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How To File 2011 Income Tax

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How To File 2011 Income Tax

How to file 2011 income tax Publication 557 - Additional Material Table of Contents Appendix. How to file 2011 income tax Sample Articles of Organization, continued Organization Reference Chart Section of 1986 Code Description of organization General nature of activities Application  Form Annual return required to be  filed Contributions  allowable 501(c)(1) Corporations Organized under Act of Congress (including Federal Credit Unions) Instrumentalities of the  United States No Form None Yes, if made for exclusively public purposes 501(c)(2) Title Holding Corporation For Exempt Organization Holding title to property of an  exempt organization 1024 9901 or 990-EZ8 No2 501(c)(3) Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations Activities of nature implied by description of class of organization 1023 9901 or 990-EZ8, or 990-PF Yes, generally 501(c)(4) Civic Leagues, Social Welfare Organizations, and Local Associations of Employees Promotion of community welfare; charitable, educational, or recreational 1024 9901 or 990-EZ8 No, generally 2, 3 501(c)(5) Labor, Agricultural, and Horticultural Organizations Educational or instructive, the  purpose being to improve conditions of work, and to improve products of efficiency 1024 9901 or 990-EZ8 No2 501(c)(6) Business Leagues, Chambers of Commerce, Real Estate Boards, etc. How to file 2011 income tax Improvement of business  conditions of one or more lines of business 1024 9901 or 990-EZ8 No2 501(c)(7) Social and Recreational Clubs Pleasure, recreation, social activities 1024 9901 or 990-EZ8 No2 501(c)(8) Fraternal Beneficiary Societies  and Associations Lodge providing for payment of life, sickness, accident or other benefits  to members 1024 9901 or 990-EZ8 Yes, if for certain Sec. How to file 2011 income tax 501(c)(3) purposes 501(c)(9) Voluntary Employees Beneficiary Associations Providing for payment of life, sickness, accident, or other benefits to members 1024 9901 or 990-EZ8 No2 501(c)(10) Domestic Fraternal Societies  and Associations Lodge devoting its net earnings to charitable, fraternal, and other  specified purposes. How to file 2011 income tax No life, sickness, or accident benefits to members 1024 9901 or 990-EZ8 Yes, if for certain Sec. How to file 2011 income tax 501(c)(3) purposes 501(c)(11) Teachers' Retirement Fund Associations Teachers' association for payment of retirement benefits Letter6 9901 or 990-EZ8 No2 501(c)(12) Benevolent Life Insurance Associations, Mutual Ditch or  Irrigation Companies, Mutual or Cooperative Telephone Companies, etc. How to file 2011 income tax Activities of a mutually beneficial  nature similar to those implied by the description of class of organization 1024 9901 or 990-EZ8 No2 501(c)(13) Cemetery Companies Burials and incidental activities 1024 9901 or 990-EZ8 Yes, generally 501(c)(14) State-Chartered Credit Unions,  Mutual Reserve Funds Loans to members Letter6 9901 or 990-EZ8 No2 501(c)(15) Mutual Insurance Companies or Associations Providing insurance to members substantially at cost 1024 9901 or 990-EZ8 No2 501(c)(16) Cooperative Organizations to  Finance Crop Operations Financing crop operations in  conjunction with activities of a marketing  or purchasing association Form 1120-C6 9901 or 990-EZ8 No2 501(c)(17) Supplemental Unemployment  Benefit Trusts Provides for payment of  supplemental unemployment compensation benefits 1024 9901 or 990-EZ8 No2 501(c)(18) Employee Funded Pension Trust (created before June 25, 1959) Payment of benefits under a  pension plan funded by employees Letter6 9901 or 990-EZ8 No2 501(c)(19) Post or Organization of Past or  Present Members of the Armed Forces Activities implied by nature of organization 1024 9901 or 990-EZ8 No, generally7 501(c)(21) Black Lung Benefit Trusts Funded by coal mine operators to satisfy their liability for disability or  death due to black lung diseases Letter6 990-BL No4 501(c)(22) Withdrawal Liability Payment Fund To provide funds to meet the  liability of employers withdrawing from  a multi-employer pension fund Letter6 9901 or 990-EZ8 No5 501(c)(23) Veterans' Organization (created before 1880) To provide insurance and other  benefits to veterans Letter6 9901 or 990-EZ8 No, generally7 501(c)(25) Title Holding Corporations or Trusts with Multiple Parent Corporations Holding title and paying over  income from property to 35 or fewer parents or beneficiaries 1024 9901 or 990-EZ8 No 501(c)(26) State-Sponsored Organization Providing Health Coverage for High-Risk Individuals Provides health care coverage to high-risk individuals Letter6 9901 or 990-EZ8 No 501(c)(27) State-Sponsored Workers' Compensation Reinsurance Organization Reimburses members for losses  under workers' compensation acts Letter6 9901 or 990-EZ8 No 501(c)(28) National Railroad Retirement Investment Trust Manages and invests the assets of the Railroad Retirement Account No Form 99011 No11 501(c)(29) CO-OP health insurance issuers A qualified health insurance issuer which has received a loan or grant under the CO-OP program Letter and Form 871814 9901 No13 501(d) Religious and Apostolic Associations Regular business activities;  Communal religious community No Form 10659 No2 501(e) Cooperative Hospital Service Organizations Performs cooperative services for hospitals 1023 9901 or 990-EZ8 Yes 501(f) Cooperative Service Organizations  of Operating Educational Organizations Performs collective investment  services for educational organizations 1023 9901 or 990-EZ8 Yes 501(k) Child Care Organizations Provides care for children 1023 9901 or 990-EZ8 Yes 501(n) Charitable Risk Pools Pools certain insurance risks of sec. How to file 2011 income tax 501(c)(3) organizations 1023 9901 or 990-EZ8 Yes 501(q) Credit Counseling Organization Credit counseling services 1023 102312 No 521(a) Farmers' Cooperative Associations Cooperative marketing and  purchasing for agricultural procedures 1028 1120-C No 527 Political organizations A party, committee, fund,  association, etc. How to file 2011 income tax , that directly or indirectly accepts contributions or makes expenditures for political campaigns 8871 1120-POL10 9901 or 990-EZ8 No 1For exceptions to the filing requirement, see chapter 2 and the form instructions. How to file 2011 income tax Note: For annual tax periods beginning after 2006, most tax-exempt organizations, other than churches, are required to file an annual Form 990, 990-EZ, or 990-PF with the IRS or to submit an annual electronic notice, Form 990-N (e-Postcard), to the IRS. How to file 2011 income tax Tax-exempt organizations failing to file an annual return or submit an annual notice as required for 3 consecutive years will automatically lose their tax-exempt status. How to file 2011 income tax    2An organization exempt under a subsection of section 501 other than 501(c)(3) can establish a charitable fund, contributions to which are deductible. How to file 2011 income tax Such a fund must itself meet the requirements of section 501(c)(3) and the related notice requirements of section 508(a). How to file 2011 income tax    3Contributions to volunteer fire companies and similar organizations are deductible, but only if made for exclusively public purposes. How to file 2011 income tax    4Deductible as a business expense to the extent allowed by section 192. How to file 2011 income tax    5Deductible as a business expense to the extent allowed by section 194A. How to file 2011 income tax 6Application is by letter to the address shown on Form 8718. How to file 2011 income tax A copy of the organizing document should be attached and the letter should be signed by an officer. How to file 2011 income tax    7Contributions to these organizations are deductible only if 90% or more of the organization's members are war veterans. How to file 2011 income tax    8For limits on the use of Form 990-EZ, see chapter 2 and the general instructions for Form 990-EZ (or Form 990). How to file 2011 income tax    9Although the organization files a partnership return, all distributions are deemed dividends. How to file 2011 income tax The members are not entitled to pass through treatment of the organization's income or expenses. How to file 2011 income tax    10Form 1120-POL is required only if the organization has taxable income as defined in section 527(c). How to file 2011 income tax    11Only required to annually file so much of the Form 990 that relates to the names and addresses of the officers, directors, trustees, and key employees, and their titles, compensation, and hours devoted to their positions (Part VII of Form 990), and to complete Item I in the Heading of Form 990 to confirm its tax-exempt status under section 501(c)(28). How to file 2011 income tax    12See section 501(q) if the organization provides credit counseling services and seeks recognition of exemption under section 501(c)(4). How to file 2011 income tax Use Form 1024 if applying for recognition under section 501(c)(4). How to file 2011 income tax    13See section 501(c)(29) for details. How to file 2011 income tax    14See Revenue Procedure 2012-11, sec. How to file 2011 income tax 4. How to file 2011 income tax 01, 2012-7 I. How to file 2011 income tax R. How to file 2011 income tax B. How to file 2011 income tax 368, for details. How to file 2011 income tax Appendix. How to file 2011 income tax Sample Articles of Organization The following are examples of Articles of Incorporation (Draft