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Tax Act 2012 Free

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Tax Act 2012 Free

Tax act 2012 free Part Five -   Standard Deduction and Itemized Deductions After you have figured your adjusted gross income, you are ready to subtract the deductions used to figure taxable income. Tax act 2012 free You can subtract either the standard deduction or itemized deductions. Tax act 2012 free Itemized deductions are deductions for certain expenses that are listed on Schedule A (Form 1040). Tax act 2012 free The ten chapters in this part discuss the standard deduction, each itemized deduction, and a limit on some of your itemized deductions if your adjusted gross income is more than certain amounts. Tax act 2012 free See chapter 20 for the factors to consider when deciding whether to subtract the standard deduction or itemized deductions. Tax act 2012 free Table of Contents 20. Tax act 2012 free   Standard DeductionWhat's New Introduction Standard Deduction Amount Standard Deduction for Dependents Who Should ItemizeWhen to itemize. Tax act 2012 free Married persons who filed separate returns. Tax act 2012 free 21. Tax act 2012 free   Medical and Dental ExpensesWhat's New Introduction Useful Items - You may want to see: What Are Medical Expenses? What Expenses Can You Include This Year?Community property states. Tax act 2012 free How Much of the Expenses Can You Deduct? Whose Medical Expenses Can You Include?Yourself Spouse Dependent Decedent What Medical Expenses Are Includible?Insurance Premiums Meals and Lodging Transportation Disabled Dependent Care Expenses How Do You Treat Reimbursements?Insurance Reimbursement Damages for Personal Injuries How Do You Figure and Report the Deduction on Your Tax Return?What Tax Form Do You Use? Impairment-Related Work Expenses Health Insurance Costs for Self-Employed Persons 22. Tax act 2012 free   TaxesIntroductionIndian tribal government. Tax act 2012 free Useful Items - You may want to see: Tests To Deduct Any Tax Income TaxesState and Local Income Taxes Foreign Income Taxes General Sales TaxesMotor vehicles. Tax act 2012 free Real Estate TaxesReal estate taxes for prior years. Tax act 2012 free Examples. Tax act 2012 free Form 1099-S. Tax act 2012 free Real Estate-Related Items You Cannot Deduct Personal Property Taxes Taxes and Fees You Cannot Deduct Where To Deduct 23. Tax act 2012 free   Interest ExpenseIntroduction Useful Items - You may want to see: Home Mortgage InterestAmount Deductible Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement Investment InterestInvestment Property Allocation of Interest Expense Limit on Deduction Items You Cannot DeductPersonal Interest Allocation of Interest How To ReportMore than one borrower. Tax act 2012 free Mortgage proceeds used for business or investment. Tax act 2012 free 24. Tax act 2012 free   ContributionsIntroduction Useful Items - You may want to see: Organizations That Qualify To Receive Deductible ContributionsTypes of Qualified Organizations Contributions You Can DeductContributions From Which You Benefit Expenses Paid for Student Living With You Out-of-Pocket Expenses in Giving Services Contributions You Cannot DeductContributions to Individuals Contributions to Nonqualified Organizations Contributions From Which You Benefit Value of Time or Services Personal Expenses Appraisal Fees Contributions of PropertyException. Tax act 2012 free Household items. Tax act 2012 free Deduction more than $500. Tax act 2012 free Form 1098-C. Tax act 2012 free Filing deadline approaching and still no Form 1098-C. Tax act 2012 free Exception 1—vehicle used or improved by organization. Tax act 2012 free Exception 2—vehicle given or sold to needy individual. Tax act 2012 free Deduction $500 or less. Tax act 2012 free Right to use property. Tax act 2012 free Tangible personal property. Tax act 2012 free Future interest. Tax act 2012 free Determining Fair Market Value Giving Property That Has Decreased in Value Giving Property That Has Increased in Value When To DeductChecks. Tax act 2012 free Text message. Tax act 2012 free Credit card. Tax act 2012 free Pay-by-phone account. Tax act 2012 free Stock certificate. Tax act 2012 free Promissory note. Tax act 2012 free Option. Tax act 2012 free Borrowed funds. Tax act 2012 free Limits on DeductionsCarryovers Records To KeepCash Contributions Noncash Contributions Out-of-Pocket Expenses How To Report 25. Tax act 2012 free   Nonbusiness Casualty and Theft LossesWhat's New Introduction Useful Items - You may want to see: CasualtyFamily pet. Tax act 2012 free Progressive deterioration. Tax act 2012 free Damage from corrosive drywall. Tax act 2012 free Theft Loss on Deposits Proof of Loss Figuring a LossDecrease in Fair Market Value Adjusted Basis Insurance and Other Reimbursements Single Casualty on Multiple Properties Deduction Limits$100 Rule 10% Rule When To Report Gains and LossesDisaster Area Loss How To Report Gains and Losses 26. Tax act 2012 free   Car Expenses and Other Employee Business ExpensesWhat's New Introduction Useful Items - You may want to see: Travel ExpensesTraveling Away From Home Tax Home Temporary Assignment or Job What Travel Expenses Are Deductible? Travel in the United States Travel Outside the United States Conventions Entertainment Expenses50% Limit What Entertainment Expenses Are Deductible? What Entertainment Expenses Are Not Deductible? Gift Expenses Transportation ExpensesArmed Forces reservists. Tax act 2012 free Parking fees. Tax act 2012 free Advertising display on car. Tax act 2012 free Car pools. Tax act 2012 free Hauling tools or instruments. Tax act 2012 free Union members' trips from a union hall. Tax act 2012 free Car Expenses RecordkeepingHow To Prove Expenses How Long To Keep Records and Receipts How To ReportGifts. Tax act 2012 free Statutory employees. Tax act 2012 free Reimbursements Completing Forms 2106 and 2106-EZ Special Rules 27. Tax act 2012 free   Tax Benefits for Work-Related EducationWhat's New Introduction Useful Items - You may want to see: Qualifying Work-Related EducationEducation Required by Employer or by Law Education To Maintain or Improve Skills Education To Meet Minimum Requirements Education That Qualifies You for a New Trade or Business What Expenses Can Be DeductedUnclaimed reimbursement. Tax act 2012 free Transportation Expenses Travel Expenses No Double Benefit Allowed Reimbursements Deducting Business ExpensesSelf-Employed Persons Employees Performing Artists and Fee-Basis Officials Impairment-Related Work Expenses Recordkeeping 28. Tax act 2012 free   Miscellaneous DeductionsWhat's New Introduction Useful Items - You may want to see: Deductions Subject to the 2% LimitUnreimbursed Employee Expenses (Line 21) Tax Preparation Fees (Line 22) Other Expenses (Line 23) Deductions Not Subject to the 2% LimitList of Deductions Nondeductible ExpensesList of Nondeductible Expenses 29. Tax act 2012 free   Limit on Itemized DeductionsIntroduction Useful Items - You may want to see: Are You Subject to the Limit? Which Itemized Deductions Are Limited? Which Itemized Deductions Are Not Limited? How Do You Figure the Limit?Example. Tax act 2012 free Prev  Up  Next   Home   More Online Publications
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Department of Housing and Urban Development (HUD)

The Department of Housing and Urban Development administers programs that provide housing and community development assistance. The Department also works to ensure fair and equal housing opportunity for all.

The Tax Act 2012 Free

Tax act 2012 free Publication 551 - Main Content Table of Contents Cost BasisStocks and Bonds Real Property Business Assets Allocating the Basis Adjusted BasisIncreases to Basis Decreases to Basis Adjustments to Basis Example Basis Other Than CostProperty Received for Services Taxable Exchanges Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed to Business or Rental Use How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Tax act 2012 free Cost Basis The basis of property you buy is usually its cost. Tax act 2012 free The cost is the amount you pay in cash, debt obligations, other property, or services. Tax act 2012 free Your cost also includes amounts you pay for the following items. Tax act 2012 free Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if assumed for the seller). Tax act 2012 free  You may also have to capitalize (add to basis) certain other costs related to buying or producing property. Tax act 2012 free Loans with low or no interest. Tax act 2012 free   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. Tax act 2012 free You generally have unstated interest if your interest rate is less than the applicable federal rate. Tax act 2012 free For more information, see Unstated Interest and Original Issue Discount in Publication 537. Tax act 2012 free Purchase of a business. Tax act 2012 free   When you purchase a trade or business, you generally purchase all assets used in the business operations, such as land, buildings, and machinery. Tax act 2012 free Allocate the price among the various assets, including any section 197 intangibles. Tax act 2012 free See Allocating the Basis, later. Tax act 2012 free Stocks and Bonds The basis of stocks or bonds you buy is generally the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. Tax act 2012 free If you get stocks or bonds other than by purchase, your basis is usually determined by the fair market value (FMV) or the previous owner's adjusted basis of the stock. Tax act 2012 free You must adjust the basis of stocks for certain events that occur after purchase. Tax act 2012 free See Stocks and Bonds in chapter 4 of Publication 550 for more information on the basis of stock. Tax act 2012 free Identifying stock or bonds sold. Tax act 2012 free   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. Tax act 2012 free If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Tax act 2012 free For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Tax act 2012 free Mutual fund shares. Tax act 2012 free   If you sell mutual fund shares acquired at different times and prices, you can choose to use an average basis. Tax act 2012 free For more information, see Publication 550. Tax act 2012 free Real Property Real property, also called real estate, is land and generally anything built on or attached to it. Tax act 2012 free If you buy real property, certain fees and other expenses become part of your cost basis in the property. Tax act 2012 free Real estate taxes. Tax act 2012 free   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Tax act 2012 free You cannot deduct them as taxes. Tax act 2012 free   If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. Tax act 2012 free Do not include that amount in the basis of the property. Tax act 2012 free If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Tax act 2012 free Settlement costs. Tax act 2012 free   Your basis includes the settlement fees and closing costs for buying property. Tax act 2012 free You cannot include in your basis the fees and costs for getting a loan on property. Tax act 2012 free A fee for buying property is a cost that must be paid even if you bought the property for cash. Tax act 2012 free   The following items are some of the settlement fees or closing costs you can include in the basis of your property. Tax act 2012 free Abstract fees (abstract of title fees); Charges for installing utility services; Legal fees (including title search and preparation of the sales contract and deed); Recording fees; Surveys; Transfer taxes; Owner's title insurance; and Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Tax act 2012 free   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Tax act 2012 free   The following items are some settlement fees and closing costs you cannot include in the basis of the property. Tax act 2012 free Casualty insurance premiums. Tax act 2012 free Rent for occupancy of the property before closing. Tax act 2012 free Charges for utilities or other services related to occupancy of the property before closing. Tax act 2012 free Charges connected with getting a loan. Tax act 2012 free The following are examples of these charges. Tax act 2012 free Points (discount points, loan origination fees). Tax act 2012 free Mortgage insurance premiums. Tax act 2012 free Loan assumption fees. Tax act 2012 free Cost of a credit report. Tax act 2012 free Fees for an appraisal required by a lender. Tax act 2012 free Fees for refinancing a mortgage. Tax act 2012 free If these costs relate to business property, items (1) through (3) are deductible as business expenses. Tax act 2012 free Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan. Tax act 2012 free Points. Tax act 2012 free   If you pay points to obtain a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. Tax act 2012 free Generally, you deduct the points over the term of the loan. Tax act 2012 free For more information on how to deduct points, see Points in chapter 4 of Publication 535. Tax act 2012 free Points on home mortgage. Tax act 2012 free   Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. Tax act 2012 free If certain requirements are met, you can deduct the points in full for the year in which they are paid. Tax act 2012 free Reduce the basis of your home by any seller-paid points. Tax act 2012 free For more information, see Points in Publication 936, Home Mortgage Interest Deduction. Tax act 2012 free Assumption of mortgage. Tax act 2012 free   If you buy property and assume (or buy subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. Tax act 2012 free Example. Tax act 2012 free If you buy a building for $20,000 cash and assume a mortgage of $80,000 on it, your basis is $100,000. Tax act 2012 free Constructing assets. Tax act 2012 free   If you build property or have assets built for you, your expenses for this construction are part of your basis. Tax act 2012 free Some of these expenses include the following costs. Tax act 2012 free Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. Tax act 2012 free In addition, if you own a business and use your employees, material, and equipment to build an asset, do not deduct the following expenses. Tax act 2012 free You must include them in the asset's basis. Tax act 2012 free Employee wages paid for the construction work, reduced by any employment credits allowed; Depreciation on equipment you own while it is used in the construction; Operating and maintenance costs for equipment used in the construction; and The cost of business supplies and materials used in the construction. Tax act 2012 free    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. Tax act 2012 free Business Assets If you purchase property to use in your business, your basis is usually its actual cost to you. Tax act 2012 free If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. Tax act 2012 free In certain circumstances, you may be subject to the uniform capitalization rules, next. Tax act 2012 free Uniform Capitalization Rules The uniform capitalization rules specify the costs you add to basis in certain circumstances. Tax act 2012 free Activities subject to the rules. Tax act 2012 free   You must use the uniform capitalization rules if you do any of the following in your trade or business or activity carried on for profit. Tax act 2012 free Produce real or tangible personal property for use in the business or activity, Produce real or tangible personal property for sale to customers, or Acquire property for resale. Tax act 2012 free However, this rule does not apply to personal property if your average annual gross receipts for the 3 previous tax years are $10 million or less. Tax act 2012 free   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. Tax act 2012 free Treat property produced for you under a contract as produced by you up to the amount you pay or costs you otherwise incur for the property. Tax act 2012 free Tangible personal property includes films, sound recordings, video tapes, books, or similar property. Tax act 2012 free    Under the uniform capitalization rules, you must capitalize all direct costs and an allocable part of most indirect costs you incur due to your production or resale activities. Tax act 2012 free To capitalize means to include certain expenses in the basis of property you produce or in your inventory costs rather than deduct them as a current expense. Tax act 2012 free You recover these costs through deductions for depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Tax act 2012 free   Any cost you cannot use to figure your taxable income for any tax year is not subject to the uniform capitalization rules. Tax act 2012 free Example. Tax act 2012 free If you incur a business meal expense for which your deduction would be limited to 50% of the