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Military Tax Calculator

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Military Tax Calculator

Military tax calculator Publication 560 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionSEP plans. Military tax calculator SIMPLE plans. Military tax calculator Qualified plans. Military tax calculator Ordering forms and publications. Military tax calculator Tax questions. Military tax calculator Future Developments For the latest information about developments related to Publication 560, such as legislation enacted after we release it, go to www. Military tax calculator irs. Military tax calculator gov/pub560. Military tax calculator What's New Compensation limit increased for 2013 and 2014. Military tax calculator  For 2013 the maximum compensation used for figuring contributions and benefits increases to $255,000. Military tax calculator This limit increases to $260,000 for 2014. Military tax calculator Elective deferral limit for 2013 and 2014. Military tax calculator  The limit on elective deferrals, other than catch-up contributions, increases to $17,500 for 2013 and remains at $17,500 for 2014. Military tax calculator These limits apply for participants in SARSEPs, 401(k) plans (excluding SIMPLE plans), section 403(b) plans and section 457(b) plans. Military tax calculator Defined contribution limit increased for 2013 and 2014. Military tax calculator  The limit on contributions, other than catch-up contributions, for a participant in a defined contribution plan increases to $51,000 for 2013. Military tax calculator This limit increases to $52,000 for 2014. Military tax calculator SIMPLE plan salary reduction contribution limit for 2013 and 2014. Military tax calculator  The limit on salary reduction contributions, other than catch-up contributions, increases to $12,000 for 2013 and remains at $12,000 for 2014. Military tax calculator Catch-up contribution limit remains unchanged for 2013 and 2014. Military tax calculator  A plan can permit participants who are age 50 or over at the end of the calendar year to make catch-up contributions in addition to elective deferrals and SIMPLE plan salary reduction contributions. Military tax calculator The catch-up contribution limitation for defined contribution plans other than SIMPLE plans remains unchanged at $5,500 for 2013 and 2014. Military tax calculator The catch-up contribution limitation for SIMPLE plans remains unchanged at $2,500 for 2013 and 2014. Military tax calculator The catch-up contributions a participant can make for a year cannot exceed the lesser of the following amounts. Military tax calculator The catch-up contribution limit. Military tax calculator The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Military tax calculator See “Catch-up contributions” under Contribution Limits and Limit on Elective Deferrals in chapters 3 and 4, respectively, for more information. Military tax calculator All section references are to the Internal Revenue Code, unless otherwise stated. Military tax calculator Reminders In-plan Roth rollovers. Military tax calculator  Section 402A(c)(4) provides for a distribution from an individual's account in a 401(k) plan, other than from a designated Roth account, that is rolled over to the individual's designated Roth account in the same plan. Military tax calculator An in-plan Roth rollover is not treated as a distribution for most purposes. Military tax calculator Section 402A(c)(4) was added by the Small Business Jobs Act of 2010 and applies to distributions made after September 27, 2010. Military tax calculator For additional guidance on in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. Military tax calculator R. Military tax calculator B. Military tax calculator 872, available at  www. Military tax calculator irs. Military tax calculator gov/irb/2010-51_IRB/ar11. Military tax calculator html. Military tax calculator In-plan Roth rollovers expanded. Military tax calculator  Beginning in 2013, a plan with designated Roth accounts can permit a participant to roll over amounts into a designated Roth account from his or her other accounts in the same plan, regardless of whether the participant is eligible for a distribution from the other accounts. Military tax calculator Section 402A(c)(4) was amended by the American Taxpayer Relief Act of 2012. Military tax calculator For more information, see Notice 2013-74, 2013-52 I. Military tax calculator R. Military tax calculator B. Military tax calculator 819, available at www. Military tax calculator irs. Military tax calculator gov/irb/2013-52_IRB/ar11. Military tax calculator html. Military tax calculator Credit for startup costs. Military tax calculator  You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP, SIMPLE, or qualified plan. Military tax calculator The credit equals 50% of the cost to set up and administer the plan and educate employees about the plan, up to a maximum of $500 per year for each of the first 3 years of the plan. Military tax calculator You can choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective. Military tax calculator You must have had 100 or fewer employees who received at least $5,000 in compensation from you for the preceding year. Military tax calculator At least one participant must be a non-highly compensated employee. Military tax calculator The employees generally cannot be substantially the same employees for whom contributions were made or benefits accrued under a plan of any of the following employers in the 3-tax-year period immediately before the first year to which the credit applies. Military tax calculator You. Military tax calculator A member of a controlled group that includes you. Military tax calculator A predecessor of (1) or (2). Military tax calculator The credit is part of the general business credit, which can be carried back or forward to other tax years if it cannot be used in the current year. Military tax calculator However, the part of the general business credit attributable to the small employer pension plan startup cost credit cannot be carried back to a tax year beginning before January 1, 2002. Military tax calculator You cannot deduct the part of the startup costs equal to the credit claimed for a tax year, but you can choose not to claim the allowable credit for a tax year. Military tax calculator To take the credit, use Form 8881, Credit for Small Employer Pension Plan Startup Costs. Military tax calculator Retirement savings contributions credit. Military tax calculator  Retirement plan participants (including self-employed individuals) who make contributions to their plan may qualify for the retirement savings contribution credit. Military tax calculator The maximum contribution eligible for the credit is $2,000. Military tax calculator To take the credit, use Form 8880, Credit for Qualified Retirement Savings Contributions. Military tax calculator For more information on who is eligible for the credit, retirement plan contributions eligible for the credit and how to figure the credit, see Form 8880 and its instructions or go to the IRS website and search Retirement Topics-Retirement Savings Contributions Credit (Saver's Credit). Military tax calculator Photographs of missing children. Military tax calculator  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Military tax calculator Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Military tax calculator You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Military tax calculator Introduction This publication discusses retirement plans you can set up and maintain for yourself and your employees. Military tax calculator In this publication, “you” refers to the employer. Military tax calculator See chapter 1 for the definition of the term employer and the definitions of other terms used in this publication. Military tax calculator This publication covers the following types of retirement plans. Military tax calculator SEP (simplified employee pension) plans. Military tax calculator SIMPLE (savings incentive match plan for employees) plans. Military tax calculator Qualified plans (also called H. Military tax calculator R. Military tax calculator 10 plans or Keogh plans when covering self-employed individuals), including 401(k) plans. Military tax calculator SEP, SIMPLE, and qualified plans offer you and your employees a tax-favored way to save for retirement. Military tax calculator You can deduct contributions you make to the plan for your employees. Military tax calculator If you are a sole proprietor, you can deduct contributions you make to the plan for yourself. Military tax calculator You can also deduct trustees' fees if contributions to the plan do not cover them. Military tax calculator Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. Military tax calculator Under a 401(k) plan, employees can have you contribute limited amounts of their before-tax (after-tax, in the case of a qualified Roth contribution program) pay to the plan. Military tax calculator These amounts (and the earnings on them) are generally tax free until your employees receive distributions from the plan or, in the case of a qualified distribution from a designated Roth account, completely tax free. Military tax calculator What this publication covers. Military tax calculator   This publication contains the information you need to understand the following topics. Military tax calculator What type of plan to set up. Military tax calculator How to set up a plan. Military tax calculator How much you can contribute to a plan. Military tax calculator How much of your contribution is deductible. Military tax calculator How to treat certain distributions. Military tax calculator How to report information about the plan to the IRS and your employees. Military tax calculator Basic features of SEP, SIMPLE, and qualified plans. Military tax calculator The key rules for SEP, SIMPLE, and qualified plans are outlined in Table 1. Military tax calculator SEP plans. Military tax calculator   SEPs provide a simplified method for you to make contributions to a retirement plan for yourself and your employees. Military tax calculator Instead of setting up a profit-sharing or money purchase plan with a trust, you can adopt a SEP agreement and make contributions directly to a traditional individual retirement account or a traditional individual retirement annuity (SEP-IRA) set up for yourself and each eligible employee. Military tax calculator SIMPLE plans. Military tax calculator   Generally, if you had 100 or fewer employees who received at least $5,000 in compensation last year, you can set up a SIMPLE plan. Military tax calculator Under a SIMPLE plan, employees can choose to make salary reduction contributions rather than receiving these amounts as part of their regular pay. Military tax calculator In addition, you will contribute matching or nonelective contributions. Military tax calculator The two types of SIMPLE plans are the SIMPLE IRA plan and the SIMPLE 401(k) plan. Military tax calculator Qualified plans. Military tax calculator   The qualified plan rules are more complex than the SEP plan and SIMPLE plan rules. Military tax calculator However, there are advantages to qualified plans, such as increased flexibility in designing plans and increased contribution and deduction limits in some cases. Military tax calculator Table 1. Military tax calculator Key Retirement Plan Rules for 2013 Type  of  Plan Last Date for Contribution Maximum Contribution Maximum Deduction When To Set Up Plan SEP Due date of employer's return (including extensions). Military tax calculator Smaller of $51,000 or 25%1 of participant's compensation. Military tax calculator 2 25%1 of all participants' compensation. Military tax calculator 2 Any time up to the due date of employer's return (including extensions). Military tax calculator SIMPLE IRA and SIMPLE 401(k) Salary reduction contributions: 30 days after the end of the month for which the contributions are to be made. Military tax calculator 4  Matching or nonelective contributions: Due date of employer's return (including extensions). Military tax calculator Employee contribution: Salary reduction contribution up to $12,000, $14,500 if age 50 or over. Military tax calculator   Employer contribution:  Either dollar-for-dollar matching contributions, up to 3% of employee's compensation,3 or fixed nonelective contributions of 2% of compensation. Military tax calculator 2 Same as maximum contribution. Military tax calculator Any time between 1/1 and 10/1 of the calendar year. Military tax calculator   For a new employer coming into existence after 10/1, as soon as administratively feasible. Military tax calculator Qualified Plan: Defined Contribution Plan  Elective deferral: Due date of employer's return (including extensions). Military tax calculator 4   Employer contribution: Money Purchase or Profit-Sharing: Due date of employer's return (including extensions). Military tax calculator  Employee contribution: Elective deferral up to $17,500, $23,000 if age 50 or over. Military tax calculator   Employer contribution: Money Purchase: Smaller of $51,000 or 100%1 of participant's compensation. Military tax calculator 2  Profit-Sharing: Smaller of $51,000 or 100%1 of participant's compensation. Military tax calculator 2  25%1 of all participants' compensation2, plus amount of elective deferrals made. Military tax calculator   By the end of the tax year. Military tax calculator Qualified Plan: Defined Benefit Plan Contributions generally must be paid in quarterly installments, due 15 days after the end of each quarter. Military tax calculator See Minimum Funding Requirement in chapter 4. Military tax calculator Amount needed to provide an annual benefit no larger than the smaller of $205,000 or 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. Military tax calculator Based on actuarial assumptions and computations. Military tax calculator By the end of the tax year. Military tax calculator 1Net earnings from self-employment must take the contribution into account. Military tax calculator See Deduction Limit for Self-Employed Individuals in chapters 2 and 4 . Military tax calculator  2Compensation is generally limited to $255,000 in 2013. Military tax calculator  3Under a SIMPLE 401(k) plan, compensation is generally limited to $255,000 in 2013. Military tax calculator  4Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions and elective deferrals. Military tax calculator What this publication does not cover. Military tax calculator   Although the purpose of this publication is to provide general information about retirement plans you can set up for your employees, it does not contain all the rules and exceptions that apply to these plans. Military tax calculator You may also need professional help and guidance. Military tax calculator   Also, this publication does not cover all the rules that may be of interest to employees. Military tax calculator For example, it does not cover the following topics. Military tax calculator The comprehensive IRA rules an employee needs to know. Military tax calculator These rules are covered in Publication 590, Individual Retirement Arrangements (IRAs). Military tax calculator The comprehensive rules that apply to distributions from retirement plans. Military tax calculator These rules are covered in Publication 575, Pension and Annuity Income. Military tax calculator The comprehensive rules that apply to section 403(b) plans. Military tax calculator These rules are covered in Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans). Military tax calculator Comments and suggestions. Military tax calculator   We welcome your comments about this publication and your suggestions for future editions. Military tax calculator   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Military tax calculator NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Military tax calculator Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Military tax calculator   You can send your comments from www. Military tax calculator irs. Military tax calculator gov/formspubs. Military tax calculator Click on “More Information” and then on “Give us feedback. Military tax calculator ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Military tax calculator Ordering forms and publications. Military tax calculator   Visit www. Military tax calculator irs. Military tax calculator gov/formspubs to download forms  and publications, call 1-800-TAX-FORM  (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Military tax calculator Internal Revenue Service 1201 N. Military tax calculator Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Military tax calculator   If you have a tax question, check the information available on IRS. Military tax calculator gov or call 1-800-829-1040. Military tax calculator We cannot answer tax questions sent to either of the above addresses. Military tax calculator Note. Military tax calculator Forms filed electronically with the Department of Labor are not available on the IRS website. Military tax calculator Instead, see www. Military tax calculator efast. Military tax calculator dol. Military tax calculator gov. Military tax calculator Prev  Up  Next   Home   More Online Publications
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The Military Tax Calculator

Military tax calculator 1. Military tax calculator   Gain or Loss Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesGain or Loss From Sales and Exchanges Abandonments Foreclosures and RepossessionsAmount realized on a nonrecourse debt. Military tax calculator Amount realized on a recourse debt. Military tax calculator Involuntary ConversionsCondemnations Nontaxable ExchangesLike-Kind Exchanges Other Nontaxable Exchanges Transfers to Spouse Rollover of Gain From Publicly Traded Securities Gains on Sales of Qualified Small Business Stock Exclusion of Gain From Sale of DC Zone Assets Topics - This chapter discusses: Sales and exchanges Abandonments Foreclosures and repossessions Involuntary conversions Nontaxable exchanges Transfers to spouse Rollovers and exclusions for certain capital gains Useful Items - You may want to see: Publication 523 Selling Your Home 537 Installment Sales 547 Casualties, Disasters, and Thefts 550 Investment Income and Expenses 551 Basis of Assets 908 Bankruptcy Tax Guide 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1040 U. Military tax calculator S. Military tax calculator Individual Income Tax Return 1040X Amended U. Military tax calculator S. Military tax calculator Individual Income Tax Return 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets Although the discussions in this chapter may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. Military tax calculator However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Military tax calculator See chapter 5 for information about getting publications and forms. Military tax calculator Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Military tax calculator An exchange is a transfer of property for other property or services. Military tax calculator The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. Military tax calculator Sale or lease. Military tax calculator    Some agreements that seem to be leases may really be conditional sales contracts. Military tax calculator The intention of the parties to the agreement can help you distinguish between a sale and a lease. Military tax calculator   There is no test or group of tests to prove what the parties intended when they made the agreement. Military tax calculator You should consider each agreement based on its own facts and circumstances. Military tax calculator For more information, see chapter 3 in Publication 535, Business Expenses. Military tax calculator Cancellation of a lease. Military tax calculator    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. Military tax calculator Payments received by a landlord (lessor) for the cancellation of a lease are essentially a substitute for rental payments and are taxed as ordinary income in the year in which they are received. Military tax calculator Copyright. Military tax calculator    Payments you receive for granting the exclusive use of (or right to exploit) a copyright throughout its life in a particular medium are treated as received from the sale of property. Military tax calculator It does not matter if the payments are a fixed amount or a percentage of receipts from the sale, performance, exhibition, or publication of the copyrighted work, or an amount based on the number of copies sold, performances given, or exhibitions made. Military tax calculator Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. Military tax calculator   If the copyright was used in your trade or business and you held it longer than a year, the gain or loss may be a section 1231 gain or loss. Military tax calculator For more information, see Section 1231 Gains and Losses in chapter 3. Military tax calculator Easement. Military tax calculator   The amount received for granting an easement is subtracted from the basis of the property. Military tax calculator If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. Military tax calculator If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received. Military tax calculator   Any amount received that is more than the basis to be reduced is a taxable gain. Military tax calculator The transaction is reported as a sale of property. Military tax calculator   If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property. Military tax calculator However, if you make a qualified conservation contribution of a restriction or easement granted in perpetuity, it is treated as a charitable contribution and not a sale or exchange, even though you keep a beneficial interest in the property affected by the easement. Military tax calculator   If you grant an easement on your property (for example, a right-of-way over it) under condemnation or threat of condemnation, you are considered to have made a forced sale, even though you keep the legal title. Military tax calculator Although you figure gain or loss on the easement in the same way as a sale of property, the gain or loss is treated as a gain or loss from a condemnation. Military tax calculator See Gain or Loss From Condemnations, later. Military tax calculator Property transferred to satisfy debt. Military tax calculator   A transfer of property to satisfy a debt is an exchange. Military tax calculator Note's maturity date extended. Military tax calculator   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. Military tax calculator Also, it is not considered a closed and completed transaction that would result in a gain or loss. Military tax calculator However, an extension will be treated as a taxable exchange of the outstanding note for a new and materially different note if the changes in the terms of the note are significant. Military tax calculator Each case must be determined by its own facts. Military tax calculator For more information, see Regulations section 1. Military tax calculator 1001-3. Military tax calculator Transfer on death. Military tax calculator   The transfer of property of a decedent to an executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or exchange or other disposition. Military tax calculator No taxable gain or deductible loss results from the transfer. Military tax calculator Bankruptcy. Military tax calculator   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. Military tax calculator Consequently, the transfer generally does not result in gain or loss. Military tax calculator For more information, see Publication 908, Bankruptcy Tax Guide. Military tax calculator Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. Military tax calculator A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. Military tax calculator A loss is the adjusted basis of the property that is more than the amount you realize. Military tax calculator   Table 1-1. Military tax calculator How To Figure Whether You Have a Gain or Loss IF your. Military tax calculator . Military tax calculator . Military tax calculator THEN you have a. Military tax calculator . Military tax calculator . Military tax calculator Adjusted basis is more than the amount realized, Loss. Military tax calculator Amount realized is more than the adjusted basis, Gain. Military tax calculator Basis. Military tax calculator   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. Military tax calculator The basis of property you buy is usually its cost. Military tax calculator However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. Military tax calculator See Basis Other Than Cost in Publication 551, Basis of Assets. Military tax calculator Special rules apply to property acquired from a decedent who died in 2010 and the executor made the election to file Form 8939, Allocation of Increase in Basis for Property Received From a Decedent. Military tax calculator See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Military tax calculator Adjusted basis. Military tax calculator   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. Military tax calculator Increases include costs of any improvements having a useful life of more than 1 year. Military tax calculator Decreases include depreciation and casualty losses. Military tax calculator For more details and additional examples, see Adjusted Basis in Publication 551. Military tax calculator Amount realized. Military tax calculator   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (defined below) of all property or services you receive. Military tax calculator The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Military tax calculator Fair market value. Military tax calculator   Fair market value (FMV) is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. Military tax calculator If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. Military tax calculator If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. Military tax calculator Example. Military tax calculator You used a building in your business that cost you $70,000. Military tax calculator You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. Military tax calculator You sold the building for $100,000 plus property having an FMV of $20,000. Military tax calculator The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. Military tax calculator The selling expenses were $4,000. Military tax calculator Your gain on the sale is figured as follows. Military tax calculator Amount realized:     Cash $100,000   FMV of property received 20,000   Real estate taxes assumed by buyer 3,000   Mortgage assumed by  buyer 17,000   Total 140,000   Minus: Selling expenses 4,000 $136,000 Adjusted basis:     Cost of building $70,000   Improvements 20,000   Total $90,000   Minus: Depreciation 10,000   Adjusted basis   $80,000 Gain on sale $56,000 Amount recognized. Military tax calculator   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. Military tax calculator Recognized gains must be included in gross income. Military tax calculator Recognized losses are deductible from gross income. Military tax calculator However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. Military tax calculator See Nontaxable Exchanges, later. Military tax calculator Also, a loss from the sale or other disposition of property held for personal use is not deductible, except in the case of a casualty or theft. Military tax calculator Interest in property. Military tax calculator   The amount you realize from the disposition of a life interest in property, an interest in property for a set number of years, or an income interest in a trust is a recognized gain under certain circumstances. Military tax calculator If you received the interest as a gift, inheritance, or in a transfer from a spouse or former spouse incident to a divorce, the amount realized is a recognized gain. Military tax calculator Your basis in the property is disregarded. Military tax calculator This rule does not apply if all interests in the property are disposed of at the same time. Military tax calculator Example 1. Military tax calculator Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. Military tax calculator You decide to sell your life interest in the farm. Military tax calculator The entire amount you receive is a recognized gain. Military tax calculator Your basis in the farm is disregarded. Military tax calculator Example 2. Military tax calculator The facts are the same as in Example 1, except that your brother joins you in selling the farm. Military tax calculator The entire interest in the property is sold, so your basis in the farm is not disregarded. Military tax calculator Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. Military tax calculator Canceling a sale of real property. Military tax calculator   If you sell real property under a sales contract that allows the buyer to return the property for a full refund and the buyer does so, you may not have to recognize gain or loss on the sale. Military tax calculator If the buyer returns the property in the year of sale, no gain or loss is recognized. Military tax calculator This cancellation of the sale in the same year it occurred places both you and the buyer in the same positions you were in before the sale. Military tax calculator If the buyer returns the property in a later tax year, you must recognize gain (or loss, if allowed) in the year of the sale. Military tax calculator When the property is returned in a later year, you acquire a new basis in the property. Military tax calculator That basis is equal to the amount you pay to the buyer. Military tax calculator Bargain Sale If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. Military tax calculator You have a gain if the amount realized is more than your adjusted basis in the property. Military tax calculator However, you do not have a loss if the amount realized is less than the adjusted basis of the property. Military tax calculator Bargain sales to charity. Military tax calculator   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. Military tax calculator If a charitable deduction for the contribution is allowable, you must allocate your adjusted basis in the property between the part sold and the part contributed based on the fair market value of each. Military tax calculator The adjusted basis of the part sold is figured as follows. Military tax calculator Adjusted basis of entire property × Amount realized (fair market value of part sold)   Fair market value of entire property   Based on this allocation rule, you will have a gain even if the amount realized is not more than your adjusted basis in the property. Military tax calculator This allocation rule does not apply if a charitable contribution deduction is not allowable. Military tax calculator   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. Military tax calculator Example. Military tax calculator You sold property with a fair market value of $10,000 to a charitable organization for $2,000 and are allowed a deduction for your contribution. Military tax calculator Your adjusted basis in the property is $4,000. Military tax calculator Your gain on the sale is $1,200, figured as follows. Military tax calculator Sales price $2,000 Minus: Adjusted basis of part sold ($4,000 × ($2,000 ÷ $10,000)) 800 Gain on the sale $1,200 Property Used Partly for Business or Rental Generally, if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property. Military tax calculator You must subtract depreciation you took or could have taken from the basis of the business or rental part. Military tax calculator However, see the special rule below for a home used partly for business or rental. Military tax calculator You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. Military tax calculator Gain or loss on the business or rental part of the property may be a capital gain or loss or an ordinary gain or loss, as discussed in chapter 3 under Section 1231 Gains and Losses. Military tax calculator Any gain on the personal part of the property is a capital gain. Military tax calculator You cannot deduct a loss on the personal part. Military tax calculator Home used partly for business or rental. Military tax calculator    If you use property partly as a home and partly for business or to produce rental income, the computation and treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. Military tax calculator See Property Used Partly for Business or Rental, in Publication 523. Military tax calculator Property Changed to Business or Rental Use You cannot deduct a loss on the sale of property you purchased or constructed for use as your home and used as your home until the time of sale. Military tax calculator You can deduct a loss on the sale of property you acquired for use as your home but changed to business or rental property and used as business or rental property at the time of sale. Military tax calculator However, if the adjusted basis of the property at the time of the change was more than its fair market value, the loss you can deduct is limited. Military tax calculator Figure the loss you can deduct as follows. Military tax calculator Use the lesser of the property's adjusted basis or fair market value at the time of the change. Military tax calculator Add to (1) the cost of any improvements and other increases to basis since the change. Military tax calculator Subtract from (2) depreciation and any other decreases to basis since the change. Military tax calculator Subtract the amount you realized on the sale from the result in (3). Military tax calculator If the amount you realized is more than the result in (3), treat this result as zero. Military tax calculator The result in (4) is the loss you can deduct. Military tax calculator Example. Military tax calculator You changed your main home to rental property 5 years ago. Military tax calculator At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. Military tax calculator This year, you sold the property for $55,000. Military tax calculator You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. Military tax calculator Although your loss on the sale is $7,380 [($75,000 − $12,620) − $55,000], the amount you can deduct as a loss is limited to $2,380, figured as follows. Military tax calculator Lesser of adjusted basis or fair market value at time of the change $70,000 Plus: Cost of any improvements and any other additions to basis after the change -0-   70,000 Minus: Depreciation and any other decreases to basis after the change 12,620   57,380 Minus: Amount you realized from the sale 55,000 Deductible loss $2,380 Gain. Military tax calculator   If you have a gain on the sale, you generally must recognize the full amount of the gain. Military tax calculator You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. Military tax calculator   You may be able to exclude all or part of the gain if you owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Military tax calculator However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. Military tax calculator   For more information, see Business Use or Rental of Home in Publication 523. Military tax calculator In addition, special rules apply if the home sold was acquired in a like-kind exchange. Military tax calculator See Special Situations in Publication 523. Military tax calculator Also see Like-Kind Exchanges, later. Military tax calculator Abandonments The abandonment of property is a disposition of property. Military tax calculator You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. Military tax calculator Generally, abandonment is not treated as a sale or exchange of the property. Military tax calculator If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Military tax calculator If your adjusted basis is more than the amount you realize (if any), then you have a loss. Military tax calculator Loss from abandonment of business or investment property is deductible as a loss. Military tax calculator A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Military tax calculator This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. Military tax calculator If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. Military tax calculator The abandonment loss is deducted in the tax year in which the loss is sustained. Military tax calculator If the abandoned property is secured by debt, special rules apply. Military tax calculator The tax consequences of abandonment of property that is secured by debt depend on whether you are personally liable for the debt (recourse debt) or you are not personally liable for the debt (nonrecourse debt). Military tax calculator For more information, including examples, see chapter 3 of Publication 4681. Military tax calculator You cannot deduct any loss from abandonment of your home or other property held for personal use only. Military tax calculator Cancellation of debt. Military tax calculator   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you may realize ordinary income equal to the canceled debt. Military tax calculator This income is separate from any loss realized from abandonment of the property. Military tax calculator   You must report this income on your tax return unless one of the following applies. Military tax calculator The cancellation is intended as a gift. Military tax calculator The debt is qualified farm debt. Military tax calculator The debt is qualified real property business debt. Military tax calculator You are insolvent or bankrupt. Military tax calculator The debt is qualified principal residence indebtedness. Military tax calculator File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. Military tax calculator For more information, including other exceptions and exclusion, see Publication 4681. Military tax calculator Forms 1099-A and 1099-C. Military tax calculator   If you abandon property that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your loss from the abandonment. Military tax calculator However, if your debt is canceled and the lender must file Form 1099-C, the lender may include the information about the abandonment on that form instead of on Form 1099-A, and send you Form 1099-C only. Military tax calculator The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Military tax calculator For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Military tax calculator Foreclosures and Repossessions If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Military tax calculator The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Military tax calculator This is true even if you voluntarily return the property to the lender. Military tax calculator You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. Military tax calculator Buyer's (borrower's) gain or loss. Military tax calculator   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Military tax calculator The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Military tax calculator See Gain or Loss From Sales and Exchanges, earlier. Military tax calculator You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. Military tax calculator Amount realized on a nonrecourse debt. Military tax calculator   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full debt canceled by the transfer. Military tax calculator The full canceled debt is included even if the fair market value of the property is less than the canceled debt. Military tax calculator Example 1. Military tax calculator Chris bought a new car for $15,000. Military tax calculator He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. Military tax calculator Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. Military tax calculator The credit company repossessed the car because he stopped making loan payments. Military tax calculator The balance due after taking into account the payments Chris made was $10,000. Military tax calculator The fair market value of the car when repossessed was $9,000. Military tax calculator The amount Chris realized on the repossession is $10,000. Military tax calculator That is the outstanding amount of the debt canceled by the repossession, even though the car's fair market value is less than $10,000. Military tax calculator Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). Military tax calculator He has a $5,000 nondeductible loss. Military tax calculator Example 2. Military tax calculator Abena paid $200,000 for her home. Military tax calculator She paid $15,000 down and borrowed the remaining $185,000 from a bank. Military tax calculator Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. Military tax calculator The bank foreclosed on the loan because Abena stopped making payments. Military tax calculator When the bank foreclosed on the loan, the balance due was $180,000, the fair market value of the house was $170,000, and Abena's adjusted basis was $175,000 due to a casualty loss she had deducted. Military tax calculator The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. Military tax calculator She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). Military tax calculator She has a $5,000 realized gain. Military tax calculator Amount realized on a recourse debt. Military tax calculator   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Military tax calculator You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Military tax calculator The amount realized does not include the canceled debt that is your income from cancellation of debt. Military tax calculator See Cancellation of debt, below. Military tax calculator Seller's (lender's) gain or loss on repossession. Military tax calculator   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Military tax calculator For more information, see Repossession in Publication 537. Military tax calculator    Table 1-2. Military tax calculator Worksheet for Foreclosures and Repossessions Part 1. Military tax calculator Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Military tax calculator Complete this part only  if you were personally liable for the debt. Military tax calculator Otherwise,  go to Part 2. Military tax calculator   1. Military tax calculator Enter the amount of outstanding debt immediately before the transfer of   property reduced by any amount for which you remain personally liable after   the transfer of property   2. Military tax calculator Enter the fair market value of the transferred property   3. Military tax calculator Ordinary income from cancellation of debt upon foreclosure or    repossession. Military tax calculator * Subtract line 2 from line 1. Military tax calculator   If less than zero, enter zero   Part 2. Military tax calculator Figure your gain or loss from foreclosure or repossession. Military tax calculator   4. Military tax calculator If you completed Part 1, enter the smaller of line 1 or line 2. Military tax calculator   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. Military tax calculator Enter any proceeds you received from the foreclosure sale   6. Military tax calculator Add lines 4 and 5   7. Military tax calculator Enter the adjusted basis of the transferred property   8. Military tax calculator Gain or loss from foreclosure or repossession. Military tax calculator Subtract line 7  from line 6   * The income may not be taxable. Military tax calculator See Cancellation of debt. Military tax calculator Cancellation of debt. Military tax calculator   If property that is repossessed or foreclosed on secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the fair market value of the property. Military tax calculator This income is separate from any gain or loss realized from the foreclosure or repossession. Military tax calculator Report the income from cancellation of a debt related to a business or rental activity as business or rental income. Military tax calculator    You can use Table 1-2 to figure your income from cancellation of debt. Military tax calculator   You must report this income on your tax return unless one of the following applies. Military tax calculator The cancellation is intended as a gift. Military tax calculator The debt is qualified farm debt. Military tax calculator The debt is qualified real property business debt. Military tax calculator You are insolvent or bankrupt. Military tax calculator The debt is qualified principal residence indebtedness. Military tax calculator File Form 982 to report the income exclusion. Military tax calculator Example 1. Military tax calculator Assume the same facts as in Example 1 under Amount realized on a nonrecourse debt, earlier, except Chris is personally liable for the car loan (recourse debt). Military tax calculator In this case, the amount he realizes is $9,000. Military tax calculator This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). Military tax calculator Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). Military tax calculator He has a $6,000 nondeductible loss. Military tax calculator He also is treated as receiving ordinary income from cancellation of debt. Military tax calculator That income is $1,000 ($10,000 − $9,000). Military tax calculator This is the part of the canceled debt not included in the amount realized. Military tax calculator Example 2. Military tax calculator Assume the same facts as in Example 2 under Amount realized on a nonrecourse debt, earlier, except Abena is personally liable for the loan (recourse debt). Military tax calculator In this case, the amount she realizes is $170,000. Military tax calculator This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). Military tax calculator Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). Military tax calculator She has a $5,000 nondeductible loss. Military tax calculator She also is treated as receiving ordinary income from cancellation of debt. Military tax calculator (The debt is not exempt from tax as discussed under Cancellation of debt, above. Military tax calculator ) That income is $10,000 ($180,000 − $170,000). Military tax calculator This is the part of the canceled debt not included in the amount realized. Military tax calculator Forms 1099-A and 1099-C. Military tax calculator   A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A showing the information you need to figure your gain or loss. Military tax calculator However, if the lender also cancels part of your debt and must file Form 1099-C, the lender may include the information about the foreclosure or repossession on that form instead of on Form 1099-A and send you Form 1099-C only. Military tax calculator The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Military tax calculator For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Military tax calculator Involuntary Conversions An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. Military tax calculator Involuntary conversions are also called involuntary exchanges. Military tax calculator Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. Military tax calculator You report the gain or deduct the loss on your tax return for the year you realize it. Military tax calculator You cannot deduct a loss from an involuntary conversion of property you held for personal use unless the loss resulted from a casualty or theft. Military tax calculator However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. Military tax calculator Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. Military tax calculator Your basis for the new property is the same as your basis for the converted property. Military tax calculator This means that the gain is deferred until a taxable sale or exchange occurs. Military tax calculator If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can elect to postpone reporting the gain on the property purchased. Military tax calculator This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. Military tax calculator If you have a gain or loss from the destruction or theft of property, see Publication 547. Military tax calculator Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. Military tax calculator The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. Military tax calculator The owner receives a condemnation award (money or property) in exchange for the property taken. Military tax calculator A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. Military tax calculator Example. Military tax calculator A local government authorized to acquire land for public parks informed you that it wished to acquire your property. Military tax calculator After the local government took action to condemn your property, you went to court to keep it. Military tax calculator But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. Military tax calculator This is a condemnation of private property for public use. Military tax calculator Threat of condemnation. Military tax calculator   A threat of condemnation exists if a representative of a government body or a public official authorized to acquire property for public use informs you that the government body or official has decided to acquire your property. Military tax calculator You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. Military tax calculator   The sale of your property to someone other than the condemning authority will also qualify as an involuntary conversion, provided you have reasonable grounds to believe that your property will be condemned. Military tax calculator If the buyer of this property knows at the time of purchase that it will be condemned and sells it to the condemning authority, this sale also qualifies as an involuntary conversion. Military tax calculator Reports of condemnation. Military tax calculator   A threat of condemnation exists if you learn of a decision to acquire your property for public use through a report in a newspaper or other news medium, and this report is confirmed by a representative of the government body or public official involved. Military tax calculator You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. Military tax calculator If you relied on oral statements made by a government representative or public official, the Internal Revenue Service (IRS) may ask you to get written confirmation of the statements. Military tax calculator Example. Military tax calculator Your property lies along public utility lines. Military tax calculator The utility company has the authority to condemn your property. Military tax calculator The company informs you that it intends to acquire your property by negotiation or condemnation. Military tax calculator A threat of condemnation exists when you receive the notice. Military tax calculator Related property voluntarily sold. Military tax calculator   A voluntary sale of your property may be treated as a forced sale that qualifies as an involuntary conversion if the property had a substantial economic relationship to property of yours that was condemned. Military tax calculator A substantial economic relationship exists if together the properties were one economic unit. Military tax calculator You also must show that the condemned property could not reasonably or adequately be replaced. Military tax calculator You can elect to postpone reporting the gain by buying replacement property. Military tax calculator See Postponement of Gain, later. Military tax calculator Gain or Loss From Condemnations If your property was condemned or disposed of under the threat of condemnation, figure your gain or loss by comparing the adjusted basis of your condemned property with your net condemnation award. Military tax calculator If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. Military tax calculator You can postpone reporting gain from a condemnation if you buy replacement property. Military tax calculator If only part of your property is condemned, you can treat the cost of restoring the remaining part to its former usefulness as the cost of replacement property. Military tax calculator See Postponement of Gain, later. Military tax calculator If your net condemnation award is less than your adjusted basis, you have a loss. Military tax calculator If your loss is from property you held for personal use, you cannot deduct it. Military tax calculator You must report any deductible loss in the tax year it happened. Military tax calculator You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. Military tax calculator Main home condemned. Military tax calculator   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. Military tax calculator You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). Military tax calculator For information on this exclusion, see Publication 523. Military tax calculator If your gain is more than you can exclude but you buy replacement property, you may be able to postpone reporting the rest of the gain. Military tax calculator See Postponement of Gain, later. Military tax calculator Table 1-3. Military tax calculator Worksheet for Condemnations Part 1. Military tax calculator Gain from severance damages. Military tax calculator  If you did not receive severance damages, skip Part 1 and go to Part 2. Military tax calculator   1. Military tax calculator Enter gross severance damages received   2. Military tax calculator Enter your expenses in getting severance damages   3. Military tax calculator Subtract line 2 from line 1. Military tax calculator If less than zero, enter -0-   4. Military tax calculator Enter any special assessment on remaining property taken out of your award   5. Military tax calculator Net severance damages. Military tax calculator Subtract line 4 from line 3. Military tax calculator If less than zero, enter -0-   6. Military tax calculator Enter the adjusted basis of the remaining property   7. Military tax calculator Gain from severance damages. Military tax calculator Subtract line 6 from line 5. Military tax calculator If less than zero, enter -0-   8. Military tax calculator Refigured adjusted basis of the remaining property. Military tax calculator Subtract line 5 from line 6. Military tax calculator If less than zero, enter -0-   Part 2. Military tax calculator Gain or loss from condemnation award. Military tax calculator   9. Military tax calculator Enter the gross condemnation award received   10. Military tax calculator Enter your expenses in getting the condemnation award   11. Military tax calculator If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. Military tax calculator If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. Military tax calculator Otherwise, enter -0-   12. Military tax calculator Add lines 10 and 11   13. Military tax calculator Net condemnation award. Military tax calculator Subtract line 12 from line 9   14. Military tax calculator Enter the adjusted basis of the condemned property   15. Military tax calculator Gain from condemnation award. Military tax calculator If line 14 is more than line 13, enter -0-. Military tax calculator Otherwise, subtract line 14 from  line 13 and skip line 16   16. Military tax calculator Loss from condemnation award. Military tax calculator Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. Military tax calculator )   Part 3. Military tax calculator Postponed gain from condemnation. Military tax calculator  (Complete only if line 7 or line 15 is more than zero and you bought qualifying replacement property or made expenditures to restore the usefulness of your remaining property. Military tax calculator )   17. Military tax calculator If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. Military tax calculator Otherwise, enter -0-   18. Military tax calculator If line 15 is more than zero, enter the amount from line 13. Military tax calculator Otherwise, enter -0-   19. Military tax calculator Add lines 17 and 18. Military tax calculator If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. Military tax calculator Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. Military tax calculator Subtract line 20 from line 19. Military tax calculator If less than zero, enter -0-   22. Military tax calculator If you completed Part 1, add lines 7 and 15. Military tax calculator Otherwise, enter the amount from line 15. Military tax calculator If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. Military tax calculator Recognized gain. Military tax calculator Enter the smaller of line 21 or line 22. Military tax calculator   24. Military tax calculator Postponed gain. Military tax calculator Subtract line 23 from line 22. Military tax calculator If less than zero, enter -0-   Condemnation award. Military tax calculator   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. Military tax calculator The award is also the amount you are paid for the sale of your property under threat of condemnation. Military tax calculator Payment of your debts. Military tax calculator   Amounts taken out of the award to pay your debts are considered paid to you. Military tax calculator Amounts the government pays directly to the holder of a mortgage or lien against your property are part of your award, even if the debt attaches to the property and is not your personal liability. Military tax calculator Example. Military tax calculator The state condemned your property for public use. Military tax calculator The award was set at $200,000. Military tax calculator The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. Military tax calculator You are considered to have received the entire $200,000 as a condemnation award. Military tax calculator Interest on award. Military tax calculator   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. Military tax calculator You must report the interest separately as ordinary income. Military tax calculator Payments to relocate. Military tax calculator   Payments you receive to relocate and replace housing because you have been displaced from your home, business, or farm as a result of federal or federally assisted programs are not part of the condemnation award. Military tax calculator Do not include them in your income. Military tax calculator Replacement housing payments used to buy new property are included in the property's basis as part of your cost. Military tax calculator Net condemnation award. Military tax calculator   A net condemnation award is the total award you received, or are considered to have received, for the condemned property minus your expenses of obtaining the award. Military tax calculator If only a part of your property was condemned, you also must reduce the award by any special assessment levied against the part of the property you retain. Military tax calculator This is discussed later under Special assessment taken out of award. Military tax calculator Severance damages. Military tax calculator    Severance damages are not part of the award paid for the property condemned. Military tax calculator They are paid to you if part of your property is condemned and the value of the part you keep is decreased because of the condemnation. Military tax calculator   For example, you may receive severance damages if your property is subject to flooding because you sell flowage easement rights (the condemned property) under threat of condemnation. Military tax calculator Severance damages also may be given to you if, because part of your property is condemned for a highway, you must replace fences, dig new wells or ditches, or plant trees to restore your remaining property to the same usefulness it had before the condemnation. Military tax calculator   The contracting parties should agree on the specific amount of severance damages in writing. Military tax calculator If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. Military tax calculator   You cannot make a completely new allocation of the total award after the transaction is completed. Military tax calculator However, you can show how much of the award both parties intended for severance damages. Military tax calculator The severance damages part of the award is determined from all the facts and circumstances. Military tax calculator Example. Military tax calculator You sold part of your property to the state under threat of condemnation. Military tax calculator The contract you and the condemning authority signed showed only the total purchase price. Military tax calculator It did not specify a fixed sum for severance damages. Military tax calculator However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. Military tax calculator You may treat this part as severance damages. Military tax calculator Treatment of severance damages. Military tax calculator   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. Military tax calculator Use them to reduce the basis of the remaining property. Military tax calculator If the amount of severance damages is based on damage to a specific part of the property you kept, reduce the basis of only that part by the net severance damages. Military tax calculator   If your net severance damages are more than the basis of your retained property, you have a gain. Military tax calculator You may be able to postpone reporting the gain. Military tax calculator See Postponement of Gain, later. Military tax calculator    You can use Part 1 of Table 1-3 to figure any gain from severance damages and to refigure the adjusted basis of the remaining part of your property. Military tax calculator Net severance damages. Military tax calculator   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. Military tax calculator You then reduce them by any special assessment (described later) levied against the remaining part of the property and retained out of the award by the condemning authority. Military tax calculator The balance is your net severance damages. Military tax calculator Expenses of obtaining a condemnation award and severance damages. Military tax calculator   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. Military tax calculator Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. Military tax calculator If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. Military tax calculator Example. Military tax calculator You receive a condemnation award and severance damages. Military tax calculator One-fourth of the total was designated as severance damages in your agreement with the condemning authority. Military tax calculator You had legal expenses for the entire condemnation proceeding. Military tax calculator You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. Military tax calculator You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. Military tax calculator Special assessment retained out of award. Military tax calculator   When only part of your property is condemned, a special assessment levied against the remaining property may be retained by the governing body out of your condemnation award. Military tax calculator An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. Military tax calculator Examples of improvements that may cause a special assessment are widening a street and installing a sewer. Military tax calculator   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. Military tax calculator Example. Military tax calculator To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. Military tax calculator You were awarded $5,000 for this and spent $300 to get the award. Military tax calculator Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. Military tax calculator The city then paid you only $4,300. Military tax calculator Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). Military tax calculator If the $700 special assessment was not retained out of the award and you were paid $5,000, your net award would be $4,700 ($5,000 − $300). Military tax calculator The net award would not change, even if you later paid the assessment from the amount you received. Military tax calculator Severance damages received. Military tax calculator   If severance damages are included in the condemnation proceeds, the special assessment retained out of the severance damages is first used to reduce the severance damages. Military tax calculator Any balance of the special assessment is used to reduce the condemnation award. Military tax calculator Example. Military tax calculator You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. Military tax calculator You spent $300 to obtain the severance damages. Military tax calculator A special assessment of $800 was retained out of the award. Military tax calculator The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. Military tax calculator Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. Military tax calculator Part business or rental. Military tax calculator   If you used part of your condemned property as your home and part as business or rental property, treat each part as a separate property. Military tax calculator Figure your gain or loss separately because gain or loss on each part may be treated differently. Military tax calculator   Some examples of this type of property are a building in which you live and operate a grocery, and a building in which you live on the first floor and rent out the second floor. Military tax calculator Example. Military tax calculator You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. Military tax calculator You rented half the building and lived in the other half. Military tax calculator You paid $25,000 for the building and spent an additional $1,000 for a new roof. Military tax calculator You claimed allowable depreciation of $4,600 on the rental half. Military tax calculator You spent $200 in legal expenses to obtain the condemnation award. Military tax calculator Figure your gain or loss as follows. Military tax calculator     Resi- dential Part Busi- ness Part 1) Condemnation award received $12,000 $12,000 2) Minus: Legal expenses, $200 100 100 3) Net condemnation award $11,900 $11,900 4) Adjusted basis:       ½ of original cost, $25,000 $12,500 $12,500   Plus: ½ of cost of roof, $1,000 500 500   Total $13,000 $13,000 5) Minus: Depreciation   4,600 6) Adjusted basis, business part   $8,400 7) (Loss) on residential property ($1,100)   8) Gain on business property $3,500 The loss on the residential part of the property is not deductible. Military tax calculator Postponement of Gain Do not report the gain on condemned property if you receive only property that is similar or related in service or use to the condemned property. Military tax calculator Your basis for the new property is the same as your basis for the old. Military tax calculator Money or unlike property received. Military tax calculator   You ordinarily must report the gain if you receive money or unlike property. Military tax calculator You can elect to postpone reporting the gain if you buy property that is similar or related in service or use to the condemned property within the replacement period, discussed later. Military tax calculator You also can elect to postpone reporting the gain if you buy a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the condemned property. Military tax calculator See Controlling interest in a corporation, later. Military tax calculator   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. Military tax calculator If the cost of the replacement property is less than the amount realized, you must report the gain up to the unspent part of the amount realized. Military tax calculator   The basis of the replacement property is its cost, reduced by the postponed gain. Military tax calculator Also, if your replacement property is stock in a corporation that owns property similar or related in service or use, the corporation generally will reduce its basis in its assets by the amount by which you reduce your basis in the stock. Military tax calculator See Controlling interest in a corporation, later. Military tax calculator You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. Military tax calculator Postponing gain on severance damages. Military tax calculator   If you received severance damages for part of your property because another part was condemned and you buy replacement property, you can elect to postpone reporting gain. Military tax calculator See Treatment of severance damages, earlier. Military tax calculator You can postpone reporting all your gain if the replacement property costs at least as much as your net severance damages plus your net condemnation award (if resulting in gain). Military tax calculator   You also can make this election if you spend the severance damages, together with other money you received for the condemned property (if resulting in gain), to acquire nearby property that will allow you to continue your business. Military tax calculator If suitable nearby property is not available and you are forced to sell the remaining property and relocate in order to continue your business, see Postponing gain on the sale of related property, next. Military tax calculator   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. Military tax calculator Postponing gain on the sale of related property. Military tax calculator   If you sell property that is related to the condemned property and then buy replacement property, you can elect to postpone reporting gain on the sale. Military tax calculator You must meet the requirements explained earlier under Related property voluntarily sold. Military tax calculator You can postpone reporting all your gain if the replacement property costs at least as much as the amount realized from the sale plus your net condemnation award (if resulting in gain) plus your net severance damages, if any (if resulting in gain). Military tax calculator Buying replacement property from a related person. Military tax calculator   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. Military tax calculator For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. Military tax calculator   This rule applies to the following taxpayers. Military tax calculator C corporations. Military tax calculator Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. Military tax calculator All others (including individuals, partnerships (other than those in (2)), and S corporations) if the total realized gain for the tax year on all involuntarily converted properties on which there is realized gain of more than $100,000. Military tax calculator   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. Military tax calculator If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Military tax calculator If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Military tax calculator Exception. Military tax calculator   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. Military tax calculator Advance payment. Military tax calculator   If you pay a contractor in advance to build your replacement property, you have not bought replacement property unless it is finished before the end of the replacement period (discussed later). Military tax calculator Replacement property. Military tax calculator   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. Military tax calculator You do not have to use the actual funds from the condemnation award to acquire the replacement property. Military tax calculator Property you acquire by gift or inheritance does not qualify as replacement property. Military tax calculator Similar or related in service or use. Military tax calculator   Your replacement property must be similar or related in service or use to the property it replaces. Military tax calculator   If the condemned property is real property you held for productive use in your trade or business or for investment (other than property held mainly for sale), like-kind property to be held either for productive use in trade or business or for investment will be treated as property similar or related in service or use. Military tax calculator For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. Military tax calculator Owner-user. Military tax calculator   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. Military tax calculator Example. Military tax calculator Your home was condemned and you invested the proceeds from the condemnation in a grocery store. Military tax calculator Your replacement property is not similar or related in service or use to the condemned property. Military tax calculator To be similar or related in service or use, your replacement property must also be used by you as your home. Military tax calculator Owner-investor. Military tax calculator   If you are an owner-investor, similar or related in service or use means that any replacement property must have the same relationship of services or uses to you as the property it replaces. Military tax calculator You decide this by determining all the following information. Military tax calculator Whether the properties are of similar service to you. Military tax calculator The nature of the business risks connected with the properties. Military tax calculator What the properties demand of you in the way of management, service, and relations to your tenants. Military tax calculator Example. Military tax calculator You owned land and a building you rented to a manufacturing company. Military tax calculator The building was condemned. Military tax calculator During the replacement period, you had a new building built on other land you already owned. Military tax calculator You rented out the new building for use as a wholesale grocery warehouse. Military tax calculator The replacement property is also rental property, so the two properties are considered similar or related in service or use if there is a similarity in all the following areas. Military tax calculator Your management activities. Military tax calculator The amount and kind of services you provide to your tenants. Military tax calculator The nature of your business risks connected with the properties. Military tax calculator Leasehold replaced with fee simple property. Military tax calculator   Fee simple property you will use in your trade or business or for investment can qualify as replacement property that is similar or related in service or use to a condemned leasehold if you use it in the same business and for the identical purpose as the condemned leasehold. Military tax calculator   A fee simple property interest generally is a property interest that entitles the owner to the entire property with unconditional power to dispose of it during his or her lifetime. Military tax calculator A leasehold is property held under a lease, usually for a term of years. Military tax calculator Outdoor advertising display replaced with real property. Military tax calculator   You can elect to treat an outdoor advertising display as real property. Military tax calculator If you make this election and you replace the display with real property in which you hold a different kind of interest, your replacement property can qualify as like-kind property. Military tax calculator For example, real property bought to replace a destroyed billboard and leased property on which the billboard was located qualify as property of a like-kind. Military tax calculator   You can make this election only if you did not claim a section 179 deduction for the display. Military tax calculator You cannot cancel this election unless you get the consent of the IRS. Military tax calculator   An outdoor advertising display is a sign or device rigidly assembled and permanently attached to the ground, a building, or any other permanent structure used to display a commercial or other advertisement to the public. Military tax calculator Substituting replacement property. Military tax calculator   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. Military tax calculator But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. Military tax calculator Controlling interest in a corporation. Military tax calculator   You can replace property by acquiring a controlling interest in a corporation that owns property similar or related in service or use to your condemned property. Military tax calculator You have controlling interest if you own stock having at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation. Military tax calculator Basis adjustment to corporation's property. Military tax calculator   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. Military tax calculator You are not required to reduce the adjusted basis of the corporation's properties below your adjusted basis in the corporation's stock (determined after reduction by your postponed gain). Military tax calculator   Allocate this reduction to the following classes of property in the order shown below. Military tax calculator Property that is similar or related in service or use to the condemned property. Military tax calculator Depreciable property not reduced in (1). Military tax calculator All other property. Military tax calculator If two or more properties fall in the same class, allocate the reduction to each property in proportion to the adjusted basis of all the properties in that class. Military tax calculator The reduced basis of any single property cannot be less than zero. Military tax calculator Main home replaced. Military tax calculator   If your gain from a condemnation of your main home is more than you can exclude from your income (see Main home condemned under Gain or Loss From Condemnations, earlier), you can postpone reporting the rest of the gain by buying replacement property that is similar or related in service or use. Military tax calculator The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. Military tax calculator   You must reduce the basis of your replacement property by the postponed gain. Military tax calculator Also, if you postpone reporting any part of your gain under these rules, you are treated as having owned and used the replacement property as your main home for the period you owned and used the condemned property as your main home. Military tax calculator Example. Military tax calculator City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. Military tax calculator The city paid you a condemnation award of $400,000. Military tax calculator Your adjusted basis in the property was $80,000. Military tax calculator You realize a gain of $320,000 ($400,000 − $80,000). Military tax calculator You purchased a new home for $100,000. Military tax calculator You can exclude $250,000 of the realized gain from your gross income. Military tax calculator The amount realized is then treated as being $150,000 ($400,000 − $250,000) and the gain realized is $70,000 ($150,000 amount realized − $80,000 adjusted basis). Military tax calculator You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). Military tax calculator The remaining $20,000 of realized gain is postponed. Military tax calculator Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). Military tax calculator Replacement period. Military tax calculator   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. Military tax calculator This is the replacement period. Military tax calculator   The replacement period for a condemnation begins on the earlier of the following dates. Military tax calculator The date on which you disposed of the condemned property. Military tax calculator The date on which the threat of condemnation began. Military tax calculator   The replacement period generally ends 2 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Military tax calculator However, see the exceptions below. Military tax calculator Three-year replacement period for certain property. Military tax calculator   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Military tax calculator However, this 3-year replacement period cannot be used if you replace the condemned property by acquiring control of a corporation owning property that is similar or related in service or use. Military tax calculator Five-year replacement period for certain property. Military tax calculator   The replacement period ends 5 years after the end of the first tax year in which any part of the gain is realized on the compulsory or involuntary conversion of the following qualified property. Military tax calculator Property in any Midwestern disaster area compulsorily or involuntarily converted on or after the applicable disaster date as a result of severe storms, tornadoes, or flooding, but only if substantially all of the use of the replacement property is in a Midwestern disaster area. Military tax calculator Property in the Kansas disaster area compulsorily or involuntarily converted after May 3, 2007, but only if substantially all of the use of the replacement property is in the Kansas disaster area. Military tax calculator Property in the Hurricane Katrina disaster area compulsorily or involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, but only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Military tax calculator Extended replacement period for taxpayers affected by other federally declared disasters. Military tax calculator    If you are affected by a federally declared disaster, the IRS may grant disaster relief by extending the periods to perform certain tax-related acts for 2013, including the replacement period, by up to one year. Military tax calculator For more information visit www. Military tax calculator irs. Military tax calculator gov/uac/Tax-Relief-in-Disaster-Situations. Military tax calculator Weather-related sales of livestock in an area eligible for federal assistance. Military tax calculator   Generally, if the sale or exchange of livestock is due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. Military tax calculator    If the weather-related conditions continue for longer than 3 years, the replacement period may be extended on a regional basis until the end of your first drought-free year for the applicable region. Military tax calculator See Notice 2006-82. Military tax calculator You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. Military tax calculator irs. Military tax calculator gov/irb/2006-39_IRB/ar13. Military tax calculator html. Military tax calculator    Each year, the IRS publishes a list of counties, districts, cities, or parishes for which exceptional, extreme, or severe drought was reported during the preceding 12 months. Military tax calculator If you qualified for a 4-year replacement period for livestock sold or exchanged on account of drought and your replacement period is scheduled to expire at the end of 2013 (or at the end of the tax year that includes August 31, 2013), see Notice 2013-62. Military tax calculator You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. Military tax calculator irs. Military tax calculator gov/irb/2013-45_IRB/ar04. Military tax calculator html. Military tax calculator The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. Military tax calculator Determining when gain is realized. Military tax calculator   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. Military tax calculator If the condemning authority makes deposits with the court, you realize gain when you withdraw (or have the right to withdraw) amounts that are more than your basis. Military tax calculator   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. Military tax calculator A replacement will be too late if you wait for a final determination that does not take place in the applicable replacement period after you first realize gain. Military tax calculator   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. Military tax calculator All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. Military tax calculator All or part of the award is actually or constructively received. Military tax calculator For example, if you have an absolute right to a part of a condemnation award when it is deposited with the court, the amount deposited accrues in the year the deposit is made even though the full amount of the award is still contested. Military tax calculator Replacement property bought before the condemnation. Military tax calculator   If you buy your replacement property after there is a threat of condemnation but before the actual condemnation and you still hold the replacement property at the time of the condemnation, you have bought your replacement property within the replacement period. Military tax calculator Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. Military tax calculator Example. Military tax calculator On April 3, 2012, city authorities notified you that your property would be condemned. Military tax calculator On June 5, 2012, you acquired property to replace the property to be condemned. Military tax calculator You still had the new property when the city took possession of your old property on September 4, 2013. Military tax calculator You have made a replacement within the replacement period. Military tax calculator Extension. Military tax calculator   You can request an extension of the replacement period from the IRS director for your area. Military tax calculator You should apply before the end of the replacement period. Military tax calculator Your request should explain in detail why you need an extension. Military tax calculator The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. Military tax calculator An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. Military tax calculator   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. Military tax calculator Extensions are usually limited to a period of 1 year or less. Military tax calculator The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. Military tax calculator If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri