental fees. How do i file a 2011 tax return If you deduct the research and experimental expenditures as current business expenses, you cannot include them in the basis of the patent. How do i file a 2011 tax return The value of the inventor's time spent on an invention is not part of the basis. How do i file a 2011 tax return Copyrights. How do i file a 2011 tax return   If you are an author, the basis of a copyright will usually be the cost of getting the copyright plus copyright fees, attorneys' fees, clerical assistance, and the cost of plates that remain in your possession. How do i file a 2011 tax return Do not include the value of your time as the author, or any other person's time you did not pay for. How do i file a 2011 tax return Franchises, trademarks, and trade names. How do i file a 2011 tax return   If you buy a franchise, trademark, or trade name, the basis is its cost, unless you can deduct your payments as a business expense. How do i file a 2011 tax return Allocating the Basis If you buy multiple assets for a lump sum, allocate the amount you pay among the assets you receive. How do i file a 2011 tax return You must make this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. How do i file a 2011 tax return See Trade or Business Acquired below. How do i file a 2011 tax return Group of Assets Acquired If you buy multiple assets for a lump sum, you and the seller may agree to a specific allocation of the purchase price among the assets in the sales contract. How do i file a 2011 tax return If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. How do i file a 2011 tax return However, see Trade or Business Acquired, next. How do i file a 2011 tax return Trade or Business Acquired If you acquire a trade or business, allocate the consideration paid to the various assets acquired. How do i file a 2011 tax return Generally, reduce the consideration paid by any cash and general deposit accounts (including checking and savings accounts) received. How do i file a 2011 tax return Allocate the remaining consideration to the other business assets received in proportion to (but not more than) their fair market value in the following order. How do i file a 2011 tax return Certificates of deposit, U. How do i file a 2011 tax return S. How do i file a 2011 tax return Government securities, foreign currency, and actively traded personal property, including stock and securities. How do i file a 2011 tax return Accounts receivable, other debt instruments, and assets you mark to market at least annually for federal income tax purposes. How do i file a 2011 tax return Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held primarily for sale to customers in the ordinary course of business. How do i file a 2011 tax return All other assets except section 197 intangibles, goodwill, and going concern value. How do i file a 2011 tax return Section 197 intangibles except goodwill and going concern value. How do i file a 2011 tax return Goodwill and going concern value (whether or not they qualify as section 197 intangibles). How do i file a 2011 tax return Agreement. How do i file a 2011 tax return   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value (FMV) of any of the assets. How do i file a 2011 tax return This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. How do i file a 2011 tax return Reporting requirement. How do i file a 2011 tax return   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. How do i file a 2011 tax return Use Form 8594 to provide this information. How do i file a 2011 tax return The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. How do i file a 2011 tax return More information. How do i file a 2011 tax return   See Sale of a Business in chapter 2 of Publication 544 for more information. How do i file a 2011 tax return Land and Buildings If you buy buildings and the land on which they stand for a lump sum, allocate the basis of the property among the land and the buildings so you can figure the depreciation allowable on the buildings. How do i file a 2011 tax return Figure the basis of each asset by multiplying the lump sum by a fraction. How do i file a 2011 tax return The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. How do i file a 2011 tax return If you are not certain of the FMV of the land and buildings, you can allocate the basis based on their assessed values for real estate tax purposes. How do i file a 2011 tax return Demolition of building. How do i file a 2011 tax return   Add demolition costs and other losses incurred for the demolition of any building to the basis of the land on which the demolished building was located. How do i file a 2011 tax return Do not claim the costs as a current deduction. How do i file a 2011 tax return Modification of building. How do i file a 2011 tax return   A modification of a building will not be treated as a demolition if the following conditions are satisfied. How do i file a 2011 tax return 75 percent or more of the existing external walls of the building are retained in place as internal or external walls, and 75 percent or more of the existing internal structural framework of the building is retained in place. How do i file a 2011 tax return   If the building is a certified historic structure, the modification must also be part of a certified rehabilitation. How do i file a 2011 tax return   If these conditions are met, add the costs of the modifications to the basis of the building. How do i file a 2011 tax return Subdivided lots. How do i file a 2011 tax return   If you buy a tract of land and subdivide it, you must determine the basis of each lot. How do i file a 2011 tax return This is necessary because you must figure the gain or loss on the sale of each individual lot. How do i file a 2011 tax return As a result, you do not recover your entire cost in the tract until you have sold all of the lots. How do i file a 2011 tax return   To determine the basis of an individual lot, multiply the total cost of the tract by a fraction. How do i file a 2011 tax return The numerator is the FMV of the lot and the denominator is the FMV of the entire tract. How do i file a 2011 tax return Future improvement costs. How do i file a 2011 tax return   If you are a developer and sell subdivided lots before the development work is completed, you can (with IRS consent) include in the basis of the properties sold an allocation of the estimated future cost for common improvements. How do i file a 2011 tax return See Revenue Procedure 92–29 for more information, including an explanation of the procedures for getting consent from the IRS. How do i file a 2011 tax return Use of erroneous cost basis. How do i file a 2011 tax return   If you made a mistake in figuring the cost basis of subdivided lots sold in previous years, you cannot correct the mistake for years for which the statute of limitations (generally 3 tax years) has expired. How do i file a 2011 tax return Figure the basis of any remaining lots by allocating the correct original cost basis of the entire tract among the original lots. How do i file a 2011 tax return Example. How do i file a 2011 tax return You bought a tract of land to which you assigned a cost of $15,000. How do i file a 2011 tax return You subdivided the land