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How To Amend Tax Return

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How To Amend Tax Return

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

How to amend tax return 12. How to amend tax return   Business Deduction for Work-Related Education Table of Contents What's New Introduction Qualifying Work-Related EducationEducation Required by Employer or by Law Education To Maintain or Improve Skills Education To Meet Minimum Requirements Education That Qualifies You for a New Trade or Business What Expenses Can Be DeductedUnclaimed reimbursement. How to amend tax return Transportation Expenses Travel Expenses No Double Benefit Allowed How To Treat ReimbursementsAccountable Plans Nonaccountable Plans Deducting Business ExpensesSelf-Employed Persons Employees Performing Artists and Fee-Basis Officials Impairment-Related Work Expenses Recordkeeping Illustrated Example What's New Standard mileage rate. How to amend tax return  Generally, if you claim a business deduction for work-related education and you drive your car to and from school, the amount you can deduct for miles driven from January 1, 2013 through December 31, 2013, is 56. How to amend tax return 5 cents per mile. How to amend tax return For more information, see Transportation Expenses under What Expenses Can Be Deducted, later. How to amend tax return Introduction This chapter discusses work-related education expenses that you may be able to deduct as business expenses. How to amend tax return To claim such a deduction, you must: Itemize your deductions on Schedule A (Form 1040 or 1040NR) if you are an employee, File Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit or Loss From Farming if you are self-employed, and Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education , later. How to amend tax return What is the tax benefit of taking a business deduction for work-related education. How to amend tax return   If you are an employee and can itemize your deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. How to amend tax return Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses (except for impairment-related work expenses of disabled individuals) is greater than 2% of your adjusted gross income. How to amend tax return An itemized deduction reduces the amount of your income subject to tax. How to amend tax return   If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. How to amend tax return This reduces the amount of your income subject to both income tax and self-employment tax. How to amend tax return   Your work-related education expenses may also qualify you for other tax benefits, such as the American opportunity and lifetime learning credits. How to amend tax return You may qualify for these other benefits even if you do not meet the requirements listed above. How to amend tax return   Also, your work-related education expenses may qualify you to claim more than one tax benefit. How to amend tax return Generally, you may claim any number of benefits as long as you use different expenses to figure each one. How to amend tax return Qualifying Work-Related Education You can deduct the costs of qualifying work-related education as business expenses. How to amend tax return This is education that meets at least one of the following two tests. How to amend tax return The education is required by your employer or the law to keep your present salary, status, or job. How to amend tax return The required education must serve a bona fide business purpose of your employer. How to amend tax return The education maintains or improves skills needed in your present work. How to amend tax return However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it: Is needed to meet the minimum educational requirements of your present trade or business, or Is part of a program of study that will qualify you for a new trade or business. How to amend tax return You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree. How to amend tax return Use Figure 12-1, Does Your Work-Related Education Qualify as a quick check to see if your education qualifies. How to amend tax return Education Required by Employer or by Law Once you have met the minimum educational requirements for your job, your employer or the law may require you to get more education. How to amend tax return This additional education is qualifying work-related education if all three of the following requirements are met. How to amend tax return It is required for you to keep your present salary, status, or job, The requirement serves a bona fide business purpose of your employer, and The education is not part of a program that will qualify you for a new trade or business. How to amend tax return When you get more education than your employer or the law requires, the additional education can be qualifying work-related education only if it maintains or improves skills required in your present work. How to amend tax return See Education To Maintain or Improve Skills , later. How to amend tax return Example. How to amend tax return You are a teacher who has satisfied the minimum requirements for teaching. How to amend tax return Your employer requires you to take an additional college course each year to keep your teaching job. How to amend tax return If the courses will not qualify you for a new trade or business, they are qualifying work-related education even if you eventually receive a master's degree and an increase in salary because of this extra education. How to amend tax return This image is too large to be displayed in the current screen. How to amend tax return Please click the link to view the image. How to amend tax return Figure 12-1 Education To Maintain or Improve Skills If your education