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Irs Form 1040 2011

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Irs Form 1040 2011

Irs form 1040 2011 5. Irs form 1040 2011   Exemptions, Deductions, and Credits Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Items Related to Excluded Income Exemptions Contributions to Foreign Charitable Organizations Moving ExpensesAllocation of Moving Expenses Forms To File Contributions to Individual Retirement Arrangements Taxes of Foreign Countries and U. Irs form 1040 2011 S. Irs form 1040 2011 PossessionsCredit for Foreign Income Taxes Deduction for Foreign Income Taxes Deduction for Other Foreign Taxes How To Report Deductions Topics - This chapter discusses: The rules concerning items related to excluded income, Exemptions, Contributions to foreign charitable organizations, Moving expenses, Contributions to individual retirement arrangements (IRAs), Taxes of foreign countries and U. Irs form 1040 2011 S. Irs form 1040 2011 possessions, and How to report deductions. Irs form 1040 2011 Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 514 Foreign Tax Credit for Individuals 521 Moving Expenses 523 Selling Your Home 590 Individual Retirement Arrangements (IRAs) 597 Information on the United States—Canada Income Tax Treaty Form (and Instructions) 1116 Foreign Tax Credit 2106 Employee Business Expenses 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion 3903 Moving Expenses Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business SS-5 Application for a Social Security Card W-7 Application for IRS Individual Taxpayer Identification Number See chapter 7 for information about getting these publications and forms. Irs form 1040 2011 Items Related to Excluded Income U. Irs form 1040 2011 S. Irs form 1040 2011 citizens and resident aliens living outside the United States generally are allowed the same deductions as citizens and residents living in the United States. Irs form 1040 2011 If you choose to exclude foreign earned income or housing amounts, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. Irs form 1040 2011 This includes any expenses, losses, and other normally deductible items that are allocable to the excluded income. Irs form 1040 2011 You can deduct only those expenses connected with earning includible income. Irs form 1040 2011 These rules apply only to items definitely related to the excluded earned income and they do not apply to other items that are not definitely related to any particular type of gross income. Irs form 1040 2011 These rules do not apply to items such as: Personal exemptions, Qualified retirement contributions, Alimony payments, Charitable contributions, Medical expenses, Mortgage interest, or Real estate taxes on your personal residence. Irs form 1040 2011 For purposes of these rules, your housing deduction is not treated as allocable to your excluded income, but the deduction for self- employment tax is. Irs form 1040 2011 If you receive foreign earned income in a tax year after the year in which you earned it, you may have to file an amended return for the earlier year to properly adjust the amounts of deductions, credits, or exclusions allocable to your foreign earned income and housing exclusions. Irs form 1040 2011 Example. Irs form 1040 2011 In 2012, you had $90,400 of foreign earned income and $9,500 of deductions allocable to your foreign earned income. Irs form 1040 2011 You did not have a housing exclusion. Irs form 1040 2011 Because you excluded all of your foreign earned income, you would not have been able to claim any of the deductions on your 2012 return. Irs form 1040 2011 In 2013, you received a $12,000 bonus for work you did abroad in 2012. Irs form 1040 2011 You can exclude $4,700 of the bonus because the limit on the foreign earned income exclusion for 2012 was $95,100 and you have already excluded $90,400. Irs form 1040 2011 Since you must include $7,300 of the bonus ($12,000 − $4,700) for work you did in 2012 in income, you can file an amended return for 2012 to claim $677 of the deductions. Irs form 1040 2011 This is the deductions allocable to the foreign earned income ($9,500) multiplied by the includible portion of the foreign earned income ($7,300) and divided by the total foreign earned income for 2012 ($102,400). Irs form 1040 2011 Exemptions You can claim an exemption for your nonresident alien spouse on your separate return, provided your spouse has no gross income for U. Irs form 1040 2011 S. Irs form 1040 2011 tax purposes and is not the dependent of another U. Irs form 1040 2011 S. Irs form 1040 2011 taxpayer. Irs form 1040 2011 You also can claim exemptions for individuals who qualify as your dependents. Irs form 1040 2011 To be your dependent, the individual must be a U. Irs form 1040 2011 S. Irs form 1040 2011 citizen, U. Irs form 1040 2011 S. Irs form 1040 2011 national, U. Irs form 1040 2011 S. Irs form 1040 2011 resident alien, or a resident of Canada or Mexico for some part of the calendar year in which your tax year begins. Irs form 1040 2011 Children. Irs form 1040 2011   Children usually are citizens or residents of the same country as their parents. Irs form 1040 2011 If you were a U. Irs form 1040 2011 S. Irs form 1040 2011 citizen when your child was born, your child generally is a U. Irs form 1040 2011 S. Irs form 1040 2011 citizen. Irs form 1040 2011 This is true even if the child's other parent is a nonresident alien, the child was born in a foreign country, and the child lives abroad with the other parent. Irs form 1040 2011   If you have a legally adopted child who is not a U. Irs form 1040 2011 S. Irs form 1040 2011 citizen, U. Irs form 1040 2011 S. Irs form 1040 2011 resident, or U. Irs form 1040 2011 S. Irs form 1040 2011 national, the child meets the citizen requirement if you are a U. Irs form 1040 2011 S. Irs form 1040 2011 citizen or U. Irs form 1040 2011 S. Irs form 1040 2011 national and the child lived with you as a member of your household all year. Irs form 1040 2011 Social security number. Irs form 1040 2011   You must include on your return the social security number (SSN) of each dependent for whom you claim an exemption. Irs form 1040 2011 To get a social security number for a dependent, apply at a Social Security office or U. Irs form 1040 2011 S. Irs form 1040 2011 consulate. Irs form 1040 2011 You must provide original or certified copies of documents to verify the dependent's age, identity, and citizenship, and complete Form SS-5. Irs form 1040 2011   If you do not have an SSN for a child who was born in 2013 and died in 2013, attach a copy of the child's birth certificate to your tax return. Irs form 1040 2011 Print “Died” in column (2) of line 6c of your Form 1040 or Form 1040A. Irs form 1040 2011   If your dependent is a nonresident alien who is not eligible to get a social security number, you must list the dependent's individual taxpayer identification number (ITIN) instead of an SSN. Irs form 1040 2011 To apply for an ITIN, file Form W-7 with the IRS. Irs form 1040 2011 It usually takes 6 to 10 weeks to get an ITIN. Irs form 1040 2011 Enter your dependent's ITIN wherever an SSN is requested on your tax return. Irs form 1040 2011 More information. Irs form 1040 2011   For more information about exemptions, see Publication 501. Irs form 1040 2011 Contributions to Foreign Charitable Organizations If you make contributions directly to a foreign church or other foreign charitable organization, you generally cannot deduct them. Irs form 1040 2011 Exceptions are explained under Canadian, Mexican, and Israeli charities, later. Irs form 1040 2011 You can deduct contributions to a U. Irs form 1040 2011 S. Irs form 1040 2011 organization that transfers funds to a charitable foreign organization if the U. Irs form 1040 2011 S. Irs form 1040 2011 organization controls the use of the funds by the foreign organization or if the foreign organization is just an administrative arm of the U. Irs form 1040 2011 S. Irs form 1040 2011 organization. Irs form 1040 2011 Canadian, Mexican, and Israeli charities. Irs form 1040 2011   Under the income tax treaties with Canada, Mexico and Israel, you may be able to deduct contributions to certain Canadian, Mexican, and Israeli charitable organizations. Irs form 1040 2011 Generally, you must have income from sources in Canada, Mexico, or Israel, and the organization must meet certain requirements. Irs form 1040 2011 See Publication 597, Information on the United States-Canada Income Tax Treaty, and Publication 526, Charitable Contributions, for more information. Irs form 1040 2011 Moving Expenses If you moved to a new home in 2013 because of your job or business, you may be able to deduct the expenses of your move. Irs form 1040 2011 Generally, to be deductible, the moving expenses must have been paid or incurred in connection with starting work at a new job location. Irs form 1040 2011 See Publication 521 for a complete discussion of the deduction for moving expenses and information about moves within the United States. Irs form 1040 2011 Foreign moves. Irs form 1040 2011   A foreign move is a move in connection with the start of work at a new job location outside the United States and its possessions. Irs form 1040 2011 A foreign move does not include a move back to the United States or its possessions. Irs form 1040 2011 Allocation of Moving Expenses When your new place of work is in a foreign country, your moving expenses are directly connected with the income earned in that foreign country. Irs form 1040 2011 If you exclude all or part of the income that you earn at the new location under the foreign earned income exclusion or the foreign housing exclusion, you cannot deduct the part of your moving expense that is allocable to the excluded income. Irs form 1040 2011 Also, you cannot deduct the part of the moving expense related to the excluded income for a move from a foreign country to the United States if you receive a reimbursement that you are able to treat as compensation for services performed in the foreign country. Irs form 1040 2011 Year to which expense is connected. Irs form 1040 2011   The moving expense is connected with earning the income (including reimbursements, as discussed in chapter 4 under Reimbursement of moving expenses ) either entirely in the year of the move or in 2 years. Irs form 1040 2011 It is connected with earning the income entirely in the year of the move if you qualify for the foreign earned income exclusion under the bona fide residence test or physical presence test for at least 120 days during that tax year. Irs form 1040 2011   If you do not qualify under either the bona fide residence test or the physical presence test for at least 120 days during the year of the move, the expense is connected with earning the income in 2 years. Irs form 1040 2011 The moving expense is connected with the year of the move and the following year if the move is from the United States to a foreign country. Irs form 1040 2011 The moving expense is connected with the year of the move and the preceding year if the move is from a foreign country to the United States. Irs form 1040 2011 Amount allocable to excluded income. Irs form 1040 2011   To figure the amount of your moving expense that is allocable to your excluded foreign earned income (and not deductible), you must multiply your total moving expense deduction by a fraction. Irs form 1040 2011 The numerator (top number) of the fraction is the total of your excluded foreign earned income and housing amounts for both years and the denominator (bottom number) of the fraction is your total foreign earned income for both years. Irs form 1040 2011 Example. Irs form 1040 2011 On November 1, 2012, you transfer to Monaco. Irs form 1040 2011 Your tax home is in Monaco, and you are a bona fide resident of Monaco for the entire tax year 2013. Irs form 1040 2011 In 2012, you paid $6,000 for allowable moving expenses for your move from the United States to Monaco. Irs form 1040 2011 You were fully reimbursed (under a nonaccountable plan) for these expenses in the same year. Irs form 1040 2011 The reimbursement is included in your income. Irs form 1040 2011 Your only other income consists of $16,000 wages earned in 2012 after the date of your move, and $100,100 wages earned in Monaco for 2013. Irs form 1040 2011 Because you did not meet the bona fide residence test for at least 120 days during 2012, the year of the move, the moving expenses are for services you performed in both 2012 and the following year, 2013. Irs form 1040 2011 Your total foreign earned income for both years is $122,100, consisting of $16,000 wages for 2012, $100,100 wages for 2013, and $6,000 moving expense reimbursement for both