into 15 building lots of equal size and equitably divided your basis so that each lot had a basis of $1,000. How do i file a 2011 tax return You treated the sale of each lot as a separate transaction and figured gain or loss separately on each sale. How do i file a 2011 tax return Several years later you determine that your original basis in the tract was $22,500 and not $15,000. How do i file a 2011 tax return You sold eight lots using $8,000 of basis in years for which the statute of limitations has expired. How do i file a 2011 tax return You now can take $1,500 of basis into account for figuring gain or loss only on the sale of each of the remaining seven lots ($22,500 basis divided among all 15 lots). How do i file a 2011 tax return You cannot refigure the basis of the eight lots sold in tax years barred by the statute of limitations. How do i file a 2011 tax return Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the basis of the property. How do i file a 2011 tax return The result of these adjustments to the basis is the adjusted basis. How do i file a 2011 tax return Increases to Basis Increase the basis of any property by all items properly added to a capital account. How do i file a 2011 tax return These include the cost of any improvements having a useful life of more than 1 year. How do i file a 2011 tax return Rehabilitation expenses also increase basis. How do i file a 2011 tax return However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis. How do i file a 2011 tax return If you have to recapture any of the credit, increase your basis by the recaptured amount. How do i file a 2011 tax return If you make additions or improvements to business property, keep separate accounts for them. How do i file a 2011 tax return Also, you must depreciate the basis of each according to the depreciation rules that would apply to the underlying property if you had placed it in service at the same time you placed the addition or improvement in service. How do i file a 2011 tax return For more information, see Publication 946. How do i file a 2011 tax return The following items increase the basis of property. How do i file a 2011 tax return The cost of extending utility service lines to the property; Impact fees; Legal fees, such as the cost of defending and perfecting title; Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements; Zoning costs; and The capitalized value of a redeemable ground rent. How do i file a 2011 tax return Assessments for Local Improvements Increase the basis of property by assessments for items such as paving roads and building ditches that increase the value of the property assessed. How do i file a 2011 tax return Do not deduct them as taxes. How do i file a 2011 tax return However, you can deduct as taxes charges for maintenance, repairs, or interest charges related to the improvements. How do i file a 2011 tax return Example. How do i file a 2011 tax return Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected landowners for the cost of the conversion. How do i file a 2011 tax return Add the assessment to your property's basis. How do i file a 2011 tax return In this example, the assessment is a depreciable asset. How do i file a 2011 tax return Deducting vs. How do i file a 2011 tax return Capitalizing Costs Do not add to your basis costs you can deduct as current expenses. How do i file a 2011 tax return For example, amounts paid for incidental repairs or maintenance that are deductible as business expenses cannot be added to basis. How do i file a 2011 tax return However, you can choose either to deduct or to capitalize certain other costs. How do i file a 2011 tax return If you capitalize these costs, include them in your basis. How do i file a 2011 tax return If you deduct them, do not include them in your basis. How do i file a 2011 tax return See Uniform Capitalization Rules earlier. How do i file a 2011 tax return The costs you can choose to deduct or to capitalize include the following. How do i file a 2011 tax return Carrying charges, such as interest and taxes, that you pay to own property, except carrying charges that must be capitalized under the uniform capitalization rules; Research and experimentation costs; Intangible drilling and development costs for oil, gas, and geothermal wells; Exploration costs for new mineral deposits; Mining development costs for a new mineral deposit; Costs of establishing, maintaining, or increasing the circulation of a newspaper or other periodical; and Costs of removing architectural and transportation barriers to people with disabilities and the elderly. How do i file a 2011 tax return If you claim the disabled access credit, you must reduce the amount you deduct or capitalize by the amount of the credit. How do i file a 2011 tax return For more information about deducting or capitalizing costs, see chapter 7 in Publication 535. How do i file a 2011 tax return Table 1. How do i file a 2011 tax return Examples of Increases and Decreases to Basis Increases to Basis Decreases to Basis Capital improvements:   Putting an addition on your home   Replacing an entire roof  Paving your driveway  Installing central air conditioning Rewiring your home Exclusion from income of subsidies for energy conservation measures  Casualty or theft loss deductions and insurance reimbursements  Vehicle credits Assessments for local improvements: Water connections Sidewalks Roads Section 179 deduction  Casualty losses: Restoring damaged property Depreciation  Nontaxable corporate distributions Legal fees:  Cost of defending and perfecting a title   Zoning costs   Decreases to Basis The following are some items that reduce the basis of property. How do i file a 2011 tax return Section 179 deduction; Nontaxable corporate distributions; Deductions previously allowed (or allowable) for amortization, depreciation, and depletion; Exclusion of subsidies for energy conservation measures; Vehicle credits; Residential energy credits; Postponed gain from sale of home; Investment credit (part or all) taken; Casualty and theft losses and insurance reimbursement; Certain canceled debt excluded from income; Rebates from a manufacturer or seller; Easements; Gas-guzzler tax; Adoption tax benefits; and Credit for employer-provided child care. How do i file a 2011 tax return Some of these items are discussed next. How do i file a 2011 tax return Casualties and Thefts If you have a casualty or theft loss, decrease the basis in your property by any insurance or other reimbursement and by any deductible loss not covered by insurance. How do i file a 2011 tax return You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use. How do i file a 2011 tax return To make this determination, compare the repaired property to the property before the casualty. How do i file a 2011 tax return For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts. How do i file a 2011 tax return Easements The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. How do i file a 2011 tax return It reduces the basis of the affected part of the property. How do i file a 2011 tax return If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. How do i file a 2011 tax return Vehicle Credits Unless you elect not to claim the qualified plug-in electric vehicle credit, the alternative motor vehicle credit, or the qualified plug-in electric drive motor vehicle credit, you may have to reduce the basis of each qualified vehicle by certain amounts reported. How do i file a 2011 tax return For more information, see Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit; Form 8910, Alternative Motor Vehicle Credit; Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit;and the related instructions. How do i file a 2011 tax return Gas-Guzzler Tax Decrease the basis in your car by the gas-guzzler (fuel economy) tax if you begin using the car within 1 year of the date of its first sale for ultimate use. How do i file a 2011 tax return This rule also applies to someone who later buys the car and begins using it not more than 1 year after the original sale for ultimate use. How do i file a 2011 tax return If the car is imported, the one-year period begins on the date of entry or withdrawal of the car from the warehouse if that date is later than the date of the first sale for ultimate use. How do i file a 2011 tax return Section 179 Deduction If you take the section 179 deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. How do i file a 2011 tax return For more information about the section 179 deduction, see Publication 946. How do i file a 2011 tax return Exclusion of Subsidies for Energy Conservation Measures You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of any energy conservation measure for a dwelling unit. How do i file a 2011 tax return Reduce the basis of the property for which you received the subsidy by the excluded amount. How do i file a 2011 tax return For more information on this subsidy, see Publication 525. How do i file a 2011 tax return Depreciation Decrease the basis of property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. How do i file a 2011 tax return If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. How do i file a 2011 tax return If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. How do i file a 2011 tax return Unless a timely election is made not to deduct the special depreciation allowance for property placed in service after September 10, 2001, decrease the property's basis by the special depreciation allowance you deducted or could have deducted. How do i file a 2011 tax return If you deducted more depreciation than you should have, decrease your basis by the amount equal to the depreciation you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for the year. How do i file a 2011 tax return In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation capitalized under the uniform capitalization rules. How do i file a 2011 tax return For information on figuring depreciation, see Publication 946. How do i file a 2011 tax return If you are claiming depreciation on a business vehicle, see Publication 463. How do i file a 2011 tax return If the car is not used more than 50% for business during the tax year, you may have to recapture excess depreciation. How do i file a 2011 tax return Include the excess depreciation in your gross income and add it to your basis in the property. How do i file a 2011 tax return For information on the computation of excess depreciation, see chapter 4 in Publication 463. How do i file a 2011 tax return Canceled Debt Excluded From Income If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. How do i file a 2011 tax return A debt includes any indebtedness for which you are liable or which attaches to property you hold. How do i file a 2011 tax return You can exclude canceled debt from income in the following situations. How do i file a 2011 tax return Debt canceled in a bankruptcy case or when you are insolvent, Qualified farm debt, and Qualified real property business debt (provided you are not a C corporation). How do i file a 2011 tax return If you exclude from income canceled debt under situation (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. How do i file a 2011 tax return However, in situation (3), you must reduce the basis of your depreciable property by the excluded amount. How do i file a 2011 tax return For more information about canceled debt in a bankruptcy case or during insolvency, see Publication 908, Bankruptcy Tax Guide. How do i file a 2011 tax return For more information about canceled debt that is qualified farm debt, see chapter 3 in Publication 225. How do i file a 2011 tax return For more information about qualified real property business debt, see chapter 5 in Publication 334, Tax Guide for Small Business. How do i file a 2011 tax return Postponed Gain From Sale of Home If you postponed gain from the sale of your main home before May 7, 1997, you must reduce the basis of your new home by the postponed gain. How do i file a 2011 tax return For more information on the rules for the sale of a home, see Publication 523. How do i file a 2011 tax return Adoption Tax Benefits If you claim an adoption credit for the cost of improvements you added to the basis of your home, decrease the basis of your home by the credit allowed. How do i file a 2011 tax return This also applies to amounts you received under an employer's adoption assistance program and excluded from income. How do i file a 2011 tax return For more information Form 8839, Qualified Adoption Expenses. How do i file a 2011 tax return Employer-Provided Child Care If you are an employer, you can claim the employer-provided child care credit on amounts you paid or incurred to acquire, construct, rehabilitate, or expand property used as part of your qualified child care facility. How do i file a 2011 tax return You must reduce your basis in that property by the credit claimed. How do i file a 2011 tax return For more information, see Form 8882, Credit for Employer-Provided Child Care Facilities and Services. How do i file a 2011 tax return Adjustments to Basis Example In January 2005, you paid $80,000 for real property to be used as a factory. How do i file a 2011 tax return You also paid commissions of $2,000 and title search and legal fees of $600. How do i file a 2011 tax return You allocated the total cost of $82,600 between the land and the building—$10,325 for the land and $72,275 for the building. How do i file a 2011 tax return Immediately you spent $20,000 in remodeling the building before you placed it in service. How do i file a 2011 tax return You were allowed depreciation of $14,526 for the years 2005 through 2009. How do i file a 2011 tax return In 2008 you had a $5,000 casualty loss from a that was not covered by insurance on the building. How do i file a 2011 tax return You claimed a deduction for this loss. How do i file a 2011 tax return You spent $5,500 to repair the damages and extend the useful life of the building. How do i file a 2011 tax return The adjusted basis of the building on January 1, 2010, is figured as follows: Original cost of building including fees and commissions $72,275 Adjustments to basis:     Add:         Improvements 20,000   Repair of damages 5,500       $97,775 Subtract:       Depreciation $14,526     Deducted casualty loss 5,000 19,526 Adjusted basis on January 1, 2010 $78,249 The basis of the land, $10,325, remains unchanged. How do i file a 2011 tax return It is not affected by any of the above adjustments. How do i file a 2011 tax return Basis Other Than Cost There are many times when you cannot use cost as basis. How do i file a 2011 tax return In these cases, the fair market value or the adjusted basis of property may be used. How do i file a 2011 tax return Adjusted basis is discussed earlier. How do i file a 2011 tax return Fair market value (FMV). How do i file a 2011 tax return   FMV is the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. How do i file a 2011 tax return Sales of similar property on or about the same date may be helpful in figuring the property's FMV. How do i file a 2011 tax return Property Received for Services If you receive property for services, include the property's FMV in income. How do i file a 2011 tax return The amount you include in income becomes your basis. How do i file a 2011 tax return If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. How do i file a 2011 tax return Bargain Purchases A bargain purchase is a purchase of an item for less than its FMV. How do i file a 2011 tax return If, as compensation for services, you purchase goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. How do i file a 2011 tax return Your basis in the property is its FMV (your purchase price plus the amount you include in income). How do i file a 2011 tax return If the difference between your purchase price and the FMV represents a qualified employee discount, do not include the difference in income. How do i file a 2011 tax return However, your basis in the property is still its FMV. How do i file a 2011 tax return See Employee Discounts in Publication 15-B. How do i file a 2011 tax return Restricted Property If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested unless you make the election discussed later. How do i file a 2011 tax return Property becomes substantially vested when your rights in the property or the rights of any person to whom you transfer the property are not subject to a substantial risk of forfeiture. How do i file a 2011 tax return There is substantial risk of forfeiture when the rights to full enjoyment of the property depend on the future performance of substantial services by any person. How do i file a 2011 tax return When the property becomes substantially vested, include the FMV, less any amount you paid for the property, in income. How do i file a 2011 tax return Example. How do i file a 2011 tax return Your employer gives you stock for services performed under the condition that you will have to return the stock unless you complete 5 years of service. How do i file a 2011 tax return The stock is under a substantial risk of forfeiture and is not substantially vested when you receive it. How do i file a 2011 tax return You do not report any income until you have completed the 5 years of service that satisfy the condition. How do i file a 2011 tax return Fair market value. How do i file a 2011 tax return   Figure the FMV of property you received without considering any restriction except one that by its terms will never end. How do i file a 2011 tax return Example. How do i file a 2011 tax return You received stock from your employer for services you performed. How do i file a 2011 tax return If you want to sell the stock while you are still employed, you must sell the stock to your employer at book value. How do i file a 2011 tax return At your retirement or death, you or your estate must offer to sell the stock to your employer at its book value. How do i file a 2011 tax return This is a restriction that by its terms will never end and you must consider it when you figure the FMV. How do i file a 2011 tax return Election. How do i file a 2011 tax return   You can choose to include in your gross income the FMV of the property at the time of transfer, less any amount you paid for it. How do i file a 2011 tax return If you make this choice, the substantially vested rules do not apply. How do i file a 2011 tax return Your basis is the amount you paid plus the amount you included in income. How do i file a 2011 tax return   See the discussion of Restricted Property in Publication 525 for more information. How do i file a 2011 tax return Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. How do i file a 2011 tax return A taxable gain or deductible loss is also known as a recognized gain or loss. How do i file a 2011 tax return If you receive property in exchange for other property in a taxable exchange, the basis of property you receive is usually its FMV at the time of the exchange. How do i file a 2011 tax return A taxable exchange occurs when you receive cash or property not similar or related in use to the property exchanged. How do i file a 2011 tax return Example. How do i file a 2011 tax return You trade a tract of farm land with an adjusted basis of $3,000 for a tractor that has an FMV of $6,000. How do i file a 2011 tax return You must report a taxable gain of $3,000 for the land. How do i file a 2011 tax return The tractor has a basis of $6,000. How do i file a 2011 tax return Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, you can figure the basis of the replacement property you receive using the basis of the converted property. How do i file a 2011 tax return Similar or related property. How do i file a 2011 tax return   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the old property's basis on the date of the conversion. How do i file a 2011 tax return However, make the following adjustments. How do i file a 2011 tax return Decrease the basis by the following. How do i file a 2011 tax return Any loss you recognize on the conversion, and Any money you receive that you do not spend on similar property. How do i file a 2011 tax return Increase the basis by the following. How do i file a 2011 tax return Any gain you recognize on the conversion, and Any cost of acquiring the replacement property. How do i file a 2011 tax return Money or property not similar or related. How do i file a 2011 tax return   If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the new property is its cost decreased by the gain not recognized on the conversion. How do i file a 2011 tax return Example. How do i file a 2011 tax return The state condemned your property. How do i file a 2011 tax return The property had an adjusted basis of $26,000 and the state paid you $31,000 for it. How do i file a 2011 tax return You realized a gain of $5,000 ($31,000 − $26,000). How do i file a 2011 tax return You bought replacement property similar in use to the converted property for $29,000. How do i file a 2011 tax return You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. How do i file a 2011 tax return Your gain not recognized is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. How do i file a 2011 tax return The basis of the new property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of the replacement property $26,000 Allocating the basis. How do i file a 2011 tax return   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. How do i file a 2011 tax return Example. How do i file a 2011 tax return The state in the previous example condemned your unimproved real property and the replacement property you bought was improved real property with both land and buildings. How do i file a 2011 tax return Allocate the replacement property's $26,000 basis between land and buildings based on their respective costs. How do i file a 2011 tax return More information. How do i file a 2011 tax return   For more information about condemnations, see Involuntary Conversions in Publication 544. How do i file a 2011 tax return For more information about casualty and theft losses, see Publication 547. How do i file a 2011 tax return Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. How do i file a 2011 tax return If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. How do i file a 2011 tax return A nontaxable gain or loss is also known as an unrecognized gain or loss. How do i file a 2011 tax return Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. How do i file a 2011 tax return To qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. How do i file a 2011 tax return There must also be an exchange of like-kind property. How do i file a 2011 tax return For more information, see Like-Kind Exchanges in Publication 544. How do i file a 2011 tax return The basis of the property you receive is the same as the basis of the property you gave up. How do i file a 2011 tax return Example. How do i file a 2011 tax return You exchange real estate (adjusted basis $50,000, FMV $80,000) held for investment for other real estate (FMV $80,000) held for investment. How do i file a 2011 tax return Your basis in the new property is the same as the basis of the old ($50,000). How do i file a 2011 tax return Exchange expenses. How do i file a 2011 tax return   Exchange expenses are generally the closing costs you pay. How do i file a 2011 tax return They include such items as brokerage commissions, attorney fees, deed preparation fees, etc. How do i file a 2011 tax return Add them to the basis of the like-kind property received. How do i file a 2011 tax return Property plus cash. How do i file a 2011 tax return   If you trade property in a like-kind exchange and also pay money, the basis of the property received is the basis of the property you gave up increased by the money you paid. How do i file a 2011 tax return Example. How do i file a 2011 tax return You trade in a truck (adjusted basis $3,000) for another truck (FMV $7,500) and pay $4,000. How do i file a 2011 tax return Your basis in the new truck is $7,000 (the $3,000 basis of the old truck plus the $4,000 paid). How do i file a 2011 tax return Special rules for related persons. How do i file a 2011 tax return   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. How do i file a 2011 tax return Each person must report any gain or loss not recognized on the original exchange. How do i file a 2011 tax return Each person reports it on the tax return filed for the year in which the later disposition occurs. How do i file a 2011 tax return If this rule applies, the basis of the property received in the original exchange will be its fair market value. How do i file a 2011 tax return   These rules generally do not apply to the following kinds of property dispositions. How do i file a 2011 tax return Dispositions due to the death of either related person, Involuntary conversions, and Dispositions in which neither the original exchange nor the subsequent disposition had as a main purpose the avoidance of federal income tax. How do i file a 2011 tax return Related persons. How do i file a 2011 tax return   Generally, related persons are ancestors, lineal descendants, brothers and sisters (whole or half), and a spouse. How do i file a 2011 tax return   For other related persons (for example, two corporations, an individual and a corporation, a grantor and fiduciary, etc. How do i file a 2011 tax return ), see Nondeductible Loss in chapter 2 of Publication 544. How do i file a 2011 tax return Exchange of business property. How do i file a 2011 tax return   Exchanging the assets of one business for the assets of another business is a multiple property exchange. How do i file a 2011 tax return For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. How do i file a 2011 tax return Partially Nontaxable Exchange A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like property. How do i file a 2011 tax return The basis of the property you receive is the same as the basis of the property you gave up, with the following adjustments. How do i file a 2011 tax return Decrease the basis by the following amounts. How do i file a 2011 tax return Any money you receive, and Any loss you recognize on the exchange. How do i file a 2011 tax return Increase the basis by the following amounts. How do i file a 2011 tax return Any additional costs you incur, and Any gain you recognize on the exchange. How do i file a 2011 tax return If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. How do i file a 2011 tax return Example. How do i file a 2011 tax return You traded a truck (adjusted basis $6,000) for a new truck (FMV $5,200) and $1,000 cash. How do i file a 2011 tax return You realized a gain of $200 ($6,200 − $6,000). How do i file a 2011 tax return This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($5,200 + $1,000 – $6,000). How do i file a 2011 tax return You include all the gain in income (recognized gain) because the gain is less than the cash received. How do i file a 2011 tax return Your basis in the new truck is: Adjusted basis of old truck $6,000 Minus: Cash received (adjustment 1(a)) 1,000   $5,000 Plus: Gain recognized (adjustment 2(b)) 200 Basis of new truck $5,200 Allocation of basis. How do i file a 2011 tax return   Allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. How do i file a 2011 tax return The rest is the basis of the like property. How do i file a 2011 tax return Example. How do i file a 2011 tax return You had an adjusted basis of $15,000 in real estate you held for investment. How do i file a 2011 tax return You exchanged it for other real estate to be held for investment with an FMV of $12,500, a truck with an FMV of $3,000, and $1,000 cash. How do i file a 2011 tax return The truck is unlike property. How do i file a 2011 tax return You realized a gain of $1,500 ($16,500 − $15,000). How do i file a 2011 tax return This is the FMV of the real estate received plus the FMV of the truck received plus the cash minus the adjusted basis of the real estate you traded ($12,500 + $3,000 + $1,000 – $15,000). How do i file a 2011 tax return You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. How do i file a 2011 tax return Your basis in the properties you received is figured as follows. How do i file a 2011 tax return Adjusted basis of real estate transferred $15,000 Minus: Cash received (adjustment 1(a)) 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property — the truck ($3,000). How do i file a 2011 tax return This is the truck's FMV. How do i file a 2011 tax return The rest ($12,500) is the basis of the real estate. How do i file a 2011 tax return Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. How do i file a 2011 tax return Example. How do i file a 2011 tax return You are a salesperson and you use one of your cars 100% for business. How do i file a 2011 tax return You have used this car in your sales activities for 2 years and have depreciated it. How do i file a 2011 tax return Your adjusted basis in the car is $22,600 and its FMV is $23,100. How do i file a 2011 tax return You are interested in a new car, which sells for $28,000. How do i file a 2011 tax return If you trade your old car and pay $4,900 for the new one, your basis for depreciation for the new car would be $27,500 ($4,900 plus the $22,600 basis of your old car). How do i file a 2011 tax return However, you want a higher basis for depreciating the new car, so you agree to pay the dealer $28,000 for the new car if he will pay you $23,100 for your old car. How do i file a 2011 tax return Because the two transactions are dependent on each other, you are treated as having exchanged your old car for the new one and paid $4,900 ($28,000 − $23,100). How do i file a 2011 tax return Your basis for depreciating the new car is $27,500, the same as if you traded the old car. How do i file a 2011 tax return Partial Business Use of Property If you have property used partly for business and partly for personal use, and you exchange it in a nontaxable exchange for property to be used wholly or partly in your business, the basis of the property you receive is figured as if you had exchanged two properties. How do i file a 2011 tax return The first is an exchange of like-kind property. How do i file a 2011 tax return The second is personal-use property on which gain is recognized and loss is not recognized. How do i file a 2011 tax return First, figure your adjusted basis in the property as if you transferred two separate properties. How do i file a 2011 tax return Figure the adjusted basis of each part of the property by taking into account any adjustments to basis. How do i file a 2011 tax return Deduct the depreciation you took or could have taken from the adjusted basis of the business part. How do i file a 2011 tax return Then figure the amount realized for your property and allocate it to the business and nonbusiness parts of the property. How do i file a 2011 tax return The business part of the property is permitted to be exchanged tax free. How do i file a 2011 tax return However, you must recognize any gain from the exchange of the nonbusiness part. How do i file a 2011 tax return You are deemed to have received, in exchange for the nonbusiness part, an amount equal to its FMV on the date of the exchange. How do i file a 2011 tax return The basis of the property you acquired is the total basis of the property transferred (adjusted to the date of the exchange), increased by any gain recognized on the nonbusiness part. How do i file a 2011 tax return If the nonbusiness part of the property transferred is your main home, you may qualify to exclude from income all or part of the gain on that part. How do i file a 2011 tax return For more information, see Publication 523. How do i file a 2011 tax return Trade of car used partly in business. How do i file a 2011 tax return   If you trade in a car you used partly in your business for another car you will use in your business, your basis for depreciation of the new car is not the same as your basis for figuring a gain or loss on its sale. How do i file a 2011 tax return   For information on figuring your basis for depreciation, see Publication 463. How do i file a 2011 tax return Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse (or former spouse if the transfer is incident to divorce), is the same as your spouse's adjusted basis. How do i file a 2011 tax return However, adjust your basis for any gain recognized by your spouse or former spouse on property transferred in trust. How do i file a 2011 tax return This rule applies only to a transfer of property in trust in which the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. How do i file a 2011 tax return If the property transferred to you is a series E, series EE, or series I United States savings bond, the transferor must include in income the interest accrued to the date of transfer. How do i file a 2011 tax return Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. How do i file a 2011 tax return For more information on these bonds, see Publication 550. How do i file a 2011 tax return At the time of the transfer, the transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of transfer. How do i file a 2011 tax return For more information, see Publication 504, Divorced or Separated Individuals. How do i file a 2011 tax return Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. How do i file a 2011 tax return FMV Less Than Donor's Adjusted Basis If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. How do i file a 2011 tax return Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustment to basis while you held the property. How do i file a 2011 tax return Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property (see Adjusted Basis earlier). How do i file a 2011 tax return If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and have a gain, you have neither gain nor loss on the sale or disposition of the property. How do i file a 2011 tax return Example. How do i file a 2011 tax return You received an acre of land as a gift. How do i file a 2011 tax return At the time of the gift, the land had an FMV of $8,000. How do i file a 2011 tax return The donor's adjusted basis was $10,000. How do i file a 2011 tax return After you received the land, no events occurred to increase or decrease your basis. How do i file a 2011 tax return If you sell the land for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis ($10,000) at the time of the gift as your basis to figure gain. How do i file a 2011 tax return If you sell the land for $7,000, you will have a $1,000 loss because you must use the FMV ($8,000) at the time of the gift as your basis to figure a loss. How do i file a 2011 tax return If the sales price is between $8,000 and $10,000, you have neither gain nor loss. How do i file a 2011 tax return For instance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis ($10,000), you would get a $1,000 loss. How do i file a 2011 tax return If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain. How do i file a 2011 tax return Business property. How do i file a 2011 tax return   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduction is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. How do i file a 2011 tax return FMV Equal to or More Than Donor's Adjusted Basis If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. How do i file a 2011 tax return Increase your basis by all or part of any gift tax paid, depending on the date of the gift. How do i file a 2011 tax return Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis by any required adjustments to basis while you held the property. How do i file a 2011 tax return See Adjusted Basis earlier. How do i file a 2011 tax return Gift received before 1977. How do i file a 2011 tax return   If you received a gift before 1977, increase your basis in the gift (the donor's adjusted basis) by any gift tax paid on it. How do i file a 2011 tax return However, do not increase your basis above the FMV of the gift at the time it was given to you. How do i file a 2011 tax return Example 1. How do i file a 2011 tax return You were given a house in 1976 with an FMV of $21,000. How do i file a 2011 tax return The donor's adjusted basis was $20,000. How do i file a 2011 tax return The donor paid a gift tax of $500. How do i file a 2011 tax return Your basis is $20,500, the donor's adjusted basis plus the gift tax paid. How do i file a 2011 tax return Example 2. How do i file a 2011 tax return If, in Example 1, the gift tax paid had been $1,500, your basis would be $21,000. How do i file a 2011 tax return This is the donor's adjusted basis plus the gift tax paid, limited to the FMV of the house at the time you received the gift. How do i file a 2011 tax return Gift received after 1976. How do i file a 2011 tax return   If you received a gift after 1976, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. How do i file a 2011 tax return Figure the increase by multiplying the gift tax paid by a fraction. How do i file a 2011 tax return The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. How do i file a 2011 tax return   The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. How do i file a 2011 tax return 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. How do i file a 2011 tax return For information on the gift tax, see Publication 950, Introduction to Estate and Gift Taxes. How do i file a 2011 tax return Example. How do i file a 2011 tax return In 2010, you received a gift of property from your mother that had an FMV of $50,000. How do i file a 2011 tax return Her adjusted basis was $20,000. How do i file a 2011 tax return The amount of the gift for gift tax purposes was $37,000 ($50,000 minus the $13,000 annual exclusion). How do i file a 2011 tax return She paid a gift tax of $9,000. How do i file a 2011 tax return Your basis, $27,290, is figured as follows: Fair market value $50,000 Minus: Adjusted basis 20,000 Net increase in value $30,000 Gift tax paid $9,000 Multiplied by ($30,000 ÷ $37,000) . How do i file a 2011 tax return 81 Gift tax due to net increase in value $7,290 Adjusted basis of property to your mother 20,000 Your basis in the property $27,290 Inherited Property Special rules apply to property acquired from a decedent who died in 2010. How do i file a 2011 tax return See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. How do i file a 2011 tax return If you inherited property from a decedent who died before 2010, your basis in property you inherit from a decedent is generally one of the following. How do i file a 2011 tax return The FMV of the property at the date of the individual's death. How do i file a 2011 tax return The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. How do i file a 2011 tax return For information on the alternate valuation date, see the Instructions for Form 706. How do i file a 2011 tax return The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. How do i file a 2011 tax return This method is discussed later. How do i file a 2011 tax return The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. How do i file a 2011 tax return For information on a qualified conservation easement, see the Instructions for Form 706. How do i file a 2011 tax return If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. How do i file a 2011 tax return For more information, see the Instructions for Form 706. How do i file a 2011 tax return Appreciated property. How do i file a 2011 tax return   The above rule does not apply to appreciated property you receive from a decedent if you or your spouse originally gave the property to the decedent within 1 year before the decedent's death. How do i file a 2011 tax return Your basis in this property is the same as the decedent's adjusted basis in the property immediately before his or her death, rather than its FMV. How do i file a 2011 tax return Appreciated property is any property whose FMV on the day it was given to the decedent is more than its adjusted basis. How do i file a 2011 tax return Community Property In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. How do i file a 2011 tax return When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. How do i file a 2011 tax return For this rule to apply, at least half the value of the community property interest must be includable in the decedent's gross estate, whether or not the estate must file a return. How do i file a 2011 tax return For example, you and your spouse owned community property that had a basis of $80,000. How do i file a 2011 tax return When your spouse died, half the FMV of the community interest was includible in your spouse's estate. How do i file a 2011 tax return The FMV of the community interest was $100,000. How do i file a 2011 tax return The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). How do i file a 2011 tax return The basis of the other half to your spouse's heirs is also $50,000. How do i file a 2011 tax return For more information on community property, see Publication 555, Community Property. How do i file a 2011 tax return Property Held by Surviving Tenant The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety. How do i file a 2011 tax return Example. How do i file a 2011 tax return John and Jim owned, as joint tenants with right of survivorship, business property they purchased for $30,000. How do i file a 2011 tax return John furnished two-thirds of the purchase price and Jim furnished one-third. How do i file a 2011 tax return Depreciation deductions allowed before John's death were $12,000. How do i file a 2011 tax return Under local law, each had a half interest in the income from the property. How do i file a 2011 tax return At the date of John's death, the property had an FMV of $60,000, two-thirds of which is includable in John's estate. How do i file a 2011 tax return Jim figures his basis in the property at the date of John's death as follows: Interest Jim bought with his own funds—1/3 of $30,000 cost $10,000   Interest Jim received on John's death—2/3 of $60,000 FMV 40,000 $50,000 Minus: ½ of $12,000 depreciation before John's death 6,000 Jim's basis at the date of John's death $44,000 If Jim had not contributed any part of the purchase price, his basis at the date of John's death would be $54,000. How do i file a 2011 tax return This is figured by subtracting from the $60,000 FMV, the $6,000 depreciation allocated to Jim's half interest before the date of death. How do i file a 2011 tax return If under local law Jim had no interest in the income from the property and he contributed no part of the purchase price, his basis at John's death would be $60,000, the FMV of the property. How do i file a 2011 tax return Qualified Joint Interest Include one-half of the value of a qualified joint interest in the decedent's gross estate. How do i file a 2011 tax return It does not matter how much each spouse contributed to the purchase price. How do i file a 2011 tax return Also, it does not matter which spouse dies first. How do i file a 2011 tax return A qualified joint interest is any interest in property held by husband and wife as either of the following. How do i file a 2011 tax return Tenants by the entirety, or Joint tenants with right of survivorship if husband and wife are the only joint tenants. How do i file a 2011 tax return Basis. How do i file a 2011 tax return   As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of your half of the property with certain adjustments. How do i file a 2011 tax return Decrease the cost by any deductions allowed to you for depreciation and depletion. How do i file a 2011 tax return Increase the reduced cost by your basis in the half you inherited. How do i file a 2011 tax return Farm or Closely Held Business Under certain conditions, when a person dies the executor or personal representative of that person's estate can choose to value the qualified real property on other than its FMV. How do i file a 2011 tax return If so, the executor or personal representative values the qualified real property based on its use as a farm or its use in a closely held business. How do i file a 2011 tax return If the executor or personal representative chooses this method of valuation for estate tax purposes, that value is the basis of the property for the heirs. How do i file a 2011 tax return Qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. How do i file a 2011 tax return Special-use valuation. How do i file a 2011 tax return   If you are a qualified heir who received special-use valuation property, your basis in the property is the estate's or trust's basis in that property immediately before the distribution. How do i file a 2011 tax return Increase your basis by any gain recognized by the estate or trust because of post-death appreciation. How do i file a 2011 tax return Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or the alternate valuation date. How do i file a 2011 tax return Figure all FMVs without regard to the special-use valuation. How do i file a 2011 tax return   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. How do i file a 2011 tax return This tax is assessed if, within 10 years after the death of the decedent, you transfer the property to a person who is not a member of your family or the property stops being used as a farm or in a closely held business. How do i file a 2011 tax return   To increase your basis in the property, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of the payment of the additional estate tax. How do i file a 2011 tax return If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. How do i file a 2011 tax return The increase in your basis is considered to have occurred immediately before the event that results in the additional estate tax. How do i file a 2011 tax return   You make the election by filing with Form 706-A a statement that does all of the following. How do i file a 2011 tax return Contains your name, address, and taxpayer identification number and those of the estate; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which the election is made; and Provides any additional information required by the Instructions for Form 706-A. How do i file a 2011 tax return   For more information, see the Instructions for Form 706 and the Instructions for Form 706-A. How do i file a 2011 tax return Property Changed to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. How do i file a 2011 tax return An example of changing property held for personal use to business use would be renting out your former main home. How do i file a 2011 tax return Basis for depreciation. How do i file a 2011 tax return   The basis for depreciation is the lesser of the following amounts. How do i file a 2011 tax return The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. How do i file a 2011 tax return Example. How do i file a 2011 tax return Several years ago you paid $160,000 to have your home built on a lot that cost $25,000. How do i file a 2011 tax return You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. How do i file a 2011 tax return Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. How do i file a 2011 tax return Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). How do i file a 2011 tax return On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. How do i file a 2011 tax return The basis for figuring depreciation on the house is its FMV on the date of change ($165,000) because it is less than your adjusted basis ($178,000). How do i file a 2011 tax return Sale of property. How do i file a 2011 tax return   If you later sell or dispose of property changed to business or rental use, the basis of the property you use will depend on whether you are figuring gain or loss. How do i file a 2011 tax return Gain. How do i file a 2011 tax return   The basis for figuring a gain is your adjusted basis when you sell the property. How do i file a 2011 tax return Example. How do i file a 2011 tax return Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. How do i file a 2011 tax return Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). How do i file a 2011 tax return Loss. How do i file a 2011 tax return   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. How do i file a 2011 tax return Then adjust this amount for the period after the change in the property's use, as discussed earlier under Adjusted Basis, to arrive at a basis for loss. How do i file a 2011 tax return Example. How do i file a 2011 tax return Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. How do i file a 2011 tax return In this case, you would start with the FMV on the date of the change to rental use ($180,000) because it is less than the adjusted basis of $203,000 ($178,000 + $25,000) on that date. How do i file a 2011 tax return Reduce that amount ($180,000) by the depreciation deductions to arrive at a basis for loss of $142,500 ($180,000 − $37,500). How do i file a 2011 tax return How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. How do i file a 2011 tax return By selecting the method that is best for you, you will have quick and easy access to tax help. How do i file a 2011 tax return Contacting your Taxpayer Advocate. How do i file a 2011 tax return   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. How do i file a 2011 tax return We help taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving tax problems with the IRS; and those who believe that an IRS system or procedure is not working as it should. How do i file a 2011 tax return Here are seven things every taxpayer should know about TAS. How do i file a 2011 tax return TAS is your voice at the IRS. How do i file a 2011 tax return Our service is free, confidential, and tailored to meet your needs. How do i file a 2011 tax return You may be eligible for our help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should. How do i file a 2011 tax return We help taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. How do i file a 2011 tax return This includes businesses as well as individuals. How do i file a 2011 tax return Our employees know the IRS and how to navigate it. How do i file a 2011 tax return If you qualify for our help, we'll assign your case to an advocate who will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved. How do i file a 2011 tax return We have at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. How do i file a 2011 tax return You can call your local advocate, whose number is in your phone book, in Publication 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www. How do i file a 2011 tax return irs. How do i file a 2011 tax return gov/advocate. How do i file a 2011 tax return You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059. 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