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Irs Form 1040ez Instructions

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Irs Form 1040ez Instructions

Irs form 1040ez instructions 5. Irs form 1040ez instructions   Ministers and Church Employees Table of Contents Alternative Limit for Church Employees Changes to Includible Compensation for Most Recent Year of ServiceChanges to Includible Compensation Changes to Years of Service Self-employed ministers and church employees who participate in 403(b) plans generally follow the same rules as other 403(b) plan participants. Irs form 1040ez instructions This means that if you are a self-employed minister or a church employee, your MAC generally is the lesser of: Your limit on annual additions, or Your limit on elective deferrals. Irs form 1040ez instructions For most ministers and church employees, the limit on annual additions is figured without any changes. Irs form 1040ez instructions This means that if you are a minister or church employee, your limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or Your includible compensation for your most recent year of service. Irs form 1040ez instructions Although, in general, the same limit applies, church employees can choose an alternative limit and there are changes in how church employees, foreign missionaries, and self-employed ministers figure includible compensation for the most recent year of service. Irs form 1040ez instructions This chapter will explain the alternative limit and the changes. Irs form 1040ez instructions Who is a church employee?   A church employee is anyone who is an employee of a church or a convention or association of churches, including an employee of a tax-exempt organization controlled by or associated with a church or a convention or association of churches. Irs form 1040ez instructions Alternative Limit for Church Employees If you are a church employee, you can choose to use $10,000 a year as your limit on annual additions, even if your annual additions computed under the general rule is less. Irs form 1040ez instructions Total contributions over your lifetime under this choice cannot be more than $40,000. Irs form 1040ez instructions Changes to Includible Compensation for Most Recent Year of Service There are two types of changes in determining includible compensation for the most recent year of service. Irs form 1040ez instructions They are: Changes in how the includible compensation of foreign missionaries and self-employed ministers is figured, and A change to the years that are counted when figuring the most recent year of service for church employees and self-employed ministers. Irs form 1040ez instructions Changes to Includible Compensation Includible compensation is figured differently for foreign missionaries and self-employed ministers. Irs form 1040ez instructions Foreign missionary. Irs form 1040ez instructions   If you are a foreign missionary, your includible compensation includes foreign earned income that may otherwise be excludable from your gross income under section 911. Irs form 1040ez instructions   If you are a foreign missionary, and your adjusted gross income is $17,000 or less, contributions to your 403(b) account will not be treated as exceeding the limit on annual additions if the contributions are not in excess of $3,000. Irs form 1040ez instructions   You are a foreign missionary if you are either a layperson or a duly ordained, commissioned, or licensed minister of a church and you meet both of the following requirements. Irs form 1040ez instructions You are an employee of a church or convention or association of churches. Irs form 1040ez instructions You are performing services for the church outside the United States. Irs form 1040ez instructions Self-employed minister. Irs form 1040ez instructions   If you are a self-employed minister, you are treated as an employee of a tax-exempt organization that is a qualified employer. Irs form 1040ez instructions Your includible compensation is your net earnings from your ministry minus the contributions made to the retirement plan on your behalf and the deductible portion of your self-employment tax. Irs form 1040ez instructions Changes to Years of Service Generally, only service with the employer who maintains your 403(b) account can be counted when figuring your limit on annual additions. Irs form 1040ez instructions Church employees. Irs form 1040ez instructions   If you are a church employee, treat all of your years of service as an employee of a church or a convention or association of churches as years of service with one employer. Irs form 1040ez instructions Self-employed minister. Irs form 1040ez instructions   If you are a self-employed minister, your years of service include full and part years during which you were self-employed. Irs form 1040ez instructions Prev  Up  Next   Home   More Online Publications
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The Irs Form 1040ez Instructions

Irs form 1040ez instructions 6. Irs form 1040ez instructions   Basis of Assets Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Cost BasisReal Property Allocating the Basis Uniform Capitalization Rules Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostTaxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Received as a Gift Property Transferred From a Spouse Inherited Property Property Distributed From a Partnership or Corporation Introduction Your basis is the amount of your investment in property for tax purposes. Irs form 1040ez instructions Use basis to figure the gain or loss on the sale, exchange, or other disposition of property. Irs form 1040ez instructions Also use basis to figure depreciation, amortization, depletion, and casualty losses. Irs form 1040ez instructions If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Irs form 1040ez instructions Only the basis allocated to the business or investment use of the property can be depreciated. Irs form 1040ez instructions Your original basis in property is adjusted (increased or decreased) by certain events. Irs form 1040ez instructions For example, if you make improvements to the property, increase your basis. Irs form 1040ez instructions If you take deductions for depreciation, or casualty losses, or claim certain credits, reduce your basis. Irs form 1040ez instructions Keep accurate records of all items that affect the basis of your assets. Irs form 1040ez instructions For information on keeping records, see chapter 1. Irs form 1040ez instructions Topics - This chapter discusses: Cost basis Adjusted basis Basis other than cost Useful Items - You may want to see: Publication 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property See chapter 16 for information about getting publications and forms. Irs form 1040ez instructions Cost Basis The basis of property you buy is usually its cost. Irs form 1040ez instructions Cost is the amount you pay in cash, debt obligations, other property, or services. Irs form 1040ez instructions Your cost includes amounts you pay for sales tax, freight, installation, and testing. Irs form 1040ez instructions The basis of real estate and business assets will include other items, discussed later. Irs form 1040ez instructions Basis generally does not include interest payments. Irs form 1040ez instructions However, see Carrying charges and Capitalized interest in chapter 4 of Publication 535. Irs form 1040ez instructions You also may have to capitalize (add to basis) certain other costs related to buying or producing property. Irs form 1040ez instructions Under the uniform capitalization rules, discussed later, you may have to capitalize direct costs and certain indirect costs of producing property. Irs form 1040ez instructions Loans with low or no interest. Irs form 1040ez instructions   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus the amount considered to be unstated interest. Irs form 1040ez instructions You generally have unstated interest if your interest rate is less than the applicable federal rate. Irs form 1040ez instructions See the discussion of unstated interest in Publication 537, Installment Sales. Irs form 1040ez instructions Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Irs form 1040ez instructions If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Irs form 1040ez instructions Some of these expenses are discussed next. Irs form 1040ez instructions Lump sum purchase. Irs form 1040ez instructions   If you buy improvements, such as buildings, and the land on which they stand for a lump sum, allocate your cost basis between the land and improvements. Irs form 1040ez instructions Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. Irs form 1040ez instructions Figure the basis of each asset by multiplying the lump sum by a fraction. Irs form 1040ez instructions The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Irs form 1040ez instructions Fair market value (FMV). Irs form 1040ez instructions   FMV is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Irs form 1040ez instructions Sales of similar property on or about the same date may help in figuring the FMV of the property. Irs form 1040ez instructions If you are not certain of the FMV of the land and improvements, you can allocate the basis according to their assessed values for real estate tax purposes. Irs form 1040ez instructions Real estate taxes. Irs form 1040ez instructions   If you pay the real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Irs form 1040ez instructions   If you reimburse the seller for taxes the seller paid for you, you generally can deduct that amount as a tax expense. Irs form 1040ez instructions Whether or not you reimburse the seller, do not include that amount in the basis of your property. Irs form 1040ez instructions Settlement costs. Irs form 1040ez instructions   Your basis includes the settlement fees and closing costs for buying the property. Irs form 1040ez instructions See Publication 551 for a detailed list of items you can and cannot include in basis. Irs form 1040ez instructions   Do not include fees and costs for getting a loan on the property. Irs form 1040ez instructions Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Irs form 1040ez instructions Points. Irs form 1040ez instructions   If you pay points to get a loan (including a mortgage, second mortgage, or line-of-credit), do not add the points to the basis of the related property. Irs form 1040ez instructions You may be able to deduct the points currently or over the term of the loan. Irs form 1040ez instructions For more information about deducting points, see Points in chapter 4 of Publication 535. Irs form 1040ez instructions Assumption of a mortgage. Irs form 1040ez instructions   If you buy property and assume (or buy the property subject to) an existing mortgage, your basis includes the amount you pay for the property plus the amount you owe on the mortgage. Irs form 1040ez instructions Example. Irs form 1040ez instructions If you buy a farm for $100,000 cash and assume a mortgage of $400,000, your basis is $500,000. Irs form 1040ez instructions Constructing assets. Irs form 1040ez instructions   If you build property or have assets built for you, your expenses for this construction are part of your basis. Irs form 1040ez instructions Some of these expenses include the following costs: Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. Irs form 1040ez instructions   In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses. Irs form 1040ez instructions You must capitalize them (include them in the asset's basis). Irs form 1040ez instructions Employee wages paid for the construction work, reduced by any employment credits allowed. Irs form 1040ez instructions Depreciation on equipment you own while it is used in the construction. Irs form 1040ez instructions Operating and maintenance costs for equipment used in the construction. Irs form 1040ez instructions The cost of business supplies and materials used in the construction. Irs form 1040ez instructions    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. Irs form 1040ez instructions Allocating the Basis In some instances, the rules for determining basis apply to a group of assets acquired in the same transaction or to property that consists of separate items. Irs form 1040ez instructions To determine the basis of these assets or separate items, there must be an allocation of basis. Irs form 1040ez instructions Group of assets acquired. Irs form 1040ez instructions   If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. Irs form 1040ez instructions Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. Irs form 1040ez instructions You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. Irs form 1040ez instructions If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. Irs form 1040ez instructions Farming business acquired. Irs form 1040ez instructions   If you buy a group of assets that makes up a farming business, there are special rules you must use to allocate the purchase price among the assets. Irs form 1040ez instructions Generally, reduce the purchase price by any cash received. Irs form 1040ez instructions Allocate the remaining purchase price to the other business assets received in proportion to (but not more than) their FMV and in a certain order. Irs form 1040ez instructions See Trade or Business Acquired under Allocating the Basis in Publication 551 for more information. Irs form 1040ez instructions Transplanted embryo. Irs form 1040ez instructions   If you buy a cow that is pregnant with a transplanted embryo, allocate to the basis of the cow the part of the purchase price equal to the FMV of the cow without the implant. Irs form 1040ez instructions Allocate the rest of the purchase price to the basis of the calf. Irs form 1040ez instructions Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense. Irs form 1040ez instructions Uniform Capitalization Rules Under the uniform capitalization rules, you must include certain direct and indirect costs in the basis of property you produce or in your inventory costs, rather than claim them as a current deduction. Irs form 1040ez instructions You recover these costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Irs form 1040ez instructions Generally, you are subject to the uniform capitalization rules if you do any of the following: Produce real or tangible personal property, or Acquire property for resale. Irs form 1040ez instructions However, this rule does not apply to personal property if your average annual gross receipts for the 3-tax-year period ending with the year preceding the current tax year are $10 million or less. Irs form 1040ez instructions You produce property if you construct, build, install, manufacture, develop, improve, or create the property. Irs form 1040ez instructions You are not subject to the uniform capitalization rules if the property is produced for personal use. Irs form 1040ez instructions In a farming business, you produce property if you raise or grow any agricultural or horticultural commodity, including plants and animals. Irs form 1040ez instructions Plants. Irs form 1040ez instructions   A plant produced in a farming business includes the following items: A fruit, nut, or other crop-bearing tree; An ornamental tree; A vine; A bush; Sod; and The crop or yield of a plant that will have more than one crop or yield. Irs form 1040ez instructions Animals. Irs form 1040ez instructions   An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life. Irs form 1040ez instructions The direct and indirect costs of producing plants or animals include preparatory costs and preproductive period costs. Irs form 1040ez instructions Preparatory costs include the acquisition costs of the seed, seedling, plant, or animal. Irs form 1040ez instructions For plants, preproductive period costs include the costs of items such as irrigation, pruning, frost protection, spraying, and harvesting. Irs form 1040ez instructions For animals, preproductive period costs include the costs of items such as feed, maintaining pasture or pen areas, breeding, veterinary services, and bedding. Irs form 1040ez instructions Exceptions. Irs form 1040ez instructions   In a farming business, the uniform capitalization rules do not apply to: Any animal, Any plant with a preproductive period of 2 years or less, or Any costs of replanting certain plants lost or damaged due to casualty. Irs form 1040ez instructions   Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. Irs form 1040ez instructions See Accrual Method Required under Accounting Methods in chapter 2. Irs form 1040ez instructions   In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. Irs form 1040ez instructions If you make this election, special rules apply. Irs form 1040ez instructions This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. Irs form 1040ez instructions This election also does not apply to any costs incurred for the planting, cultivation, maintenance, or development of any citrus or almond grove (or any part thereof) within the first 4 years the trees were planted. Irs form 1040ez instructions    If you elect not to use the uniform capitalization rules, you must use the alternative depreciation system for all property used in any of your farming businesses and placed in service in any tax year during which the election is in effect. Irs form 1040ez instructions See chapter 7, for additional information on depreciation. Irs form 1040ez instructions Example. Irs form 1040ez instructions You grow trees that have a preproductive period of more than 2 years. Irs form 1040ez instructions The trees produce an annual crop. Irs form 1040ez instructions You are an individual and the uniform capitalization rules apply to your farming business. Irs form 1040ez instructions You must capitalize the direct costs and an allocable part of indirect costs incurred due to the production of the trees. Irs form 1040ez instructions You are not required to capitalize the costs of producing the annual crop because its preproductive period is 2 years or less. Irs form 1040ez instructions Preproductive period of more than 2 years. Irs form 1040ez instructions   The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. Irs form 1040ez instructions Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. Irs form 1040ez instructions Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years. Irs form 1040ez instructions More information. Irs form 1040ez instructions   For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1. Irs form 1040ez instructions 263A-4. Irs form 1040ez instructions Table 6-1. Irs form 1040ez instructions Plants With a Preproductive Period of More Than 2 Years Plants producing the following crops or yields have a nationwide weighted average preproductive period of more than 2 years. Irs form 1040ez instructions Almonds Apples Apricots Avocados Blueberries Cherries Chestnuts Coffee beans Currants Dates Figs Grapefruit Grapes Guavas Kiwifruit Kumquats Lemons Limes Macadamia nuts Mangoes Nectarines Olives Oranges Peaches Pears Pecans Persimmons Pistachio nuts Plums Pomegranates Prunes Tangelos Tangerines Tangors Walnuts Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the cost basis or basis other than cost (discussed later) of the property. Irs form 1040ez instructions The adjustments to the original basis are increases or decreases to the cost basis or other basis which result in the adjusted basis of the property. Irs form 1040ez instructions Increases to Basis Increase the basis of any property by all items properly added to a capital account. Irs form 1040ez instructions These include the cost of any improvements having a useful life of more than 1 year. Irs form 1040ez instructions The following costs increase the basis of property. Irs form 1040ez instructions The cost of extending utility service lines to property. Irs form 1040ez instructions Legal fees, such as the cost of defending and perfecting title. Irs form 1040ez instructions Legal fees for seeking a decrease in an assessment levied against property to pay for local improvements. Irs form 1040ez instructions Assessments for items such as paving roads and building ditches that increase the value of the property assessed. Irs form 1040ez instructions Do not deduct these expenses as taxes. Irs form 1040ez instructions However, you can deduct as taxes amounts assessed for maintenance or repairs, or for meeting interest charges related to the improvements. Irs form 1040ez instructions If you make additions or improvements to business property, depreciate the basis of each addition or improvement as separate depreciable property using the rules that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. Irs form 1040ez instructions See chapter 7. Irs form 1040ez instructions Deducting vs. Irs form 1040ez instructions capitalizing costs. Irs form 1040ez instructions   Do not add to your basis costs you can deduct as current expenses. Irs form 1040ez instructions For example, amounts paid for incidental repairs or maintenance are deductible as business expenses and are not added to basis. Irs form 1040ez instructions However, you can elect either to deduct or to capitalize certain other costs. Irs form 1040ez instructions See chapter 7 in Publication 535. Irs form 1040ez instructions Decreases to Basis The following are some items that reduce the basis of property. Irs form 1040ez instructions Section 179 deduction. Irs form 1040ez instructions Deductions previously allowed or allowable for amortization, depreciation, and depletion. Irs form 1040ez instructions Alternative motor vehicle credit. Irs form 1040ez instructions See Form 8910. Irs form 1040ez instructions Alternative fuel vehicle refueling property credit. Irs form 1040ez instructions See Form 8911. Irs form 1040ez instructions Residential energy efficient property credits. Irs form 1040ez instructions See Form 5695. Irs form 1040ez instructions Investment credit (part or all) taken. Irs form 1040ez instructions Casualty and theft losses and insurance reimbursements. Irs form 1040ez instructions Payments you receive for granting an easement. Irs form 1040ez instructions Exclusion from income of subsidies for energy conservation measures. Irs form 1040ez instructions Certain canceled debt excluded from income. Irs form 1040ez instructions Rebates from a manufacturer or seller. Irs form 1040ez instructions Patronage dividends received from a cooperative association as a result of a purchase of property. Irs form 1040ez instructions See Patronage Dividends in chapter 3. Irs form 1040ez instructions Gas-guzzler tax. Irs form 1040ez instructions See Form 6197. Irs form 1040ez instructions Some of these items are discussed next. Irs form 1040ez instructions For a more detailed list of items that decrease basis, see section 1016 of the Internal Revenue Code and Publication 551. Irs form 1040ez instructions Depreciation and section 179 deduction. Irs form 1040ez instructions   The adjustments you must make to the basis of the property if you take the section 179 deduction or depreciate the property are explained next. Irs form 1040ez instructions For more information on these deductions, see chapter 7. Irs form 1040ez instructions Section 179 deduction. Irs form 1040ez instructions   If you take the section 179 expense deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. Irs form 1040ez instructions Depreciation. Irs form 1040ez instructions   Decrease the basis of property by the depreciation you deducted or could have deducted on your tax returns under the method of depreciation you chose. Irs form 1040ez instructions If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. Irs form 1040ez instructions If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. Irs form 1040ez instructions   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for any year. Irs form 1040ez instructions   See chapter 7 for information on figuring the depreciation you should have claimed. Irs form 1040ez instructions   In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation you must capitalize under the uniform capitalization rules. Irs form 1040ez instructions Casualty and theft losses. Irs form 1040ez instructions   If you have a casualty or theft loss, decrease the basis of the property by any insurance or other reimbursement. Irs form 1040ez instructions Also, decrease it by any deductible loss not covered by insurance. Irs form 1040ez instructions See chapter 11 for information about figuring your casualty or theft loss. Irs form 1040ez instructions   You must increase your basis in the property by the amount you spend on clean-up costs (such as debris removal) and repairs that restore the property to its pre-casualty condition. Irs form 1040ez instructions To make this determination, compare the repaired property to the property before the casualty. Irs form 1040ez instructions Easements. Irs form 1040ez instructions   The amount you receive for granting an easement is usually considered to be proceeds from the sale of an interest in the real property. Irs form 1040ez instructions It reduces the basis of the affected part of the property. Irs form 1040ez instructions If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Irs form 1040ez instructions See Easements and rights-of-way in chapter 3. Irs form 1040ez instructions Exclusion from income of subsidies for energy conservation measures. Irs form 1040ez instructions   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. Irs form 1040ez instructions Reduce the basis of the property by the excluded amount. Irs form 1040ez instructions Canceled debt excluded from income. Irs form 1040ez instructions   If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. Irs form 1040ez instructions A debt includes any indebtedness for which you are liable or which attaches to property you hold. Irs form 1040ez instructions   You can exclude your canceled debt from income if the debt is any of the following. Irs form 1040ez instructions Debt canceled in a bankruptcy case or when you are insolvent. Irs form 1040ez instructions Qualified farm debt. Irs form 1040ez instructions Qualified real property business debt (provided you are not a C corporation). Irs form 1040ez instructions Qualified principal residence indebtedness. Irs form 1040ez instructions Discharge of certain indebtedness of a qualified individual because of Midwestern disasters. Irs form 1040ez instructions If you exclude canceled debt described in (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. Irs form 1040ez instructions If you exclude canceled debt described in (3), you must only reduce the basis of your depreciable property by the excluded amount. Irs form 1040ez instructions   For more information about canceled debt in a bankruptcy case, see Publication 908, Bankruptcy Tax Guide. Irs form 1040ez instructions For more information about insolvency and canceled debt that is qualified farm debt or qualified principal residence indebtedness, see chapter 3. Irs form 1040ez instructions For more information about qualified real property business debt, see Publication 334, Tax Guide for Small Business. Irs form 1040ez instructions For more information about canceled debt in Midwestern disaster areas, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Irs form 1040ez instructions Basis Other Than Cost There are times when you cannot use cost as basis. Irs form 1040ez instructions In these situations, the fair market value or the adjusted basis of property may be used. Irs form 1040ez instructions Examples are discussed next. Irs form 1040ez instructions Property changed from personal to business or rental use. Irs form 1040ez instructions   When you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. Irs form 1040ez instructions An example of changing property from personal to business use would be changing the use of your pickup truck that you originally purchased for your personal use to use in your farming business. Irs form 1040ez instructions   The basis for depreciation is the lesser of: The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. Irs form 1040ez instructions   If you later sell or dispose of this property, the basis you use will depend on whether you are figuring a gain or loss. Irs form 1040ez instructions The basis for figuring a gain is your adjusted basis in the property when you sell the property. Irs form 1040ez instructions Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Irs form 1040ez instructions Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Irs form 1040ez instructions Property received for services. Irs form 1040ez instructions   If you receive property for services, include the property's FMV in income. Irs form 1040ez instructions The amount you include in income becomes your basis. Irs form 1040ez instructions If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Irs form 1040ez instructions Example. Irs form 1040ez instructions George Smith is an accountant and also operates a farming business. Irs form 1040ez instructions George agreed to do some accounting work for his neighbor in exchange for a dairy cow. Irs form 1040ez instructions The accounting work and the cow are each worth $1,500. Irs form 1040ez instructions George must include $1,500 in income for his accounting services. Irs form 1040ez instructions George's basis in the cow is $1,500. Irs form 1040ez instructions Taxable Exchanges A taxable exchange is one in which the gain is taxable, or the loss is deductible. Irs form 1040ez instructions A taxable gain or deductible loss also is known as a recognized gain or loss. Irs form 1040ez instructions A taxable exchange occurs when you receive cash or get property that is not similar or related in use to the property exchanged. Irs form 1040ez instructions If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. Irs form 1040ez instructions Example. Irs form 1040ez instructions You trade a tract of farmland with an adjusted basis of $2,000 for a tractor that has an FMV of $6,000. Irs form 1040ez instructions You must report a taxable gain of $4,000 for the land. Irs form 1040ez instructions The tractor has a basis of $6,000. Irs form 1040ez instructions Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property you receive using the basis of the converted property. Irs form 1040ez instructions Similar or related property. Irs form 1040ez instructions   If the replacement property is similar or related in service or use to the converted property, the replacement property's basis is the same as the old property's basis on the date of the conversion. Irs form 1040ez instructions However, make the following adjustments. Irs form 1040ez instructions Decrease the basis by the following amounts. Irs form 1040ez instructions Any loss you recognize on the involuntary conversion. Irs form 1040ez instructions Any money you receive that you do not spend on similar property. Irs form 1040ez instructions Increase the basis by the following amounts. Irs form 1040ez instructions Any gain you recognize on the involuntary conversion. Irs form 1040ez instructions Any cost of acquiring the replacement property. Irs form 1040ez instructions Money or property not similar or related. Irs form 1040ez instructions   If you receive money or property not similar or related in service or use to the converted property and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the involuntary conversion. Irs form 1040ez instructions Allocating the basis. Irs form 1040ez instructions   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Irs form 1040ez instructions Basis for depreciation. Irs form 1040ez instructions   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Irs form 1040ez instructions For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Irs form 1040ez instructions For more information about involuntary conversions, see chapter 11. Irs form 1040ez instructions Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Irs form 1040ez instructions A nontaxable gain or loss also is known as an unrecognized gain or loss. Irs form 1040ez instructions If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. Irs form 1040ez instructions Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Irs form 1040ez instructions For an exchange to qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. Irs form 1040ez instructions There must also be an exchange of like-kind property. Irs form 1040ez instructions For more information, see Like-Kind Exchanges in  chapter 8. Irs form 1040ez instructions The basis of the property you receive generally is the same as the adjusted basis of the property you gave up. Irs form 1040ez instructions Example 1. Irs form 1040ez instructions You traded a truck you used in your farming business for a new smaller truck to use in farming. Irs form 1040ez instructions The adjusted basis of the old truck was $10,000. Irs form 1040ez instructions The FMV of the new truck is $30,000. Irs form 1040ez instructions Because this is a nontaxable exchange, you do not recognize any gain, and your basis in the new truck is $10,000, the same as the adjusted basis of the truck you traded. Irs form 1040ez instructions Example 2. Irs form 1040ez instructions You trade a field cultivator (adjusted basis of $8,000) for a planter (FMV of $9,000). Irs form 1040ez instructions You use both the field cultivator and the planter in your farming business. Irs form 1040ez instructions The basis of the planter you receive is $8,000, the same as the field cultivator traded Exchange expenses. Irs form 1040ez instructions   Exchange expenses generally are the closing costs that you pay. Irs form 1040ez instructions They include such items as brokerage commissions, attorney fees, and deed preparation fees. Irs form 1040ez instructions Add them to the basis of the like-kind property you receive. Irs form 1040ez instructions Property plus cash. Irs form 1040ez instructions   If you trade property in a like-kind exchange and also pay money, the basis of the property you receive is the adjusted basis of the property you gave up plus the money you paid. Irs form 1040ez instructions Example. Irs form 1040ez instructions You trade in a truck (adjusted basis of $3,000) for another truck (FMV of $7,500) and pay $4,000. Irs form 1040ez instructions Your basis in the new truck is $7,000 (the $3,000 adjusted basis of the old truck plus the $4,000 cash). Irs form 1040ez instructions Special rules for related persons. Irs form 1040ez instructions   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. Irs form 1040ez instructions Each person must report any gain or loss not recognized on the original exchange unless the loss is not deductible under the related party rules. Irs form 1040ez instructions Each person reports it on the tax return filed for the year in which the later disposition occurred. Irs form 1040ez instructions If this rule applies, the basis of the property received in the original exchange will be its FMV. Irs form 1040ez instructions For more information, see chapter 8. Irs form 1040ez instructions Exchange of business property. Irs form 1040ez instructions   Exchanging the property of one business for the property of another business generally is a multiple property exchange. Irs form 1040ez instructions For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. Irs form 1040ez instructions Basis for depreciation. Irs form 1040ez instructions   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind transaction. Irs form 1040ez instructions For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Irs form 1040ez instructions Partially Nontaxable Exchanges A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Irs form 1040ez instructions The basis of the property you receive is the same as the adjusted basis of the property you gave up with the following adjustments. Irs form 1040ez instructions Decrease the basis by the following amounts. Irs form 1040ez instructions Any money you receive. Irs form 1040ez instructions Any loss you recognize on the exchange. Irs form 1040ez instructions Increase the basis by the following amounts. Irs form 1040ez instructions Any additional costs you incur. Irs form 1040ez instructions Any gain you recognize on the exchange. Irs form 1040ez instructions If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Irs form 1040ez instructions Example 1. Irs form 1040ez instructions You trade farmland (basis of $100,000) for another tract of farmland (FMV of $110,000) and $30,000 cash. Irs form 1040ez instructions You realize a gain of $40,000. Irs form 1040ez instructions This is the FMV of the land received plus the cash minus the basis of the land you traded ($110,000 + $30,000 − $100,000). Irs form 1040ez instructions Include your gain in income (recognize gain) only to the extent of the cash received. Irs form 1040ez instructions Your basis in the land you received is figured as follows. Irs form 1040ez instructions Basis of land traded $100,000 Minus: Cash received (adjustment 1(a)) − 30,000   $70,000 Plus: Gain recognized (adjustment 2(b)) + 30,000 Basis of land received $100,000 Example 2. Irs form 1040ez instructions You trade a truck (adjusted basis of $22,750) for another truck (FMV of $20,000) and $10,000 cash. Irs form 1040ez instructions You realize a gain of $7,250. Irs form 1040ez instructions This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($20,000 + $10,000 − $22,750). Irs form 1040ez instructions You include all the gain in your income (recognize gain) because the gain is less than the cash you received. Irs form 1040ez instructions Your basis in the truck you received is figured as follows. Irs form 1040ez instructions Adjusted basis of truck traded $22,750 Minus: Cash received (adjustment 1(a)) −10,000   $12,750 Plus: Gain recognized (adjustment 2(b)) + 7,250 Basis of truck received $20,000 Allocation of basis. Irs form 1040ez instructions   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Irs form 1040ez instructions The rest is the basis of the like-kind property. Irs form 1040ez instructions Example. Irs form 1040ez instructions You traded a tractor with an adjusted basis of $15,000 for another tractor that had an FMV of $12,500. Irs form 1040ez instructions You also received $1,000 cash and a truck that had an FMV of $3,000. Irs form 1040ez instructions The truck is unlike property. Irs form 1040ez instructions You realized a gain of $1,500. Irs form 1040ez instructions This is the FMV of the tractor received plus the FMV of the truck received plus the cash minus the adjusted basis of the tractor you traded ($12,500 + $3,000 + $1,000 − $15,000). Irs form 1040ez instructions You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. Irs form 1040ez instructions Your basis in the properties you received is figured as follows. Irs form 1040ez instructions Adjusted basis of old tractor $15,000 Minus: Cash received (adjustment 1(a)) − 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) + 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property—the truck ($3,000). Irs form 1040ez instructions This is the truck's FMV. Irs form 1040ez instructions The rest ($12,500) is the basis of the tractor. Irs form 1040ez instructions Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. Irs form 1040ez instructions Example. Irs form 1040ez instructions You used a tractor on your farm for 3 years. Irs form 1040ez instructions Its adjusted basis is $22,000 and its FMV is $40,000. Irs form 1040ez instructions You are interested in a new tractor, which sells for $60,000. Irs form 1040ez instructions Ordinarily, you would trade your old tractor for the new one and pay the dealer $20,000. Irs form 1040ez instructions Your basis for depreciating the new tractor would then be $42,000 ($20,000 + $22,000, the adjusted basis of your old tractor). Irs form 1040ez instructions However, you want a higher basis for depreciating the new tractor, so you agree to pay the dealer $60,000 for the new tractor if he will pay you $40,000 for your old tractor. Irs form 1040ez instructions Because the two transactions are dependent on each other, you are treated as having exchanged your old tractor for the new one and paid $20,000 ($60,000 − $40,000). Irs form 1040ez instructions Your basis for depreciating the new tractor is $42,000, the same as if you traded the old tractor. Irs form 1040ez instructions Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you. Irs form 1040ez instructions You also must know its FMV at the time it was given to you and any gift tax paid on it. Irs form 1040ez instructions FMV equal to or greater than donor's adjusted basis. Irs form 1040ez instructions   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis when you received the gift. Irs form 1040ez instructions Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Irs form 1040ez instructions   Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. Irs form 1040ez instructions See Adjusted Basis , earlier. Irs form 1040ez instructions   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. Irs form 1040ez instructions Figure the increase by multiplying the gift tax paid by the following fraction. Irs form 1040ez instructions Net increase in value of the gift Amount of the gift   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Irs form 1040ez instructions The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Irs form 1040ez instructions Example. Irs form 1040ez instructions In 2013, you received a gift of property from your mother that had an FMV of $50,000. Irs form 1040ez instructions Her adjusted basis was $20,000. Irs form 1040ez instructions The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Irs form 1040ez instructions She paid a gift tax of $7,320. Irs form 1040ez instructions Your basis, $26,076, is figured as follows. Irs form 1040ez instructions Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000 Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . Irs form 1040ez instructions 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. Irs form 1040ez instructions If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Irs form 1040ez instructions However, your basis cannot exceed the FMV of the gift when it was given to you. Irs form 1040ez instructions FMV less than donor's adjusted basis. Irs form 1040ez instructions   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Irs form 1040ez instructions Your basis for figuring gain is the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Irs form 1040ez instructions Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. Irs form 1040ez instructions (See Adjusted Basis , earlier. Irs form 1040ez instructions )   If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither gain nor loss on the sale or other disposition of the property. Irs form 1040ez instructions Example. Irs form 1040ez instructions You received farmland as a gift from your parents when they retired from farming. Irs form 1040ez instructions At the time of the gift, the land had an FMV of $80,000. Irs form 1040ez instructions Your parents' adjusted basis was $100,000. Irs form 1040ez instructions After you received the land, no events occurred that would increase or decrease your basis. Irs form 1040ez instructions If you sell the land for $120,000, you will have a $20,000 gain because you must use the donor's adjusted basis at the time of the gift ($100,000) as your basis to figure a gain. Irs form 1040ez instructions If you sell the land for $70,000, you will have a $10,000 loss because you must use the FMV at the time of the gift ($80,000) as your basis to figure a loss. Irs form 1040ez instructions If the sales price is between $80,000 and $100,000, you have neither gain nor loss. Irs form 1040ez instructions For instance, if the sales price was $90,000 and you tried to figure a gain using the donor's adjusted basis ($100,000), you would get a $10,000 loss. Irs form 1040ez instructions If you then tried to figure a loss using the FMV ($80,000), you would get a $10,000 gain. Irs form 1040ez instructions Business property. Irs form 1040ez instructions   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Irs form 1040ez instructions Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. Irs form 1040ez instructions The same rule applies to a transfer by your former spouse if the transfer is incident to divorce. Irs form 1040ez instructions However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed plus the liabilities to which the property is subject are more than the adjusted basis of the property transferred. Irs form 1040ez instructions The transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. Irs form 1040ez instructions For more information, see Property Settlements in Publication 504, Divorced or Separated Individuals. Irs form 1040ez instructions Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. Irs form 1040ez instructions If a federal estate return is filed, you can use its appraised value. Irs form 1040ez instructions The FMV on the alternate valuation date, if the personal representative for the estate elects to use alternate valuation. Irs form 1040ez instructions For information on the alternate valuation, see the Instructions for Form 706. Irs form 1040ez instructions The decedent's adjusted basis in land to the extent of the value that is excluded from the decedent's taxable estate as a qualified conservation easement. Irs form 1040ez instructions If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Irs form 1040ez instructions Special-use valuation method. Irs form 1040ez instructions   Under certain conditions, when a person dies, the executor or personal representative of that person's estate may elect to value qualified real property at other than its FMV. Irs form 1040ez instructions If so, the executor or personal representative values the qualified real property based on its use as a farm or other closely held business. Irs form 1040ez instructions If the executor or personal representative elects this method of valuation for estate tax purposes, this value is the basis of the property for the qualified heirs. Irs form 1040ez instructions The qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. Irs form 1040ez instructions   If you are a qualified heir who received special-use valuation property, increase your basis by any gain recognized by the estate or trust because of post-death appreciation. Irs form 1040ez instructions Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or on the alternate valuation date. Irs form 1040ez instructions Figure all FMVs without regard to the special-use valuation. Irs form 1040ez instructions   You may be liable for an additional estate tax if, within 10 years after the death of the decedent, you transfer the property or the property stops being used as a farm. Irs form 1040ez instructions This tax does not apply if you dispose of the property in a like-kind exchange or in an involuntary conversion in which all of the proceeds are reinvested in qualified replacement property. Irs form 1040ez instructions The tax also does not apply if you transfer the property to a member of your family and certain requirements are met. Irs form 1040ez instructions   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. Irs form 1040ez instructions To increase your basis, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of payment of the additional estate tax. Irs form 1040ez instructions If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. Irs form 1040ez instructions The increase in your basis is considered to have occurred immediately before the event that resulted in the additional estate tax. Irs form 1040ez instructions   You make the election by filing, with Form 706-A, United States Additional Estate Tax Return, a statement that: Contains your (and the estate's) name, address, and taxpayer identification number; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which you are making the election; and Provides any additional information required by the Form 706-A instructions. Irs form 1040ez instructions   For more information, see Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706-A, and the related instructions. Irs form 1040ez instructions Property inherited from a decedent who died in 2010. Irs form 1040ez instructions   If you inherited property from a decedent who died in 2010, different rules may apply. Irs form 1040ez instructions See Publication 4895, Tax Treatment of Property Acquired From a Decendent Dying in 2010, for details. Irs form 1040ez instructions Property Distributed From a Partnership or Corporation The following rules apply to determine a partner's basis and a shareholder's basis in property distributed respectively from a partnership to the partner with respect to the partner's interest in the partnership and from a corporation to the shareholder with respect to the shareholder's ownership of stock in the corporation. Irs form 1040ez instructions Partner's basis. Irs form 1040ez instructions   Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed by a partnership to the partner is its adjusted basis to the partnership immediately before the distribution. Irs form 1040ez instructions However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. Irs form 1040ez instructions For more information, see Partner's Basis for Distributed Property in Publication 541, Partnerships. Irs form 1040ez instructions Shareholder's basis. Irs form 1040ez instructions   The basis of property distributed by a corporation to a shareholder is its fair market value. Irs form 1040ez instructions For more information about corporate distributions, see Distributions to Shareholders in Publication 542, Corporations. 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