A) and a declaration of trust (Draft B) that contain the required information as to purposes and powers of an organization and disposition of its assets upon dissolution. How to file 2011 income tax You should bear in mind that requirements for these instruments may vary under applicable state law. How to file 2011 income tax See Private Foundations and Public Charities , earlier for the special provisions required in a private foundation's governing instrument in order for it to qualify for exemption. How to file 2011 income tax DRAFT A  Articles of Incorporation of the undersigned, a majority of whom are citizens of the United States, desiring to form a Non-Profit Corporation under the Non-Profit Corporation Law of , do hereby certify: First: The name of the Corporation shall be . How to file 2011 income tax Second: The place in this state where the principal office of the Corporation is to be located is the City of , County. How to file 2011 income tax Third: Said corporation is organized exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. How to file 2011 income tax Fourth: The names and addresses of the persons who are the initial trustees of the corporation are as follows: Name , Address Fifth: No part of the net earnings of the corporation shall inure to the benefit of, or be distributable to its members, trustees, officers, or other private persons, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in Article Third hereof. How to file 2011 income tax No substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office. How to file 2011 income tax Notwithstanding any other provision of these articles, the corporation shall not carry on any other activities not permitted to be carried on (a) by a corporation exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or (b) by a corporation, contributions to which are deductible under section 170(c)(2) of the Internal Revenue Code, or the corresponding section of any future federal tax code. How to file 2011 income tax   If reference to federal law in articles of incorporation imposes a limitation that is invalid in your state, you may wish to substitute the following for the last sentence of the preceding paragraph: “Notwithstanding any other provision of these articles, this corporation shall not, except to an insubstantial degree, engage in any activities or exercise any powers that are not in furtherance of the purposes of this corporation. How to file 2011 income tax ” Sixth: Upon the dissolution of the corporation, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. How to file 2011 income tax Any such assets not so disposed of shall be disposed of by a Court of Competent Jurisdiction of the county in which the principal office of the corporation is then located, exclusively for such purposes or to such organization or organizations, as said Court shall determine, which are organized and operated exclusively for such purposes. How to file 2011 income tax   In witness whereof, we have hereunto subscribed our names this day of , 20. How to file 2011 income tax Appendix. How to file 2011 income tax Sample Articles of Organization, continued Draft B The Charitable Trust. How to file 2011 income tax Declaration of Trust made as of the day of , 20 , by , of , and , of , who hereby declare and agree that they have received this day from , as Donor, the sum of Ten Dollars ($10) and that they will hold and manage the same, and any additions to it, in trust, as follows: First: This trust shall be called “The Charitable Trust. How to file 2011 income tax ” Second: The trustees may receive and accept property, whether real, personal, or mixed, by way of gift, bequest, or devise, from any person, firm, trust, or corporation, to be held, administered, and disposed of in accordance with and pursuant to the provisions of this Declaration of Trust; but no gift, bequest, or devise of any such property shall be received and accepted if it is conditioned or limited in such manner as to require the disposition of the income or its principal to any person or organization other than a “charitable organization” or for other than “charitable purposes” within the meaning of such terms as defined in Article Third of this Declaration of Trust, or as shall, in the opinion of the trustees, jeopardize the federal income tax exemption of this trust pursuant to section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. How to file 2011 income tax Third: a) The principal and income of all property received and accepted by the trustees to be administered under this Declaration of Trust shall be held in trust by them, and the trustees may make payments or distributions from income or principal, or both, to or for the use of such charitable organizations, within the meaning of that term as defined in paragraph C, in such amounts and for such charitable purposes of the trust as the trustees shall from time to time select and determine; and the trustees may make payments or distributions from income or principal, or both, directly for such charitable purposes, within the meaning of that term as defined in paragraph D, in such amounts as the trustees shall from time to time select and determine without making use of any other charitable organization. How to file 2011 income tax The trustees may also make payments or distributions of all or any part of the income or principal to states, territories, or possessions of the United States, any political subdivision of any of the foregoing, or to the United States or the District of Columbia but only for charitable purposes within the meaning of that term as defined in paragraph D. How to file 2011 income tax Income or principal derived from contributions by corporations shall be distributed by the trustees for use solely within the United States or its possessions. How to file 2011 income tax No part of the net earnings of this trust shall inure or be payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of this trust shall be the carrying on of propaganda, or otherwise attempting to influence legislation. How to file 2011 income tax No part of the activities of this trust shall be the participation in, or intervention in (including the publishing or distributing of statements), any political campaign on behalf of or in opposition to any candidate for public office. How to file 2011 income tax b) The trust shall continue forever unless the trustees terminate it and distribute all of the principal and income, which action may be taken by the trustees in their discretion at any time. How to file 2011 income tax On such termination, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. How to file 2011 income tax The donor authorizes and empowers the trustees to form and organize a nonprofit corporation limited to the uses and purposes provided for in this Declaration of Trust, such corporation to be organized under the laws of any state or under the laws of the United States as may be determined by the trustees; such corporation when organized to have power to administer and control the affairs and property and to carry out the uses, objects, and purposes of this trust. How to file 2011 income tax Upon the creation and organization of such corporation, the trustees are authorized and empowered to convey, transfer, and deliver to such corporation all the property and assets to which this trust may be or become entitled. How to file 2011 income tax The charter, bylaws, and other provisions for the organization and management of such corporation and its affairs and property shall be such as the trustees shall determine, consistent with the provisions of this paragraph. How to file 2011 income tax c) In this Declaration of Trust and in any amendments to it, references to “charitable organizations” or “charitable organization” mean corporations, trusts, funds, foundations, or community chests created or organized in the United States or in any of its possessions, whether under the laws of the United States, any state or territory, the District of Columbia, or any possession of the United States, organized and operated exclusively for charitable purposes, no part of the net earnings of which inures or is payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation, and which do not participate in or intervene in (including the publishing or distributing of statements) any political campaign on behalf of or in opposition to any candidate for public office. How to file 2011 income tax It is intended that the organization described in this paragraph C shall be entitled to exemption from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. How to file 2011 income tax d) In this Declaration of Trust and in any amendments to it, the term “charitable purposes” shall be limited to and shall include only religious, charitable, scientific, literary, or educational purposes within the meaning of those terms as used in section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, but only such purposes as also constitute public charitable purposes under the law of trusts of the State of. How to file 2011 income tax Fourth: This Declaration of Trust may be amended at any time or times by written instrument or instruments signed and sealed by the trustees, and acknowledged by any of the trustees, provided that no amendment shall authorize the trustees to conduct the affairs of this trust in any manner or for any purpose contrary to the provisions of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. How to file 2011 income tax An amendment of the provisions of this Article