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Hrblock 1040x 13. Hrblock 1040x   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. Hrblock 1040x It is divided into the following sections. Hrblock 1040x Cost basis. Hrblock 1040x Adjusted basis. Hrblock 1040x Basis other than cost. Hrblock 1040x Your basis is the amount of your investment in property for tax purposes. Hrblock 1040x Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. Hrblock 1040x Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. Hrblock 1040x If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Hrblock 1040x Only the basis allocated to the business or investment use of the property can be depreciated. Hrblock 1040x Your original basis in property is adjusted (increased or decreased) by certain events. Hrblock 1040x For example, if you make improvements to the property, increase your basis. Hrblock 1040x If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. Hrblock 1040x Keep accurate records of all items that affect the basis of your property. Hrblock 1040x For more information on keeping records, see chapter 1. Hrblock 1040x Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. Hrblock 1040x The cost is the amount you pay in cash, debt obligations, other property, or services. Hrblock 1040x Your cost also includes amounts you pay for the following items: Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if you assume liability for the seller). Hrblock 1040x In addition, the basis of real estate and business assets may include other items. Hrblock 1040x Loans with low or no interest. Hrblock 1040x    If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus any amount considered to be unstated interest. Hrblock 1040x You generally have unstated interest if your interest rate is less than the applicable federal rate. Hrblock 1040x   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Hrblock 1040x Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Hrblock 1040x If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Hrblock 1040x Lump sum purchase. Hrblock 1040x   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. Hrblock 1040x Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. Hrblock 1040x Figure the basis of each asset by multiplying the lump sum by a fraction. Hrblock 1040x The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Hrblock 1040x    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. Hrblock 1040x Fair market value (FMV). Hrblock 1040x   FMV is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the necessary facts. Hrblock 1040x Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. Hrblock 1040x Assumption of mortgage. Hrblock 1040x   If you buy property and assume (or buy the property subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. Hrblock 1040x Settlement costs. Hrblock 1040x   Your basis includes the settlement fees and closing costs you paid for buying the property. Hrblock 1040x (A fee for buying property is a cost that must be paid even if you buy the property for cash. Hrblock 1040x ) Do not include fees and costs for getting a loan on the property in your basis. Hrblock 1040x   The following are some of the settlement fees or closing costs you can include in the basis of your property. Hrblock 1040x Abstract fees (abstract of title fees). Hrblock 1040x Charges for installing utility services. Hrblock 1040x Legal fees (including fees for the title search and preparation of the sales contract and deed). Hrblock 1040x Recording fees. Hrblock 1040x Survey fees. Hrblock 1040x Transfer taxes. Hrblock 1040x Owner's title insurance. Hrblock 1040x Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Hrblock 1040x   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Hrblock 1040x   The following are some of the settlement fees and closing costs you cannot include in the basis of property. Hrblock 1040x Casualty insurance premiums. Hrblock 1040x Rent for occupancy of the property before closing. Hrblock 1040x Charges for utilities or other services related to occupancy of the property before closing. Hrblock 1040x Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. Hrblock 1040x Fees for refinancing a mortgage. Hrblock 1040x Real estate taxes. Hrblock 1040x   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Hrblock 1040x You cannot deduct them as an expense. Hrblock 1040x    If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. Hrblock 1040x Do not include that amount in the basis of your property. Hrblock 1040x If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Hrblock 1040x Points. Hrblock 1040x   If you pay points to get a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. Hrblock 1040x Generally, you deduct the points over the term of the loan. Hrblock 1040x For more information on how to deduct points, see chapter 23. Hrblock 1040x Points on home mortgage. Hrblock 1040x   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. Hrblock 1040x If certain requirements are met, you can deduct the points in full for the year in which they are paid. Hrblock 1040x Reduce the basis of your home by any seller-paid points. Hrblock 1040x Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. Hrblock 1040x The result is the adjusted basis. Hrblock 1040x Increases to Basis Increase the basis of any property by all items properly added to a capital account. Hrblock 1040x Examples of items that increase basis are shown in Table 13-1. Hrblock 1040x These include the items discussed below. Hrblock 1040x Improvements. Hrblock 1040x   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. Hrblock 1040x For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. Hrblock 1040x Assessments for local improvements. Hrblock 1040x   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. Hrblock 1040x Do not deduct them as taxes. Hrblock 1040x However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. Hrblock 1040x Example. Hrblock 1040x Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. Hrblock 1040x Add the assessment to your property's basis. Hrblock 1040x In this example, the assessment is a depreciable asset. Hrblock 1040x Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. Hrblock 1040x Examples of items that decrease basis are shown in Table 13-1. Hrblock 1040x These include the items discussed below. Hrblock 1040x Table 13-1. Hrblock 1040x Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. Hrblock 1040x   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. Hrblock 1040x    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. Hrblock 1040x   For more information on casualty and theft losses, see chapter 25. Hrblock 1040x Depreciation and section 179 deduction. Hrblock 1040x   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. Hrblock 1040x   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. Hrblock 1040x Example. Hrblock 1040x You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. Hrblock 1040x You added an improvement to the duplex that cost $10,000. Hrblock 1040x In February last year, the duplex was damaged by fire. Hrblock 1040x Up to that time, you had been allowed depreciation of $23,000. Hrblock 1040x You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. Hrblock 1040x You deducted a casualty loss of $1,000 on your income tax return for last year. Hrblock 1040x You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. Hrblock 1040x You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. Hrblock 1040x Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. Hrblock 1040x Your basis in the land is its original cost of $5,000. Hrblock 1040x Easements. Hrblock 1040x   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. Hrblock 1040x It reduces the basis of the affected part of the property. Hrblock 1040x If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Hrblock 1040x   If the gain is on a capital asset, see chapter 16 for information about how to report it. Hrblock 1040x If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. Hrblock 1040x Exclusion of subsidies for energy conservation measures. Hrblock 1040x   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. Hrblock 1040x Reduce the basis of the property for which you received the subsidy by the excluded amount. Hrblock 1040x For more information about this subsidy, see chapter 12. Hrblock 1040x Postponed gain from sale of home. Hrblock 1040x    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. Hrblock 1040x For more information on the rules for the sale of a home, see chapter 15. Hrblock 1040x Basis Other Than Cost There are many times when you cannot use cost as basis. Hrblock 1040x In these cases, the fair market value or the adjusted basis of the property can be used. Hrblock 1040x Fair market value (FMV) and adjusted basis were discussed earlier. Hrblock 1040x Property Received for Services If you receive property for your services, include the FMV of the property in income. Hrblock 1040x The amount you include in income becomes your basis. Hrblock 1040x If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Hrblock 1040x Restricted property. Hrblock 1040x   If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested. Hrblock 1040x However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. Hrblock 1040x Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). Hrblock 1040x For more information, see Restricted Property in Publication 525. Hrblock 1040x Bargain purchases. Hrblock 1040x   A bargain purchase is a purchase of an item for less than its FMV. Hrblock 1040x If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. Hrblock 1040x Your basis in the property is its FMV (your purchase price plus the amount you include in income). Hrblock 1040x   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. Hrblock 1040x However, your basis in the property is still its FMV. Hrblock 1040x See Employee Discounts in Publication 15-B. Hrblock 1040x Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Hrblock 1040x A taxable gain or deductible loss also is known as a recognized gain or loss. Hrblock 1040x If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. Hrblock 1040x Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. Hrblock 1040x Similar or related property. Hrblock 1040x   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. Hrblock 1040x Decrease the basis by the following. Hrblock 1040x Any loss you recognize on the involuntary conversion. Hrblock 1040x Any money you receive that you do not spend on similar property. Hrblock 1040x Increase the basis by the following. Hrblock 1040x Any gain you recognize on the involuntary conversion. Hrblock 1040x Any cost of acquiring the replacement property. Hrblock 1040x Money or property not similar or related. Hrblock 1040x    If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the conversion. Hrblock 1040x Example. Hrblock 1040x The state condemned your property. Hrblock 1040x The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. Hrblock 1040x You realized a gain of $5,000 ($31,000 − $26,000). Hrblock 1040x You bought replacement property similar in use to the converted property for $29,000. Hrblock 1040x You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Hrblock 1040x Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Hrblock 1040x The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. Hrblock 1040x   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Hrblock 1040x Basis for depreciation. Hrblock 1040x   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Hrblock 1040x For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Hrblock 1040x Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Hrblock 1040x If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. Hrblock 1040x See Nontaxable Trades in chapter 14. Hrblock 1040x Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Hrblock 1040x To qualify as a like-kind exchange, the property traded and the property received must be both of the following. Hrblock 1040x Qualifying property. Hrblock 1040x Like-kind property. Hrblock 1040x The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. Hrblock 1040x If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. Hrblock 1040x Qualifying property. Hrblock 1040x   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. Hrblock 1040x Like-kind property. Hrblock 1040x   There must be an exchange of like-kind property. Hrblock 1040x Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Hrblock 1040x The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. Hrblock 1040x Example. Hrblock 1040x You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. Hrblock 1040x The dealer allows you $2,000 on the old truck, and you pay $4,800. Hrblock 1040x This is a like-kind exchange. Hrblock 1040x The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). Hrblock 1040x If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). Hrblock 1040x The basis of the new truck is the price you pay the dealer. Hrblock 1040x Partially nontaxable exchanges. Hrblock 1040x   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Hrblock 1040x The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. Hrblock 1040x Decrease the basis by the following amounts. Hrblock 1040x Any money you receive. Hrblock 1040x Any loss you recognize on the exchange. Hrblock 1040x Increase the basis by the following amounts. Hrblock 1040x Any additional costs you incur. Hrblock 1040x Any gain you recognize on the exchange. Hrblock 1040x If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Hrblock 1040x Allocation of basis. Hrblock 1040x   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Hrblock 1040x The rest is the basis of the like-kind property. Hrblock 1040x More information. Hrblock 1040x   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. Hrblock 1040x Basis for depreciation. Hrblock 1040x   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. Hrblock 1040x For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Hrblock 1040x Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. Hrblock 1040x The same rule applies to a transfer by your former spouse that is incident to divorce. Hrblock 1040x However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. Hrblock 1040x If the property transferred to you is a series E, series EE, or series I U. Hrblock 1040x S. Hrblock 1040x savings bond, the transferor must include in income the interest accrued to the date of transfer. Hrblock 1040x Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. Hrblock 1040x For more information on these bonds, see chapter 7. Hrblock 1040x At the time of the transfer, the transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. Hrblock 1040x For more information about the transfer of property from a spouse, see chapter 14. Hrblock 1040x Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. Hrblock 1040x FMV less than donor's adjusted basis. Hrblock 1040x   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Hrblock 1040x Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Hrblock 1040x Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. Hrblock 1040x See Adjusted Basis , earlier. Hrblock 1040x Example. Hrblock 1040x You received an acre of land as a gift. Hrblock 1040x At the time of the gift, the land had an FMV of $8,000. Hrblock 1040x The donor's adjusted basis was $10,000. Hrblock 1040x After you received the property, no events occurred to increase or decrease your basis. Hrblock 1040x If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. Hrblock 1040x If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. Hrblock 1040x If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Hrblock 1040x Business property. Hrblock 1040x   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Hrblock 1040x FMV equal to or greater than donor's adjusted basis. Hrblock 1040x   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Hrblock 1040x Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. Hrblock 1040x   Also, for figuring gain or loss from a sale or other disposition or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. Hrblock 1040x See Adjusted Basis , earlier. Hrblock 1040x   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. Hrblock 1040x Figure the increase by multiplying the gift tax paid by a fraction. Hrblock 1040x The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Hrblock 1040x   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Hrblock 1040x The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Hrblock 1040x Example. Hrblock 1040x In 2013, you received a gift of property from your mother that had an FMV of $50,000. Hrblock 1040x Her adjusted basis was $20,000. Hrblock 1040x The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Hrblock 1040x She paid a gift tax of $7,320 on the property. Hrblock 1040x Your basis is $26,076, figured as follows: Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000     Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . Hrblock 1040x 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. Hrblock 1040x If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Hrblock 1040x However, your basis cannot exceed the FMV of the gift at the time it was given to you. Hrblock 1040x Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. Hrblock 1040x The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. Hrblock 1040x The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. Hrblock 1040x The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. Hrblock 1040x If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Hrblock 1040x For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Hrblock 1040x Property inherited from a decedent who died in 2010. Hrblock 1040x   If you inherited property from a decedent who died in 2010, special rules may apply. Hrblock 1040x For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Hrblock 1040x Community property. Hrblock 1040x   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. Hrblock 1040x When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. Hrblock 1040x For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. Hrblock 1040x Example. Hrblock 1040x You and your spouse owned community property that had a basis of $80,000. Hrblock 1040x When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Hrblock 1040x The FMV of the community interest was $100,000. Hrblock 1040x The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Hrblock 1040x The basis of the other half to your spouse's heirs is also $50,000. Hrblock 1040x For more information about community property, see Publication 555, Community Property. Hrblock 1040x Property Changed From Personal to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you can begin to depreciate the property at the time of the change. Hrblock 1040x To do so, you must figure its basis for depreciation at the time of the change. Hrblock 1040x An example of changing property held for personal use to business or rental use would be renting out your former personal residence. Hrblock 1040x Basis for depreciation. Hrblock 1040x   The basis for depreciation is the lesser of the following amounts. Hrblock 1040x The FMV of the property on the date of the change. Hrblock 1040x Your adjusted basis on the date of the change. Hrblock 1040x Example. Hrblock 1040x Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. Hrblock 1040x You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. Hrblock 1040x Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Hrblock 1040x Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Hrblock 1040x On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Hrblock 1040x The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). Hrblock 1040x Sale of property. Hrblock 1040x   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. Hrblock 1040x Gain. Hrblock 1040x   The basis for figuring a gain is your adjusted basis in the property when you sell the property. Hrblock 1040x Example. Hrblock 1040x Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. Hrblock 1040x Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Hrblock 1040x Loss. Hrblock 1040x   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Hrblock 1040x Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Hrblock 1040x Example. Hrblock 1040x Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. Hrblock 1040x In this case, you would start with the FMV on the date of the change to rental use ($180,000), because it is less than the adjusted basis of $203,000 ($178,000 + $25,000 (land)) on that date. Hrblock 1040x Reduce that amount ($180,000) by the depreciation deductions ($37,500). Hrblock 1040x The basis for loss is $142,500 ($180,000 − $37,500). Hrblock 1040x Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. Hrblock 1040x If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. Hrblock 1040x You must adjust the basis of stocks for certain events that occur after purchase. Hrblock 1040x For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. Hrblock 1040x This rule applies only when the additional stock received is identical to the stock held. Hrblock 1040x Also reduce your basis when you receive nontaxable distributions. Hrblock 1040x They are a return of capital. Hrblock 1040x Example. Hrblock 1040x In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. Hrblock 1040x In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. Hrblock 1040x In 2013 XYZ declared a 2-for-1 stock split. Hrblock 1040x You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. Hrblock 1040x Other basis. Hrblock 1040x   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. Hrblock 1040x For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Hrblock 1040x Identifying stocks or bonds sold. Hrblock 1040x   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stocks or bonds. Hrblock 1040x If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Hrblock 1040x For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Hrblock 1040x Mutual fund shares. Hrblock 1040x   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. Hrblock 1040x For more information, see Publication 550. Hrblock 1040x Bond premium. Hrblock 1040x   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. Hrblock 1040x See Bond Premium Amortization in chapter 3 of Publication 550 for more information. Hrblock 1040x Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. Hrblock 1040x Original issue discount (OID) on debt instruments. Hrblock 1040x   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. Hrblock 1040x See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. Hrblock 1040x Tax-exempt obligations. Hrblock 1040x    OID on tax-exempt obligations is generally not taxable. Hrblock 1040x However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. Hrblock 1040x The accrued OID is added to the basis of the obligation to determine your gain or loss. Hrblock 1040x See chapter 4 of Publication 550. Hrblock 1040x Prev  Up  Next   Home   More Online Publications
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Georgia Governors Office of Consumer Affairs

Website: Georgia Governors Office of Consumer Affairs

Address: Georgia Governors Office of Consumer Affairs
2 Martin Luther King, Jr. Dr., SE
Suite 356
Atlanta, GA 30334-9077

Phone Number: 404-651-8600

Toll-free: 1-800-869-1123 (GA)

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Department of Banking and Finance

Website: Department of Banking and Finance

Address: Department of Banking and Finance
2990 Brandywine Rd., Suite 200
Atlanta, GA 30341-5565

Phone Number: 770-986-1633

Toll-free: 1-888-986-1633 (GA)

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Insurance and Safety Fire Commissioner

Website: Insurance and Safety Fire Commissioner

Address: Insurance and Safety Fire Commissioner
Two Martin Luther King, Jr., Dr.
West Tower, Suite 704
Atlanta, GA 30334

Phone Number: 404-656-2070

Toll-free: 1-800-656-2298 (GA)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Office of the Secretary of State

Website: Office of the Secretary of State

Address: Office of the Secretary of State
Division of Securities and Business Regulation
237 Coliseum Dr.
Macon, GA 31217-3858

Phone Number: 478-207-2440

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Public Service Commission

Website: Public Service Commission

Address: Public Service Commission
Consumer Affairs Division
244 Washington St., SW
Atlanta, GA 30334

Phone Number: 404-656-4501

Toll-free: 1-800-282-5813 (GA)

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The Hrblock 1040x

Hrblock 1040x Part Two -   Income The eight chapters in this part discuss many kinds of income. Hrblock 1040x They explain which income is and is not taxed. Hrblock 1040x See Part Three for information on gains and losses you report on Form 8949 and Schedule D (Form 1040) and for information on selling your home. Hrblock 1040x Table of Contents 5. Hrblock 1040x   Wages, Salaries, and Other EarningsReminder Introduction Useful Items - You may want to see: Employee CompensationBabysitting. Hrblock 1040x Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits 6. Hrblock 1040x   Tip IncomeIntroduction Useful Items - You may want to see: Keeping a Daily Tip RecordElectronic tip record. Hrblock 1040x Reporting Tips to Your EmployerElectronic tip statement. Hrblock 1040x Final report. Hrblock 1040x Reporting Tips on Your Tax Return Allocated Tips 7. Hrblock 1040x   Interest IncomeReminder Introduction Useful Items - You may want to see: General InformationSSN for joint account. Hrblock 1040x Custodian account for your child. Hrblock 1040x Penalty for failure to supply SSN. Hrblock 1040x Reporting backup withholding. Hrblock 1040x Savings account with parent as trustee. Hrblock 1040x Interest not reported on Form 1099-INT. Hrblock 1040x Nominees. Hrblock 1040x Incorrect amount. Hrblock 1040x Information reporting requirement. Hrblock 1040x Taxable InterestInterest subject to penalty for early withdrawal. Hrblock 1040x Money borrowed to invest in certificate of deposit. Hrblock 1040x U. Hrblock 1040x S. Hrblock 1040x Savings Bonds Education Savings Bond Program U. Hrblock 1040x S. Hrblock 1040x Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Original Issue Discount (OID) When To Report Interest IncomeConstructive receipt. Hrblock 1040x How To Report Interest IncomeSchedule B (Form 1040A or 1040). Hrblock 1040x Reporting tax-exempt interest. Hrblock 1040x U. Hrblock 1040x S. Hrblock 1040x savings bond interest previously reported. Hrblock 1040x 8. Hrblock 1040x   Dividends and Other DistributionsReminder Introduction Useful Items - You may want to see: General InformationDividends not reported on Form 1099-DIV. Hrblock 1040x Reporting tax withheld. Hrblock 1040x Nominees. Hrblock 1040x Ordinary DividendsQualified Dividends Dividends Used to Buy More Stock Money Market Funds Capital Gain DistributionsBasis adjustment. Hrblock 1040x Nondividend DistributionsLiquidating Distributions Distributions of Stock and Stock Rights Other DistributionsInformation reporting requirement. Hrblock 1040x Alternative minimum tax treatment. Hrblock 1040x How To Report Dividend IncomeInvestment interest deducted. Hrblock 1040x 9. Hrblock 1040x   Rental Income and ExpensesIntroduction Useful Items - You may want to see: Rental Income Rental ExpensesVacant while listed for sale. Hrblock 1040x Repairs and Improvements Other Expenses Property Changed to Rental Use Renting Part of Property Not Rented for Profit Personal Use of Dwelling Unit (Including Vacation Home)Example. Hrblock 1040x Dividing Expenses Dwelling Unit Used as a Home Reporting Income and Deductions DepreciationChanging your accounting method to deduct unclaimed depreciation. Hrblock 1040x Limits on Rental LossesAt-Risk Rules Passive Activity Limits How To Report Rental Income and ExpensesSchedule E (Form 1040) 10. Hrblock 1040x   Retirement Plans, Pensions, and AnnuitiesWhat's New Reminder IntroductionThe General Rule. Hrblock 1040x Individual retirement arrangements (IRAs). Hrblock 1040x Civil service retirement benefits. Hrblock 1040x Useful Items - You may want to see: General InformationIn-plan rollovers to designated Roth accounts. Hrblock 1040x How To Report Cost (Investment in the Contract) Taxation of Periodic PaymentsExclusion limited to cost. Hrblock 1040x Exclusion not limited to cost. Hrblock 1040x Simplified Method Taxation of Nonperiodic PaymentsLump-Sum Distributions RolloversIn-plan rollovers to designated Roth accounts. Hrblock 1040x Special Additional TaxesTax on Early Distributions Tax on Excess Accumulation Survivors and Beneficiaries 11. Hrblock 1040x   Social Security and Equivalent Railroad Retirement BenefitsIntroduction Useful Items - You may want to see: Are Any of Your Benefits Taxable? How To Report Your BenefitsHow Much Is Taxable? Examples Deductions Related to Your BenefitsRepayments More Than Gross Benefits 12. Hrblock 1040x   Other IncomeIntroduction Useful Items - You may want to see: Bartering Canceled DebtsInterest included in canceled debt. Hrblock 1040x Exceptions Host or Hostess Life Insurance ProceedsSurviving spouse. Hrblock 1040x Endowment Contract Proceeds Accelerated Death Benefits Public Safety Officer Killed in the Line of Duty Partnership Income S Corporation Income RecoveriesItemized Deduction Recoveries Rents from Personal Property RepaymentsMethod 1. Hrblock 1040x Method 2. Hrblock 1040x RoyaltiesDepletion. Hrblock 1040x Coal and iron ore. Hrblock 1040x Sale of property interest. Hrblock 1040x Part of future production sold. Hrblock 1040x Unemployment BenefitsTypes of unemployment compensation. Hrblock 1040x Governmental program. Hrblock 1040x Repayment of unemployment compensation. Hrblock 1040x Tax withholding. Hrblock 1040x Repayment of benefits. Hrblock 1040x Welfare and Other Public Assistance Benefits Other IncomeEmotional distress. Hrblock 1040x Deduction for costs involved in unlawful discrimination suits. Hrblock 1040x Energy conservation measure. Hrblock 1040x Dwelling unit. Hrblock 1040x Current income required to be distributed. Hrblock 1040x Current income not required to be distributed. Hrblock 1040x How to report. Hrblock 1040x Losses. Hrblock 1040x Grantor trust. Hrblock 1040x Nonemployee compensation. Hrblock 1040x Corporate director. Hrblock 1040x Personal representatives. Hrblock 1040x Manager of trade or business for bankruptcy estate. Hrblock 1040x Notary public. Hrblock 1040x Election precinct official. Hrblock 1040x Difficulty-of-care payments. Hrblock 1040x Maintaining space in home. Hrblock 1040x Reporting taxable payments. Hrblock 1040x Lotteries and raffles. Hrblock 1040x Form W-2G. Hrblock 1040x Reporting winnings and recordkeeping. Hrblock 1040x Inherited pension or IRA. Hrblock 1040x Employee awards or bonuses. Hrblock 1040x Pulitzer, Nobel, and similar prizes. Hrblock 1040x Payment for services. Hrblock 1040x VA payments. Hrblock 1040x Prizes. Hrblock 1040x Strike and lockout benefits. Hrblock 1040x Prev  Up  Next   Home   More Online Publications