years. Irs form 1040 2011 You have no housing exclusion. Irs form 1040 2011 The total amount you can exclude is $113,190, consisting of the $97,600 full-year exclusion for 2013 and a $15,590 part-year exclusion for 2012 ($95,100 times the fraction of 60 qualifying bona fide residence days over 366 total days in the year). Irs form 1040 2011 To find the part of your moving expenses that is not deductible, multiply your $6,000 total expenses by the fraction $113,190 over $122,100. Irs form 1040 2011 The result, $5,562, is your nondeductible amount. Irs form 1040 2011    You must report the full amount of the moving expense reimbursement in the year in which you received the reimbursement. Irs form 1040 2011 In the preceding example, this year was 2012. Irs form 1040 2011 You attribute the reimbursement to both 2012 and 2013 only to figure the amount of foreign earned income eligible for exclusion for each year. Irs form 1040 2011 Move between foreign countries. Irs form 1040 2011   If you move between foreign countries, your moving expense is allocable to income earned in the year of the move if you qualified under either the bona fide residence test or the physical presence test for a period that includes at least 120 days in the year of the move. Irs form 1040 2011 New place of work in U. Irs form 1040 2011 S. Irs form 1040 2011   If your new place of work is in the United States, the deductible moving expenses are directly connected with the income earned in the United States. Irs form 1040 2011 If you treat a reimbursement from your employer as foreign earned income (see the discussion in chapter 4), you must allocate deductible moving expenses to foreign earned income. Irs form 1040 2011 Storage expenses. Irs form 1040 2011   These expenses are attributable to work you do during the year in which you incur the storage expenses. Irs form 1040 2011 You cannot deduct the amount allocable to excluded income. Irs form 1040 2011 Moving Expense Attributable to Foreign Earnings in 2 Years If your moving expense deduction is attributable to your foreign earnings in 2 years (the year of the move and the following year), you should request an extension of time to file your return for the year of the move until after the end of the second year. Irs form 1040 2011 By then, you should have all the information needed to properly figure the moving expense deduction. Irs form 1040 2011 See Extensions under When To File and Pay in chapter 1. Irs form 1040 2011 If you do not request an extension, you should figure the part of the moving expense that you cannot deduct because it is allocable to the foreign earned income you are excluding. Irs form 1040 2011 You do this by multiplying the moving expense by a fraction, the numerator (top number) of which is your excluded foreign earned income for the year of the move, and the denominator (bottom number) of which is your total foreign earned income for the year of the move. Irs form 1040 2011 Once you know your foreign earnings and exclusion for the following year, you must either: Adjust the moving expense deduction by filing an amended return for the year of the move, or Recapture any additional unallowable amount as income on your return for the following year. Irs form 1040 2011 If, after you make the final computation, you have an additional amount of allowable moving expense deduction, you can claim this only on an amended return for the year of the move. Irs form 1040 2011 You cannot claim it on the return for the second year. Irs form 1040 2011 Forms To File Report your moving expenses on Form 3903. Irs form 1040 2011 Report your moving expense deduction on line 26 of Form 1040. Irs form 1040 2011 If you must reduce your moving expenses by the amount allocable to excluded income (as explained later under How To Report Deductions ), attach a statement to your return showing how you figured this amount. Irs form 1040 2011 For more information about figuring moving expenses, see Publication 521. Irs form 1040 2011 Contributions to Individual Retirement Arrangements Contributions to your individual retirement arrangements (IRAs) that are traditional IRAs or Roth IRAs are generally limited to the lesser of $5,500 ($6,500 if 50 or older) or your compensation that is includible in your gross income for the tax year. Irs form 1040 2011 In determining compensation for this purpose, do not take into account amounts you exclude under either the foreign earned income exclusion or the foreign housing exclusion. Irs form 1040 2011 Do not reduce your compensation by the foreign housing deduction. Irs form 1040 2011 If you are covered by an employer retirement plan at work, your deduction for your contributions to your traditional IRAs is generally limited based on your modified adjusted gross income. Irs form 1040 2011 This is your adjusted gross income figured without taking into account the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Irs form 1040 2011 Other modifications are also required. Irs form 1040 2011 For more information on IRAs, see Publication 590. Irs form 1040 2011 Taxes of Foreign Countries and U. Irs form 1040 2011 S. Irs form 1040 2011 Possessions You can take either a credit or a deduction for income taxes paid to a foreign country or a U. Irs form 1040 2011 S. Irs form 1040 2011 possession. Irs form 1040 2011 Taken as a deduction, foreign income taxes reduce your taxable income. Irs form 1040 2011 Taken as a credit, foreign income taxes reduce your tax liability. Irs form 1040 2011 You must treat all foreign income taxes the same way. Irs form 1040 2011 If you take a credit for any foreign income taxes, you cannot deduct any foreign income taxes. Irs form 1040 2011 However, you may be able to deduct other foreign taxes. Irs form 1040 2011 See Deduction for Other Foreign Taxes, later. Irs form 1040 2011 There is no rule to determine whether it is to your advantage to take a deduction or a credit for foreign income taxes. Irs form 1040 2011 In most cases, it is to your advantage to take foreign income taxes as a tax credit, which you subtract directly from your U. Irs form 1040 2011 S. Irs form 1040 2011 tax liability, rather than as a deduction in figuring taxable income. Irs form 1040 2011 However, if foreign income taxes were imposed at a high rate and the proportion of foreign income to U. Irs form 1040 2011 S. Irs form 1040 2011 income is small, a lower final tax may result from deducting the foreign income taxes. Irs form 1040 2011 In any event, you should figure your tax liability both ways and then use the one that is better for you. Irs form 1040 2011 You can make or change your choice within 10 years from the due date for filing the tax return on which you are entitled to take either the deduction or the credit. Irs form 1040 2011 Foreign income taxes. Irs form 1040 2011   These are generally income taxes you pay to any foreign country or possession of the United States. Irs form 1040 2011 Foreign income taxes on U. Irs form 1040 2011 S. Irs form 1040 2011 return. Irs form 1040 2011   Foreign income taxes can only be taken as a credit on Form 1040, line 47, or as an itemized deduction on Schedule A. Irs form 1040 2011 These amounts cannot be included as withheld income taxes on Form 1040, line 62. Irs form 1040 2011 Foreign taxes paid on excluded income. Irs form 1040 2011   You cannot take a credit or deduction for foreign income taxes paid on earnings you exclude from tax under any of the following. Irs form 1040 2011 Foreign earned income exclusion. Irs form 1040 2011 Foreign housing exclusion. Irs form 1040 2011 Possession exclusion. Irs form 1040 2011 If your wages are completely excluded, you cannot deduct or take a credit for any of the foreign taxes paid on your wages. Irs form 1040 2011   If only part of your wages is excluded, you cannot deduct or take a credit for the foreign income taxes allocable to the excluded part. Irs form 1040 2011 You find the taxes allocable to your excluded wages by applying a fraction to the foreign taxes paid on foreign earned income received during the tax year. Irs form 1040 2011 The numerator (top number) of the fraction is your excluded foreign earned income received during the tax year minus deductible expenses allocable to that income (not including the foreign housing deduction). Irs form 1040 2011 The denominator (bottom number) of the fraction is your total foreign earned income received during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). Irs form 1040 2011   If foreign law taxes both earned income and some other type of income and the taxes on the other type cannot be separated, the denominator of the fraction is the total amount of income subject to foreign tax minus deductible expenses allocable to that income. Irs form 1040 2011    If you take a foreign tax credit for tax on income you could have excluded under your choice to exclude foreign earned income or your choice to exclude foreign housing costs, one or both of the choices may be considered revoked. Irs form 1040 2011 Credit for Foreign Income Taxes If you take the foreign tax credit, you may have to file Form 1116 with Form 1040. Irs form 1040 2011 Form 1116 is used to figure the amount of foreign tax paid or accrued that can be claimed as a foreign tax credit. Irs form 1040 2011 Do not include the amount of foreign tax paid or accrued as withheld federal income taxes on Form 1040, line 62. Irs form 1040 2011 The foreign income tax for which you can claim a credit is the amount of legal and actual tax liability you pay or accrue during the year. Irs form 1040 2011 The amount for which you can claim a credit is not necessarily the amount withheld by the foreign country. Irs form 1040 2011 You cannot take a foreign tax credit for income tax you paid to a foreign country that would be refunded by the foreign country if you made a claim for refund. Irs form 1040 2011 Subsidies. Irs form 1040 2011   If a foreign country returns your foreign tax payments to you in the form of a subsidy, you cannot claim a foreign tax credit based on these payments. Irs form 1040 2011 This rule applies to a subsidy provided by any means that is determined, directly or indirectly, by reference to the amount of tax, or to the base used to figure the tax. Irs form 1040 2011   Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Irs form 1040 2011 A credit is also not allowed if the subsidy is given to a person related to you, or persons who participated in a transaction or a related transaction with you. Irs form 1040 2011 Limit The foreign tax credit is limited to the part of your total U. Irs form 1040 2011 S. Irs form 1040 2011 tax that is in proportion to your taxable income from sources outside the United States compared to your total taxable income. Irs form 1040 2011 The allowable foreign tax credit cannot be more than your actual foreign tax liability. Irs form 1040 2011 Exemption from limit. Irs form 1040 2011   You will not be subject to this limit and will not have to file Form 1116 if you meet all three of the following requirements. Irs form 1040 2011 Your only foreign source income for the year is passive income (dividends, interest, royalties, etc. Irs form 1040 2011 ) that is reported to you on a payee statement (such as a Form 1099-DIV or 1099-INT). Irs form 1040 2011 Your foreign taxes for the year that qualify for the credit are not more than $300 ($600 if you are filing a joint return) and are reported on a payee statement. Irs form 1040 2011 You elect this procedure. Irs form 1040 2011 If you make this election, you cannot carry back or carry over any unused foreign tax to or from this year. Irs form 1040 2011 Separate limit. Irs form 1040 2011   You must figure the limit on a separate basis with regard to “passive category income” and “general category income” (see the instructions for Form 1116). Irs form 1040 2011 Figuring the limit. Irs form 1040 2011   In figuring taxable income in each category, you take into account only the amount that you must include in income on your federal tax return. Irs form 1040 2011 Do not take any excluded amount into account. Irs form 1040 2011   To determine your taxable income in each category, deduct expenses and losses that are definitely related to that income. Irs form 1040 2011   Other expenses (such as itemized deductions or the standard deduction) not definitely related to specific items of income must be apportioned to the foreign income in each category by multiplying them by a fraction. Irs form 1040 2011 The numerator (top number) of the fraction is your gross foreign income in the separate limit category. Irs form 1040 2011 The denominator (bottom number) of the fraction is your gross income from all sources. Irs form 1040 2011 For this purpose, gross income includes income that is excluded under the foreign earned income provisions but does not include any other exempt income. Irs form 1040 2011 You must use special rules for deducting interest expenses. Irs form 1040 2011 For more information on allocating and apportioning your deductions, see Publication 514. Irs form 1040 2011 Exemptions. Irs form 1040 2011   Do not take the deduction for exemptions for yourself, your spouse, or your dependents in figuring taxable income for purposes of the limit. Irs form 1040 2011 Recapture of foreign losses. Irs form 1040 2011   If you have an overall foreign loss and the loss reduces your U. Irs form 1040 2011 S. Irs form 1040 2011 source income (resulting in a reduction of your U. Irs form 1040 2011 S. Irs form 1040 2011 tax liability), you must recapture the loss in later years when you have taxable income from foreign sources. Irs form 1040 2011 This is done by treating a part of your taxable income from foreign sources in later years as U. Irs form 1040 2011 S. Irs form 1040 2011 source income. Irs form 1040 2011 This reduces the numerator of the limiting fraction and the resulting foreign tax credit limit. Irs form 1040 2011 Recapture of domestic losses. Irs form 1040 2011   If you have an overall domestic loss (resulting in no U. Irs form 1040 2011 S. Irs form 1040 2011 tax liability), you cannot claim a foreign tax credit for taxes paid during that year. Irs form 1040 2011 You must recapture the loss in later years when you have U. Irs form 1040 2011 S. Irs form 1040 2011 source taxable income. Irs form 1040 2011 This is done by treating a part of your taxable income from U. Irs form 1040 2011 S. Irs form 1040 2011 sources in later years as foreign source income. Irs form 1040 2011 This increases the numerator of the limiting fraction and the resulting foreign tax credit limit. Irs form 1040 2011 Foreign tax credit carryback and carryover. Irs form 1040 2011   The amount of foreign income tax not allowed as a credit because of the limit can be carried back 1 year and carried forward 10 years. Irs form 1040 2011   More information on figuring the foreign tax credit can be found in Publication 514. Irs form 1040 2011 Deduction for Foreign Income Taxes Instead of taking the foreign tax credit, you can deduct foreign income taxes as an itemized deduction on Schedule A (Form 1040). Irs form 1040 2011 You can deduct only foreign income taxes paid on income that is subject to U. Irs form 1040 2011 S. Irs form 1040 2011 tax. Irs form 1040 2011 You cannot deduct foreign taxes paid on earnings you exclude from tax under any of the following. Irs form 1040 2011 Foreign earned income exclusion. Irs form 1040 2011 Foreign housing exclusion. Irs form 1040 2011 Possession exclusion. Irs form 1040 2011 Example. Irs form 1040 2011 You are a U. Irs form 1040 2011 S. Irs form 1040 2011 citizen and qualify to exclude your foreign earned income. Irs form 1040 2011 Your excluded wages in Country X are $70,000 on which you paid income tax of $10,000. Irs form 1040 2011 You received dividends from Country X of $2,000 on which you paid income tax of $600. Irs form 1040 2011 You can deduct the $600 tax payment because the dividends relating to it are subject to U. Irs form 1040 2011 S. Irs form 1040 2011 tax. Irs form 1040 2011 Because you exclude your wages, you cannot deduct the income tax of $10,000. Irs form 1040 2011 If you exclude only a part of your wages, see the earlier discussion under Foreign taxes paid on excluded income. Irs form 1040 2011 Deduction for Other Foreign Taxes You can deduct real property taxes you pay that are imposed on you by a foreign country. Irs form 1040 2011 You take this deduction on Schedule A (Form 1040). Irs form 1040 2011 You cannot deduct other foreign taxes, such as personal property taxes, unless you incurred the expenses in a trade or business or in the production of income. Irs form 1040 2011 On the other hand, you generally can deduct personal property taxes when you pay them to U. Irs form 1040 2011 S. Irs form 1040 2011 possessions. Irs form 1040 2011 But if you claim the possession exclusion, see Publication 570. Irs form 1040 2011 The deduction for foreign taxes other than foreign income taxes is not related to the foreign tax credit. Irs form 1040 2011 You can take deductions for these miscellaneous foreign taxes and also claim the foreign tax credit for income taxes imposed by a foreign country. Irs form 1040 2011 How To Report Deductions If you exclude foreign earned income or housing amounts, how you show your deductions on your tax return and how you figure the amount allocable to your excluded income depends on whether the expenses are used in figuring adjusted gross income (Form 1040, line 38) or are itemized deductions. Irs form 1040 2011 If you have deductions used in figuring adjusted gross income, enter the total amount for each of these items on the appropriate lines and schedules of Form 1040. Irs form 1040 2011 Generally, you figure the amount of a deduction related to the excluded income by multiplying the deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. Irs form 1040 2011 Enter the amount of the deduction(s) related to excluded income on line 44 of Form 2555. Irs form 1040 2011 If you have itemized deductions related to excluded income, enter on Schedule A (Form 1040) only the part not related to excluded income. Irs form 1040 2011 You figure that amount by subtracting from the total deduction the amount related to excluded income. Irs form 1040 2011 Generally, you figure the amount that is related to the excluded income by multiplying the total deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. Irs form 1040 2011 Attach a statement to your return showing how you figured the deductible amount. Irs form 1040 2011 Example 1. Irs form 1040 2011 You are a U. Irs form 1040 2011 S. Irs form 1040 2011 citizen employed as an accountant. Irs form 1040 2011 Your tax home is in Germany for the entire tax year. Irs form 1040 2011 You meet the physical presence test. Irs form 1040 2011 Your foreign earned income for the year was $122,000 and your investment income was $10,380. Irs form 1040 2011 After excluding $97,600, your AGI is $34,780. Irs form 1040 2011 You had unreimbursed business expenses of $2,500 for travel and entertainment in earning your foreign income, of which $500 was for meals and entertainment. Irs form 1040 2011 These expenses are deductible only as miscellaneous deductions on Schedule A (Form 1040). Irs form 1040 2011 You also have $500 of miscellaneous expenses that are not related to your foreign income that you enter on line 23 of Schedule A. Irs form 1040 2011 You must fill out Form 2106. Irs form 1040 2011 On that form, reduce your deductible meal and entertainment expenses by 50% ($250). Irs form 1040 2011 You must reduce the remaining $2,250 of travel and entertainment expenses by 80% ($1,800) because you excluded 80% ($97,600/$122,000) of your foreign earned income. Irs form 1040 2011 You carry the remaining total of $450 to line 21 of Schedule A. Irs form 1040 2011 Add the $450 to the $500 that you have on line 23 and enter the total ($950) on line 24. Irs form 1040 2011 On line 26 of Schedule A, enter $696, which is 2% of your adjusted gross income of $34,780 (line 38, Form 1040) and subtract it from the amount on line 24. Irs form 1040 2011 Enter $254 on line 27 of Schedule A. Irs form 1040 2011 Example 2. Irs form 1040 2011 You are a U. Irs form 1040 2011 S. Irs form 1040 2011 citizen, have a tax home in Spain, and meet the physical presence test. Irs form 1040 2011 You are self-employed and personal services produce the business income. Irs form 1040 2011 Your gross income was $116,931, business expenses $66,895, and net income (profit) $50,036. Irs form 1040 2011 You choose the foreign earned income exclusion and exclude $97,600 of your gross income. Irs form 1040 2011 Since your excluded income is 83. Irs form 1040 2011 47% of your total income, 83. Irs form 1040 2011 47% of your business expenses are not deductible. Irs form 1040 2011 Report your total income and expenses on Schedule C (Form 1040). Irs form 1040 2011 On Form 2555 you will show the following: Line 20a, $116,931, gross income, Lines 42 and 43, $97,600, foreign earned income exclusion, and Line 44, $55,837 (83. Irs form 1040 2011 47% × $66,895) business expenses attributable to the exclusion. Irs form 1040 2011 In this situation (Example 2), you cannot use Form 2555-EZ since you had self-employment income and business expenses. Irs form 1040 2011 Example 3. Irs form 1040 2011 Assume in Example 2 that both capital and personal services combine to produce the business income. Irs form 1040 2011 No more than 30% of your net income, or $15,011, assuming that this amount is a reasonable allowance for your services, is considered earned and can be excluded. Irs form 1040 2011 Your exclusion of $15,011 is 12. Irs form 1040 2011 84% of your gross income ($15,011 ÷ $116,931). Irs form 1040 2011 Because you excluded 12. Irs form 1040 2011 84% of your total income, $8,589 (. Irs form 1040 2011 1284 x $66,895) of your business expenses is attributable to the excluded income and is not deductible. Irs form 1040 2011 Example 4. Irs form 1040 2011 You are a U. Irs form 1040 2011 S. Irs form 1040 2011 citizen, have a tax home in Brazil, and meet the physical presence test. Irs form 1040 2011 You are self-employed and both capital and personal services combine to produce business income. Irs form 1040 2011 Your gross income was $146,000, business expenses were $172,000, and your net loss was $26,000. Irs form 1040 2011 A reasonable allowance for the services you performed for the business is $77,000. Irs form 1040 2011 Because you incurred a net loss, the earned income limit of 30% of your net profit does not apply. Irs form 1040 2011 The $77,000 is foreign earned income. Irs form 1040 2011 If you choose to exclude the $77,000, you exclude 52. Irs form 1040 2011 74% of your gross income ($77,000 ÷ $146,000), and 52. Irs form 1040 2011 74% of your business expenses ($90,713) is attributable to that income and is not deductible. Irs form 1040 2011 Show your total income and expenses on Schedule C (Form 1040). Irs form 1040 2011 On Form 2555, exclude $77,000 and show $90,713 on line 44. Irs form 1040 2011 Subtract line 44 from line 43, and enter the difference as a negative (in parentheses) on line 45. Irs form 1040 2011 Because this amount is negative, enter it as a positive (no parentheses) on line 21, Form 1040, and combine it with your other income to arrive at total income on line 22 of Form 1040. Irs form 1040 2011 In this situation (Example 4), you would probably not want to choose the foreign earned income exclusion if this was the first year you were eligible. Irs form 1040 2011 If you had chosen the exclusion in an earlier year, you might want to revoke the choice for this year. Irs form 1040 2011 To do so would mean that you could not claim the exclusion again for the next 5 tax years without IRS approval. Irs form 1040 2011 See Choosing the Exclusion in chapter 4. Irs form 1040 2011 Example 5. Irs form 1040 2011 You are a U. Irs form 1040 2011 S. Irs form 1040 2011 citizen, have a tax home in Panama, and meet the bona fide residence test. Irs form 1040 2011 You have been performing services for clients as a partner in a firm that provides services exclusively in Panama. Irs form 1040 2011 Capital investment is not material in producing the partnership's income. Irs form 1040 2011 Under the terms of the partnership agreement, you are to receive 50% of the net profits. Irs form 1040 2011 The partnership received gross income of $244,000 and incurred operating expenses of $98,250. Irs form 1040 2011 Of the net profits of $145,750, you received $72,875 as your distributive share. Irs form 1040 2011 You choose to exclude $97,600 of your share of the gross income. Irs form 1040 2011 Because you exclude 80% ($97,600 ÷ $122,000) of your share of the gross income, you cannot deduct $39,300, 80% of your share of the operating expenses (. Irs form 1040 2011 80 × $49,125). Irs form 1040 2011 Report $72,875, your distributive share of the partnership net profit, on Schedule E (Form 1040), Supplemental Income and Loss. Irs form 1040 2011 On Form 2555, show $97,600 on line 42 and show $39,300 on line 44. Irs form 1040 2011 Your exclusion on Form 2555 is $58,300. Irs form 1040 2011 In this situation (Example 5), you cannot use Form 2555-EZ since you had earned income other than salaries and wages and you had business expenses. Irs form 1040 2011 Prev  Up  Next   Home   More Online Publications
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IRS Criminal Investigation Issues Annual Report

IR-2014-18, Feb. 24, 2014
 

WASHINGTON — The Internal Revenue Service today announced the release of its IRS Criminal Investigation (CI) Annual Report for fiscal year 2013, reflecting significant increases in enforcement actions against tax criminals and a robust rise in convictions, including identity theft. 

CI investigates potential criminal violations of the Internal Revenue Code and related financial crimes in a manner to foster confidence in the tax system and compliance with the law.

High points of fiscal year 2013 include a 12.5 percent increase in investigations initiated compared to the prior year and a nearly 18 percent gain in prosecution recommendations. Specifically, CI initiated 5,314 cases and recommended 4,364 cases for prosecution. These increases were accomplished at a time when agent resources decreased more than 5 percent.

Meanwhile, convictions rose more than 25 percent compared to the prior year. The conviction rate for fiscal 2013 was 93 percent.

“The conviction rate is especially important because it reflects the quality of our case work, our teamwork with law enforcement partners and the U.S. Attorneys’ Offices, and it represents an increase over 2011 and 2012,” said Richard Weber, Chief of Criminal Investigation.

CI continues to play a vital role in the fight against identity theft. CI initiated over 1,400 investigations and recommended prosecution of over 1,250 individuals who were involved in identity theft crimes during fiscal 2013.

As an active partner in over 35 Identity Theft Task Forces, CI works side-by-side with federal, state and local law-enforcement agencies to combat the threat of this insidious crime. One of those task forces, the Tampa Bay Identity Theft Alliance, was recently recognized as the "2013 Task Force of the Year," a national award given by the International Association of Financial Crimes Investigators for investigative excellence and outstanding public service. The Tampa Bay Identity Theft Alliance was formed last year and comprises of 20 Tampa Bay federal, state and local law enforcement agencies and prosecutors.

“The Alliance represents true teamwork by all levels of law enforcement,” Weber said. “Individuals who commit identity theft demonstrate a blatant disregard of the integrity of the United States tax system and cause immeasurable hardship to innocent victims.”

In addition, the 36-page report summarizes a wide variety of IRS CI activity on a range of tax crimes, money laundering, public corruption, terrorist financing and narcotics trafficking financial crimes during the fiscal year ending Sept. 30, 2013.

“Our cases involved individuals and corporations from all segments of society. They led us into corporate board rooms, offices of public officials, tax preparation businesses, identity theft gangs and narcotics trafficking organizations,” Weber said.

"This report highlights some of the many noteworthy cases that were completed by CI, which is just the tip of the iceberg of the complex cases we completed this past year,” Weber added. “The dedication and enthusiasm of our employees was a driving force behind these achievements. IRS-CI continues to make our mark in history as the best financial investigators in the world."

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The Irs Form 1040 2011

Irs form 1040 2011 14. Irs form 1040 2011   Sale of Property Table of Contents Reminder Introduction Useful Items - You may want to see: Sales and TradesWhat Is a Sale or Trade? How To Figure Gain or Loss Nontaxable Trades Transfers Between Spouses Related Party Transactions Capital Gains and LossesCapital or Ordinary Gain or Loss Capital Assets and Noncapital Assets Holding Period Nonbusiness Bad Debts Wash Sales Rollover of Gain From Publicly Traded Securities Reminder Foreign income. Irs form 1040 2011  If you are a U. Irs form 1040 2011 S. Irs form 1040 2011 citizen who sells property located outside the United States, you must report all gains and losses from the sale of that property on your tax return unless it is exempt by U. Irs form 1040 2011 S. Irs form 1040 2011 law. Irs form 1040 2011 This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the payer. Irs form 1040 2011 Introduction This chapter discusses the tax consequences of selling or trading investment property. Irs form 1040 2011 It explains the following. Irs form 1040 2011 What a sale or trade is. Irs form 1040 2011 Figuring gain or loss. Irs form 1040 2011 Nontaxable trades. Irs form 1040 2011 Related party transactions. Irs form 1040 2011 Capital gains or losses. Irs form 1040 2011 Capital assets and noncapital assets. Irs form 1040 2011 Holding period. Irs form 1040 2011 Rollover of gain from publicly traded securities. Irs form 1040 2011 Other property transactions. Irs form 1040 2011   Certain transfers of property are not discussed here. Irs form 1040 2011 They are discussed in other IRS publications. Irs form 1040 2011 These include the following. Irs form 1040 2011 Sales of a main home, covered in chapter 15. Irs form 1040 2011 Installment sales, covered in Publication 537, Installment Sales. Irs form 1040 2011 Transactions involving business property, covered in Publication 544, Sales and Other Dispositions of Assets. Irs form 1040 2011 Dispositions of an interest in a passive activity, covered in Publication 925, Passive Activity and At-Risk Rules. Irs form 1040 2011    Publication 550, Investment Income and Expenses (Including Capital Gains and Losses), provides a more detailed discussion about sales and trades of investment property. Irs form 1040 2011 Publication 550 includes information about the rules covering nonbusiness bad debts, straddles, section 1256 contracts, puts and calls, commodity futures, short sales, and wash sales. Irs form 1040 2011 It also discusses investment-related expenses. Irs form 1040 2011 Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 8949 Sales and Other Dispositions of Capital Assets 8824 Like-Kind Exchanges Sales and Trades If you sold property such as stocks, bonds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. Irs form 1040 2011 Generally, you should receive the statement by February 15 of the next year. Irs form 1040 2011 It will show the gross proceeds from the sale. Irs form 1040 2011 If you sold a covered security in 2013, your 1099-B (or substitute statement) will show your basis. Irs form 1040 2011 Generally, a covered security is a security you acquired after 2010, with certain exceptions. Irs form 1040 2011 See the Instructions for Form 8949. Irs form 1040 2011 The IRS will also get a copy of Form 1099-B from the broker. Irs form 1040 2011 Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. Irs form 1040 2011 What Is a Sale or Trade? This section explains what is a sale or trade. Irs form 1040 2011 It also explains certain transactions and events that are treated as sales or trades. Irs form 1040 2011 A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. Irs form 1040 2011 A trade is a transfer of property for other property or services and may be taxed in the same way as a sale. Irs form 1040 2011 Sale and purchase. Irs form 1040 2011   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. Irs form 1040 2011 The sale and purchase are two separate transactions. Irs form 1040 2011 But see Like-kind exchanges under Nontaxable Trades, later. Irs form 1040 2011 Redemption of stock. Irs form 1040 2011   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. Irs form 1040 2011 Dividend versus sale or trade. Irs form 1040 2011   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. Irs form 1040 2011 Both direct and indirect ownership of stock will be considered. Irs form 1040 2011 The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend (see chapter 8), There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. Irs form 1040 2011 Redemption or retirement of bonds. Irs form 1040 2011   A redemption or retirement of bonds or notes at their maturity is generally treated as a sale or trade. Irs form 1040 2011   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. Irs form 1040 2011 For details, see Regulations section 1. Irs form 1040 2011 1001-3. Irs form 1040 2011 Surrender of stock. Irs form 1040 2011   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. Irs form 1040 2011 The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. Irs form 1040 2011 Worthless securities. Irs form 1040 2011    Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. Irs form 1040 2011 This affects whether your capital loss is long term or short term. Irs form 1040 2011 See Holding Period , later. Irs form 1040 2011   Worthless securities also include securities that you abandon after March 12, 2008. Irs form 1040 2011 To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. Irs form 1040 2011 All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. Irs form 1040 2011    If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. Irs form 1040 2011 Do not deduct them in the year the stock became worthless. Irs form 1040 2011 How to report loss. Irs form 1040 2011    Report worthless securities in Part I or Part II, whichever applies, of Form 8949. Irs form 1040 2011 In column (a), enter “Worthless. Irs form 1040 2011 ”    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. Irs form 1040 2011 See Form 8949 and the Instructions for Form 8949. Irs form 1040 2011 For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Irs form 1040 2011 See also Schedule D (Form 1040), Form 8949, and their separate instructions. Irs form 1040 2011 Filing a claim for refund. Irs form 1040 2011   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. Irs form 1040 2011 You must use Form 1040X, Amended U. Irs form 1040 2011 S. Irs form 1040 2011 Individual Income Tax Return, to amend your return for the year the security became worthless. Irs form 1040 2011 You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. Irs form 1040 2011 For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. Irs form 1040 2011 How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. Irs form 1040 2011 Gain. Irs form 1040 2011   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. Irs form 1040 2011 Loss. Irs form 1040 2011   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. Irs form 1040 2011 Adjusted basis. Irs form 1040 2011   The adjusted basis of property is your original cost or other original basis properly adjusted (increased or decreased) for certain items. Irs form 1040 2011 See chapter 13 for more information about determining the adjusted basis of property. Irs form 1040 2011 Amount realized. Irs form 1040 2011   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). Irs form 1040 2011 Amount realized includes the money you receive plus the fair market value of any property or services you receive. Irs form 1040 2011 If you received a note or other debt instrument for the property, see How To Figure Gain or Loss in chapter 4 of Publication 550 to figure the amount realized. Irs form 1040 2011 If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. Irs form 1040 2011 For more information, see Publication 537. Irs form 1040 2011 Fair market value. Irs form 1040 2011   Fair market value is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Irs form 1040 2011 Example. Irs form 1040 2011 You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. Irs form 1040 2011 Your gain is $3,000 ($10,000 − $7,000). Irs form 1040 2011 Debt paid off. Irs form 1040 2011    A debt against the property, or against you, that is paid off as a part of the transaction, or that is assumed by the buyer, must be included in the amount realized. Irs form 1040 2011 This is true even if neither you nor the buyer is personally liable for the debt. Irs form 1040 2011 For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. Irs form 1040 2011 Example. Irs form 1040 2011 You sell stock that you had pledged as security for a bank loan of $8,000. Irs form 1040 2011 Your basis in the stock is $6,000. Irs form 1040 2011 The buyer pays off your bank loan and pays you $20,000 in cash. Irs form 1040 2011 The amount realized is $28,000 ($20,000 + $8,000). Irs form 1040 2011 Your gain is $22,000 ($28,000 − $6,000). Irs form 1040 2011 Payment of cash. Irs form 1040 2011   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. Irs form 1040 2011 Determine your gain or loss by subtracting the cash you pay plus the adjusted basis of the property you trade in from the amount you realize. Irs form 1040 2011 If the result is a positive number, it is a gain. Irs form 1040 2011 If the result is a negative number, it is a loss. Irs form 1040 2011 No gain or loss. Irs form 1040 2011   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. Irs form 1040 2011 In this case, you may have neither a gain nor a loss. Irs form 1040 2011 See Basis Other Than Cost in chapter 13. Irs form 1040 2011 Nontaxable Trades This section discusses trades that generally do not result in a taxable gain or deductible loss. Irs form 1040 2011 For more information on nontaxable trades, see chapter 1 of Publication 544. Irs form 1040 2011 Like-kind exchanges. Irs form 1040 2011   If you trade business or investment property for other business or investment property of a like kind, you do not pay tax on any gain or deduct any loss until you sell or dispose of the property you receive. Irs form 1040 2011 To be nontaxable, a trade must meet all six of the following conditions. Irs form 1040 2011 The property must be business or investment property. Irs form 1040 2011 You must hold both the property you trade and the property you receive for productive use in your trade or business or for investment. Irs form 1040 2011 Neither property may be property used for personal purposes, such as your home or family car. Irs form 1040 2011 The property must not be held primarily for sale. Irs form 1040 2011 The property you trade and the property you receive must not be property you sell to customers, such as merchandise. Irs form 1040 2011 The property must not be stocks, bonds, notes, choses in action, certificates of trust or beneficial interest, or other securities or evidences of indebtedness or interest, including partnership interests. Irs form 1040 2011 However, see Special rules for mutual ditch, reservoir, or irrigation company stock, in chapter 4 of Publication 550 for an exception. Irs form 1040 2011 Also, you can have a nontaxable trade of corporate stocks under a different rule, as discussed later. Irs form 1040 2011 There must be a trade of like property. Irs form 1040 2011 The trade of real estate for real estate, or personal property for similar personal property, is a trade of like property. Irs form 1040 2011 The trade of an apartment house for a store building, or a panel truck for a pickup truck, is a trade of like property. Irs form 1040 2011 The trade of a piece of machinery for a store building is not a trade of like property. Irs form 1040 2011 Real property located in the United States and real property located outside the United States are not like property. Irs form 1040 2011 Also, personal property used predominantly within the United States and personal property used predominantly outside the United States are not like property. Irs form 1040 2011 The property to be received must be identified in writing within 45 days after the date you transfer the property given up in the trade. Irs form 1040 2011 The property to be received must be received by the earlier of: The 180th day after the date on which you transfer the property given up in the trade, or The due date, including extensions, for your tax return for the year in which the transfer of the property given up occurs. Irs form 1040 2011    If you trade property with a related party in a like-kind exchange, a special rule may apply. Irs form 1040 2011 See Related Party Transactions , later in this chapter. Irs form 1040 2011 Also, see chapter 1 of Publication 544 for more information on exchanges of business property and special rules for exchanges using qualified intermediaries or involving multiple properties. Irs form 1040 2011 Partly nontaxable exchange. Irs form 1040 2011   If you receive money or unlike property in addition to like property, and the above six conditions are met, you have a partly nontaxable trade. Irs form 1040 2011 You are taxed on any gain you realize, but only up to the amount of the money and the fair market value of the unlike property you receive. Irs form 1040 2011 You cannot deduct a loss. Irs form 1040 2011 Like property and unlike property transferred. Irs form 1040 2011   If you give up unlike property in addition to the like property, you must recognize gain or loss on the unlike property you give up. Irs form 1040 2011 The gain or loss is the difference between the adjusted basis of the unlike property and its fair market value. Irs form 1040 2011 Like property and money transferred. Irs form 1040 2011   If all of the above conditions (1) – (6) are met, you have a nontaxable trade even if you pay money in addition to the like property. Irs form 1040 2011 Basis of property received. Irs form 1040 2011   To figure the basis of the property received, see Nontaxable Exchanges in chapter 13. Irs form 1040 2011 How to report. Irs form 1040 2011   You must report the trade of like property on Form 8824. Irs form 1040 2011 If you figure a recognized gain or loss on Form 8824, report it on Schedule D (Form 1040), or on Form 4797, Sales of Business Property, whichever applies. Irs form 1040 2011 See the instructions for Line 22 in the Instructions for Form 8824. Irs form 1040 2011   For information on using Form 4797, see chapter 4 of Publication 544. Irs form 1040 2011 Corporate stocks. Irs form 1040 2011   The following trades of corporate stocks generally do not result in a taxable gain or a deductible loss. Irs form 1040 2011 Corporate reorganizations. Irs form 1040 2011   In some instances, a company will give you common stock for preferred stock, preferred stock for common stock, or stock in one corporation for stock in another corporation. Irs form 1040 2011 If this is a result of a merger, recapitalization, transfer to a controlled corporation, bankruptcy, corporate division, corporate acquisition, or other corporate reorganization, you do not recognize gain or loss. Irs form 1040 2011 Stock for stock of the same corporation. Irs form 1040 2011   You can exchange common stock for common stock or preferred stock for preferred stock in the same corporation without having a recognized gain or loss. Irs form 1040 2011 This is true for a trade between two stockholders as well as a trade between a stockholder and the corporation. Irs form 1040 2011 Convertible stocks and bonds. Irs form 1040 2011   You generally will not have a recognized gain or loss if you convert bonds into stock or preferred stock into common stock of the same corporation according to a conversion privilege in the terms of the bond or the preferred stock certificate. Irs form 1040 2011 Property for stock of a controlled corporation. Irs form 1040 2011   If you transfer property to a corporation solely in exchange for stock in that corporation, and immediately after the trade you are in control of the corporation, you ordinarily will not recognize a gain or loss. Irs form 1040 2011 This rule applies both to individuals and to groups who transfer property to a corporation. Irs form 1040 2011 It does not apply if the corporation is an investment company. Irs form 1040 2011   For this purpose, to be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock of the corporation. Irs form 1040 2011   If this provision applies to you, you may have to attach to your return a complete statement of all facts pertinent to the exchange. Irs form 1040 2011 For details, see Regulations section 1. Irs form 1040 2011 351-3. Irs form 1040 2011 Additional information. Irs form 1040 2011   For more information on trades of stock, see Nontaxable Trades in chapter 4 of Publication 550. Irs form 1040 2011 Insurance policies and annuities. Irs form 1040 2011   You will not have a recognized gain or loss if the insured or annuitant is the same under both contracts and you trade: A life insurance contract for another life insurance contract or for an endowment or annuity contract or for a qualified long-term care insurance contract, An endowment contract for another endowment contract that provides for regular payments beginning at a date no later than the beginning date under the old contract or for an annuity contract or for a qualified long-term insurance contract, An annuity contract for annuity contract or for a qualified long-term care insurance contract, or A qualified long-term care insurance contract for a qualified long-term care insurance contract. Irs form 1040 2011   You also may not have to recognize gain or loss on an exchange of a portion of an annuity contract for another annuity contract. Irs form 1040 2011 For transfers completed before October 24, 2011, see Revenue Ruling 2003-76 in Internal Revenue Bulletin 2003-33 and Revenue Procedure 2008-24 in Internal Revenue Bulletin 2008-13. Irs form 1040 2011 Revenue Ruling 2003-76 is available at www. Irs form 1040 2011 irs. Irs form 1040 2011 gov/irb/2003-33_IRB/ar11. Irs form 1040 2011 html. Irs form 1040 2011 Revenue Procedure 2008-24 is available at www. Irs form 1040 2011 irs. Irs form 1040 2011 gov/irb/2008-13_IRB/ar13. Irs form 1040 2011 html. Irs form 1040 2011 For transfers completed on or after October 24, 2011, see Revenue Ruling 2003-76, above, and Revenue Procedure 2011-38, in Internal Revenue Bulletin 2011-30. Irs form 1040 2011 Revenue Procedure 2011-38 is available at www. Irs form 1040 2011 irs. Irs form 1040 2011 gov/irb/2011-30_IRB/ar09. Irs form 1040 2011 html. Irs form 1040 2011   For tax years beginning after December 31, 2010, amounts received as an annuity for a period of 10 years or more, or for the lives of one or more individuals, under any portion of an annuity, endowment, or life insurance contract, are treated as a separate contract and are considered partial annuities. Irs form 1040 2011 A portion of an annuity, endowment, or life insurance contract may be annuitized, provided that the annuitization period is for 10 years or more or for the lives of one or more individuals. Irs form 1040 2011 The investment in the contract is allocated between the part of the contract from which amounts are received as an annuity and the part of the contract from which amounts are not received as an annuity. Irs form 1040 2011   Exchanges of contracts not included in this list, such as an annuity contract for an endowment contract, or an annuity or endowment contract for a life insurance contract, are taxable. Irs form 1040 2011 Demutualization of life insurance companies. Irs form 1040 2011   If you received stock in exchange for your equity interest as a policyholder or an annuitant, you generally will not have a recognized gain or loss. Irs form 1040 2011 See Demutualization of Life Insurance Companies in Publication 550. Irs form 1040 2011 U. Irs form 1040 2011 S. Irs form 1040 2011 Treasury notes or bonds. Irs form 1040 2011   You can trade certain issues of U. Irs form 1040 2011 S. Irs form 1040 2011 Treasury obligations for other issues designated by the Secretary of the Treasury, with no gain or loss recognized on the trade. Irs form 1040 2011 See Savings bonds traded in chapter 1 of Publication 550 for more information. Irs form 1040 2011 Transfers Between Spouses Generally, no gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or if incident to a divorce, a former spouse. Irs form 1040 2011 This nonrecognition rule does not apply in the following situations. Irs form 1040 2011 The recipient spouse or former spouse is a nonresident alien. Irs form 1040 2011 Property is transferred in trust and liability exceeds basis. Irs form 1040 2011 Gain must be recognized to the extent the amount of the liabilities assumed by the trust, plus any liabilities on the property, exceed the adjusted basis of the property. Irs form 1040 2011 For other situations, see Transfers Between Spouses in chapter 4 of Publication 550. Irs form 1040 2011 Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is treated by the recipient as a gift and is not considered a sale or exchange. Irs form 1040 2011 The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Irs form 1040 2011 This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its fair market value at the time of transfer or any consideration paid by the recipient. Irs form 1040 2011 This rule applies for purposes of determining loss as well as gain. Irs form 1040 2011 Any gain recognized on a transfer in trust increases the basis. Irs form 1040 2011 A transfer of property is incident to a divorce if the transfer occurs within 1 year after the date on which the marriage ends, or if the transfer is related to the ending of the marriage. Irs form 1040 2011 Related Party Transactions Special rules apply to the sale or trade of property between related parties. Irs form 1040 2011 Gain on sale or trade of depreciable property. Irs form 1040 2011   Your gain from the sale or trade of property to a related party may be ordinary income, rather than capital gain, if the property can be depreciated by the party receiving it. Irs form 1040 2011 See chapter 3 of Publication 544 for more information. Irs form 1040 2011 Like-kind exchanges. Irs form 1040 2011   Generally, if you trade business or investment property for other business or investment property of a like kind, no gain or loss is recognized. Irs form 1040 2011 See Like-kind exchanges , earlier, under Nontaxable Trades. Irs form 1040 2011   This rule also applies to trades of property between related parties, defined next under Losses on sales or trades of property. Irs form 1040 2011 However, if either you or the related party disposes of the like property within 2 years after the trade, you both must report any gain or loss not recognized on the original trade on your return filed for the year in which the later disposition occurs. Irs form 1040 2011 See Related Party Transactions in chapter 4 of Publication 550 for exceptions. Irs form 1040 2011 Losses on sales or trades of property. Irs form 1040 2011   You cannot deduct a loss on the sale or trade of property, other than a distribution in complete liquidation of a corporation, if the transaction is directly or indirectly between you and the following related parties. Irs form 1040 2011 Members of your family. Irs form 1040 2011 This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. Irs form 1040 2011 ), and lineal descendants (children, grandchildren, etc. Irs form 1040 2011 ). Irs form 1040 2011 A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. Irs form 1040 2011 A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. Irs form 1040 2011 (See Constructive ownership of stock , later. Irs form 1040 2011 ) A tax-exempt charitable or educational organization directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. Irs form 1040 2011   In addition, a loss on the sale or trade of property is not deductible if the transaction is directly or indirectly between the following related parties. Irs form 1040 2011 A grantor and fiduciary, or the fiduciary and beneficiary, of any trust. Irs form 1040 2011 Fiduciaries of two different trusts, or the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. Irs form 1040 2011 A trust fiduciary and a corporation of which more than 50% in value of the outstanding stock is directly or indirectly owned by or for the trust, or by or for the grantor of the trust. Irs form 1040 2011 A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest, or the profits interest, in the partnership. Irs form 1040 2011 Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Irs form 1040 2011 Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Irs form 1040 2011 An executor and a beneficiary of an estate (except in the case of a sale or trade to satisfy a pecuniary bequest). Irs form 1040 2011 Two corporations that are members of the same controlled group. Irs form 1040 2011 (Under certain conditions, however, these losses are not disallowed but must be deferred. Irs form 1040 2011 ) Two partnerships if the same persons own, directly or indirectly, more than 50% of the capital interests or the profit interests in both partnerships. Irs form 1040 2011 Multiple property sales or trades. Irs form 1040 2011   If you sell or trade to a related party a number of blocks of stock or pieces of property in a lump sum, you must figure the gain or loss separately for each block of stock or piece of property. Irs form 1040 2011 The gain on each item may be taxable. Irs form 1040 2011 However, you cannot deduct the loss on any item. Irs form 1040 2011 Also, you cannot reduce gains from the sales of any of these items by losses on the sales of any of the other items. Irs form 1040 2011 Indirect transactions. Irs form 1040 2011   You cannot deduct your loss on the sale of stock through your broker if, under a prearranged plan, a related party buys the same stock you had owned. Irs form 1040 2011 This does not apply to a trade between related parties through an exchange that is purely coincidental and is not prearranged. Irs form 1040 2011 Constructive ownership of stock. Irs form 1040 2011   In determining whether a person directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Irs form 1040 2011 Rule 1. Irs form 1040 2011   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Irs form 1040 2011 Rule 2. Irs form 1040 2011   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Irs form 1040 2011 Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Irs form 1040 2011 Rule 3. Irs form 1040 2011   An individual owning, other than by applying rule 2, any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Irs form 1040 2011 Rule 4. Irs form 1040 2011   When applying rule 1, 2, or 3, stock constructively owned by a person under rule 1 is treated as actually owned by that person. Irs form 1040 2011 But stock constructively owned by an individual under rule 2 or rule 3 is not treated as owned by that individual for again applying either rule 2 or rule 3 to make another person the constructive owner of the stock. Irs form 1040 2011 Property received from a related party. Irs form 1040 2011    If you sell or trade at a gain property you acquired from a related party, you recognize the gain only to the extent it is more than the loss previously disallowed to the related party. Irs form 1040 2011 This rule applies only if you are the original transferee and you acquired the property by purchase or exchange. Irs form 1040 2011 This rule does not apply if the related party's loss was disallowed because of the wash sale rules described in chapter 4 of Publication 550 under Wash Sales. Irs form 1040 2011   If you sell or trade at a loss property you acquired from a related party, you cannot recognize the loss that was not allowed to the related party. Irs form 1040 2011 Example 1. Irs form 1040 2011 Your brother sells you stock for $7,600. Irs form 1040 2011 His cost basis is $10,000. Irs form 1040 2011 Your brother cannot deduct the loss of $2,400. Irs form 1040 2011 Later, you sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900. Irs form 1040 2011 Your reportable gain is $500 (the $2,900 gain minus the $2,400 loss not allowed to your brother). Irs form 1040 2011 Example 2. Irs form 1040 2011 If, in Example 1, you sold the stock for $6,900 instead of $10,500, your recognized loss is only $700 (your $7,600 basis minus $6,900). Irs form 1040 2011 You cannot deduct the loss that was not allowed to your brother. Irs form 1040 2011 Capital Gains and Losses This section discusses the tax treatment of gains and losses from different types of investment transactions. Irs form 1040 2011 Character of gain or loss. Irs form 1040 2011   You need to classify your gains and losses as either ordinary or capital gains or losses. Irs form 1040 2011 You then need to classify your capital gains and losses as either short term or long term. Irs form 1040 2011 If you have long-term gains and losses, you must identify your 28% rate gains and losses. Irs form 1040 2011 If you have a net capital gain, you must also identify any unrecaptured section 1250 gain. Irs form 1040 2011   The correct classification and identification helps you figure the limit on capital losses and the correct tax on capital gains. Irs form 1040 2011 Reporting capital gains and losses is explained in chapter 16. Irs form 1040 2011 Capital or Ordinary Gain or Loss If you have a taxable gain or a deductible loss from a transaction, it may be either a capital gain or loss or an ordinary gain or loss, depending on the circumstances. Irs form 1040 2011 Generally, a sale or trade of a capital asset (defined next) results in a capital gain or loss. Irs form 1040 2011 A sale or trade of a noncapital asset generally results in ordinary gain or loss. Irs form 1040 2011 Depending on the circumstances, a gain or loss on a sale or trade of property used in a trade or business may be treated as either capital or ordinary, as explained in Publication 544. Irs form 1040 2011 In some situations, part of your gain or loss may be a capital gain or loss and part may be an ordinary gain or loss. Irs form 1040 2011 Capital Assets and Noncapital Assets For the most part, everything you own and use for personal purposes, pleasure, or investment is a capital asset. Irs form 1040 2011 Some examples are: Stocks or bonds held in your personal account, A house owned and used by you and your family, Household furnishings, A car used for pleasure or commuting, Coin or stamp collections, Gems and jewelry, and Gold, silver, or any other metal. Irs form 1040 2011 Any property you own is a capital asset, except the following noncapital assets. Irs form 1040 2011 Property held mainly for sale to customers or property that will physically become a part of the merchandise for sale to customers. Irs form 1040 2011 For an exception, see Capital Asset Treatment for Self-Created Musical Works , later. Irs form 1040 2011 Depreciable property used in your trade or business, even if fully depreciated. Irs form 1040 2011 Real property used in your trade or business. Irs form 1040 2011 A copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property that is: Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Acquired under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced. Irs form 1040 2011 For an exception to this rule, see Capital Asset Treatment for Self-Created Musical Works , later. Irs form 1040 2011 Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of property described in (1). Irs form 1040 2011 U. Irs form 1040 2011 S. Irs form 1040 2011 Government publications that you received from the government free or for less than the normal sales price, or that you acquired under circumstances entitling you to the basis of someone who received the publications free or for less than the normal sales price. Irs form 1040 2011 Certain commodities derivative financial instruments held by commodities derivatives dealers. Irs form 1040 2011 Hedging transactions, but only if the transaction is clearly identified as a hedging transaction before the close of the day on which it was acquired, originated, or entered into. Irs form 1040 2011 Supplies of a type you regularly use or consume in the ordinary course of your trade or business. Irs form 1040 2011 Investment Property Investment property is a capital asset. Irs form 1040 2011 Any gain or loss from its sale or trade is generally a capital gain or loss. Irs form 1040 2011 Gold, silver, stamps, coins, gems, etc. Irs form 1040 2011   These are capital assets except when they are held for sale by a dealer. Irs form 1040 2011 Any gain or loss you have from their sale or trade generally is a capital gain or loss. Irs form 1040 2011 Stocks, stock rights, and bonds. Irs form 1040 2011   All of these (including stock received as a dividend) are capital assets except when held for sale by a securities dealer. Irs form 1040 2011 However, if you own small business stock, see Losses on Section 1244 (Small Business) Stock , later, and Losses on Small Business Investment Company Stock, in chapter 4 of Publication 550. Irs form 1040 2011 Personal Use Property Property held for personal use only, rather than for investment, is a capital asset, and you must report a gain from its sale as a capital gain. Irs form 1040 2011 However, you cannot deduct a loss from selling personal use property. Irs form 1040 2011 Capital Asset Treatment for Self-Created Musical Works You can elect to treat musical compositions and copyrights in musical works as capital assets when you sell or exchange them if: Your personal efforts created the property, or You acquired the property under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced. Irs form 1040 2011 You must make a separate election for each musical composition (or copyright in a musical work) sold or exchanged during the tax year. Irs form 1040 2011 You must make the election on or before the due date (including extensions) of the income tax return for the tax year of the sale or exchange. Irs form 1040 2011 You must make the election on Form 8949 by treating the sale or exchange as the sale or exchange of a capital asset, according to Form 8949, Schedule D (Form 1040), and their separate instructions. Irs form 1040 2011 For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Irs form 1040 2011 See also Schedule D (Form 1040), Form 8949, and their separate instructions. Irs form 1040 2011 You can revoke the election if you have IRS approval. Irs form 1040 2011 To get IRS approval, you must submit a request for a letter ruling under the appropriate IRS revenue procedure. Irs form 1040 2011 See, for example, Rev. Irs form 1040 2011 Proc. Irs form 1040 2011 2013-1, corrected by Announcement 2013–9, and amplified and modified by Rev. Irs form 1040 2011 Proc. Irs form 1040 2011 2013–32, available at www. Irs form 1040 2011 irs. Irs form 1040 2011 gov/irb/2013-01_IRB/ar06. Irs form 1040 2011 html. Irs form 1040 2011 Alternatively, you are granted an automatic 6-month extension from the due date of your income tax return (excluding extensions) to revoke the election, provided you timely file your income tax return, and within this 6-month extension period, you file Form 1040X that treats the sale or exchange as the sale or exchange of property that is not a capital asset. Irs form 1040 2011 Discounted Debt Instruments Treat your gain or loss on the sale, redemption, or retirement of a bond or other debt instrument originally issued at a discount or bought at a discount as capital gain or loss, except as explained in the following discussions. Irs form 1040 2011 Short-term government obligations. Irs form 1040 2011   Treat gains on short-term federal, state, or local government obligations (other than tax-exempt obligations) as ordinary income up to your ratable share of the acquisition discount. Irs form 1040 2011 This treatment applies to obligations with a fixed maturity date not more than 1 year from the date of issue. Irs form 1040 2011 Acquisition discount is the stated redemption price at maturity minus your basis in the obligation. Irs form 1040 2011   However, do not treat these gains as income to the extent you previously included the discount in income. Irs form 1040 2011 See Discount on Short-Term Obligations in chapter 1 of Publication 550. Irs form 1040 2011 Short-term nongovernment obligations. Irs form 1040 2011   Treat gains on short-term nongovernment obligations as ordinary income up to your ratable share of original issue discount (OID). Irs form 1040 2011 This treatment applies to obligations with a fixed maturity date of not more than 1 year from the date of issue. Irs form 1040 2011   However, to the extent you previously included the discount in income, you do not have to include it in income again. Irs form 1040 2011 See Discount on Short-Term Obligations in chapter 1 of Publication 550. Irs form 1040 2011 Tax-exempt state and local government bonds. Irs form 1040 2011   If these bonds were originally issued at a discount before September 4, 1982, or you acquired them before March 2, 1984, treat your part of OID as tax-exempt interest. Irs form 1040 2011 To figure your gain or loss on the sale or trade of these bonds, reduce the amount realized by your part of OID. Irs form 1040 2011   If the bonds were issued after September 3, 1982, and acquired after March 1, 1984, increase the adjusted basis by your part of OID to figure gain or loss. Irs form 1040 2011 For more information on the basis of these bonds, see Discounted Debt Instruments in chapter 4 of Publication 550. Irs form 1040 2011   Any gain from market discount is usually taxable on disposition or redemption of tax-exempt bonds. Irs form 1040 2011 If you bought the bonds before May 1, 1993, the gain from market discount is capital gain. Irs form 1040 2011 If you bought the bonds after April 30, 1993, the gain is ordinary income. Irs form 1040 2011   You figure the market discount by subtracting the price you paid for the bond from the sum of the original issue price of the bond and the amount of accumulated OID from the date of issue that represented interest to any earlier holders. Irs form 1040 2011 For more information, see Market Discount Bonds in chapter 1 of Publication 550. Irs form 1040 2011    A loss on the sale or other disposition of a tax-exempt state or local government bond is deductible as a capital loss. Irs form 1040 2011 Redeemed before maturity. Irs form 1040 2011   If a state or local bond issued before June 9, 1980, is redeemed before it matures, the OID is not taxable to you. Irs form 1040 2011   If a state or local bond issued after June 8, 1980, is redeemed before it matures, the part of OID earned while you hold the bond is not taxable to you. Irs form 1040 2011 However, you must report the unearned part of OID as a capital gain. Irs form 1040 2011 Example. Irs form 1040 2011 On July 2, 2002, the date of issue, you bought a 20-year, 6% municipal bond for $800. Irs form 1040 2011 The face amount of the bond was $1,000. Irs form 1040 2011 The $200 discount was OID. Irs form 1040 2011 At the time the bond was issued, the issuer had no intention of redeeming it before it matured. Irs form 1040 2011 The bond was callable at its face amount beginning 10 years after the issue date. Irs form 1040 2011 The issuer redeemed the bond at the end of 11 years (July 2, 2013) for its face amount of $1,000 plus accrued annual interest of $60. Irs form 1040 2011 The OID earned during the time you held the bond, $73, is not taxable. Irs form 1040 2011 The $60 accrued annual interest also is not taxable. Irs form 1040 2011 However, you must report the unearned part of OID ($127) as a capital gain. Irs form 1040 2011 Long-term debt instruments issued after 1954 and before May 28, 1969 (or before July 2, 1982, if a government instrument). Irs form 1040 2011   If you sell, trade, or redeem for a gain one of these debt instruments, the part of your gain that is not more than your ratable share of the OID at the time of the sale or redemption is ordinary income. Irs form 1040 2011 The rest of the gain is capital gain. Irs form 1040 2011 If, however, there was an intention to call the debt instrument before maturity, all of your gain that is not more than the entire OID is treated as ordinary income at the time of the sale. Irs form 1040 2011 This treatment of taxable gain also applies to corporate instruments issued after May 27, 1969, under a written commitment that was binding on May 27, 1969, and at all times thereafter. Irs form 1040 2011 Long-term debt instruments issued after May 27, 1969 (or after July 1, 1982, if a government instrument). Irs form 1040 2011   If you hold one of these debt instruments, you must include a part of OID in your gross income each year you own the instrument. Irs form 1040 2011 Your basis in that debt instrument is increased by the amount of OID that you have included in your gross income. Irs form 1040 2011 See Original Issue Discount (OID) in chapter 7 for information about OID that you must report on your tax return. Irs form 1040 2011   If you sell or trade the debt instrument before maturity, your gain is a capital gain. Irs form 1040 2011 However, if at the time the instrument was originally issued there was an intention to call it before its maturity, your gain generally is ordinary income to the extent of the entire OID reduced by any amounts of OID previously includible in your income. Irs form 1040 2011 In this case, the rest of the gain is capital gain. Irs form 1040 2011 Market discount bonds. Irs form 1040 2011   If the debt instrument has market discount and you chose to include the discount in income as it accrued, increase your basis in the debt instrument by the accrued discount to figure capital gain or loss on its disposition. Irs form 1040 2011 If you did not choose to include the discount in income as it accrued, you must report gain as ordinary interest income up to the instrument's accrued market discount. Irs form 1040 2011 The rest of the gain is capital gain. Irs form 1040 2011 See Market Discount Bonds in chapter 1 of Publication 550. Irs form 1040 2011   A different rule applies to market discount bonds issued before July 19, 1984, and purchased by you before May 1, 1993. Irs form 1040 2011 See Market discount bonds under Discounted Debt Instruments in chapter 4 of Publication 550. Irs form 1040 2011 Retirement of debt instrument. Irs form 1040 2011   Any amount you receive on the retirement of a debt instrument is treated in the same way as if you had sold or traded that instrument. Irs form 1040 2011 Notes of individuals. Irs form 1040 2011   If you hold an obligation of an individual issued with OID after March 1, 1984, you generally must include the OID in your income currently, and your gain or loss on its sale or retirement is generally capital gain or loss. Irs form 1040 2011 An exception to this treatment applies if the obligation is a loan between individuals and all the following requirements are met. Irs form 1040 2011 The lender is not in the business of lending money. Irs form 1040 2011 The amount of the loan, plus the amount of any outstanding prior loans, is $10,000 or less. Irs form 1040 2011 Avoiding federal tax is not one of the principal purposes of the loan. Irs form 1040 2011   If the exception applies, or the obligation was issued before March 2, 1984, you do not include the OID in your income currently. Irs form 1040 2011 When you sell or redeem the obligation, the part of your gain that is not more than your accrued share of OID at that time is ordinary income. Irs form 1040 2011 The rest of the gain, if any, is capital gain. Irs form 1040 2011 Any loss on the sale or redemption is capital loss. Irs form 1040 2011 Deposit in Insolvent or Bankrupt Financial Institution If you lose money you have on deposit in a bank, credit union, or other financial institution that becomes insolvent or bankrupt, you may be able to deduct your loss in one of three ways. Irs form 1040 2011 Ordinary loss. Irs form 1040 2011 Casualty loss. Irs form 1040 2011 Nonbusiness bad debt (short-term capital loss). Irs form 1040 2011  For more information, see Deposit in Insolvent or Bankrupt Financial Institution, in chapter 4 of Publication 550. Irs form 1040 2011 Sale of Annuity The part of any gain on the sale of an annuity contract before its maturity date that is based on interest accumulated on the contract is ordinary income. Irs form 1040 2011 Losses on Section 1244 (Small Business) Stock You can deduct as an ordinary loss, rather than as a capital loss, your loss on the sale, trade, or worthlessness of section 1244 stock. Irs form 1040 2011 Report the loss on Form 4797, line 10. Irs form 1040 2011 Any gain on section 1244 stock is a capital gain if the stock is a capital asset in your hands. Irs form 1040 2011 Report the gain on Form 8949. Irs form 1040 2011 See Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. Irs form 1040 2011 For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Irs form 1040 2011 See also Schedule D (Form 1040), Form 8949, and their separate instructions. Irs form 1040 2011 Holding Period If you sold or traded investment property, you must determine your holding period for the property. Irs form 1040 2011 Your holding period determines whether any capital gain or loss was a short-term or long-term capital gain or loss. Irs form 1040 2011 Long-term or short-term. Irs form 1040 2011   If you hold investment property more than 1 year, any capital gain or loss is a long-term capital gain or loss. Irs form 1040 2011 If you hold the property 1 year or less, any capital gain or loss is a short-term capital gain or loss. Irs form 1040 2011   To determine how long you held the investment property, begin counting on the date after the day you acquired the property. Irs form 1040 2011 The day you disposed of the property is part of your holding period. Irs form 1040 2011 Example. Irs form 1040 2011 If you bought investment property on February 6, 2012, and sold it on February 6, 2013, your holding period is not more than 1 year and you have a short-term capital gain or loss. Irs form 1040 2011 If you sold it on February 7, 2013, your holding period is more than 1 year and you will have a long-term capital gain or loss. Irs form 1040 2011 Securities traded on established market. Irs form 1040 2011   For securities traded on an established securities market, your holding period begins the day after the trade date you bought the securities, and ends on the trade date you sold them. Irs form 1040 2011    Do not confuse the trade date with the settlement date, which is the date by which the stock must be delivered and payment must be made. Irs form 1040 2011 Example. Irs form 1040 2011 You are a cash method, calendar year taxpayer. Irs form 1040 2011 You sold stock at a gain on December 30, 2013. Irs form 1040 2011 According to the rules of the stock exchange, the sale was closed by delivery of the stock 4 trading days after the sale, on January 6, 2014. Irs form 1040 2011 You received payment of the sales price on that same day. Irs form 1040 2011 Report your gain on your 2013 return, even though you received the payment in 2014. Irs form 1040 2011 The gain is long term or short term depending on whether you held the stock more than 1 year. Irs form 1040 2011 Your holding period ended on December 30. Irs form 1040 2011 If you had sold the stock at a loss, you would also report it on your 2013 return. Irs form 1040 2011 U. Irs form 1040 2011 S. Irs form 1040 2011 Treasury notes and bonds. Irs form 1040 2011   The holding period of U. Irs form 1040 2011 S. Irs form 1040 2011 Treasury notes and bonds sold at auction on the basis of yield starts the day after the Secretary of the Treasury, through news releases, gives notification of acceptance to successful bidders. Irs form 1040 2011 The holding period of U. Irs form 1040 2011 S. Irs form 1040 2011 Treasury notes and bonds sold through an offering on a subscription basis at a specified yield starts the day after the subscription is submitted. Irs form 1040 2011 Automatic investment service. Irs form 1040 2011   In determining your holding period for shares bought by the bank or other agent, full shares are considered bought first and any fractional shares are considered bought last. Irs form 1040 2011 Your holding period starts on the day after the bank's purchase date. Irs form 1040 2011 If a share was bought over more than one purchase date, your holding period for that share is a split holding period. Irs form 1040 2011 A part of the share is considered to have been bought on each date that stock was bought by the bank with the proceeds of available funds. Irs form 1040 2011 Nontaxable trades. Irs form 1040 2011   If you acquire investment property in a trade for other investment property and your basis for the new property is determined, in whole or in part, by your basis in the old property, your holding period for the new property begins on the day following the date you acquired the old property. Irs form 1040 2011 Property received as a gift. Irs form 1040 2011   If you receive a gift of property and your basis is determined by the donor's adjusted basis, your holding period is considered to have started on the same day the donor's holding period started. Irs form 1040 2011   If your basis is determined by the fair market value of the property, your holding period starts on the day after the date of the gift. Irs form 1040 2011 Inherited property. Irs form 1040 2011   Generally, if you inherited investment property, your capital gain or loss on any later disposition of that property is long-term capital gain or loss. Irs form 1040 2011 This is true regardless of how long you actually held the property. Irs form 1040 2011 However, if you inherited property from someone who died in 2010, see the information below. Irs form 1040 2011 Inherited property from someone who died in 2010. Irs form 1040 2011   If you inherit investment property from a decedent who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to determine your holding period. Irs form 1040 2011 Real property bought. Irs form 1040 2011   To figure how long you have held real property bought under an unconditional contract, begin counting on the day after you received title to it or on the day after you took possession of it and assumed the burdens and privileges of ownership, whichever happened first. Irs form 1040 2011 However, taking delivery or possession of real property under an option agreement is not enough to start the holding period. Irs form 1040 2011 The holding period cannot start until there is an actual contract of sale. Irs form 1040 2011 The holding period of the seller cannot end before that time. Irs form 1040 2011 Real property repossessed. Irs form 1040 2011   If you sell real property but keep a security interest in it, and then later repossess the property under the terms of the sales contract, your holding period for a later sale includes the period you held the property before the original sale and the period after the repossession. Irs form 1040 2011 Your holding period does not include the time between the original sale and the repossession. Irs form 1040 2011 That is, it does not include the period during which the first buyer held the property. Irs form 1040 2011 Stock dividends. Irs form 1040 2011   The holding period for stock you received as a taxable stock dividend begins on the date of distribution. Irs form 1040 2011   The holding period for new stock you received as a nontaxable stock dividend begins on the same day as the holding period of the old stock. Irs form 1040 2011 This rule also applies to stock acquired in a “spin-off,” which is a distribution of stock or securities in a controlled corporation. Irs form 1040 2011 Nontaxable stock rights. Irs form 1040 2011   Your holding period for nontaxable stock rights begins on the same day as the holding period of the underlying stock. Irs form 1040 2011 The holding period for stock acquired through the exercise of stock rights begins on the date the right was exercised. Irs form 1040 2011 Nonbusiness Bad Debts If someone owes you money that you cannot collect, you have a bad debt. Irs form 1040 2011 You may be able to deduct the amount owed to you when you figure your tax for the year the debt becomes worthless. Irs form 1040 2011 Generally, nonbusiness bad debts are bad debts that did not come from operating your trade or business, and are deductible as short-term capital losses. Irs form 1040 2011 To be deductible, nonbusiness bad debts must be totally worthless. Irs form 1040 2011 You cannot deduct a partly worthless nonbusiness debt. Irs form 1040 2011 Genuine debt required. Irs form 1040 2011   A debt must be genuine for you to deduct a loss. Irs form 1040 2011 A debt is genuine if it arises from a debtor-creditor relationship based on a valid and enforceable obligation to repay a fixed or determinable sum of money. Irs form 1040 2011 Basis in bad debt required. Irs form 1040 2011    To deduct a bad debt, you must have a basis in it—that is, you must have already included the amount in your income or loaned out your cash. Irs form 1040 2011 For example, you cannot claim a bad debt deduction for court-ordered child support not paid to you by your former spouse. Irs form 1040 2011 If you are a cash method taxpayer (as most individuals are), you generally cannot take a bad debt deduction for unpaid salaries, wages, rents, fees, interest, dividends, and similar items. Irs form 1040 2011 When deductible. Irs form 1040 2011   You can take a bad debt deduction only in the year the debt becomes worthless. Irs form 1040 2011 You do not have to wait until a debt is due to determine whether it is worthless. Irs form 1040 2011 A debt becomes worthless when there is no longer any chance that the amount owed will be paid. Irs form 1040 2011   It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. Irs form 1040 2011 You must only show that you have taken reasonable steps to collect the debt. Irs form 1040 2011 Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. Irs form 1040 2011 How to report bad debts. Irs form 1040 2011    Deduct nonbusiness bad debts as short-term capital losses on Form 8949. Irs form 1040 2011    Make sure you report your bad debt(s) (and any other short-term transactions for which you did not receive a Form 1099-B) on Form 8949, Part I, with box C checked. Irs form 1040 2011    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Irs form 1040 2011 See also Schedule D (Form 1040), Form 8949, and their separate instructions. Irs form 1040 2011   For each bad debt, attach a statement to your return that contains: A description of the debt, including the amount, and the date it became due, The name of the debtor, and any business or family relationship between you and the debtor, The efforts you made to collect the debt, and Why you decided the debt was worthless. Irs form 1040 2011 For example, you could show that the borrower has declared bankruptcy, or that legal action to collect would probably not result in payment of any part of the debt. Irs form 1040 2011 Filing a claim for refund. Irs form 1040 2011    If you do not deduct a bad debt on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the bad debt. Irs form 1040 2011 To do this, use Form 1040X to amend your return for the year the debt became worthless. Irs form 1040 2011 You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. Irs form 1040 2011 For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. Irs form 1040 2011 Additional information. Irs form 1040 2011   For more information, see Nonbusiness Bad Debts in Publication 550. Irs form 1040 2011 For information on business bad debts, see chapter 10 of Publication 535, Business Expenses. Irs form 1040 2011 Wash Sales You cannot deduct losses from sales or trades of stock or securities in a wash sale. Irs form 1040 2011 A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, Acquire a contract or option to buy substantially identical stock or securities, or Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. Irs form 1040 2011 If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). Irs form 1040 2011 The result is your basis in the new stock or securities. Irs form 1040 2011 This adjustment postpones the loss deduction until the disposition of the new stock or securities. Irs form 1040 2011 Your holding period for the new stock or securities includes the holding period of the stock or securities sold. Irs form 1040 2011 For more information, see Wash Sales, in chapter 4 of Publication 550. Irs form 1040 2011 Rollover of Gain From Publicly Traded Securities You may qualify for a tax-free rollover of certain gains from the sale of publicly traded securities. Irs form 1040 2011 This means that if you buy certain replacement property and make the choice described in this section, you postpone part or all of your gain. Irs form 1040 2011 You postpone the gain by adjusting the basis of the replacement property as described in Basis of replacement property , later. Irs form 1040 2011 This postpones your gain until the year you dispose of the replacement property. Irs form 1040 2011 You qualify to make this choice if you meet all the following tests. Irs form 1040 2011 You sell publicly traded securities at a gain. Irs form 1040 2011 Publicly traded securities are securities traded on an established securities market. Irs form 1040 2011 Your gain from the sale is a capital gain. Irs form 1040 2011 During the 60-day period beginning on the date of the sale, you buy replacement property. Irs form 1040 2011 This replacement property must be either common stock of, or a partnership interest in a specialized small business investment company (SSBIC). Irs form 1040 2011 This is any partnership or corporation licensed by the Small Business Administration under section 301(d) of the Small Business Investment Act of 1958, as in effect on May 13, 1993. Irs form 1040 2011 Amount of gain recognized. Irs form 1040 2011   If you make the choice described in this section, you must recognize gain only up to the following amount. Irs form 1040 2011 The amount realized on the sale, minus The cost of any common stock or partnership interest in an SSBIC that you bought during the 60-day period beginning on the date of sale (and did not previously take into account on an earlier sale of publicly traded securities). Irs form 1040 2011  If this amount is less than the amount of your gain, you can postpone the rest of your gain, subject to the limit described next. Irs form 1040 2011 If this amount is equal to or more than the amount of your gain, you must recognize the full amount of your gain. Irs form 1040 2011 Limit on gain postponed. Irs form 1040 2011   The amount of gain you can postpone each year is limited to the smaller of: $50,000 ($25,000 if you are married and file a separate return), or $500,000 ($250,000 if you are married and file a separate return), minus the amount of gain you postponed for all earlier years. Irs form 1040 2011 Basis of replacement property. Irs form 1040 2011   You must subtract the amount of postponed gain from the basis of your replacement property. Irs form 1040 2011 How to report and postpone gain. Irs form 1040 2011    See How to report and postpone gain under Rollover of Gain From Publicly Traded Securities in chapter 4 of Publication 550 for details. 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