is not required by your employer or the law, it can be qualifying work-related education only if it maintains or improves skills needed in your present work. How to amend tax return This could include refresher courses, courses on current developments, and academic or vocational courses. How to amend tax return Example. How to amend tax return You repair televisions, radios, and stereo systems for XYZ Store. How to amend tax return To keep up with the latest changes, you take special courses in radio and stereo service. How to amend tax return These courses maintain and improve skills required in your work. How to amend tax return Maintaining skills vs. How to amend tax return qualifying for new job. How to amend tax return   Education to maintain or improve skills needed in your present work is not qualifying education if it will also qualify you for a new trade or business. How to amend tax return Education during temporary absence. How to amend tax return   If you stop working for a year or less in order to get education to maintain or improve skills needed in your present work and then return to the same general type of work, your absence is considered temporary. How to amend tax return Education that you get during a temporary absence is qualifying work-related education if it maintains or improves skills needed in your present work. How to amend tax return Example. How to amend tax return You quit your biology research job to become a full-time biology graduate student for 1 year. How to amend tax return If you return to work in biology research after completing the courses, the education is related to your present work even if you do not go back to work with the same employer. How to amend tax return Education during indefinite absence. How to amend tax return   If you stop work for more than a year, your absence from your job is considered indefinite. How to amend tax return Education during an indefinite absence, even if it maintains or improves skills needed in the work from which you are absent, is considered to qualify you for a new trade or business. How to amend tax return Therefore, it is not qualifying work-related education. How to amend tax return Education To Meet Minimum Requirements Education you need to meet the minimum educational requirements for your present trade or business is not qualifying work-related education. How to amend tax return The minimum educational requirements are determined by: Laws and regulations, Standards of your profession, trade, or business, and Your employer. How to amend tax return Once you have met the minimum educational requirements that were in effect when you were hired, you do not have to meet any new minimum educational requirements. How to amend tax return This means that if the minimum requirements change after you were hired, any education you need to meet the new requirements can be qualifying education. How to amend tax return You have not necessarily met the minimum educational requirements of your trade or business simply because you are already doing the work. How to amend tax return Example 1. How to amend tax return You are a full-time engineering student. How to amend tax return Although you have not received your degree or certification, you work part time as an engineer for a firm that will employ you as a full-time engineer after you finish college. How to amend tax return Although your college engineering courses improve your skills in your present job, they are also needed to meet the minimum job requirements for a full-time engineer. How to amend tax return The education is not qualifying work-related education. How to amend tax return Example 2. How to amend tax return You are an accountant and you have met the minimum educational requirements of your employer. How to amend tax return Your employer later changes the minimum educational requirements and requires you to take college courses to keep your job. How to amend tax return These additional courses can be qualifying work-related education because you have already satisfied the minimum requirements that were in effect when you were hired. How to amend tax return Requirements for Teachers States or school districts usually set the minimum educational requirements for teachers. How to amend tax return The requirement is the college degree or the minimum number of college hours usually required of a person hired for that position. How to amend tax return If there are no requirements, you will have met the minimum educational requirements when you become a faculty member. How to amend tax return The determination of whether you are a faculty member of an educational institution must be made on the basis of the particular practices of the institution. How to amend tax return You generally will be considered a faculty member when one or more of the following occurs. How to amend tax return You have tenure. How to amend tax return Your years of service count toward obtaining tenure. How to amend tax return You have a vote in faculty decisions. How to amend tax return Your school makes contributions for you to a retirement plan other than social security or a similar program. How to amend tax return Example 1. How to amend tax return The law in your state requires beginning secondary school teachers to have a bachelor's degree, including 10 professional education courses. How to amend tax return In addition, to keep the job a teacher must complete a fifth year of training within 10 years from the date of hire. How to amend tax return If the employing school certifies to the state Department of Education that qualified teachers cannot be found, the school can hire persons with only 3 years of college. How to amend tax return However, to keep their jobs, these teachers must get a bachelor's degree and the required professional education courses within 3 years. How to amend tax return Under these facts, the bachelor's degree, whether or not it includes the 10 professional education courses, is considered the minimum educational requirement for qualification as a teacher in your state. How to amend tax return If you have all the required education except the fifth year, you have met the minimum educational requirements. How to amend tax return The fifth year of training is qualifying work-related education unless it is part of a program of study that will qualify you for a new trade or business. How to amend tax return Example 2. How to amend tax return Assume the same facts as in Example 1 except that you have a bachelor's degree and only six professional education courses. How to amend tax return The additional four education courses can be qualifying work-related education. How to amend tax return Although you do not have all the required courses, you have already met the minimum educational requirements. How to amend tax return Example 3. How to amend tax return Assume the same facts as in Example 1 except that you are hired with only 3 years of college. How to amend tax return The courses you take that lead to a bachelor's degree (including those in education) are not qualifying work-related education. How to amend tax return They are needed to meet the minimum educational requirements for employment as a teacher. How to amend tax return Example 4. How to amend tax return You have a bachelor's degree and you work as a temporary instructor at a university. How to amend tax return At the same time, you take graduate courses toward an advanced degree. How to amend tax return The rules of the university state that you can become a faculty member only if you get a graduate degree. How to amend tax return Also, you can keep your job as an instructor only as long as you show satisfactory progress toward getting this degree. How to amend tax return You have not met the minimum educational requirements to qualify you as a faculty member. How to amend tax return The graduate courses are not qualifying work-related education. How to amend tax return Certification in a new state. How to amend tax return   Once you have met the minimum educational requirements for teachers for your state, you are considered to have met the minimum educational requirements in all states. How to amend tax return This is true even if you must get additional education to be certified in another state. How to amend tax return Any additional education you need is qualifying work-related education. How to amend tax return You have already met the minimum requirements for teaching. How to amend tax return Teaching in another state is not a new trade or business. How to amend tax return Example. How to amend tax return You hold a permanent teaching certificate in State A and are employed as a teacher in that state for several years. How to amend tax return You move to State B and are promptly hired as a teacher. How to amend tax return You are required, however, to complete certain prescribed courses to get a permanent teaching certificate in State B. How to amend tax return These additional courses are qualifying work-related education because the teaching position in State B involves the same general kind of work for which you were qualified in State A. How to amend tax return Education That Qualifies You for a New Trade or Business Education that is part of a program of study that will qualify you for a new trade or business is not qualifying work-related education. How to amend tax return This is true even if you do not plan to enter that trade or business. How to amend tax return If you are an employee, a change of duties that involves the same general kind of work is not a new trade or business. How to amend tax return Example 1. How to amend tax return You are an accountant. How to amend tax return Your employer requires you to get a law degree at your own expense. How to amend tax return You register at a law school for the regular curriculum that leads to a law degree. How to amend tax return Even if you do not intend to become a lawyer, the education is not qualifying because the law degree will qualify you for a new trade or business. How to amend tax return Example 2. How to amend tax return You are a general practitioner of medicine. How to amend tax return You take a 2-week course to review developments in several specialized fields of medicine. How to amend tax return The course does not qualify you for a new profession. How to amend tax return It is qualifying work- related education because it maintains or improves skills required in your present profession. How to amend tax return Example 3. How to amend tax return While working in the private practice of psychiatry, you enter a program to study and train at an accredited psychoanalytic institute. How to amend tax return The program will lead to qualifying you to practice psychoanalysis. How to amend tax return The psychoanalytic training does not qualify you for a new profession. How to amend tax return It is qualifying work-related education because it maintains or improves skills required in your present profession. How to amend tax return Bar or CPA Review Course Review courses to prepare for the bar examination or the certified public accountant (CPA) examination are not qualifying work-related education. How to amend tax return They are part of a program of study that can qualify you for a new profession. How to amend tax return Teaching and Related Duties All teaching and related duties are considered the same general kind of work. How to amend tax return A change in duties in any of the following ways is not considered a change to a new business. How to amend tax return Elementary school teacher to secondary school teacher. How to amend tax return Teacher of one subject, such as biology, to teacher of another subject, such as art. How to amend tax return Classroom teacher to guidance counselor. How to amend tax return Classroom teacher to school administrator. How to amend tax return What Expenses Can Be Deducted If your education meets the requirements described earlier under Qualifying Work-Related Education you can generally deduct your education expenses as business expenses. How to amend tax return If you are not self-employed, you can deduct business expenses only if you itemize your deductions. How to amend tax return You cannot deduct expenses related to tax-exempt and excluded income. How to amend tax return Deductible expenses. How to amend tax return   The following education expenses can be deducted. How to amend tax return Tuition, books, supplies, lab fees, and similar items. How to amend tax return Certain transportation and travel costs. How to amend tax return Other education expenses, such as costs of research and typing when writing a paper as part of an educational program. How to amend tax return Nondeductible expenses. How to amend tax return   You cannot deduct personal or capital expenses. How to amend tax return For example, you cannot deduct the dollar value of vacation time or annual leave you take to attend classes. How to amend tax return This amount is a personal expense. How to amend tax return Unclaimed reimbursement. How to amend tax return   If you do not claim reimbursement that you are entitled to receive from your employer, you cannot deduct the expenses that apply to that unclaimed reimbursement. How to amend tax return Example. How to amend tax return Your employer agrees to pay your education expenses if you file a voucher showing your expenses. How to amend tax return You do not file a voucher and you do not get reimbursed. How to amend tax return Because you did not file a voucher, you cannot deduct the expenses on your tax return. How to amend tax return Transportation Expenses If your education qualifies, you can deduct local transportation costs of going directly from work to school. How to amend tax return If you are regularly employed and go to school on a temporary basis, you can also deduct the costs of returning from school to home. How to amend tax return Temporary basis. How to amend tax return   You go to school on a temporary basis if either of the following situations applies to you. How to amend tax return Your attendance at school is realistically expected to last 1 year or less and does indeed last for 1 year or less. How to amend tax return Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. How to amend tax return Your attendance is temporary up to the date you determine it will last more than 1 year. How to amend tax return If you are in either situation (1) or (2) above, your attendance is not temporary if facts and circumstances indicate otherwise. How to amend tax return Attendance not on a temporary basis. How to amend tax return   You do not go to school on a temporary basis if either of the following situations apply to you. How to amend tax return Your attendance at school is realistically expected to last more than 1 year. How to amend tax return It does not matter how long you actually attend. How to amend tax return Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. How to amend tax return Your attendance is not temporary after the date you determine it will last more than 1 year. How to amend tax return Deductible Transportation Expenses If you are regularly employed and go directly from home to school on a temporary basis, you can deduct the round-trip costs of transportation between your home and school. How to amend tax return This is true regardless of the location of the school, the distance traveled, or whether you attend school on nonwork days. How to amend tax return Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. How to amend tax return Transportation expenses do not include amounts spent for travel, meals, or lodging while you are away from home overnight. How to amend tax return Example 1. How to amend tax return You regularly work in a nearby town, and go directly from work to home. How to amend tax return You also attend school every work night for 3 months to take a course that improves your job skills. How to amend tax return Since you are attending school on a temporary basis, you can deduct your daily round-trip transportation expenses in going between home and school. How to amend tax return This is true regardless of the distance traveled. How to amend tax return Example 2. How to amend tax return Assume the same facts as in Example 1 except that on certain nights you go directly from work to school and then home. How to amend tax return You can deduct your transportation expenses from your regular work site to school and then home. How to amend tax return Example 3. How to amend tax return Assume the same facts as in Example 1 except that you attend the school for 9 months on Saturdays, nonwork days. How to amend tax return Since you are attending school on a temporary basis, you can deduct your round-trip transportation expenses in going between home and school. How to amend tax return Example 4. How to amend tax return Assume the same facts as in Example 1 except that you attend classes twice a week for 15 months. How to amend tax return Since your attendance in school is not considered temporary, you cannot deduct your transportation expenses in going between home and school. How to amend tax return If you go directly from work to school, you can deduct the one-way transportation expenses of going from work to school. How to amend tax return If you go from work to home to school and return home, your transportation expenses cannot be more than if you had gone directly from work to school. How to amend tax return Using your car. How to amend tax return    If you use your car (whether you own or lease it) for transportation to school, you can deduct your actual expenses or use the standard mileage rate to figure the amount you can deduct. How to amend tax return The standard mileage rate for miles driven from January 1, 2013 through December 31, 2013, is 56. How to amend tax return 5 cents per mile. How to amend tax return Whichever method you use, you can also deduct parking fees and tolls. How to amend tax return See Publication 463, chapter 4, for information on deducting your actual expenses of using a car. How to amend tax return Travel Expenses You can deduct expenses for travel, meals (see 50% limit on meals , later), and lodging if you travel overnight mainly to obtain qualifying work-related education. How to amend tax return Travel expenses for qualifying work-related education are treated the same as travel expenses for other employee business purposes. How to amend tax return For more information, see chapter 1 of Publication 463. How to amend tax return You cannot deduct expenses for personal activities such as sightseeing, visiting, or entertaining. How to amend tax return Mainly personal travel. How to amend tax return   If your travel away from home is mainly personal, you cannot deduct all of your expenses for travel, meals, and lodging. How to amend tax return You can deduct only your expenses for lodging and 50% of your expenses for meals during the time you attend the qualified educational activities. How to amend tax return   Whether a trip's purpose is mainly personal or educational depends upon the facts and circumstances. How to amend tax return An important factor is the comparison of time spent on personal activities with time spent on educational activities. How to amend tax return If you spend more time on personal activities, the trip is considered mainly educational only if you can show a substantial nonpersonal reason for traveling to a particular location. How to amend tax return Example 1. How to amend tax return John works in Newark, New Jersey. How to amend tax return He traveled to Chicago to take a deductible 1-week course at the request of his employer. How to amend tax return His main reason for going to Chicago was to take the course. How to amend tax return While there, he took a sightseeing trip, entertained some friends, and took a side trip to Pleasantville for a day. How to amend tax return Since the trip was mainly for business, John can deduct his round-trip airfare to Chicago. How to amend tax return He cannot deduct his transportation expenses of going to Pleasantville. How to amend tax return He can deduct only the meals (subject to the 50% limit) and lodging connected with his educational activities. How to amend tax return Example 2. How to amend tax return Sue works in Boston. How to amend tax return She went to a university in Michigan to take a course for work. How to amend tax return The course is qualifying work-related education. How to amend tax return She took one course, which is one-fourth of a full course load of study. How to amend tax return She spent the rest of the time on personal activities. How to amend tax return Her reasons for taking the course in Michigan were all personal. How to amend tax return Sue's trip is mainly personal because three-fourths of her time is considered personal time. How to amend tax return She cannot deduct the cost of her round-trip train ticket to Michigan. How to amend tax return She can deduct one-fourth of the meals (subject to the 50% limit) and lodging costs for the time she attended the university. How to amend tax return Example 3. How to amend tax return Dave works in Nashville and recently traveled to California to take a 2-week seminar. How to amend tax return The seminar is qualifying work-related education. How to amend tax return While there, he spent an extra 8 weeks on personal activities. How to amend tax return The facts, including the extra 8-week stay, show that his main purpose was to take a vacation. How to amend tax return Dave cannot deduct his round-trip airfare or his meals and lodging for the 8 weeks. How to amend tax return He can deduct only his expenses for meals (subject to the 50% limit) and lodging for the 2 weeks he attended the seminar. How to amend tax return Cruises and conventions. How to amend tax return   Certain cruises and conventions offer seminars or courses as part of their itinerary. How to amend tax return Even if the seminars or courses are work related, your deduction for travel may be limited. How to amend tax return This applies to: Travel by ocean liner, cruise ship, or other form of luxury water transportation, and Conventions outside the North American area. How to amend tax return   For a discussion of the limits on travel expense deductions that apply to cruises and conventions, see Luxury Water Travel and Conventions in chapter 1 of Publication 463. How to amend tax return 50% limit on meals. How to amend tax return   You can deduct only 50% of the cost of your meals while traveling away from home to obtain qualifying work-related education. How to amend tax return If you were reimbursed for the meals, see How To Treat Reimbursements , later. How to amend tax return   Employees must use Form 2106 or Form 2106-EZ to apply the 50% limit. How to amend tax return Travel as Education You cannot deduct the cost of travel as a form of education even if it is directly related to your duties in your work or business. How to amend tax return Example. How to amend tax return You are a French language teacher. How to amend tax return While on sabbatical leave granted for travel, you traveled through France to improve your knowledge of the French language. How to amend tax return You chose your itinerary and most of your activities to improve your French language skills. How to amend tax return You cannot deduct your travel expenses as education expenses. How to amend tax return This is true even if you spent most of your time learning French by visiting French schools and families, attending movies or plays, and engaging in similar activities. How to amend tax return No Double Benefit Allowed You cannot do either of the following. How to amend tax return Deduct work-related education expenses as business expenses if you benefit from these expenses under any other provision of the law, for example, as a tuition and fees deduction. How to amend tax return Deduct work-related education expenses paid with tax-free scholarship, grant, or employer-provided educational assistance. How to amend tax return See Adjustments to Qualifying Work-Related Education Expenses, next. How to amend tax return Adjustments to Qualifying Work-Related Education Expenses If you pay qualifying work-related education expenses with certain tax-free funds, you cannot claim a deduction for those amounts. How to amend tax return You must reduce the qualifying expenses by the amount of such expenses allocable to the tax-free educational assistance. How to amend tax return Tax-free educational assistance. How to amend tax return   This includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). How to amend tax return Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. How to amend tax return Amounts that do not reduce qualifying work-related education expenses. How to amend tax return   Do not reduce the qualifying work-related education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. How to amend tax return Also, do not reduce the qualifying work-related education expenses by any scholarship or fellowship reported as income on the student's return or any scholarship which, by its terms, cannot be applied to qualifying work-related education expenses. How to amend tax return How To Treat Reimbursements How you treat reimbursements depends on the arrangement you have with your employer. How to amend tax return There are two basic types of reimbursement arrangements—accountable plans and nonaccountable plans. How to amend tax return You can tell the type of plan you are reimbursed under by the way the reimbursement is reported on your Form W-2. How to amend tax return Note. How to amend tax return The following rules about reimbursement arrangements also apply to expense allowances received from your employer. How to amend tax return Accountable Plans To be an accountable plan, your employer's reimbursement arrangement must require you to meet all three of the following rules. How to amend tax return Your expenses must have a business connection. How to amend tax return This means your expenses must be deductible under the rules for qualifying work-related education explained earlier. How to amend tax return You must adequately account to your employer for your expenses within a reasonable period of time. How to amend tax return You must return any reimbursement or allowance in excess of the expenses accounted for within a reasonable period of time. How to amend tax return If you are reimbursed under an accountable plan, your employer should not include any reimbursement in your income in box 1 of your Form W-2. How to amend tax return If your employer included reimbursements in box 1 of your Form W-2 and you meet all three rules for accountable plans, ask your employer for a corrected Form W-2. How to amend tax return Accountable plan rules not met. How to amend tax return   Even though you are reimbursed under an accountable plan, some of your expenses may not meet all three rules for accountable plans. How to amend tax return Those expenses that fail to meet the three rules are treated as having been reimbursed under a Nonaccountable Plan (discussed later). How to amend tax return Expenses equal reimbursement. How to amend tax return   Under an accountable plan, if your expenses equal your reimbursement, you do not complete Form 2106 or 2106-EZ. How to amend tax return Because your expenses and reimbursements are equal, you do not have a deduction. How to amend tax return Excess expenses. How to amend tax return   If your expenses are more than your reimbursement, you can deduct your excess expenses. How to amend tax return This is discussed later, under Deducting Business Expenses . How to amend tax return Allocating your reimbursements for meals. How to amend tax return   Because your excess meal expenses are subject to the 50% limit, you must figure them separately from your other expenses. How to amend tax return If your employer paid you a single amount to cover both meals and other expenses, you must allocate the reimbursement so that you can figure your excess meal expenses separately. How to amend tax return Make the allocation as follows. How to amend tax return Divide your meal expenses by your total expenses. How to amend tax return Multiply your total reimbursement by the result from (1). How to amend tax return This is the allocated reimbursement for your meal expenses. How to amend tax return Subtract the amount figured in (2) from your total reimbursement. How to amend tax return The difference is the allocated reimbursement for your other expenses of qualifying work-related education. How to amend tax return Example. How to amend tax return Your employer paid you an expense allowance of $2,000 under an accountable plan. How to amend tax return The allowance was to cover all of your expenses of traveling away from home to take a 2-week training course for work. How to amend tax return There was no indication of how much of the reimbursement was for each type of expense. How to amend tax return Your actual expenses equal $2,500 ($425 for meals + $700 lodging + $150 transportation expenses + $1,225 for books and tuition). How to amend tax return Using the steps listed above, allocate the reimbursement between the $425 meal expenses and the $2,075 other expenses. How to amend tax return   1. How to amend tax return $425 meal expenses  $2,500 total expenses = . How to amend tax return 17   2. How to amend tax return $2,000 (reimbursement)×. How to amend tax return 17     =$340 (allocated reimbursement for meal expenses)   3. How to amend tax return $2,000 (reimbursement)−$340 (meals)     = $1,660 (allocated reimbursement for other qualifying work-related education expenses) Your excess meal expenses are $85 ($425 − $340) and your excess other expenses are $415 ($2,075 − $1,660). How to amend tax return After you apply the 50% limit to your meals, you have a deduction for work-related education expenses of $458 (($85 × 50%) + $415). How to amend tax return Nonaccountable Plans Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay and report the total in box 1 of your Form W-2. How to amend tax return You can deduct your expenses regardless of whether they are more than, less than, or equal to your reimbursement. How to amend tax return This is discussed later under Deducting Business Expenses . How to amend tax return An illustrated example of a nonaccountable plan, using Form 2106-EZ, is shown at the end of this chapter. How to amend tax return Reimbursements for nondeductible expenses. How to amend tax return   Reimbursements you received for nondeductible expenses are treated as paid under a nonaccountable plan. How to amend tax return You must include them in your income. How to amend tax return For example, you must include in your income reimbursements your employer gave you for expenses of education that: You need to meet the minimum educational requirements for your job, or Is part of a program of study that can qualify you for a new trade or business. How to amend tax return   For more information on accountable and nonaccountable plans, see chapter 6 of Publication 463. How to amend tax return Deducting Business Expenses Self-employed persons and employees report their business expenses differently. How to amend tax return The following information explains what forms you must use to deduct the cost of your qualifying work-related education as a business expense. How to amend tax return Self-Employed Persons If you are self-employed, you must report the cost of your qualifying work-related education on the appropriate form used to report your business income and expenses (generally Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040)). How to amend tax return If your education expenses include expenses for a car or truck, travel, or meals, report those expenses the same way you report other business expenses for those items. How to amend tax return See the instructions for the form you file for information on how to complete it. How to amend tax return Employees If you are an employee, you can deduct the cost of qualifying work-related education only if you: Did not receive (and were not entitled to receive) any reimbursement from your employer, Were reimbursed under a nonaccountable plan (amount is included in box 1 of Form W-2), or Received reimbursement under an accountable plan, but the amount received was less than your expenses for which you claimed reimbursement. How to amend tax return If either (1) or (2) applies, you can deduct the total qualifying cost. How to amend tax return If (3) applies, you can deduct only the qualifying costs that were more than your reimbursement. How to amend tax return In order to deduct the cost of your qualifying work-related education as a business expense, include the amount with your deduction for any other employee business expenses on Schedule A (Form 1040), line 21, or Schedule A (Form 1040NR), line 7. How to amend tax return (Special rules for expenses of certain performing artists and fee-basis officials and for impairment-related work expenses are explained later. How to amend tax return ) This deduction (except for impairment-related work expenses of disabled individuals) is subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions. How to amend tax return Form 2106 or 2106-EZ. How to amend tax return   To figure your deduction for employee business expenses, including qualifying work-related education, you generally must complete Form 2106 or 2106-EZ. How to amend tax return Form not required. How to amend tax return   Do not complete either Form 2106 or 2106-EZ if: All reimbursements, if any, are included in box 1 of your Form W-2, and You are not claiming travel, transportation, meal, or entertainment expenses. How to amend tax return   If you meet both of these requirements, enter the expenses directly on Schedule A (Form 1040), line 21, or Schedule A (Form 1040NR), line 7. How to amend tax return (Special rules for expenses of certain Performing Artists and Fee-Basis Officials and for Impairment-Related Work Expenses are explained later. How to amend tax return ) Using Form 2106-EZ. How to amend tax return   This form is shorter and easier to use than Form 2106. How to amend tax return Generally, you can use this form if: All reimbursements, if any, are included in box 1 of your Form W-2, and You are using the standard mileage rate if you are claiming vehicle expenses. How to amend tax return   If you do not meet both of these requirements, use Form 2106. How to amend tax return Performing Artists and Fee-Basis Officials If you are a qualified performing artist, or a state (or local) government official who is paid in whole or in part on a fee basis, you can deduct the cost of your qualifying work-related education as an adjustment to gross income rather than as an itemized deduction. How to amend tax return Include the cost of your qualifying work-related education with any other employee business expenses on Form 1040, line 24, or Form 1040NR, line 35. How to amend tax return You do not have to itemize your deductions on Schedule A (Form 1040 or 1040NR), and, therefore, the deduction is not subject to the 2%-of-adjusted-gross-income limit. How to amend tax return You must complete Form 2106 or 2106-EZ to figure your deduction even if you meet the requirements described earlier under Form not required . How to amend tax return For more information on qualified performing artists, see chapter 6 of Publication 463. How to amend tax return Impairment-Related Work Expenses If you are disabled and have impairment-related work expenses that are necessary for you to be able to get qualifying work-related education, you can deduct these expenses on Schedule A (Form 1040), line 28, or Schedule A (Form 1040NR), line 14. How to amend tax return They are not subject to the 2%-of-adjusted-gross-income limit. How to amend tax return To deduct these expenses, you must complete Form 2106 or 2106-EZ even if you meet the requirements described earlier under Form not required . How to amend tax return For more information on impairment-related work expenses, see chapter 6 of Publication 463. How to amend tax return Recordkeeping You must keep records as proof of any deduction claimed on your tax return. How to amend tax return Generally, you should keep your records for 3 years from the date of filing the tax return and claiming the deduction. How to amend tax return If you are an employee who is reimbursed for expenses and you give your records and documentation to your employer, you do not have to keep duplicate copies of this information. How to amend tax return However, you should keep your records for a 3-year period if: You claim deductions for expenses that are more than your reimbursement, Your employer does not use adequate accounting procedures to verify expense accounts, You are related to your employer, or Your expenses are reimbursed under a nonaccountable plan. How to amend tax return Examples of records to keep. How to amend tax return   If any of the above cases apply to you, you must be able to prove that your expenses are deductible. How to amend tax return You should keep adequate records or have sufficient evidence that will support your expenses. How to amend tax return Estimates or approximations do not qualify as proof of an expense. How to amend tax return Some examples of what can be used to help prove your expenses are: Documents, such as transcripts, course descriptions, catalogs, etc. How to amend tax return , showing periods of enrollment in educational institutions, principal subjects studied, and descriptions of educational activity. How to amend tax return Canceled checks and receipts to verify amounts you spent for: Tuition and books, Meals and lodging while away from home overnight for educational purposes, Travel and transportation, and Other education expenses. How to amend tax return Statements from your employer explaining whether the education was necessary for you to keep your job, salary, or status; how the education helped maintain or improve skills needed in your job; how much reimbursement you received; and, if you are a teacher, the type of certificate and subjects taught. How to amend tax return Complete information about any scholarship or fellowship grants, including amounts you received during the year. How to amend tax return Illustrated Example Victor Jones teaches math at a private high school in North Carolina. How to amend tax return He was selected to attend a 3-week math seminar at a university in California. How to amend tax return The seminar will improve his skills in his current job and is qualifying work-related education. How to amend tax return He was reimbursed for his expenses under his employer's nonaccountable plan, so his reimbursement of $2,100 is included in the wages shown in box 1 of his Form W-2. How to amend tax return Victor will file Form 1040. How to amend tax return His actual expenses for the seminar are as follows:   Lodging   $1,050     Meals   526     Airfare   550     Taxi fares   50     Tuition and books   400     Total Expenses   $2,576   Victor files Form 2106-EZ with his tax return. How to amend tax return He shows his expenses for the seminar in Part I of the form. How to amend tax return He enters $1,650 ($1,050 + $550 + $50) on line 3 to account for his lodging, airfare, and taxi fares. How to amend tax return He enters $400 on line 4 for his tuition and books. How to amend tax return On the line provided for total meals and entertainment expenses, Victor enters $526 for meal expenses. How to amend tax return He multiplies that amount by 50% and enters the result, $263, on line 5. How to amend tax return On line 6, Victor totals the amounts from lines 3 through 5. How to amend tax return He carries the total, $2,313, to Schedule A (Form 1040), line 21. How to amend tax return Since he does not claim any vehicle expenses, Victor leaves Part II blank. How to amend tax return His filled-in form is shown on the next page. How to amend tax return This image is too large to be displayed in the current screen. How to amend tax return Please click the link to view the image. How to amend tax return Form 2106-EZ for V. How to amend tax return Jones Prev  Up  Next   Home   More Online Publications