cost of the meal, that amount is subject to the uniform capitalization rules. Tax act 2012 free The nondeductible part of the cost is not subject to the uniform capitalization rules. Tax act 2012 free More information. Tax act 2012 free   For more information about these rules, see the regulations under section 263A of the Internal Revenue Code and Publication 538, Accounting Periods and Methods. Tax act 2012 free Exceptions. Tax act 2012 free   The following are not subject to the uniform capitalization rules. Tax act 2012 free Property you produce that you do not use in your trade, business, or activity conducted for profit; Qualified creative expenses you pay or incur as a free-lance (self-employed) writer, photographer, or artist that are otherwise deductible on your tax return; Property you produce under a long-term contract, except for certain home construction contracts; Research and experimental expenses deductible under section 174 of the Internal Revenue Code; and Costs for personal property acquired for resale if your (or your predecessor's) average annual gross receipts for the 3 previous tax years do not exceed $10 million. Tax act 2012 free For other exceptions to the uniform capitalization rules, see section 1. Tax act 2012 free 263A-1(b) of the regulations. Tax act 2012 free   For information on the special rules that apply to costs incurred in the business of farming, see chapter 6 of Publication 225, Farmer's Tax Guide. Tax act 2012 free Intangible Assets Intangible assets include goodwill, patents, copyrights, trademarks, trade names, and franchises. Tax act 2012 free The basis of an intangible asset is usually the cost to buy or create it. Tax act 2012 free If you acquire multiple assets, for example a going business for a lump sum, see Allocating the Basis below to figure the basis of the individual assets. Tax act 2012 free The basis of certain intangibles can be amortized. Tax act 2012 free See chapter 8 of Publication 535 for information on the amortization of these costs. Tax act 2012 free Patents. Tax act 2012 free   The basis of a patent you get for an invention is the cost of development, such as research and experimental expenditures, drawings, working models, and attorneys' and governmental fees. Tax act 2012 free If you deduct the research and experimental expenditures as current business expenses, you cannot include them in the basis of the patent. Tax act 2012 free The value of the inventor's time spent on an invention is not part of the basis. Tax act 2012 free Copyrights. Tax act 2012 free   If you are an author, the basis of a copyright will usually be the cost of getting the copyright plus copyright fees, attorneys' fees, clerical assistance, and the cost of plates that remain in your possession. Tax act 2012 free Do not include the value of your time as the author, or any other person's time you did not pay for. Tax act 2012 free Franchises, trademarks, and trade names. Tax act 2012 free   If you buy a franchise, trademark, or trade name, the basis is its cost, unless you can deduct your payments as a business expense. Tax act 2012 free Allocating the Basis If you buy multiple assets for a lump sum, allocate the amount you pay among the assets you receive. Tax act 2012 free You must make this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. Tax act 2012 free See Trade or Business Acquired below. Tax act 2012 free Group of Assets Acquired If you buy multiple assets for a lump sum, you and the seller may agree to a specific allocation of the purchase price among the assets in the sales contract. Tax act 2012 free If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. Tax act 2012 free However, see Trade or Business Acquired, next. Tax act 2012 free Trade or Business Acquired If you acquire a trade or business, allocate the consideration paid to the various assets acquired. Tax act 2012 free Generally, reduce the consideration paid by any cash and general deposit accounts (including checking and savings accounts) received. Tax act 2012 free Allocate the remaining consideration to the other business assets received in proportion to (but not more than) their fair market value in the following order. Tax act 2012 free Certificates of deposit, U. Tax act 2012 free S. Tax act 2012 free Government securities, foreign currency, and actively traded personal property, including stock and securities. Tax act 2012 free Accounts receivable, other debt instruments, and assets you mark to market at least annually for federal income tax purposes. Tax act 2012 free Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held primarily for sale to customers in the ordinary course of business. Tax act 2012 free All other assets except section 197 intangibles, goodwill, and going concern value. Tax act 2012 free Section 197 intangibles except goodwill and going concern value. Tax act 2012 free Goodwill and going concern value (whether or not they qualify as section 197 intangibles). Tax act 2012 free Agreement. Tax act 2012 free   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value (FMV) of any of the assets. Tax act 2012 free This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Tax act 2012 free Reporting requirement. Tax act 2012 free   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Tax act 2012 free Use Form 8594 to provide this information. Tax act 2012 free The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Tax act 2012 free More information. Tax act 2012 free   See Sale of a Business in chapter 2 of Publication 544 for more information. Tax act 2012 free Land and Buildings If you buy buildings and the land on which they stand for a lump sum, allocate the basis of the property among the land and the buildings so you can figure the depreciation allowable on the buildings. Tax act 2012 free Figure the basis of each asset by multiplying the lump sum by a fraction. Tax act 2012 free The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Tax act 2012 free If you are not certain of the FMV of the land and buildings, you can allocate the basis based on their assessed values for real estate tax purposes. Tax act 2012 free Demolition of building. Tax act 2012 free   Add demolition costs and other losses incurred for the demolition of any building to the basis of the land on which the demolished building was located. Tax act 2012 free Do not claim the costs as a current deduction. Tax act 2012 free Modification of building. Tax act 2012 free   A modification of a building will not be treated as a demolition if the following conditions are satisfied. Tax act 2012 free 75 percent or more of the existing external walls of the building are retained in place as internal or external walls, and 75 percent or more of the existing internal structural framework of the building is retained in place. Tax act 2012 free   If the building is a certified historic structure, the modification must also be part of a certified rehabilitation. Tax act 2012 free   If these conditions are met, add the costs of the modifications to the basis of the building. Tax act 2012 free Subdivided lots. Tax act 2012 free   If you buy a tract of land and subdivide it, you must determine the basis of each lot. Tax act 2012 free This is necessary because you must figure the gain or loss on the sale of each individual lot. Tax act 2012 free As a result, you do not recover your entire cost in the tract until you have sold all of the lots. Tax act 2012 free   To determine the basis of an individual lot, multiply the total cost of the tract by a fraction. Tax act 2012 free The numerator is the FMV of the lot and the denominator is the FMV of the entire tract. Tax act 2012 free Future improvement costs. Tax act 2012 free   If you are a developer and sell subdivided lots before the development work is completed, you can (with IRS consent) include in the basis of the properties sold an allocation of the estimated future cost for common improvements. Tax act 2012 free See Revenue Procedure 92–29 for more information, including an explanation of the procedures for getting consent from the IRS. Tax act 2012 free Use of erroneous cost basis. Tax act 2012 free   If you made a mistake in figuring the cost basis of subdivided lots sold in previous years, you cannot correct the mistake for years for which the statute of limitations (generally 3 tax years) has expired. Tax act 2012 free Figure the basis of any remaining lots by allocating the correct original cost basis of the entire tract among the original lots. Tax act 2012 free Example. Tax act 2012 free You bought a tract of land to which you assigned a cost of $15,000. Tax act 2012 free You subdivided the land into 15 building lots of equal size and equitably divided your basis so that each lot had a basis of $1,000. Tax act 2012 free You treated the sale of each lot as a separate transaction and figured gain or loss separately on each sale. Tax act 2012 free Several years later you determine that your original basis in the tract was $22,500 and not $15,000. Tax act 2012 free You sold eight lots using $8,000 of basis in years for which the statute of limitations has expired. Tax act 2012 free You now can take $1,500 of basis into account for figuring gain or loss only on the sale of each of the remaining seven lots ($22,500 basis divided among all 15 lots). Tax act 2012 free You cannot refigure the basis of the eight lots sold in tax years barred by the statute of limitations. Tax act 2012 free Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the basis of the property. Tax act 2012 free The result of these adjustments to the basis is the adjusted basis. Tax act 2012 free Increases to Basis Increase the basis of any property by all items properly added to a capital account. Tax act 2012 free These include the cost of any improvements having a useful life of more than 1 year. Tax act 2012 free Rehabilitation expenses also increase basis. Tax act 2012 free However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis. Tax act 2012 free If you have to recapture any of the credit, increase your basis by the recaptured amount. Tax act 2012 free If you make additions or improvements to business property, keep separate accounts for them. Tax act 2012 free Also, you must depreciate the basis of each according to the depreciation rules that would apply to the underlying property if you had placed it in service at the same time you placed the addition or improvement in service. Tax act 2012 free For more information, see Publication 946. Tax act 2012 free The following items increase the basis of property. Tax act 2012 free The cost of extending utility service lines to the property; Impact fees; Legal fees, such as the cost of defending and perfecting title; Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements; Zoning costs; and The capitalized value of a redeemable ground rent. Tax act 2012 free Assessments for Local Improvements Increase the basis of property by assessments for items such as paving roads and building ditches that increase the value of the property assessed. Tax act 2012 free Do not deduct them as taxes. Tax act 2012 free However, you can deduct as taxes charges for maintenance, repairs, or interest charges related to the improvements. Tax act 2012 free Example. Tax act 2012 free Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected landowners for the cost of the conversion. Tax act 2012 free Add the assessment to your property's basis. Tax act 2012 free In this example, the assessment is a depreciable asset. Tax act 2012 free Deducting vs. Tax act 2012 free Capitalizing Costs Do not add to your basis costs you can deduct as current expenses. Tax act 2012 free For example, amounts paid for incidental repairs or maintenance that are deductible as business expenses cannot be added to basis. Tax act 2012 free However, you can choose either to deduct or to capitalize certain other costs. Tax act 2012 free If you capitalize these costs, include them in your basis. Tax act 2012 free If you deduct them, do not include them in your basis. Tax act 2012 free See Uniform Capitalization Rules earlier. Tax act 2012 free The costs you can choose to deduct or to capitalize include the following. Tax act 2012 free Carrying charges, such as interest and taxes, that you pay to own property, except carrying charges that must be capitalized under the uniform capitalization rules; Research and experimentation costs; Intangible drilling and development costs for oil, gas, and geothermal wells; Exploration costs for new mineral deposits; Mining development costs for a new mineral deposit; Costs of establishing, maintaining, or increasing the circulation of a newspaper or other periodical; and Costs of removing architectural and transportation barriers to people with disabilities and the elderly. Tax act 2012 free If you claim the disabled access credit, you must reduce the amount you deduct or capitalize by the amount of the credit. Tax act 2012 free For more information about deducting or capitalizing costs, see chapter 7 in Publication 535. Tax act 2012 free Table 1. Tax act 2012 free Examples of Increases and Decreases to Basis Increases to Basis Decreases to Basis Capital improvements:   Putting an addition on your home   Replacing an entire roof  Paving your driveway  Installing central air conditioning Rewiring your home Exclusion from income of subsidies for energy conservation measures  Casualty or theft loss deductions and insurance reimbursements  Vehicle credits Assessments for local improvements: Water connections Sidewalks Roads Section 179 deduction  Casualty losses: Restoring damaged property Depreciation  Nontaxable corporate distributions Legal fees:  Cost of defending and perfecting a title   Zoning costs   Decreases to Basis The following are some items that reduce the basis of property. Tax act 2012 free Section 179 deduction; Nontaxable corporate distributions; Deductions previously allowed (or allowable) for amortization, depreciation, and depletion; Exclusion of subsidies for energy conservation measures; Vehicle credits; Residential energy credits; Postponed gain from sale of home; Investment credit (part or all) taken; Casualty and theft losses and insurance reimbursement; Certain canceled debt excluded from income; Rebates from a manufacturer or seller; Easements; Gas-guzzler tax; Adoption tax benefits; and Credit for employer-provided child care. Tax act 2012 free Some of these items are discussed next. Tax act 2012 free Casualties and Thefts If you have a casualty or theft loss, decrease the basis in your property by any insurance or other reimbursement and by any deductible loss not covered by insurance. Tax act 2012 free You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use. Tax act 2012 free To make this determination, compare the repaired property to the property before the casualty. Tax act 2012 free For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts. Tax act 2012 free Easements The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. Tax act 2012 free It reduces the basis of the affected part of the property. Tax act 2012 free If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Tax act 2012 free Vehicle Credits Unless you elect not to claim the qualified plug-in electric vehicle credit, the alternative motor vehicle credit, or the qualified plug-in electric drive motor vehicle credit, you may have to reduce the basis of each qualified vehicle by certain amounts reported. Tax act 2012 free For more information, see Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit; Form 8910, Alternative Motor Vehicle Credit; Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit;and the related instructions. Tax act 2012 free Gas-Guzzler Tax Decrease the basis in your car by the gas-guzzler (fuel economy) tax if you begin using the car within 1 year of the date of its first sale for ultimate use. Tax act 2012 free This rule also applies to someone who later buys the car and begins using it not more than 1 year after the original sale for ultimate use. Tax act 2012 free If the car is imported, the one-year period begins on the date of entry or withdrawal of the car from the warehouse if that date is later than the date of the first sale for ultimate use. Tax act 2012 free Section 179 Deduction If you take the section 179 deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. Tax act 2012 free For more information about the section 179 deduction, see Publication 946. Tax act 2012 free Exclusion of Subsidies for Energy Conservation Measures You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of any energy conservation measure for a dwelling unit. Tax act 2012 free Reduce the basis of the property for which you received the subsidy by the excluded amount. Tax act 2012 free For more information on this subsidy, see Publication 525. Tax act 2012 free Depreciation Decrease the basis of property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. Tax act 2012 free If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. Tax act 2012 free If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. Tax act 2012 free Unless a timely election is made not to deduct the special depreciation allowance for property placed in service after September 10, 2001, decrease the property's basis by the special depreciation allowance you deducted or could have deducted. Tax act 2012 free If you deducted more depreciation than you should have, decrease your basis by the amount equal to the depreciation you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for the year. Tax act 2012 free In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation capitalized under the uniform capitalization rules. Tax act 2012 free For information on figuring depreciation, see Publication 946. Tax act 2012 free If you are claiming depreciation on a business vehicle, see Publication 463. Tax act 2012 free If the car is not used more than 50% for business during the tax year, you may have to recapture excess depreciation. Tax act 2012 free Include the excess depreciation in your gross income and add it to your basis in the property. Tax act 2012 free For information on the computation of excess depreciation, see chapter 4 in Publication 463. Tax act 2012 free Canceled Debt Excluded From Income If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. Tax act 2012 free A debt includes any indebtedness for which you are liable or which attaches to property you hold. Tax act 2012 free You can exclude canceled debt from income in the following situations. Tax act 2012 free Debt canceled in a bankruptcy case or when you are insolvent, Qualified farm debt, and Qualified real property business debt (provided you are not a C corporation). Tax act 2012 free If you exclude from income canceled debt under situation (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. Tax act 2012 free However, in situation (3), you must reduce the basis of your depreciable property by the excluded amount. Tax act 2012 free For more information about canceled debt in a bankruptcy case or during insolvency, see Publication 908, Bankruptcy Tax Guide. Tax act 2012 free For more information about canceled debt that is qualified farm debt, see chapter 3 in Publication 225. Tax act 2012 free For more information about qualified real property business debt, see chapter 5 in Publication 334, Tax Guide for Small Business. Tax act 2012 free Postponed Gain From Sale of Home If you postponed gain from the sale of your main home before May 7, 1997, you must reduce the basis of your new home by the postponed gain. Tax act 2012 free For more information on the rules for the sale of a home, see Publication 523. Tax act 2012 free Adoption Tax Benefits If you claim an adoption credit for the cost of improvements you added to the basis of your home, decrease the basis of your home by the credit allowed. Tax act 2012 free This also applies to amounts you received under an employer's adoption assistance program and excluded from income. Tax act 2012 free For more information Form 8839, Qualified Adoption Expenses. Tax act 2012 free Employer-Provided Child Care If you are an employer, you can claim the employer-provided child care credit on amounts you paid or incurred to acquire, construct, rehabilitate, or expand property used as part of your qualified child care facility. Tax act 2012 free You must reduce your basis in that property by the credit claimed. Tax act 2012 free For more information, see Form 8882, Credit for Employer-Provided Child Care Facilities and Services. Tax act 2012 free Adjustments to Basis Example In January 2005, you paid $80,000 for real property to be used as a factory. Tax act 2012 free You also paid commissions of $2,000 and title search and legal fees of $600. Tax act 2012 free You allocated the total cost of $82,600 between the land and the building—$10,325 for the land and $72,275 for the building. Tax act 2012 free Immediately you spent $20,000 in remodeling the building before you placed it in service. Tax act 2012 free You were allowed depreciation of $14,526 for the years 2005 through 2009. Tax act 2012 free In 2008 you had a $5,000 casualty loss from a that was not covered by insurance on the building. Tax act 2012 free You claimed a deduction for this loss. Tax act 2012 free You spent $5,500 to repair the damages and extend the useful life of the building. Tax act 2012 free The adjusted basis of the building on January 1, 2010, is figured as follows: Original cost of building including fees and commissions $72,275 Adjustments to basis:     Add:         Improvements 20,000   Repair of damages 5,500       $97,775 Subtract:       Depreciation $14,526     Deducted casualty loss 5,000 19,526 Adjusted basis on January 1, 2010 $78,249 The basis of the land, $10,325, remains unchanged. Tax act 2012 free It is not affected by any of the above adjustments. Tax act 2012 free Basis Other Than Cost There are many times when you cannot use cost as basis. Tax act 2012 free In these cases, the fair market value or the adjusted basis of property may be used. Tax act 2012 free Adjusted basis is discussed earlier. Tax act 2012 free Fair market value (FMV). Tax act 2012 free   FMV is the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Tax act 2012 free Sales of similar property on or about the same date may be helpful in figuring the property's FMV. Tax act 2012 free Property Received for Services If you receive property for services, include the property's FMV in income. Tax act 2012 free The amount you include in income becomes your basis. Tax act 2012 free If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Tax act 2012 free Bargain Purchases A bargain purchase is a purchase of an item for less than its FMV. Tax act 2012 free If, as compensation for services, you purchase goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. Tax act 2012 free Your basis in the property is its FMV (your purchase price plus the amount you include in income). Tax act 2012 free If the difference between your purchase price and the FMV represents a qualified employee discount, do not include the difference in income. Tax act 2012 free However, your basis in the property is still its FMV. Tax act 2012 free See Employee Discounts in Publication 15-B. Tax act 2012 free Restricted Property If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested unless you make the election discussed later. Tax act 2012 free Property becomes substantially vested when your rights in the property or the rights of any person to whom you transfer the property are not subject to a substantial risk of forfeiture. Tax act 2012 free There is substantial risk of forfeiture when the rights to full enjoyment of the property depend on the future performance of substantial services by any person. Tax act 2012 free When the property becomes substantially vested, include the FMV, less any amount you paid for the property, in income. Tax act 2012 free Example. Tax act 2012 free Your employer gives you stock for services performed under the condition that you will have to return the stock unless you complete 5 years of service. Tax act 2012 free The stock is under a substantial risk of forfeiture and is not substantially vested when you receive it. Tax act 2012 free You do not report any income until you have completed the 5 years of service that satisfy the condition. Tax act 2012 free Fair market value. Tax act 2012 free   Figure the FMV of property you received without considering any restriction except one that by its terms will never end. Tax act 2012 free Example. Tax act 2012 free You received stock from your employer for services you performed. Tax act 2012 free If you want to sell the stock while you are still employed, you must sell the stock to your employer at book value. Tax act 2012 free At your retirement or death, you or your estate must offer to sell the stock to your employer at its book value. Tax act 2012 free This is a restriction that by its terms will never end and you must consider it when you figure the FMV. Tax act 2012 free Election. Tax act 2012 free   You can choose to include in your gross income the FMV of the property at the time of transfer, less any amount you paid for it. Tax act 2012 free If you make this choice, the substantially vested rules do not apply. Tax act 2012 free Your basis is the amount you paid plus the amount you included in income. Tax act 2012 free   See the discussion of Restricted Property in Publication 525 for more information. Tax act 2012 free Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Tax act 2012 free A taxable gain or deductible loss is also known as a recognized gain or loss. Tax act 2012 free If you receive property in exchange for other property in a taxable exchange, the basis of property you receive is usually its FMV at the time of the exchange. Tax act 2012 free A taxable exchange occurs when you receive cash or property not similar or related in use to the property exchanged. Tax act 2012 free Example. Tax act 2012 free You trade a tract of farm land with an adjusted basis of $3,000 for a tractor that has an FMV of $6,000. Tax act 2012 free You must report a taxable gain of $3,000 for the land. Tax act 2012 free The tractor has a basis of $6,000. Tax act 2012 free Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, you can figure the basis of the replacement property you receive using the basis of the converted property. Tax act 2012 free Similar or related property. Tax act 2012 free   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the old property's basis on the date of the conversion. Tax act 2012 free However, make the following adjustments. Tax act 2012 free Decrease the basis by the following. Tax act 2012 free Any loss you recognize on the conversion, and Any money you receive that you do not spend on similar property. Tax act 2012 free Increase the basis by the following. Tax act 2012 free Any gain you recognize on the conversion, and Any cost of acquiring the replacement property. Tax act 2012 free Money or property not similar or related. Tax act 2012 free   If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the new property is its cost decreased by the gain not recognized on the conversion. Tax act 2012 free Example. Tax act 2012 free The state condemned your property. Tax act 2012 free The property had an adjusted basis of $26,000 and the state paid you $31,000 for it. Tax act 2012 free You realized a gain of $5,000 ($31,000 − $26,000). Tax act 2012 free You bought replacement property similar in use to the converted property for $29,000. Tax act 2012 free You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Tax act 2012 free Your gain not recognized is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Tax act 2012 free The basis of the new property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of the replacement property $26,000 Allocating the basis. Tax act 2012 free   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Tax act 2012 free Example. Tax act 2012 free The state in the previous example condemned your unimproved real property and the replacement property you bought was improved real property with both land and buildings. Tax act 2012 free Allocate the replacement property's $26,000 basis between land and buildings based on their respective costs. Tax act 2012 free More information. Tax act 2012 free   For more information about condemnations, see Involuntary Conversions in Publication 544. Tax act 2012 free For more information about casualty and theft losses, see Publication 547. Tax act 2012 free Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Tax act 2012 free If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. Tax act 2012 free A nontaxable gain or loss is also known as an unrecognized gain or loss. Tax act 2012 free Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Tax act 2012 free To qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. Tax act 2012 free There must also be an exchange of like-kind property. Tax act 2012 free For more information, see Like-Kind Exchanges in Publication 544. Tax act 2012 free The basis of the property you receive is the same as the basis of the property you gave up. Tax act 2012 free Example. Tax act 2012 free You exchange real estate (adjusted basis $50,000, FMV $80,000) held for investment for other real estate (FMV $80,000) held for investment. Tax act 2012 free Your basis in the new property is the same as the basis of the old ($50,000). Tax act 2012 free Exchange expenses. Tax act 2012 free   Exchange expenses are generally the closing costs you pay. Tax act 2012 free They include such items as brokerage commissions, attorney fees, deed preparation fees, etc. Tax act 2012 free Add them to the basis of the like-kind property received. Tax act 2012 free Property plus cash. Tax act 2012 free   If you trade property in a like-kind exchange and also pay money, the basis of the property received is the basis of the property you gave up increased by the money you paid. Tax act 2012 free Example. Tax act 2012 free You trade in a truck (adjusted basis $3,000) for another truck (FMV $7,500) and pay $4,000. Tax act 2012 free Your basis in the new truck is $7,000 (the $3,000 basis of the old truck plus the $4,000 paid). Tax act 2012 free Special rules for related persons. Tax act 2012 free   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. Tax act 2012 free Each person must report any gain or loss not recognized on the original exchange. Tax act 2012 free Each person reports it on the tax return filed for the year in which the later disposition occurs. Tax act 2012 free If this rule applies, the basis of the property received in the original exchange will be its fair market value. Tax act 2012 free   These rules generally do not apply to the following kinds of property dispositions. Tax act 2012 free Dispositions due to the death of either related person, Involuntary conversions, and Dispositions in which neither the original exchange nor the subsequent disposition had as a main purpose the avoidance of federal income tax. Tax act 2012 free Related persons. Tax act 2012 free   Generally, related persons are ancestors, lineal descendants, brothers and sisters (whole or half), and a spouse. Tax act 2012 free   For other related persons (for example, two corporations, an individual and a corporation, a grantor and fiduciary, etc. Tax act 2012 free ), see Nondeductible Loss in chapter 2 of Publication 544. Tax act 2012 free Exchange of business property. Tax act 2012 free   Exchanging the assets of one business for the assets of another business is a multiple property exchange. Tax act 2012 free For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. Tax act 2012 free Partially Nontaxable Exchange A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like property. Tax act 2012 free The basis of the property you receive is the same as the basis of the property you gave up, with the following adjustments. Tax act 2012 free Decrease the basis by the following amounts. Tax act 2012 free Any money you receive, and Any loss you recognize on the exchange. Tax act 2012 free Increase the basis by the following amounts. Tax act 2012 free Any additional costs you incur, and Any gain you recognize on the exchange. Tax act 2012 free If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Tax act 2012 free Example. Tax act 2012 free You traded a truck (adjusted basis $6,000) for a new truck (FMV $5,200) and $1,000 cash. Tax act 2012 free You realized a gain of $200 ($6,200 − $6,000). Tax act 2012 free This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($5,200 + $1,000 – $6,000). Tax act 2012 free You include all the gain in income (recognized gain) because the gain is less than the cash received. Tax act 2012 free Your basis in the new truck is: Adjusted basis of old truck $6,000 Minus: Cash received (adjustment 1(a)) 1,000   $5,000 Plus: Gain recognized (adjustment 2(b)) 200 Basis of new truck $5,200 Allocation of basis. Tax act 2012 free   Allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Tax act 2012 free The rest is the basis of the like property. Tax act 2012 free Example. Tax act 2012 free You had an adjusted basis of $15,000 in real estate you held for investment. Tax act 2012 free You exchanged it for other real estate to be held for investment with an FMV of $12,500, a truck with an FMV of $3,000, and $1,000 cash. Tax act 2012 free The truck is unlike property. Tax act 2012 free You realized a gain of $1,500 ($16,500 − $15,000). Tax act 2012 free This is the FMV of the real estate received plus the FMV of the truck received plus the cash minus the adjusted basis of the real estate you traded ($12,500 + $3,000 + $1,000 – $15,000). Tax act 2012 free You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. Tax act 2012 free Your basis in the properties you received is figured as follows. Tax act 2012 free Adjusted basis of real estate transferred $15,000 Minus: Cash received (adjustment 1(a)) 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property — the truck ($3,000). Tax act 2012 free This is the truck's FMV. Tax act 2012 free The rest ($12,500) is the basis of the real estate. Tax act 2012 free Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. Tax act 2012 free Example. Tax act 2012 free You are a salesperson and you use one of your cars 100% for business. Tax act 2012 free You have used this car in your sales activities for 2 years and have depreciated it. Tax act 2012 free Your adjusted basis in the car is $22,600 and its FMV is $23,100. Tax act 2012 free You are interested in a new car, which sells for $28,000. Tax act 2012 free If you trade your old car and pay $4,900 for the new one, your basis for depreciation for the new car would be $27,500 ($4,900 plus the $22,600 basis of your old car). Tax act 2012 free However, you want a higher basis for depreciating the new car, so you agree to pay the dealer $28,000 for the new car if he will pay you $23,100 for your old car. Tax act 2012 free Because the two transactions are dependent on each other, you are treated as having exchanged your old car for the new one and paid $4,900 ($28,000 − $23,100). Tax act 2012 free Your basis for depreciating the new car is $27,500, the same as if you traded the old car. Tax act 2012 free Partial Business Use of Property If you have property used partly for business and partly for personal use, and you exchange it in a nontaxable exchange for property to be used wholly or partly in your business, the basis of the property you receive is figured as if you had exchanged two properties. Tax act 2012 free The first is an exchange of like-kind property. Tax act 2012 free The second is personal-use property on which gain is recognized and loss is not recognized. Tax act 2012 free First, figure your adjusted basis in the property as if you transferred two separate properties. Tax act 2012 free Figure the adjusted basis of each part of the property by taking into account any adjustments to basis. Tax act 2012 free Deduct the depreciation you took or could have taken from the adjusted basis of the business part. Tax act 2012 free Then figure the amount realized for your property and allocate it to the business and nonbusiness parts of the property. Tax act 2012 free The business part of the property is permitted to be exchanged tax free. Tax act 2012 free However, you must recognize any gain from the exchange of the nonbusiness part. Tax act 2012 free You are deemed to have received, in exchange for the nonbusiness part, an amount equal to its FMV on the date of the exchange. Tax act 2012 free The basis of the property you acquired is the total basis of the property transferred (adjusted to the date of the exchange), increased by any gain recognized on the nonbusiness part. Tax act 2012 free If the nonbusiness part of the property transferred is your main home, you may qualify to exclude from income all or part of the gain on that part. Tax act 2012 free For more information, see Publication 523. Tax act 2012 free Trade of car used partly in business. Tax act 2012 free   If you trade in a car you used partly in your business for another car you will use in your business, your basis for depreciation of the new car is not the same as your basis for figuring a gain or loss on its sale. Tax act 2012 free   For information on figuring your basis for depreciation, see Publication 463. Tax act 2012 free Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse (or former spouse if the transfer is incident to divorce), is the same as your spouse's adjusted basis. Tax act 2012 free However, adjust your basis for any gain recognized by your spouse or former spouse on property transferred in trust. Tax act 2012 free This rule applies only to a transfer of property in trust in which the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. Tax act 2012 free If the property transferred to you is a series E, series EE, or series I United States savings bond, the transferor must include in income the interest accrued to the date of transfer. Tax act 2012 free Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. Tax act 2012 free For more information on these bonds, see Publication 550. Tax act 2012 free At the time of the transfer, the transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of transfer. Tax act 2012 free For more information, see Publication 504, Divorced or Separated Individuals. Tax act 2012 free Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. Tax act 2012 free FMV Less Than Donor's Adjusted Basis If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Tax act 2012 free Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustment to basis while you held the property. Tax act 2012 free Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property (see Adjusted Basis earlier). Tax act 2012 free If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and have a gain, you have neither gain nor loss on the sale or disposition of the property. Tax act 2012 free Example. Tax act 2012 free You received an acre of land as a gift. Tax act 2012 free At the time of the gift, the land had an FMV of $8,000. Tax act 2012 free The donor's adjusted basis was $10,000. Tax act 2012 free After you received the land, no events occurred to increase or decrease your basis. Tax act 2012 free If you sell the land for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis ($10,000) at the time of the gift as your basis to figure gain. Tax act 2012 free If you sell the land for $7,000, you will have a $1,000 loss because you must use the FMV ($8,000) at the time of the gift as your basis to figure a loss. Tax act 2012 free If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Tax act 2012 free For instance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis ($10,000), you would get a $1,000 loss. Tax act 2012 free If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain. Tax act 2012 free Business property. Tax act 2012 free   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduction is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Tax act 2012 free FMV Equal to or More Than Donor's Adjusted Basis If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Tax act 2012 free Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Tax act 2012 free Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis by any required adjustments to basis while you held the property. Tax act 2012 free See Adjusted Basis earlier. Tax act 2012 free Gift received before 1977. Tax act 2012 free   If you received a gift before 1977, increase your basis in the gift (the donor's adjusted basis) by any gift tax paid on it. Tax act 2012 free However, do not increase your basis above the FMV of the gift at the time it was given to you. Tax act 2012 free Example 1. Tax act 2012 free You were given a house in 1976 with an FMV of $21,000. Tax act 2012 free The donor's adjusted basis was $20,000. Tax act 2012 free The donor paid a gift tax of $500. Tax act 2012 free Your basis is $20,500, the donor's adjusted basis plus the gift tax paid. Tax act 2012 free Example 2. Tax act 2012 free If, in Example 1, the gift tax paid had been $1,500, your basis would be $21,000. Tax act 2012 free This is the donor's adjusted basis plus the gift tax paid, limited to the FMV of the house at the time you received the gift. Tax act 2012 free Gift received after 1976. Tax act 2012 free   If you received a gift after 1976, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. Tax act 2012 free Figure the increase by multiplying the gift tax paid by a fraction. Tax act 2012 free The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Tax act 2012 free   The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. Tax act 2012 free The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Tax act 2012 free For information on the gift tax, see Publication 950, Introduction to Estate and Gift Taxes. Tax act 2012 free Example. Tax act 2012 free In 2010, you received a gift of property from your mother that had an FMV of $50,000. Tax act 2012 free Her adjusted basis was $20,000. Tax act 2012 free The amount of the gift for gift tax purposes was $37,000 ($50,000 minus the $13,000 annual exclusion). Tax act 2012 free She paid a gift tax of $9,000. Tax act 2012 free Your basis, $27,290, is figured as follows: Fair market value $50,000 Minus: Adjusted basis 20,000 Net increase in value $30,000 Gift tax paid $9,000 Multiplied by ($30,000 ÷ $37,000) . Tax act 2012 free 81 Gift tax due to net increase in value $7,290 Adjusted basis of property to your mother 20,000 Your basis in the property $27,290 Inherited Property Special rules apply to property acquired from a decedent who died in 2010. Tax act 2012 free See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Tax act 2012 free If you inherited property from a decedent who died before 2010, your basis in property you inherit from a decedent is generally one of the following. Tax act 2012 free The FMV of the property at the date of the individual's death. Tax act 2012 free The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. Tax act 2012 free For information on the alternate valuation date, see the Instructions for Form 706. Tax act 2012 free The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. Tax act 2012 free This method is discussed later. Tax act 2012 free The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. Tax act 2012 free For information on a qualified conservation easement, see the Instructions for Form 706. Tax act 2012 free If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Tax act 2012 free For more information, see the Instructions for Form 706. Tax act 2012 free Appreciated property. Tax act 2012 free   The above rule does not apply to appreciated property you receive from a decedent if you or your spouse originally gave the property to the decedent within 1 year before the decedent's death. Tax act 2012 free Your basis in this property is the same as the decedent's adjusted basis in the property immediately before his or her death, rather than its FMV. Tax act 2012 free Appreciated property is any property whose FMV on the day it was given to the decedent is more than its adjusted basis. Tax act 2012 free Community Property In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. Tax act 2012 free When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. Tax act 2012 free For this rule to apply, at least half the value of the community property interest must be includable in the decedent's gross estate, whether or not the estate must file a return. Tax act 2012 free For example, you and your spouse owned community property that had a basis of $80,000. Tax act 2012 free When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Tax act 2012 free The FMV of the community interest was $100,000. Tax act 2012 free The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Tax act 2012 free The basis of the other half to your spouse's heirs is also $50,000. Tax act 2012 free For more information on community property, see Publication 555, Community Property. Tax act 2012 free Property Held by Surviving Tenant The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety. Tax act 2012 free Example. Tax act 2012 free John and Jim owned, as joint tenants with right of survivorship, business property they purchased for $30,000. Tax act 2012 free John furnished two-thirds of the purchase price and Jim furnished one-third. Tax act 2012 free Depreciation deductions allowed before John's death were $12,000. Tax act 2012 free Under local law, each had a half interest in the income from the property. Tax act 2012 free At the date of John's death, the property had an FMV of $60,000, two-thirds of which is includable in John's estate. Tax act 2012 free Jim figures his basis in the property at the date of John's death as follows: Interest Jim bought with his own funds—1/3 of $30,000 cost $10,000   Interest Jim received on John's death—2/3 of $60,000 FMV 40,000 $50,000 Minus: ½ of $12,000 depreciation before John's death 6,000 Jim's basis at the date of John's death $44,000 If Jim had not contributed any part of the purchase price, his basis at the date of John's death would be $54,000. Tax act 2012 free This is figured by subtracting from the $60,000 FMV, the $6,000 depreciation allocated to Jim's half interest before the date of death. Tax act 2012 free If under local law Jim had no interest in the income from the property and he contributed no part of the purchase price, his basis at John's death would be $60,000, the FMV of the property. Tax act 2012 free Qualified Joint Interest Include one-half of the value of a qualified joint interest in the decedent's gross estate. Tax act 2012 free It does not matter how much each spouse contributed to the purchase price. Tax act 2012 free Also, it does not matter which spouse dies first. Tax act 2012 free A qualified joint interest is any interest in property held by husband and wife as either of the following. Tax act 2012 free Tenants by the entirety, or Joint tenants with right of survivorship if husband and wife are the only joint tenants. Tax act 2012 free Basis. Tax act 2012 free   As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of your half of the property with certain adjustments. Tax act 2012 free Decrease the cost by any deductions allowed to you for depreciation and depletion. Tax act 2012 free Increase the reduced cost by your basis in the half you inherited. Tax act 2012 free Farm or Closely Held Business Under certain conditions, when a person dies the executor or personal representative of that person's estate can choose to value the qualified real property on other than its FMV. Tax act 2012 free If so, the executor or personal representative values the qualified real property based on its use as a farm or its use in a closely held business. Tax act 2012 free If the executor or personal representative chooses this method of valuation for estate tax purposes, that value is the basis of the property for the heirs. Tax act 2012 free Qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. Tax act 2012 free Special-use valuation. Tax act 2012 free   If you are a qualified heir who received special-use valuation property, your basis in the property is the estate's or trust's basis in that property immediately before the distribution. Tax act 2012 free Increase your basis by any gain recognized by the estate or trust because of post-death appreciation. Tax act 2012 free Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or the alternate valuation date. Tax act 2012 free Figure all FMVs without regard to the special-use valuation. Tax act 2012 free   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. Tax act 2012 free This tax is assessed if, within 10 years after the death of the decedent, you transfer the property to a person who is not a member of your family or the property stops being used as a farm or in a closely held business. Tax act 2012 free   To increase your basis in the property, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of the payment of the additional estate tax. Tax act 2012 free If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. Tax act 2012 free The increase in your basis is considered to have occurred immediately before the event that results in the additional estate tax. Tax act 2012 free   You make the election by filing with Form 706-A a statement that does all of the following. Tax act 2012 free Contains your name, address, and taxpayer identification number and those of the estate; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which the election is made; and Provides any additional information required by the Instructions for Form 706-A. Tax act 2012 free   For more information, see the Instructions for Form 706 and the Instructions for Form 706-A. Tax act 2012 free Property Changed to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. Tax act 2012 free An example of changing property held for personal use to business use would be renting out your former main home. Tax act 2012 free Basis for depreciation. Tax act 2012 free   The basis for depreciation is the lesser of the following amounts. Tax act 2012 free The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. Tax act 2012 free Example. Tax act 2012 free Several years ago you paid $160,000 to have your home built on a lot that cost $25,000. Tax act 2012 free You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. Tax act 2012 free Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Tax act 2012 free Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Tax act 2012 free On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Tax act 2012 free The basis for figuring depreciation on the house is its FMV on the date of change ($165,000) because it is less than your adjusted basis ($178,000). Tax act 2012 free Sale of property. Tax act 2012 free   If you later sell or dispose of property changed to business or rental use, the basis of the property you use will depend on whether you are figuring gain or loss. Tax act 2012 free Gain. Tax act 2012 free   The basis for figuring a gain is your adjusted basis when you sell the property. Tax act 2012 free Example. Tax act 2012 free Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. Tax act 2012 free Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Tax act 2012 free Loss. Tax act 2012 free   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Tax act 2012 free Then adjust this amount for the period after the change in the property's use, as discussed earlier under Adjusted Basis, to arrive at a basis for loss. Tax act 2012 free Example. Tax act 2012 free Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. Tax act 2012 free In this case, you would start with the FMV on the date of the change to rental use ($180,000) because it is less than the adjusted basis of $203,000 ($178,000 + $25,000) on that date. Tax act 2012 free Reduce that amount ($180,000) by the depreciation deductions to arrive at a basis for loss of $142,500 ($180,000 − $37,500). Tax act 2012 free How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. Tax act 2012 free By selecting the method that is best for you, you will have quick and easy access to tax help. Tax act 2012 free Contacting your Taxpayer Advocate. Tax act 2012 free   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. Tax act 2012 free We help taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving tax problems with the IRS; and those who believe that an IRS system or procedure is not working as it should. Tax act 2012 free Here are seven things every taxpayer should know about TAS. Tax act 2012 free TAS is your voice at the IRS. Tax act 2012 free Our service is free, confidential, and tailored to meet your needs. Tax act 2012 free You may be eligible for our help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should. Tax act 2012 free We help taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. Tax act 2012 free This includes businesses as well as individuals. Tax act 2012 free Our employees know the IRS and how to navigate it. Tax act 2012 free If you qualify for our help, we'll assign your case to an advocate who will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved. Tax act 2012 free We have at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. Tax act 2012 free You can call your local advocate, whose number is in your phone book, in Publication 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www. Tax act 2012 free irs. Tax act 2012 free gov/advocate. Tax act 2012 free You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059. Tax act 2012 free You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www. Tax act 2012 free taxtoolkit. Tax act 2012 free irs. Tax act 2012 free gov. Tax act 2012 free You can get updates on hot tax topics by visiting our YouTube channel at www. Tax act 2012 free youtube. Tax act 2012 free com/tasnta and our Facebook page at www. Tax act 2012 free facebook. Tax act 2012 free com/YourVoiceAtIRS, or by following our tweets at www. Tax act 2012 free twitter. Tax act 2012 free com/YourVoiceAtIRS. Tax act 2012 free Low Income Taxpayer Clinics (LITCs). Tax act 2012 free   The Low Income Taxpayer Clinic program serves individuals who have a problem with the IRS and whose income is below a certain level. Tax act 2012 free LITCs are independent from the IRS. Tax act 2012 free Most LITCs can provide representation before the IRS or in court on audits, tax collection disputes, and other issues for free or a small fee. Tax act 2012 free If an individual's native language is not English, some clinics can provide multilingual information about taxpayer rights and responsibilities. Tax act 2012 free For more information, see Publication 4134, Low Income Taxpayer Clinic List. Tax act 2012 free This publication is available at IRS. Tax act 2012 free gov, by calling 1-800-TAX-FORM (1-800-829-3676), or at your local IRS office. Tax act 2012 free Free tax services. Tax act 2012 free   Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. Tax act 2012 free Learn about free tax information from the IRS, including publications, services, and education and assistance programs. Tax act 2012 free The publication also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on the telephone. Tax act 2012 free The majority of the information and services listed in this publication are available to you free of charge. Tax act 2012 free If there is a fee associated with a resource or service, it is listed in the publication. Tax act 2012 free   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with d