Fourth (or any amendment to it) shall be valid only if and to the extent that such amendment further restricts the trustees' amending power. How to file 2011 income tax All instruments amending this Declaration of Trust shall be noted upon or kept attached to the executed original of this Declaration of Trust held by the trustees. How to file 2011 income tax Fifth: Any trustee under this Declaration of Trust may, by written instrument, signed and acknowledged, resign his office. How to file 2011 income tax The number of trustees shall be at all times not less than two, and whenever for any reason the number is reduced to one, there shall be, and at any other time there may be, appointed one or more additional trustees. How to file 2011 income tax Appointments shall be made by the trustee or trustees for the time in office by written instruments signed and acknowledged. How to file 2011 income tax Any succeeding or additional trustee shall, upon his or her acceptance of the office by written instrument signed and acknowledged, have the same powers, rights, and duties, and the same title to the trust estate jointly with the surviving or remaining trustee or trustees as if originally appointed. How to file 2011 income tax  None of the trustees shall be required to furnish any bond or surety. How to file 2011 income tax None of them shall be responsible or liable for the acts or omissions of any other of the trustees or of any predecessor or of a custodian, agent, depositary, or counsel selected with reasonable care. How to file 2011 income tax  The one or more trustees, whether original or successor, for the time being in office, shall have full authority to act even though one or more vacancies may exist. How to file 2011 income tax A trustee may, by appropriate written instrument, delegate all or any part of his or her powers to another or others of the trustees for such periods and subject to such conditions as such delegating trustee may determine. How to file 2011 income tax  The trustees serving under this Declaration of Trust are authorized to pay to themselves amounts for reasonable expenses incurred and reasonable compensation for services rendered in the administration of this trust, but in no event shall any trustee who has made a contribution to this trust ever receive any compensation thereafter. How to file 2011 income tax Sixth: In extension and not in limitation of the common law and statutory powers of trustees and other powers granted in this Declaration of Trust, the trustees shall have the following discretionary powers. How to file 2011 income tax a) To invest and reinvest the principal and income of the trust in such property, real, personal, or mixed, and in such manner as they shall deem proper, and from time to time to change investments as they shall deem advisable; to invest in or retain any stocks, shares, bonds, notes, obligations, or personal or real property (including without limitation any interests in or obligations of any corporation, association, business trust, investment trust, common trust fund, or investment company) although some or all of the property so acquired or retained is of a kind or size which but for this express authority would not be considered proper and although all of the trust funds are invested in the securities of one company. How to file 2011 income tax No principal or income, however, shall be loaned, directly or indirectly, to any trustee or to anyone else, corporate or otherwise, who has at any time made a contribution to this trust, nor to anyone except on the basis of an adequate interest charge and with adequate security. How to file 2011 income tax b) To sell, lease, or exchange any personal, mixed, or real property, at public auction or by private contract, for such consideration and on such terms as to credit or otherwise, and to make such contracts and enter into such undertakings relating to the trust property, as they consider advisable, whether or not such leases or contracts may extend beyond the duration of the trust. How to file 2011 income tax c) To borrow money for such periods, at such rates of interest, and upon such terms as the trustees consider advisable, and as security for such loans to mortgage or pledge any real or personal property with or without power of sale; to acquire or hold any real or personal property, subject to any mortgage or pledge on or of property acquired or held by this trust. How to file 2011 income tax d) To execute and deliver deeds, assignments, transfers, mortgages, pledges, leases, covenants, contracts, promissory notes, releases, and other instruments, sealed or unsealed, incident to any transaction in which they engage. How to file 2011 income tax e) To vote, to give proxies, to participate in the reorganization, merger, or consolidation of any concern, or in the sale, lease, disposition, or distribution of its assets; to join with other security holders in acting through a committee, depositary, voting trustees, or otherwise, and in this connection to delegate authority to such committee, depositary, or trustees and to deposit securities with them or transfer securities to them; to pay assessments levied on securities or to exercise subscription rights in respect of securities. How to file 2011 income tax f) To employ a bank or trust company as custodian of any funds or securities and to delegate to it such powers as they deem appropriate; to hold trust property without indication of fiduciary capacity but only in the name of a registered nominee, provided the trust property is at all times identified as such on the books of the trust; to keep any or all of the trust property or funds in any place or places in the United States of America; to employ clerks, accountants, investment counsel, investment agents, and any special services, and to pay the reasonable compensation and expenses of all such services in addition to the compensation of the trustees. How to file 2011 income tax Seventh: The trustees' powers are exercisable solely in the fiduciary capacity consistent with and in furtherance of the charitable purposes of this trust as specified in Article Third and not otherwise. How to file 2011 income tax Eighth: In this Declaration of Trust and in any amendment to it, references to “trustees” mean the one or more trustees, whether original or successor, for the time being in office. How to file 2011 income tax Ninth: Any person may rely on a copy, certified by a notary public, of the executed original of this Declaration of Trust held by the trustees, and of any of the notations on it and writings attached to it, as fully as he might rely on the original documents themselves. How to file 2011 income tax Any such person may rely fully on any statements of fact certified by anyone who appears from such original documents or from such certified copy to be a trustee under this Declaration of Trust. How to file 2011 income tax No one dealing with the trustees need inquire concerning the validity of anything the trustees purport to do. How to file 2011 income tax No one dealing with the trustees need see to the application of anything paid or transferred to or upon the order of the trustees of the trust. How to file 2011 income tax Tenth: This Declaration of Trust is to be governed in all respects by the laws of the State of . How to file 2011 income tax Trustee Trustee Prev  Up  Next   Home   More Online Publications
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The How To File 2011 Income Tax

How to file 2011 income tax 1. How to file 2011 income tax   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 file 2011 income tax Amount realized on a recourse debt. How to file 2011 income tax 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 file 2011 income tax S. How to file 2011 income tax Individual Income Tax Return 1040X Amended U. How to file 2011 income tax S. How to file 2011 income tax 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 file 2011 income tax However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. How to file 2011 income tax See chapter 5 for information about getting publications and forms. How to file 2011 income tax Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. How to file 2011 income tax An exchange is a transfer of property for other property or services. How to file 2011 income tax 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 file 2011 income tax Sale or lease. How to file 2011 income tax    Some agreements that seem to be leases may really be conditional sales contracts. How to file 2011 income tax The intention of the parties to the agreement can help you distinguish between a sale and a lease. How to file 2011 income tax   There is no test or group of tests to prove what the parties intended when they made the agreement. How to file 2011 income tax You should consider each agreement based on its own facts and circumstances. How to file 2011 income tax For more information, see chapter 3 in Publication 535, Business Expenses. How to file 2011 income tax Cancellation of a lease. How to file 2011 income tax    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. How to file 2011 income tax 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 file 2011 income tax Copyright. How to file 2011 income tax    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 file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax   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 file 2011 income tax For more information, see Section 1231 Gains and Losses in chapter 3. How to file 2011 income tax Easement. How to file 2011 income tax   The amount received for granting an easement is subtracted from the basis of the property. How to file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax   Any amount received that is more than the basis to be reduced is a taxable gain. How to file 2011 income tax The transaction is reported as a sale of property. How to file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax See Gain or Loss From Condemnations, later. How to file 2011 income tax Property transferred to satisfy debt. How to file 2011 income tax   A transfer of property to satisfy a debt is an exchange. How to file 2011 income tax Note's maturity date extended. How to file 2011 income tax   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 file 2011 income tax Also, it is not considered a closed and completed transaction that would result in a gain or loss. How to file 2011 income tax 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 file 2011 income tax Each case must be determined by its own facts. How to file 2011 income tax For more information, see Regulations section 1. How to file 2011 income tax 1001-3. How to file 2011 income tax Transfer on death. How to file 2011 income tax   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 file 2011 income tax No taxable gain or deductible loss results from the transfer. How to file 2011 income tax Bankruptcy. How to file 2011 income tax   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 file 2011 income tax Consequently, the transfer generally does not result in gain or loss. How to file 2011 income tax For more information, see Publication 908, Bankruptcy Tax Guide. How to file 2011 income tax Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. How to file 2011 income tax A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. How to file 2011 income tax A loss is the adjusted basis of the property that is more than the amount you realize. How to file 2011 income tax   Table 1-1. How to file 2011 income tax How To Figure Whether You Have a Gain or Loss IF your. How to file 2011 income tax . How to file 2011 income tax . How to file 2011 income tax THEN you have a. How to file 2011 income tax . How to file 2011 income tax . How to file 2011 income tax Adjusted basis is more than the amount realized, Loss. How to file 2011 income tax Amount realized is more than the adjusted basis, Gain. How to file 2011 income tax Basis. How to file 2011 income tax   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 file 2011 income tax The basis of property you buy is usually its cost. How to file 2011 income tax 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 file 2011 income tax See Basis Other Than Cost in Publication 551, Basis of Assets. How to file 2011 income tax 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 file 2011 income tax See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. How to file 2011 income tax Adjusted basis. How to file 2011 income tax   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 file 2011 income tax Increases include costs of any improvements having a useful life of more than 1 year. How to file 2011 income tax Decreases include depreciation and casualty losses. How to file 2011 income tax For more details and additional examples, see Adjusted Basis in Publication 551. How to file 2011 income tax Amount realized. How to file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax Fair market value. How to file 2011 income tax   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 file 2011 income tax If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. How to file 2011 income tax If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. How to file 2011 income tax Example. How to file 2011 income tax You used a building in your business that cost you $70,000. How to file 2011 income tax You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. How to file 2011 income tax You sold the building for $100,000 plus property having an FMV of $20,000. How to file 2011 income tax The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. How to file 2011 income tax The selling expenses were $4,000. How to file 2011 income tax Your gain on the sale is figured as follows. How to file 2011 income tax 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 file 2011 income tax   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. How to file 2011 income tax Recognized gains must be included in gross income. How to file 2011 income tax Recognized losses are deductible from gross income. How to file 2011 income tax However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. How to file 2011 income tax See Nontaxable Exchanges, later. How to file 2011 income tax 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 file 2011 income tax Interest in property. How to file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax Your basis in the property is disregarded. How to file 2011 income tax This rule does not apply if all interests in the property are disposed of at the same time. How to file 2011 income tax Example 1. How to file 2011 income tax Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. How to file 2011 income tax You decide to sell your life interest in the farm. How to file 2011 income tax The entire amount you receive is a recognized gain. How to file 2011 income tax Your basis in the farm is disregarded. How to file 2011 income tax Example 2. How to file 2011 income tax The facts are the same as in Example 1, except that your brother joins you in selling the farm. How to file 2011 income tax The entire interest in the property is sold, so your basis in the farm is not disregarded. How to file 2011 income tax Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. How to file 2011 income tax Canceling a sale of real property. How to file 2011 income tax   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 file 2011 income tax If the buyer returns the property in the year of sale, no gain or loss is recognized. How to file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax When the property is returned in a later year, you acquire a new basis in the property. How to file 2011 income tax That basis is equal to the amount you pay to the buyer. How to file 2011 income tax 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 file 2011 income tax You have a gain if the amount realized is more than your adjusted basis in the property. How to file 2011 income tax However, you do not have a loss if the amount realized is less than the adjusted basis of the property. How to file 2011 income tax Bargain sales to charity. How to file 2011 income tax   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. How to file 2011 income tax 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 file 2011 income tax The adjusted basis of the part sold is figured as follows. How to file 2011 income tax 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 file 2011 income tax This allocation rule does not apply if a charitable contribution deduction is not allowable. How to file 2011 income tax   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. How to file 2011 income tax Example. How to file 2011 income tax 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 file 2011 income tax Your adjusted basis in the property is $4,000. How to file 2011 income tax Your gain on the sale is $1,200, figured as follows. How to file 2011 income tax 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 file 2011 income tax You must subtract depreciation you took or could have taken from the basis of the business or rental part. How to file 2011 income tax However, see the special rule below for a home used partly for business or rental. How to file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax Any gain on the personal part of the property is a capital gain. How to file 2011 income tax You cannot deduct a loss on the personal part. How to file 2011 income tax Home used partly for business or rental. How to file 2011 income tax    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 file 2011 income tax See Property Used Partly for Business or Rental, in Publication 523. How to file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax Figure the loss you can deduct as follows. How to file 2011 income tax Use the lesser of the property's adjusted basis or fair market value at the time of the change. How to file 2011 income tax Add to (1) the cost of any improvements and other increases to basis since the change. How to file 2011 income tax Subtract from (2) depreciation and any other decreases to basis since the change. How to file 2011 income tax Subtract the amount you realized on the sale from the result in (3). How to file 2011 income tax If the amount you realized is more than the result in (3), treat this result as zero. How to file 2011 income tax The result in (4) is the loss you can deduct. How to file 2011 income tax Example. How to file 2011 income tax You changed your main home to rental property 5 years ago. How to file 2011 income tax 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 file 2011 income tax This year, you sold the property for $55,000. How to file 2011 income tax You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. How to file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax   If you have a gain on the sale, you generally must recognize the full amount of the gain. How to file 2011 income tax You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. How to file 2011 income tax   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 file 2011 income tax However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. How to file 2011 income tax   For more information, see Business Use or Rental of Home in Publication 523. How to file 2011 income tax In addition, special rules apply if the home sold was acquired in a like-kind exchange. How to file 2011 income tax See Special Situations in Publication 523. How to file 2011 income tax Also see Like-Kind Exchanges, later. How to file 2011 income tax Abandonments The abandonment of property is a disposition of property. How to file 2011 income tax 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 file 2011 income tax Generally, abandonment is not treated as a sale or exchange of the property. How to file 2011 income tax If the amount you realize (if any) is more than your adjusted basis, then you have a gain. How to file 2011 income tax If your adjusted basis is more than the amount you realize (if any), then you have a loss. How to file 2011 income tax Loss from abandonment of business or investment property is deductible as a loss. How to file 2011 income tax 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 file 2011 income tax This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. How to file 2011 income tax 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 file 2011 income tax The abandonment loss is deducted in the tax year in which the loss is sustained. How to file 2011 income tax If the abandoned property is secured by debt, special rules apply. How to file 2011 income tax 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 file 2011 income tax For more information, including examples, see chapter 3 of Publication 4681. How to file 2011 income tax You cannot deduct any loss from abandonment of your home or other property held for personal use only. How to file 2011 income tax Cancellation of debt. How to file 2011 income tax   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 file 2011 income tax This income is separate from any loss realized from abandonment of the property. How to file 2011 income tax   You must report this income on your tax return unless one of the following applies. How to file 2011 income tax The cancellation is intended as a gift. How to file 2011 income tax The debt is qualified farm debt. How to file 2011 income tax The debt is qualified real property business debt. How to file 2011 income tax You are insolvent or bankrupt. How to file 2011 income tax The debt is qualified principal residence indebtedness. How to file 2011 income tax File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. How to file 2011 income tax For more information, including other exceptions and exclusion, see Publication 4681. How to file 2011 income tax Forms 1099-A and 1099-C. How to file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. How to file 2011 income tax 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 file 2011 income tax The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. How to file 2011 income tax This is true even if you voluntarily return the property to the lender. How to file 2011 income tax 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 file 2011 income tax Buyer's (borrower's) gain or loss. How to file 2011 income tax   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 file 2011 income tax The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. How to file 2011 income tax See Gain or Loss From Sales and Exchanges, earlier. How to file 2011 income tax You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. How to file 2011 income tax Amount realized on a nonrecourse debt. How to file 2011 income tax   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 file 2011 income tax The full canceled debt is included even if the fair market value of the property is less than the canceled debt. How to file 2011 income tax Example 1. How to file 2011 income tax Chris bought a new car for $15,000. How to file 2011 income tax He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. How to file 2011 income tax Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. How to file 2011 income tax The credit company repossessed the car because he stopped making loan payments. How to file 2011 income tax The balance due after taking into account the payments Chris made was $10,000. How to file 2011 income tax The fair market value of the car when repossessed was $9,000. How to file 2011 income tax The amount Chris realized on the repossession is $10,000. How to file 2011 income tax 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 file 2011 income tax Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). How to file 2011 income tax He has a $5,000 nondeductible loss. How to file 2011 income tax Example 2. How to file 2011 income tax Abena paid $200,000 for her home. How to file 2011 income tax She paid $15,000 down and borrowed the remaining $185,000 from a bank. How to file 2011 income tax Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. How to file 2011 income tax The bank foreclosed on the loan because Abena stopped making payments. How to file 2011 income tax 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 file 2011 income tax The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. How to file 2011 income tax She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). How to file 2011 income tax She has a $5,000 realized gain. How to file 2011 income tax Amount realized on a recourse debt. How to file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax The amount realized does not include the canceled debt that is your income from cancellation of debt. How to file 2011 income tax See Cancellation of debt, below. How to file 2011 income tax Seller's (lender's) gain or loss on repossession. How to file 2011 income tax   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 file 2011 income tax For more information, see Repossession in Publication 537. How to file 2011 income tax    Table 1-2. How to file 2011 income tax Worksheet for Foreclosures and Repossessions Part 1. How to file 2011 income tax Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. How to file 2011 income tax Complete this part only  if you were personally liable for the debt. How to file 2011 income tax Otherwise,  go to Part 2. How to file 2011 income tax   1. How to file 2011 income tax 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 file 2011 income tax Enter the fair market value of the transferred property   3. How to file 2011 income tax Ordinary income from cancellation of debt upon foreclosure or    repossession. How to file 2011 income tax * Subtract line 2 from line 1. How to file 2011 income tax   If less than zero, enter zero   Part 2. How to file 2011 income tax Figure your gain or loss from foreclosure or repossession. How to file 2011 income tax   4. How to file 2011 income tax If you completed Part 1, enter the smaller of line 1 or line 2. How to file 2011 income tax   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. How to file 2011 income tax Enter any proceeds you received from the foreclosure sale   6. How to file 2011 income tax Add lines 4 and 5   7. How to file 2011 income tax Enter the adjusted basis of the transferred property   8. How to file 2011 income tax Gain or loss from foreclosure or repossession. How to file 2011 income tax Subtract line 7  from line 6   * The income may not be taxable. How to file 2011 income tax See Cancellation of debt. How to file 2011 income tax Cancellation of debt. How to file 2011 income tax   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 file 2011 income tax This income is separate from any gain or loss realized from the foreclosure or repossession. How to file 2011 income tax Report the income from cancellation of a debt related to a business or rental activity as business or rental income. How to file 2011 income tax    You can use Table 1-2 to figure your income from cancellation of debt. How to file 2011 income tax   You must report this income on your tax return unless one of the following applies. How to file 2011 income tax The cancellation is intended as a gift. How to file 2011 income tax The debt is qualified farm debt. How to file 2011 income tax The debt is qualified real property business debt. How to file 2011 income tax You are insolvent or bankrupt. How to file 2011 income tax The debt is qualified principal residence indebtedness. How to file 2011 income tax File Form 982 to report the income exclusion. How to file 2011 income tax Example 1. How to file 2011 income tax 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 file 2011 income tax In this case, the amount he realizes is $9,000. How to file 2011 income tax This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). How to file 2011 income tax Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). How to file 2011 income tax He has a $6,000 nondeductible loss. How to file 2011 income tax He also is treated as receiving ordinary income from cancellation of debt. How to file 2011 income tax That income is $1,000 ($10,000 − $9,000). How to file 2011 income tax This is the part of the canceled debt not included in the amount realized. How to file 2011 income tax Example 2. How to file 2011 income tax 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 file 2011 income tax In this case, the amount she realizes is $170,000. How to file 2011 income tax This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). How to file 2011 income tax Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). How to file 2011 income tax She has a $5,000 nondeductible loss. How to file 2011 income tax She also is treated as receiving ordinary income from cancellation of debt. How to file 2011 income tax (The debt is not exempt from tax as discussed under Cancellation of debt, above. How to file 2011 income tax ) That income is $10,000 ($180,000 − $170,000). How to file 2011 income tax This is the part of the canceled debt not included in the amount realized. How to file 2011 income tax Forms 1099-A and 1099-C. How to file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. How to file 2011 income tax 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 file 2011 income tax Involuntary conversions are also called involuntary exchanges. How to file 2011 income tax 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 file 2011 income tax You report the gain or deduct the loss on your tax return for the year you realize it. How to file 2011 income tax 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 file 2011 income tax However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. How to file 2011 income tax 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 file 2011 income tax Your basis for the new property is the same as your basis for the converted property. How to file 2011 income tax This means that the gain is deferred until a taxable sale or exchange occurs. How to file 2011 income tax 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 file 2011 income tax This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. How to file 2011 income tax If you have a gain or loss from the destruction or theft of property, see Publication 547. How to file 2011 income tax Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. How to file 2011 income tax 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 file 2011 income tax The owner receives a condemnation award (money or property) in exchange for the property taken. How to file 2011 income tax A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. How to file 2011 income tax Example. How to file 2011 income tax A local government authorized to acquire land for public parks informed you that it wished to acquire your property. How to file 2011 income tax After the local government took action to condemn your property, you went to court to keep it. How to file 2011 income tax 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 file 2011 income tax This is a condemnation of private property for public use. How to file 2011 income tax Threat of condemnation. How to file 2011 income tax   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 file 2011 income tax You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. How to file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax Reports of condemnation. How to file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax Example. How to file 2011 income tax Your property lies along public utility lines. How to file 2011 income tax The utility company has the authority to condemn your property. How to file 2011 income tax The company informs you that it intends to acquire your property by negotiation or condemnation. How to file 2011 income tax A threat of condemnation exists when you receive the notice. How to file 2011 income tax Related property voluntarily sold. How to file 2011 income tax   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 file 2011 income tax A substantial economic relationship exists if together the properties were one economic unit. How to file 2011 income tax You also must show that the condemned property could not reasonably or adequately be replaced. How to file 2011 income tax You can elect to postpone reporting the gain by buying replacement property. How to file 2011 income tax See Postponement of Gain, later. How to file 2011 income tax 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 file 2011 income tax If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. How to file 2011 income tax You can postpone reporting gain from a condemnation if you buy replacement property. How to file 2011 income tax 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 file 2011 income tax See Postponement of Gain, later. How to file 2011 income tax If your net condemnation award is less than your adjusted basis, you have a loss. How to file 2011 income tax If your loss is from property you held for personal use, you cannot deduct it. How to file 2011 income tax You must report any deductible loss in the tax year it happened. How to file 2011 income tax You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. How to file 2011 income tax Main home condemned. How to file 2011 income tax   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 file 2011 income tax You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). How to file 2011 income tax For information on this exclusion, see Publication 523. How to file 2011 income tax 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 file 2011 income tax See Postponement of Gain, later. How to file 2011 income tax Table 1-3. How to file 2011 income tax Worksheet for Condemnations Part 1. How to file 2011 income tax Gain from severance damages. How to file 2011 income tax  If you did not receive severance damages, skip Part 1 and go to Part 2. How to file 2011 income tax   1. How to file 2011 income tax Enter gross severance damages received   2. How to file 2011 income tax Enter your expenses in getting severance damages   3. How to file 2011 income tax Subtract line 2 from line 1. How to file 2011 income tax If less than zero, enter -0-   4. How to file 2011 income tax Enter any special assessment on remaining property taken out of your award   5. How to file 2011 income tax Net severance damages. How to file 2011 income tax Subtract line 4 from line 3. How to file 2011 income tax If less than zero, enter -0-   6. How to file 2011 income tax Enter the adjusted basis of the remaining property   7. How to file 2011 income tax Gain from severance damages. How to file 2011 income tax Subtract line 6 from line 5. How to file 2011 income tax If less than zero, enter -0-   8. How to file 2011 income tax Refigured adjusted basis of the remaining property. How to file 2011 income tax Subtract line 5 from line 6. How to file 2011 income tax If less than zero, enter -0-   Part 2. How to file 2011 income tax Gain or loss from condemnation award. How to file 2011 income tax   9. How to file 2011 income tax Enter the gross condemnation award received   10. How to file 2011 income tax Enter your expenses in getting the condemnation award   11. How to file 2011 income tax If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. How to file 2011 income tax If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. How to file 2011 income tax Otherwise, enter -0-   12. How to file 2011 income tax Add lines 10 and 11   13. How to file 2011 income tax Net condemnation award. How to file 2011 income tax Subtract line 12 from line 9   14. How to file 2011 income tax Enter the adjusted basis of the condemned property   15. How to file 2011 income tax Gain from condemnation award. How to file 2011 income tax If line 14 is more than line 13, enter -0-. How to file 2011 income tax Otherwise, subtract line 14 from  line 13 and skip line 16   16. How to file 2011 income tax Loss from condemnation award. How to file 2011 income tax 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 file 2011 income tax )   Part 3. How to file 2011 income tax Postponed gain from condemnation. How to file 2011 income tax  (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 file 2011 income tax )   17. How to file 2011 income tax If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. How to file 2011 income tax Otherwise, enter -0-   18. How to file 2011 income tax If line 15 is more than zero, enter the amount from line 13. How to file 2011 income tax Otherwise, enter -0-   19. How to file 2011 income tax Add lines 17 and 18. How to file 2011 income tax 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 file 2011 income tax Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. How to file 2011 income tax Subtract line 20 from line 19. How to file 2011 income tax If less than zero, enter -0-   22. How to file 2011 income tax If you completed Part 1, add lines 7 and 15. How to file 2011 income tax Otherwise, enter the amount from line 15. How to file 2011 income tax 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 file 2011 income tax Recognized gain. How to file 2011 income tax Enter the smaller of line 21 or line 22. How to file 2011 income tax   24. How to file 2011 income tax Postponed gain. How to file 2011 income tax Subtract line 23 from line 22. How to file 2011 income tax If less than zero, enter -0-   Condemnation award. How to file 2011 income tax   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. How to file 2011 income tax The award is also the amount you are paid for the sale of your property under threat of condemnation. How to file 2011 income tax Payment of your debts. How to file 2011 income tax   Amounts taken out of the award to pay your debts are considered paid to you. How to file 2011 income tax 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 file 2011 income tax Example. How to file 2011 income tax The state condemned your property for public use. How to file 2011 income tax The award was set at $200,000. How to file 2011 income tax 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 file 2011 income tax You are considered to have received the entire $200,000 as a condemnation award. How to file 2011 income tax Interest on award. How to file 2011 income tax   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. How to file 2011 income tax You must report the interest separately as ordinary income. How to file 2011 income tax Payments to relocate. How to file 2011 income tax   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 file 2011 income tax Do not include them in your income. How to file 2011 income tax Replacement housing payments used to buy new property are included in the property's basis as part of your cost. How to file 2011 income tax Net condemnation award. How to file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax This is discussed later under Special assessment taken out of award. How to file 2011 income tax Severance damages. How to file 2011 income tax    Severance damages are not part of the award paid for the property condemned. How to file 2011 income tax 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 file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax   The contracting parties should agree on the specific amount of severance damages in writing. How to file 2011 income tax If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. How to file 2011 income tax   You cannot make a completely new allocation of the total award after the transaction is completed. How to file 2011 income tax However, you can show how much of the award both parties intended for severance damages. How to file 2011 income tax The severance damages part of the award is determined from all the facts and circumstances. How to file 2011 income tax Example. How to file 2011 income tax You sold part of your property to the state under threat of condemnation. How to file 2011 income tax The contract you and the condemning authority signed showed only the total purchase price. How to file 2011 income tax It did not specify a fixed sum for severance damages. How to file 2011 income tax 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 file 2011 income tax You may treat this part as severance damages. How to file 2011 income tax Treatment of severance damages. How to file 2011 income tax   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. How to file 2011 income tax Use them to reduce the basis of the remaining property. How to file 2011 income tax 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 file 2011 income tax   If your net severance damages are more than the basis of your retained property, you have a gain. How to file 2011 income tax You may be able to postpone reporting the gain. How to file 2011 income tax See Postponement of Gain, later. How to file 2011 income tax    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 file 2011 income tax Net severance damages. How to file 2011 income tax   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. How to file 2011 income tax 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 file 2011 income tax The balance is your net severance damages. How to file 2011 income tax Expenses of obtaining a condemnation award and severance damages. How to file 2011 income tax   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. How to file 2011 income tax Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. How to file 2011 income tax 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 file 2011 income tax Example. How to file 2011 income tax You receive a condemnation award and severance damages. How to file 2011 income tax One-fourth of the total was designated as severance damages in your agreement with the condemning authority. How to file 2011 income tax You had legal expenses for the entire condemnation proceeding. How to file 2011 income tax You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. How to file 2011 income tax You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. How to file 2011 income tax Special assessment retained out of award. How to file 2011 income tax   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 file 2011 income tax An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. How to file 2011 income tax Examples of improvements that may cause a special assessment are widening a street and installing a sewer. How to file 2011 income tax   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. How to file 2011 income tax Example. How to file 2011 income tax To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. How to file 2011 income tax You were awarded $5,000 for this and spent $300 to get the award. How to file 2011 income tax Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. How to file 2011 income tax The city then paid you only $4,300. How to file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax The net award would not change, even if you later paid the assessment from the amount you received. How to file 2011 income tax Severance damages received. How to file 2011 income tax   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 file 2011 income tax Any balance of the special assessment is used to reduce the condemnation award. How to file 2011 income tax Example. How to file 2011 income tax You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. How to file 2011 income tax You spent $300 to obtain the severance damages. How to file 2011 income tax A special assessment of $800 was retained out of the award. How to file 2011 income tax The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. How to file 2011 income tax Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. How to file 2011 income tax Part business or rental. How to file 2011 income tax   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 file 2011 income tax Figure your gain or loss separately because gain or loss on each part may be treated differently. How to file 2011 income tax   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 file 2011 income tax Example. How to file 2011 income tax You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. How to file 2011 income tax You rented half the building and lived in the other half. How to file 2011 income tax You paid $25,000 for the building and spent an additional $1,000 for a new roof. How to file 2011 income tax You claimed allowable depreciation of $4,600 on the rental half. How to file 2011 income tax You spent $200 in legal expenses to obtain the condemnation award. How to file 2011 income tax Figure your gain or loss as follows. How to file 2011 income tax     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 file 2011 income tax 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 file 2011 income tax Your basis for the new property is the same as your basis for the old. How to file 2011 income tax Money or unlike property received. How to file 2011 income tax   You ordinarily must report the gain if you receive money or unlike property. How to file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax See Controlling interest in a corporation, later. How to file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax   The basis of the replacement property is its cost, reduced by the postponed gain. How to file 2011 income tax 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 file 2011 income tax See Controlling interest in a corporation, later. How to file 2011 income tax You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. How to file 2011 income tax Postponing gain on severance damages. How to file 2011 income tax   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 file 2011 income tax See Treatment of severance damages, earlier. How to file 2011 income tax 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 file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax   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 file 2011 income tax Postponing gain on the sale of related property. How to file 2011 income tax   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 file 2011 income tax You must meet the requirements explained earlier under Related property voluntarily sold. How to file 2011 income tax 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 file 2011 income tax Buying replacement property from a related person. How to file 2011 income tax   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. How to file 2011 income tax For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. How to file 2011 income tax   This rule applies to the following taxpayers. How to file 2011 income tax C corporations. How to file 2011 income tax Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. How to file 2011 income tax 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 file 2011 income tax   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 file 2011 income tax If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. How to file 2011 income tax If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. How to file 2011 income tax Exception. How to file 2011 income tax   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. How to file 2011 income tax Advance payment. How to file 2011 income tax   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 file 2011 income tax Replacement property. How to file 2011 income tax   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. How to file 2011 income tax You do not have to use the actual funds from the condemnation award to acquire the replacement property. How to file 2011 income tax Property you acquire by gift or inheritance does not qualify as replacement property. How to file 2011 income tax Similar or related in service or use. How to file 2011 income tax   Your replacement property must be similar or related in service or use to the property it replaces. How to file 2011 income tax   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 file 2011 income tax For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. How to file 2011 income tax Owner-user. How to file 2011 income tax   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 file 2011 income tax Example. How to file 2011 income tax Your home was condemned and you invested the proceeds from the condemnation in a grocery store. How to file 2011 income tax Your replacement property is not similar or related in service or use to the condemned property. How to file 2011 income tax To be similar or related in service or use, your replacement property must also be used by you as your home. How to file 2011 income tax Owner-investor. How to file 2011 income tax   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 file 2011 income tax You decide this by determining all the following information. How to file 2011 income tax Whether the properties are of similar service to you. How to file 2011 income tax The nature of the business risks connected with the properties. How to file 2011 income tax What the properties demand of you in the way of management, service, and relations to your tenants. How to file 2011 income tax Example. How to file 2011 income tax You owned land and a building you rented to a manufacturing company. How to file 2011 income tax The building was condemned. How to file 2011 income tax During the replacement period, you had a new building built on other land you already owned. How to file 2011 income tax You rented out the new building for use as a wholesale grocery warehouse. How to file 2011 income tax 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 file 2011 income tax Your management activities. How to file 2011 income tax The amount and kind of services you provide to your tenants. How to file 2011 income tax The nature of your business risks connected with the properties. How to file 2011 income tax Leasehold replaced with fee simple property. How to file 2011 income tax   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 file 2011 income tax   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 file 2011 income tax A leasehold is property held under a lease, usually for a term of years. How to file 2011 income tax Outdoor advertising display replaced with real property. How to file 2011 income tax   You can elect to treat an outdoor advertising display as real property. How to file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax   You can make this election only if you did not claim a section 179 deduction for the display. How to file 2011 income tax You cannot cancel this election unless you get the consent of the IRS. How to file 2011 income tax   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 file 2011 income tax Substituting replacement property. How to file 2011 income tax   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. How to file 2011 income tax 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 file 2011 income tax Controlling interest in a corporation. How to file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax Basis adjustment to corporation's property. How to file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax   Allocate this reduction to the following classes of property in the order shown below. How to file 2011 income tax Property that is similar or related in service or use to the condemned property. How to file 2011 income tax Depreciable property not reduced in (1). How to file 2011 income tax All other property. How to file 2011 income tax 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 file 2011 income tax The reduced basis of any single property cannot be less than zero. How to file 2011 income tax Main home replaced. How to file 2011 income tax   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 file 2011 income tax The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. How to file 2011 income tax   You must reduce the basis of your replacement property by the postponed gain. How to file 2011 income tax 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 file 2011 income tax Example. How to file 2011 income tax City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. How to file 2011 income tax The city paid you a condemnation award of $400,000. How to file 2011 income tax Your adjusted basis in the property was $80,000. How to file 2011 income tax You realize a gain of $320,000 ($400,000 − $80,000). How to file 2011 income tax You purchased a new home for $100,000. How to file 2011 income tax You can exclude $250,000 of the realized gain from your gross income. How to file 2011 income tax 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 file 2011 income tax You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). How to file 2011 income tax The remaining $20,000 of realized gain is postponed. How to file 2011 income tax Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). How to file 2011 income tax Replacement period. How to file 2011 income tax   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. How to file 2011 income tax This is the replacement period. How to file 2011 income tax   The replacement period for a condemnation begins on the earlier of the following dates. How to file 2011 income tax The date on which you disposed of the condemned property. How to file 2011 income tax The date on which the threat of condemnation began. How to file 2011 income tax   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 file 2011 income tax However, see the exceptions below. How to file 2011 income tax Three-year replacement period for certain property. How to file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax Five-year replacement period for certain property. How to file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax Extended replacement period for taxpayers affected by other federally declared disasters. How to file 2011 income tax    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 file 2011 income tax For more information visit www. How to file 2011 income tax irs. How to file 2011 income tax gov/uac/Tax-Relief-in-Disaster-Situations. How to file 2011 income tax Weather-related sales of livestock in an area eligible for federal assistance. How to file 2011 income tax   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 file 2011 income tax    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 file 2011 income tax See Notice 2006-82. How to file 2011 income tax You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. How to file 2011 income tax irs. How to file 2011 income tax gov/irb/2006-39_IRB/ar13. How to file 2011 income tax html. How to file 2011 income tax    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 file 2011 income tax 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 file 2011 income tax You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. How to file 2011 income tax irs. How to file 2011 income tax gov/irb/2013-45_IRB/ar04. How to file 2011 income tax html. How to file 2011 income tax 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 file 2011 income tax Determining when gain is realized. How to file 2011 income tax   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 file 2011 income tax 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 file 2011 income tax   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. How to file 2011 income tax 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 file 2011 income tax   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. How to file 2011 income tax All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. How to file 2011 income tax All or part of the award is actually or constructively received. How to file 2011 income tax 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 file 2011 income tax Replacement property bought before the condemnation. How to file 2011 income tax   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 file 2011 income tax Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. How to file 2011 income tax Example. How to file 2011 income tax On April 3, 2012, city authorities notified you that your property would be condemned. How to file 2011 income tax On June 5, 2012, you acquired property to replace the property to be condemned. How to file 2011 income tax You still had the new property when the city took possession of your old property on September 4, 2013. How to file 2011 income tax You have made a replacement within the replacement period. How to file 2011 income tax Extension. How to file 2011 income tax   You can request an extension of the replacement period from the IRS director for your area. How to file 2011 income tax You should apply before the end of the replacement period. How to file 2011 income tax Your request should explain in detail why you need an extension. How to file 2011 income tax 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 file 2011 income tax 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 file 2011 income tax   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. How to file 2011 income tax Extensions are usually limited to a period of 1 year or less. How to file 2011 income tax The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. How to file 2011 income tax If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri