Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Www Free State Taxes Com

Turbo Tax Ez 1040 FreeHow Do I File 2011 Taxes OnlineFree Taxes For StudentsFile 2011 Taxes LateReturn SoftwareForm 1040ezHow Do I Amend My 2013 Tax ReturnFree Taxact1040ez Instructions 2012Tax Forms 1040ezFederal Income Tax Forms For 2012Do I File My Taxes Free OnlineTax Credits For UnemployedPast Year TaxTurbo Tax Free State FilingFree Tax Filing Online State And FederalIrs Form State Tax FormsIrs Tax Form 2011File 1040 Ez OnlineTax Deductions For College Students1040x OnlineFree Income Tax ReturnFiling Tax Return Someone Love DiedForm 1040x Example1040ez Tax Forms 2011Internal Revenue Tax Forms 2012Handrblock Free1040 Ez 2012Can I File My 2012 Taxes Now2010 Tax Return OnlineFiling Extension For 2011AmendedHow Do You File An Amended Tax ReturnTax Act 2012 ReturnFree Tax HelpHow To Amend A Tax Return 2011H R Block 20111040nrFree Tax FormFree Filing State Taxes

Www Free State Taxes Com

Www free state taxes com 4. Www free state taxes com   Communications and Air Transportation Taxes Table of Contents Uncollected Tax Report Communications TaxLocal-only service. Www free state taxes com Private communication service. Www free state taxes com Exemptions Credits or Refunds Air Transportation TaxesTransportation of Persons by Air International Air Travel Facilities Transportation of Property by Air Special Rules on Transportation Taxes Excise taxes are imposed on amounts paid for certain facilities and services. Www free state taxes com If you receive any payment on which tax is imposed, you are required to collect the tax, file returns, and pay the tax over to the government. Www free state taxes com If you fail to collect and pay over the taxes, you may be liable for the trust fund recovery penalty. Www free state taxes com See chapter 14, later. Www free state taxes com Uncollected Tax Report A separate report is required to be filed by collecting agents of communications services and air transportation taxes if the person from whom the facilities or services tax (the tax) is required to be collected (the taxpayer) refuses to pay the tax, or it is impossible for the collecting agent to collect the tax. Www free state taxes com The report must contain the name and address of the taxpayer, the type of facility provided or service rendered, the amount paid for the facility or service (the amount on which the tax is based), and the date paid. Www free state taxes com Regular method taxpayers. Www free state taxes com   For regular method taxpayers, the report must be filed by the due date of the Form 720 on which the tax would have been reported. Www free state taxes com Alternative method taxpayers. Www free state taxes com   For alternative method taxpayers, the report must be filed by the due date of the Form 720 that includes an adjustment to the separate account for the uncollected tax. Www free state taxes com See Alternative method in  chapter 11. Www free state taxes com Where to file. Www free state taxes com    Do not file the uncollected tax report with Form 720. Www free state taxes com Instead, mail the report to: Internal Revenue Service Excise Tax Program SE:S:SP:EX MS C9-109 5000 Ellin Rd. Www free state taxes com  Lanham, MD 20706 Communications Tax A 3% tax is imposed on amounts paid for local telephone service and teletypewriter exchange service. Www free state taxes com Local telephone service. Www free state taxes com   This includes access to a local telephone system and the privilege of telephonic quality communication with most people who are part of the system. Www free state taxes com Local telephone service also includes any facility or services provided in connection with this service. Www free state taxes com The tax applies to lease payments for certain customer premises equipment (CPE) even though the lessor does not also provide access to a local telecommunications system. Www free state taxes com Local-only service. Www free state taxes com   Local-only service is local telephone service as described above, provided under a plan that does not include long distance telephone service or that separately states the charge for local service on the bill to customers. Www free state taxes com Local-only service also includes any facility or services provided in connection with this service, even though these services and facilities may also be used with long-distance service. Www free state taxes com Private communication service. Www free state taxes com   Private communication service is not local telephone service. Www free state taxes com Private communication service includes accessory-type services provided in connection with a Centrex, PBX, or other similar system for dual use accessory equipment. Www free state taxes com However, the charge for the service must be stated separately from the charge for the basic system, and the accessory must function, in whole or in part, in connection with intercommunication among the subscriber's stations. Www free state taxes com Teletypewriter exchange service. Www free state taxes com   This includes access from a teletypewriter or other data station to a teletypewriter exchange system and the privilege of intercommunication by that station with most persons having teletypewriter or other data stations in the same exchange system. Www free state taxes com Figuring the tax. Www free state taxes com   The tax is based on the sum of all charges for local telephone service included in the bill. Www free state taxes com However, if the bill groups individual items for billing and tax purposes, the tax is based on the sum of the individual items within that group. Www free state taxes com The tax on the remaining items not included in any group is based on the charge for each item separately. Www free state taxes com Do not include in the tax base state or local sales or use taxes that are separately stated on the taxpayer's bill. Www free state taxes com Exemptions Payments for certain services or payments from certain users are exempt from the communications tax. Www free state taxes com Nontaxable service. Www free state taxes com   Nontaxable service means bundled service and long distance service. Www free state taxes com Nontaxable service also includes pre-paid telephone cards and pre-paid cellular service. Www free state taxes com Bundled service. Www free state taxes com   Bundled service is local and long distance service provided under a plan that does not separately state the charge for the local telephone service. Www free state taxes com Bundled service includes plans that provide both local and long distance service for either a flat monthly fee or a charge that varies with the elapsed transmission time for which the service is used. Www free state taxes com Telecommunications companies provide bundled service for both landlines and wireless (cellular) service. Www free state taxes com If Voice over Internet Protocol service provides both local and long distance service and the charges are not separately stated, such service is bundled service. Www free state taxes com   The method for sending or receiving a call, such as on a landline telephone, wireless (cellular), or some other method, does not affect whether a service is local-only or bundled. Www free state taxes com Long distance service. Www free state taxes com   Long distance service is telephonic quality communication with persons whose telephones are outside the local telephone system of the caller. Www free state taxes com Pre-paid telephone cards (PTC). Www free state taxes com   A PTC will be treated as bundled service unless a PTC expressly states it is for local-only service. Www free state taxes com Generally, the person responsible for collecting the tax is the carrier who transfers the PTC to the transferee. Www free state taxes com The transferee is the first person that is not a carrier to whom a PTC is transferred by the carrier. Www free state taxes com The transferee is the person liable for the tax and is eligible to request a credit or refund. Www free state taxes com For more information, see Regulations section 49. Www free state taxes com 4251-4. Www free state taxes com   The holder is the person that purchases a PTC to use and not to resell. Www free state taxes com Holders are not liable for the tax and cannot request a credit or refund. Www free state taxes com Pre-paid cellular telephones. Www free state taxes com   Rules similar to the PTC rules described above apply to pre-paid cellular telephones. Www free state taxes com The transferee is the person eligible to request the credit or refund. Www free state taxes com Installation charges. Www free state taxes com   The tax does not apply to payments received for the installation of any instrument, wire, pole, switchboard, apparatus, or equipment. Www free state taxes com However, the tax does apply to payments for the repair or replacement of those items incidental to ordinary maintenance. Www free state taxes com Answering services. Www free state taxes com   The tax does not apply to amounts paid for a private line, an answering service, and a one-way paging or message service if they do not provide access to a local telephone system and the privilege of telephonic communication as part of the local telephone system. Www free state taxes com Mobile radio telephone service. Www free state taxes com   The tax does not apply to payments for a two-way radio service that does not provide access to a local telephone system. Www free state taxes com Coin-operated telephones. Www free state taxes com   The tax for local telephone service does not apply to payments made for services by inserting coins in public coin-operated telephones. Www free state taxes com But the tax applies if the coin-operated telephone service is furnished for a guaranteed amount. Www free state taxes com Figure the tax on the amount paid under the guarantee plus any fixed monthly or other periodic charge. Www free state taxes com Telephone-operated security systems. Www free state taxes com   The tax does not apply to amounts paid for telephones used only to originate calls to a limited number of telephone stations for security entry into a building. Www free state taxes com In addition, the tax does not apply to any amounts paid for rented communication equipment used in the security system. Www free state taxes com News services. Www free state taxes com   The tax on teletypewriter exchange service does not apply to charges for the following news services. Www free state taxes com Services dealing exclusively with the collection or dissemination of news for or through the public press or radio or television broadcasting. Www free state taxes com Services used exclusively in the collection or dissemination of news by a news ticker service furnishing a general news service similar to that of the public press. Www free state taxes com This exemption applies to payments received for messages from one member of the news media to another member (or to or from their bona fide correspondents). Www free state taxes com For the exemption to apply, the charge for these services must be billed in writing to the person paying for the service and that person must certify in writing that the services are used for an exempt purpose. Www free state taxes com Services not exempted. Www free state taxes com   The tax applies to amounts paid by members of the news media for local telephone service. Www free state taxes com International organizations and the American Red Cross. Www free state taxes com   The tax does not apply to communication services furnished to an international organization or to the American National Red Cross. Www free state taxes com Nonprofit hospitals. Www free state taxes com   The tax does not apply to telephone services furnished to income tax-exempt nonprofit hospitals for their use. Www free state taxes com Also, the tax does not apply to amounts paid by these hospitals to provide local telephone service in the homes of their personnel who must be reached during their off-duty hours. Www free state taxes com Nonprofit educational organizations. Www free state taxes com   The tax does not apply to payments received for services and facilities furnished to a nonprofit educational organization for its use. Www free state taxes com A nonprofit educational organization is one that satisfies all the following requirements. Www free state taxes com It normally maintains a regular faculty and curriculum. Www free state taxes com It normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. Www free state taxes com It is exempt from income tax under section 501(a). Www free state taxes com This includes a school operated by an organization exempt under section 501(c)(3) if the school meets the above qualifications. Www free state taxes com Qualified blood collector organizations. Www free state taxes com   The tax does not apply to telephone services furnished to qualified blood collector organizations for their use. Www free state taxes com A qualified blood collector organization is one that is: Described in section 501(c)(3) and exempt from tax under section 501(a), Primarily engaged in the activity of collecting human blood, Registered with the IRS, and Registered by the Food and Drug Administration to collect blood. Www free state taxes com Federal, state, and local government. Www free state taxes com   The tax does not apply to communication services provided to the government of the United States, the government of any state or its political subdivisions, the District of Columbia, or the United Nations. Www free state taxes com Treat an Indian tribal government as a state for the exemption from the communications tax only if the services involve the exercise of an essential tribal government function. Www free state taxes com Exemption certificate. Www free state taxes com   Any form of exemption certificate will be acceptable if it includes all the information required by the Internal Revenue Code and Regulations. Www free state taxes com See Regulations section 49. Www free state taxes com 4253-11. Www free state taxes com File the certificate with the provider of the communication services. Www free state taxes com An exemption certificate is not required for nontaxable services. Www free state taxes com   The following users that are exempt from the communications tax do not have to file an annual exemption certificate after they have filed the initial certificate to claim an exemption from the communications tax. Www free state taxes com The American National Red Cross and other international organizations. Www free state taxes com Nonprofit hospitals. Www free state taxes com Nonprofit educational organizations. Www free state taxes com Qualified blood collector organizations. Www free state taxes com State and local governments. Www free state taxes com   The federal government does not have to file any exemption certificate. Www free state taxes com   All other organizations must furnish exemption certificates when required. Www free state taxes com Credits or Refunds If tax is collected and paid over for nontaxable services, or for certain services or users exempt from the communications tax, the collector or taxpayer may claim a credit or refund if it has repaid the tax to the person from whom the tax was collected or obtained the consent of that person to the allowance of the credit or refund. Www free state taxes com Alternatively, the person who paid the tax may claim a refund. Www free state taxes com For more information on how to file for credits or refunds, see the Instructions for Form 720 or Form 8849. Www free state taxes com Collectors. Www free state taxes com   The collector may request a credit or refund if it has repaid the tax to the person from whom the tax was collected, or obtained the consent of that person to the allowance of the credit or refund. Www free state taxes com These requirements also apply to nontaxable service refunds. Www free state taxes com Collectors using the regular method for deposits. Www free state taxes com   Collectors using the regular method for deposits must use Form 720X to request a credit or refund if the collector has repaid the tax to the person from whom the tax was collected, or obtained the consent of that person to the allowance of the credit or refund. Www free state taxes com Collectors using the alternative method for deposits. Www free state taxes com   Collectors using the alternative method for deposits must adjust their separate accounts for the credit or refund if it has repaid the tax to the person from whom the tax was collected, or obtained the consent of that person to the allowance of the credit or refund. Www free state taxes com For more information, see the Instructions for Form 720. Www free state taxes com Air Transportation Taxes Taxes are imposed on amounts paid for: Transportation of persons by air, Use of international air travel facilities, and Transportation of property by air. Www free state taxes com Transportation of Persons by Air The tax on transportation of persons by air is made up of the: Percentage tax, and Domestic-segment tax. Www free state taxes com Percentage tax. Www free state taxes com   A tax of 7. Www free state taxes com 5% applies to amounts paid for taxable transportation of persons by air. Www free state taxes com Amounts paid for transportation include charges for layover or waiting time and movement of aircraft in deadhead service. Www free state taxes com Mileage awards. Www free state taxes com   The percentage tax may apply to an amount paid (in cash or in kind) to an air carrier (or any related person) for the right to provide mileage awards for, or other reductions in the cost of, any transportation of persons by air. Www free state taxes com For example, this applies to mileage awards purchased by credit card companies, telephone companies, restaurants, hotels, and other businesses. Www free state taxes com   Generally, the percentage tax does not apply to amounts paid for mileage awards where the mileage awards cannot, under any circumstances, be redeemed for air transportation that is subject to the tax. Www free state taxes com Until regulations are issued, the following rules apply to mileage awards. Www free state taxes com Amounts paid for mileage awards that cannot be redeemed for taxable transportation beginning and ending in the United States are not subject to the tax. Www free state taxes com For this rule, mileage awards issued by a foreign air carrier are considered to be usable only on that foreign air carrier and thus not redeemable for taxable transportation beginning and ending in the United States. Www free state taxes com Therefore, amounts paid to a foreign air carrier for mileage awards are not subject to the tax. Www free state taxes com Amounts paid by an air carrier to a domestic air carrier for mileage awards that can be redeemed for taxable transportation are not subject to the tax to the extent those miles will be awarded in connection with the purchase of taxable transportation. Www free state taxes com Amounts paid by an air carrier to a domestic air carrier for mileage awards that can be redeemed for taxable transportation are subject to the tax to the extent those miles will not be awarded in connection with the purchase of taxable transportation. Www free state taxes com Domestic-segment tax. Www free state taxes com   The domestic-segment tax is a flat dollar amount for each segment of taxable transportation for which an amount is paid. Www free state taxes com However, see Rural airports, later. Www free state taxes com A segment is a single takeoff and a single landing. Www free state taxes com The amount of the domestic-segment tax is in the Instructions for Form 720. Www free state taxes com Charter flights. Www free state taxes com    If an aircraft is chartered, the domestic-segment tax for each segment of taxable transportation is figured by multiplying the tax by the number of passengers transported on the aircraft. Www free state taxes com Rural airports. Www free state taxes com   The domestic-segment tax does not apply to a segment to or from a rural airport. Www free state taxes com An airport is a rural airport for a calendar year if fewer than 100,000 commercial passengers departed from the airport by air during the second preceding calendar year (the 100,000 passenger rule), and one of the following is true: The airport is not located within 75 miles of another airport from which 100,000 or more commercial passengers departed during the second preceding calendar year, The airport was receiving essential air service subsidies as of August 5, 1997, or The airport is not connected by paved roads to another airport. Www free state taxes com   To apply the 100,000 passenger rule to any airport described in (3) above, only count commercial passengers departing from the airport by air on flight segments of at least 100 miles. Www free state taxes com   An updated list of rural airports can be found on the Department of Transportation website at www. Www free state taxes com dot. Www free state taxes com gov and enter the phrase “Essential Air Service” in the search box. Www free state taxes com Taxable transportation. Www free state taxes com   Taxable transportation is transportation by air that meets either of the following tests. Www free state taxes com It begins and ends either in the United States or at any place in Canada or Mexico not more than 225 miles from the nearest point on the continental United States boundary (this is the 225-mile zone). Www free state taxes com It is directly or indirectly from one port or station in the United States to another port or station in the United States, but only if it is not a part of uninterrupted international air transportation, discussed later. Www free state taxes com Round trip. Www free state taxes com   A round trip is considered two separate trips. Www free state taxes com The first trip is from the point of departure to the destination. Www free state taxes com The second trip is the return trip from that destination. Www free state taxes com Uninterrupted international air transportation. Www free state taxes com   This means transportation entirely by air that does not begin and end in the United States or in the 225-mile zone if there is not more than a 12-hour scheduled interval between arrival and departure at any station in the United States. Www free state taxes com For a special rule that applies to military personnel, see Exemptions, later. Www free state taxes com Transportation between the continental U. Www free state taxes com S. Www free state taxes com and Alaska or Hawaii. Www free state taxes com   This transportation is partially exempt from the tax on transportation of persons by air. Www free state taxes com The tax does not apply to the part of the trip between the point at which the route of transportation leaves or enters the continental United States (or a port or station in the 225-mile zone) and the point at which it enters or leaves Hawaii or Alaska. Www free state taxes com Leaving or entering occurs when the route of the transportation passes over either the United States border or a point 3 nautical miles (3. Www free state taxes com 45 statute miles) from low tide on the coast line, or when it leaves a port or station in the 225-mile zone. Www free state taxes com Therefore, this transportation is subject to the percentage tax on the part of the trip in U. Www free state taxes com S. Www free state taxes com airspace, the domestic-segment tax for each domestic segment, and the tax on the use of international air travel facilities, discussed later. Www free state taxes com Transportation within Alaska or Hawaii. Www free state taxes com   The tax on transportation of persons by air applies to the entire fare paid in the case of flights between any of the Hawaiian Islands, and between any ports or stations in the Aleutian Islands or other ports or stations elsewhere in Alaska. Www free state taxes com The tax applies even though parts of the flights may be over international waters or over Canada, if no point on the direct line of transportation between the ports or stations is more than 225 miles from the United States (Hawaii or Alaska). Www free state taxes com Package tours. Www free state taxes com   The air transportation taxes apply to “complimentary” air transportation furnished solely to participants in package holiday tours. Www free state taxes com The amount paid for these package tours includes a charge for air transportation even though it may be advertised as “free. Www free state taxes com ” This rule also applies to the tax on the use of international air travel facilities, discussed later. Www free state taxes com Liability for tax. Www free state taxes com   The person paying for taxable transportation is liable for the tax and, ordinarily, the person receiving the payment collects the tax, files the returns, and pays the tax over to the government. Www free state taxes com However, if payment is made outside the United States for a prepaid order, exchange order, or similar order, the person furnishing the initial transportation provided for under that order must collect the tax. Www free state taxes com    A travel agency that is an independent broker and sells tours on aircraft that it charters must collect the transportation tax, file the returns, and pay the tax over to the government. Www free state taxes com However, a travel agency that sells tours as the agent of an airline must collect the tax and remit it to the airline for the filing of returns and for the payment of the tax over to the government. Www free state taxes com An independent third party that is not under the airline's supervision or control, but is acting on behalf of, and receiving compensation from, a passenger, is not required to collect the tax and pay it to the government. Www free state taxes com For more information on resellers of air transportation, see Revenue Ruling 2006-52. Www free state taxes com You can find Revenue Ruling 2006-52 on page 761 of I. Www free state taxes com R. Www free state taxes com B. Www free state taxes com 2006-43 at www. Www free state taxes com irs. Www free state taxes com gov/pub/irs-irbs/irb06-43. Www free state taxes com pdf. Www free state taxes com   The fact that the aircraft does not use public or commercial airports in taking off and landing has no effect on the tax. Www free state taxes com But see Certain helicopter uses, later. Www free state taxes com   For taxable transportation that begins and ends in the United States, the tax applies regardless of whether the payment is made in or outside the United States. Www free state taxes com   If the tax is not paid when payment for the transportation is made, the air carrier providing the initial segment of the transportation that begins or ends in the United States becomes liable for the tax. Www free state taxes com Exemptions. Www free state taxes com   The tax on transportation of persons by air does not apply in the following situations. Www free state taxes com See also Special Rules on Transportation Taxes, later. Www free state taxes com Military personnel on international trips. Www free state taxes com   When traveling in uniform at their own expense, United States military personnel on authorized leave are deemed to be traveling in uninterrupted international air transportation (defined earlier) even if the scheduled interval between arrival and departure at any station in the United States is actually more than 12 hours. Www free state taxes com However, such personnel must buy their tickets within 12 hours after landing at the first domestic airport and accept the first available accommodation of the type called for by their tickets. Www free state taxes com The trip must begin or end outside the United States and the 225-mile zone. Www free state taxes com Certain helicopter uses. Www free state taxes com   The tax does not apply to air transportation by helicopter if the helicopter is used for any of the following purposes. Www free state taxes com Transporting individuals, equipment, or supplies in the exploration for, or the development or removal of, hard minerals, oil, or gas. Www free state taxes com Planting, cultivating, cutting, transporting, or caring for trees (including logging operations). Www free state taxes com Providing emergency medical transportation. Www free state taxes com   However, during a use described in items (1) or (2), the tax applies if the helicopter takes off from, or lands at, a facility eligible for assistance under the Airport and Airway Development Act of 1970, or otherwise uses services provided under section 44509 or 44913(b) or subchapter I of chapter 471 of title 49, United States Code. Www free state taxes com For item (1), treat each flight segment as a separate flight. Www free state taxes com Fixed-wing aircraft uses. Www free state taxes com   The tax does not apply to air transportation by fixed-wing aircraft if the fixed-wing aircraft is used for any of the following purposes. Www free state taxes com Planting, cultivating, cutting, transporting, or caring for trees (including logging operations). Www free state taxes com Providing emergency medical transportation. Www free state taxes com The aircraft must be equipped for and exclusively dedicated on that flight to acute care emergency medical services. Www free state taxes com   However, during a use described in item (1), the tax applies if the fixed-wing aircraft takes off from, or lands at, a facility eligible for assistance under the Airport and Airway Development Act of 1970, or otherwise uses services provided under section 44509 or 44913(b) or subchapter I of chapter 471 of title 49, United States Code. Www free state taxes com Skydiving. Www free state taxes com   The tax does not apply to any air transportation exclusively for the purpose of skydiving. Www free state taxes com Seaplanes. Www free state taxes com   The tax does not apply to any air transportation by seaplane for any segment consisting of a takeoff from, and a landing on, water if the places where the takeoff and landing occur are not receiving financial assistance from the Airport and Airways Trust Fund. Www free state taxes com Bonus tickets. Www free state taxes com   The tax does not apply to free bonus tickets issued by an airline company to its customers who have satisfied all requirements to qualify for the bonus tickets. Www free state taxes com However, the tax applies to amounts paid by customers for advance bonus tickets when customers have traveled insufficient mileage to fully qualify for the free advance bonus tickets. Www free state taxes com International Air Travel Facilities A tax per person is imposed (whether in or outside the United States) for international flights that begin or end in the United States. Www free state taxes com However, for a domestic segment that begins or ends in Alaska or Hawaii, a reduced tax per person applies only to departures. Www free state taxes com This tax does not apply if all the transportation is subject to the percentage tax, discussed earlier. Www free state taxes com It also doesn't apply if the surtax on fuel used in a fractional ownership program aircraft (discussed earlier) is imposed. Www free state taxes com See the Instructions for Form 720 for the tax rates. Www free state taxes com Transportation of Property by Air A tax of 6. Www free state taxes com 25% is imposed on amounts paid (whether in or outside the United States) for transportation of property by air. Www free state taxes com The fact that the aircraft may not use public or commercial airports in taking off and landing has no effect on the tax. Www free state taxes com The tax applies only to amounts paid to a person engaged in the business of transporting property by air for hire. Www free state taxes com The tax applies only to transportation (including layover time and movement of aircraft in deadhead service) that begins and ends in the United States. Www free state taxes com Thus, the tax does not apply to transportation of property by air that begins or ends outside the United States. Www free state taxes com Exemptions. Www free state taxes com   The tax on transportation of property by air does not apply in the following situations. Www free state taxes com See also Special Rules on Transportation Taxes, later. Www free state taxes com Cropdusting and firefighting service. Www free state taxes com   The tax does not apply to amounts paid for cropdusting or aerial firefighting service. Www free state taxes com Exportation. Www free state taxes com    The tax does not apply to payments for transportation of property by air in the course of exportation (including to United States possessions) by continuous movement, as evidenced by the execution of Form 1363, Export Exemption Certificate. Www free state taxes com See Form 1363 for more information. Www free state taxes com Certain helicopter and fixed-wing air ambulance uses. Www free state taxes com   The tax does not apply to amounts paid for the use of helicopters in construction to set heating and air conditioning units on roofs of buildings, to dismantle tower cranes, and to aid in construction of power lines and ski lifts. Www free state taxes com   The tax also does not apply to air transportation by helicopter or fixed-wing aircraft for the purpose of providing emergency medical services. Www free state taxes com The fixed-wing aircraft must be equipped for and exclusively dedicated on that flight to acute care emergency medical services. Www free state taxes com Skydiving. Www free state taxes com   The tax does not apply to any air transportation exclusively for the purpose of skydiving. Www free state taxes com Excess baggage. Www free state taxes com    The tax does not apply to excess baggage accompanying a passenger on an aircraft operated on an established line. Www free state taxes com Surtax on fuel used in a fractional ownership program aircraft. Www free state taxes com   The tax does not apply if the surtax on fuel used in a fractional ownership program aircraft (discussed earlier) is imposed. Www free state taxes com Alaska and Hawaii. Www free state taxes com   For transportation of property to and from Alaska and Hawaii, the tax in general does not apply to the portion of the transportation that is entirely outside the continental United States (or the 225-mile zone if the aircraft departs from or arrives at an airport in the 225-mile zone). Www free state taxes com But the tax applies to flights between ports or stations in Alaska and the Aleutian Islands, as well as between ports or stations in Hawaii. Www free state taxes com The tax applies even though parts of the flights may be over international waters or over Canada, if no point on a line drawn from where the route of transportation leaves the United States (Alaska) to where it reenters the United States (Alaska) is more than 225 miles from the United States. Www free state taxes com Liability for tax. Www free state taxes com   The person paying for taxable transportation is liable for the tax and, ordinarily, the person engaged in the business of transporting property by air for hire receives the payment, collects the tax, files the returns, and pays the tax over to the government. Www free state taxes com   If tax is not paid when a payment is made outside the United States, the person furnishing the last segment of taxable transportation collects the tax from the person to whom the property is delivered in the United States. Www free state taxes com Special Rules on Transportation Taxes In certain circumstances, special rules apply to the taxes on transportation of persons and property by air. Www free state taxes com Aircraft used by affiliated corporations. Www free state taxes com   The taxes do not apply to payments received by one member of an affiliated group of corporations from another member for services furnished in connection with the use of an aircraft. Www free state taxes com However, the aircraft must be owned or leased by a member of the affiliated group and cannot be available for hire by a nonmember of the affiliated group. Www free state taxes com Determine whether an aircraft is available for hire by a nonmember of an affiliated group on a flight-by-flight basis. Www free state taxes com   For this rule, an affiliated group of corporations is any group of corporations connected with a common parent corporation through 80% or more of stock ownership. Www free state taxes com Small aircraft. Www free state taxes com   The taxes do not apply to transportation furnished by an aircraft having a maximum certificated takeoff weight of 6,000 pounds or less. Www free state taxes com However, the taxes do apply if the aircraft is operated on an established line. Www free state taxes com “Operated on an established line” means the aircraft operates with some degree of regularity between definite points. Www free state taxes com However, it does not include any time an aircraft is being operated on a flight that is solely for sightseeing. Www free state taxes com   Consider an aircraft to be operated on an established line if it is operated on a charter basis between two cities also served by that carrier on a regularly scheduled basis. Www free state taxes com   Also, the taxes apply if the aircraft is jet-powered, regardless of its maximum certificated takeoff weight or whether or not it is operated on an established line. Www free state taxes com Mixed load of persons and property. Www free state taxes com   If a single amount is paid for air transportation of persons and property, the payment must be allocated between the amount subject to the tax on transportation of persons and the amount subject to the tax on transportation of property. Www free state taxes com The allocation must be reasonable and supported by adequate records. Www free state taxes com Credits or refunds. Www free state taxes com   If tax is collected and paid over for air transportation that is not taxable air transportation, the collector may claim a credit or refund if it has repaid the tax to the person from whom the tax was collected or obtained the consent of that person to the allowance of the credit or refund. Www free state taxes com Alternatively, the person who paid the tax may claim a refund. Www free state taxes com For information on how to file for credits or refunds, see the Instructions for Form 720 or Form 8849. Www free state taxes com Prev  Up  Next   Home   More Online Publications
Español

When Selecting a Contractor

  • Get recommendations and references. Talk to friends, family and others who have used the contractor for similar work.
  • Get at least three written estimates. Insist the contractors come to your home to evaluate what needs to be done. Be sure the estimates are based on the same work so that you can make meaningful comparisons.
  • Check contractor complaint records. Your state or local consumer protection agency or Better Business Bureau can provide this information.
  • Make sure the contractor meets licensing and registration requirements. Your state or local consumer protection agency can help you find out what these requirements are.
  • Get the names of suppliers and ask if the contractor makes timely payments.
  • Contact your local building inspection department to check for permit and inspection requirements. Be wary if the contractor asks you to get the permit; it could mean the firm is not licensed.
  • Be sure your contractor is insured. They should have personal liability, property damage and worker's compensation insurance for workers and subcontractors. Also check with your insurance company to find out if you are covered for any injury or damage that might occur.
  • Insist on a written contract that states exactly what work will be done, the quality of materials that will be used, warranties, timetables, the names of any subcontractors, the total price of the job, and the schedule of payments.
  • Try to limit your down payment. Some states have laws limiting the amount of down payment required.
  • Understand your payment options. Compare the cost of getting your own loan versus contractor financing.
  • Don't make a final payment or sign a final release until you are satisfied with the work and know that subcontractors and suppliers have been paid. Some state laws allow unpaid subcontractors and suppliers to put a lien on your home for bills the contractor failed to pay.
  • Pay by credit card when you can. You may have the right to withhold payment to the credit card company until problems are corrected.

Be especially cautious if the contractor:

  • Comes door-to-door or seeks you out;
  • Just happens to have material left over from a recent job;
  • offers you discounts for finding other customers;
  • quotes a price that's out of line with other estimates;
  • pressures you for an immediate decision;
  • offers an unusually long guarantee;
  • can only be reached by leaving messages with an answering service;
  • drives an unmarked van;
  • has out-of state license plates; or
  • asks you to pay for the entire job up front.

With most home improvements, federal law gives you three business days to cancel without penalty. Of course you would be liable for any benefit already received. State laws may also provide some protection. And remember, if you finance home improvements with a home equity loan and don't make your payments, you could lose your home.

The Www Free State Taxes Com

Www free state taxes com 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). Www free state taxes com Cost Basis The basis of property you buy is usually its cost. Www free state taxes com The cost is the amount you pay in cash, debt obligations, other property, or services. Www free state taxes com Your cost also includes amounts you pay for the following items. Www free state taxes com 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). Www free state taxes com  You may also have to capitalize (add to basis) certain other costs related to buying or producing property. Www free state taxes com Loans with low or no interest. Www free state taxes com   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. Www free state taxes com You generally have unstated interest if your interest rate is less than the applicable federal rate. Www free state taxes com For more information, see Unstated Interest and Original Issue Discount in Publication 537. Www free state taxes com Purchase of a business. Www free state taxes com   When you purchase a trade or business, you generally purchase all assets used in the business operations, such as land, buildings, and machinery. Www free state taxes com Allocate the price among the various assets, including any section 197 intangibles. Www free state taxes com See Allocating the Basis, later. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com You must adjust the basis of stocks for certain events that occur after purchase. Www free state taxes com See Stocks and Bonds in chapter 4 of Publication 550 for more information on the basis of stock. Www free state taxes com Identifying stock or bonds sold. Www free state taxes com   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. Www free state taxes com 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. Www free state taxes com For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Www free state taxes com Mutual fund shares. Www free state taxes com   If you sell mutual fund shares acquired at different times and prices, you can choose to use an average basis. Www free state taxes com For more information, see Publication 550. Www free state taxes com Real Property Real property, also called real estate, is land and generally anything built on or attached to it. Www free state taxes com If you buy real property, certain fees and other expenses become part of your cost basis in the property. Www free state taxes com Real estate taxes. Www free state taxes com   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. Www free state taxes com You cannot deduct them as taxes. Www free state taxes com   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. Www free state taxes com Do not include that amount in the basis of the property. Www free state taxes com If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Www free state taxes com Settlement costs. Www free state taxes com   Your basis includes the settlement fees and closing costs for buying property. Www free state taxes com You cannot include in your basis the fees and costs for getting a loan on property. Www free state taxes com A fee for buying property is a cost that must be paid even if you bought the property for cash. Www free state taxes com   The following items are some of the settlement fees or closing costs you can include in the basis of your property. Www free state taxes com 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. Www free state taxes com   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Www free state taxes com   The following items are some settlement fees and closing costs you cannot include in the basis of the property. Www free state taxes com Casualty insurance premiums. Www free state taxes com Rent for occupancy of the property before closing. Www free state taxes com Charges for utilities or other services related to occupancy of the property before closing. Www free state taxes com Charges connected with getting a loan. Www free state taxes com The following are examples of these charges. Www free state taxes com Points (discount points, loan origination fees). Www free state taxes com Mortgage insurance premiums. Www free state taxes com Loan assumption fees. Www free state taxes com Cost of a credit report. Www free state taxes com Fees for an appraisal required by a lender. Www free state taxes com Fees for refinancing a mortgage. Www free state taxes com If these costs relate to business property, items (1) through (3) are deductible as business expenses. Www free state taxes com Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan. Www free state taxes com Points. Www free state taxes com   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. Www free state taxes com Generally, you deduct the points over the term of the loan. Www free state taxes com For more information on how to deduct points, see Points in chapter 4 of Publication 535. Www free state taxes com Points on home mortgage. Www free state taxes com   Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. Www free state taxes com If certain requirements are met, you can deduct the points in full for the year in which they are paid. Www free state taxes com Reduce the basis of your home by any seller-paid points. Www free state taxes com For more information, see Points in Publication 936, Home Mortgage Interest Deduction. Www free state taxes com Assumption of mortgage. Www free state taxes com   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. Www free state taxes com Example. Www free state taxes com If you buy a building for $20,000 cash and assume a mortgage of $80,000 on it, your basis is $100,000. Www free state taxes com Constructing assets. Www free state taxes com   If you build property or have assets built for you, your expenses for this construction are part of your basis. Www free state taxes com Some of these expenses include the following costs. Www free state taxes com Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. Www free state taxes com In addition, if you own a business and use your employees, material, and equipment to build an asset, do not deduct the following expenses. Www free state taxes com You must include them in the asset's basis. Www free state taxes com 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. Www free state taxes com    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. Www free state taxes com Business Assets If you purchase property to use in your business, your basis is usually its actual cost to you. Www free state taxes com If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. Www free state taxes com In certain circumstances, you may be subject to the uniform capitalization rules, next. Www free state taxes com Uniform Capitalization Rules The uniform capitalization rules specify the costs you add to basis in certain circumstances. Www free state taxes com Activities subject to the rules. Www free state taxes com   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. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. Www free state taxes com 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. Www free state taxes com Tangible personal property includes films, sound recordings, video tapes, books, or similar property. Www free state taxes com    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. Www free state taxes com 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. Www free state taxes com You recover these costs through deductions for depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Www free state taxes com   Any cost you cannot use to figure your taxable income for any tax year is not subject to the uniform capitalization rules. Www free state taxes com Example. Www free state taxes com 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. Www free state taxes com The nondeductible part of the cost is not subject to the uniform capitalization rules. Www free state taxes com More information. Www free state taxes com   For more information about these rules, see the regulations under section 263A of the Internal Revenue Code and Publication 538, Accounting Periods and Methods. Www free state taxes com Exceptions. Www free state taxes com   The following are not subject to the uniform capitalization rules. Www free state taxes com 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. Www free state taxes com For other exceptions to the uniform capitalization rules, see section 1. Www free state taxes com 263A-1(b) of the regulations. Www free state taxes com   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. Www free state taxes com Intangible Assets Intangible assets include goodwill, patents, copyrights, trademarks, trade names, and franchises. Www free state taxes com The basis of an intangible asset is usually the cost to buy or create it. Www free state taxes com 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. Www free state taxes com The basis of certain intangibles can be amortized. Www free state taxes com See chapter 8 of Publication 535 for information on the amortization of these costs. Www free state taxes com Patents. Www free state taxes com   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. Www free state taxes com If you deduct the research and experimental expenditures as current business expenses, you cannot include them in the basis of the patent. Www free state taxes com The value of the inventor's time spent on an invention is not part of the basis. Www free state taxes com Copyrights. Www free state taxes com   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. Www free state taxes com Do not include the value of your time as the author, or any other person's time you did not pay for. Www free state taxes com Franchises, trademarks, and trade names. Www free state taxes com   If you buy a franchise, trademark, or trade name, the basis is its cost, unless you can deduct your payments as a business expense. Www free state taxes com Allocating the Basis If you buy multiple assets for a lump sum, allocate the amount you pay among the assets you receive. Www free state taxes com You must make this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. Www free state taxes com See Trade or Business Acquired below. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com However, see Trade or Business Acquired, next. Www free state taxes com Trade or Business Acquired If you acquire a trade or business, allocate the consideration paid to the various assets acquired. Www free state taxes com Generally, reduce the consideration paid by any cash and general deposit accounts (including checking and savings accounts) received. Www free state taxes com 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. Www free state taxes com Certificates of deposit, U. Www free state taxes com S. Www free state taxes com Government securities, foreign currency, and actively traded personal property, including stock and securities. Www free state taxes com Accounts receivable, other debt instruments, and assets you mark to market at least annually for federal income tax purposes. Www free state taxes com 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. Www free state taxes com All other assets except section 197 intangibles, goodwill, and going concern value. Www free state taxes com Section 197 intangibles except goodwill and going concern value. Www free state taxes com Goodwill and going concern value (whether or not they qualify as section 197 intangibles). Www free state taxes com Agreement. Www free state taxes com   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. Www free state taxes com This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Www free state taxes com Reporting requirement. Www free state taxes com   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. Www free state taxes com Use Form 8594 to provide this information. Www free state taxes com The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Www free state taxes com More information. Www free state taxes com   See Sale of a Business in chapter 2 of Publication 544 for more information. Www free state taxes com 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. Www free state taxes com Figure the basis of each asset by multiplying the lump sum by a fraction. Www free state taxes com The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Www free state taxes com 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. Www free state taxes com Demolition of building. Www free state taxes com   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. Www free state taxes com Do not claim the costs as a current deduction. Www free state taxes com Modification of building. Www free state taxes com   A modification of a building will not be treated as a demolition if the following conditions are satisfied. Www free state taxes com 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. Www free state taxes com   If the building is a certified historic structure, the modification must also be part of a certified rehabilitation. Www free state taxes com   If these conditions are met, add the costs of the modifications to the basis of the building. Www free state taxes com Subdivided lots. Www free state taxes com   If you buy a tract of land and subdivide it, you must determine the basis of each lot. Www free state taxes com This is necessary because you must figure the gain or loss on the sale of each individual lot. Www free state taxes com As a result, you do not recover your entire cost in the tract until you have sold all of the lots. Www free state taxes com   To determine the basis of an individual lot, multiply the total cost of the tract by a fraction. Www free state taxes com The numerator is the FMV of the lot and the denominator is the FMV of the entire tract. Www free state taxes com Future improvement costs. Www free state taxes com   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. Www free state taxes com See Revenue Procedure 92–29 for more information, including an explanation of the procedures for getting consent from the IRS. Www free state taxes com Use of erroneous cost basis. Www free state taxes com   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. Www free state taxes com Figure the basis of any remaining lots by allocating the correct original cost basis of the entire tract among the original lots. Www free state taxes com Example. Www free state taxes com You bought a tract of land to which you assigned a cost of $15,000. Www free state taxes com 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. Www free state taxes com You treated the sale of each lot as a separate transaction and figured gain or loss separately on each sale. Www free state taxes com Several years later you determine that your original basis in the tract was $22,500 and not $15,000. Www free state taxes com You sold eight lots using $8,000 of basis in years for which the statute of limitations has expired. Www free state taxes com 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). Www free state taxes com You cannot refigure the basis of the eight lots sold in tax years barred by the statute of limitations. Www free state taxes com 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. Www free state taxes com The result of these adjustments to the basis is the adjusted basis. Www free state taxes com Increases to Basis Increase the basis of any property by all items properly added to a capital account. Www free state taxes com These include the cost of any improvements having a useful life of more than 1 year. Www free state taxes com Rehabilitation expenses also increase basis. Www free state taxes com However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis. Www free state taxes com If you have to recapture any of the credit, increase your basis by the recaptured amount. Www free state taxes com If you make additions or improvements to business property, keep separate accounts for them. Www free state taxes com 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. Www free state taxes com For more information, see Publication 946. Www free state taxes com The following items increase the basis of property. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com Do not deduct them as taxes. Www free state taxes com However, you can deduct as taxes charges for maintenance, repairs, or interest charges related to the improvements. Www free state taxes com Example. Www free state taxes com 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. Www free state taxes com Add the assessment to your property's basis. Www free state taxes com In this example, the assessment is a depreciable asset. Www free state taxes com Deducting vs. Www free state taxes com Capitalizing Costs Do not add to your basis costs you can deduct as current expenses. Www free state taxes com For example, amounts paid for incidental repairs or maintenance that are deductible as business expenses cannot be added to basis. Www free state taxes com However, you can choose either to deduct or to capitalize certain other costs. Www free state taxes com If you capitalize these costs, include them in your basis. Www free state taxes com If you deduct them, do not include them in your basis. Www free state taxes com See Uniform Capitalization Rules earlier. Www free state taxes com The costs you can choose to deduct or to capitalize include the following. Www free state taxes com 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. Www free state taxes com If you claim the disabled access credit, you must reduce the amount you deduct or capitalize by the amount of the credit. Www free state taxes com For more information about deducting or capitalizing costs, see chapter 7 in Publication 535. Www free state taxes com Table 1. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com Some of these items are discussed next. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com To make this determination, compare the repaired property to the property before the casualty. Www free state taxes com For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts. Www free state taxes com Easements The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. Www free state taxes com It reduces the basis of the affected part of the property. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com For more information about the section 179 deduction, see Publication 946. Www free state taxes com 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. Www free state taxes com Reduce the basis of the property for which you received the subsidy by the excluded amount. Www free state taxes com For more information on this subsidy, see Publication 525. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com For information on figuring depreciation, see Publication 946. Www free state taxes com If you are claiming depreciation on a business vehicle, see Publication 463. Www free state taxes com If the car is not used more than 50% for business during the tax year, you may have to recapture excess depreciation. Www free state taxes com Include the excess depreciation in your gross income and add it to your basis in the property. Www free state taxes com For information on the computation of excess depreciation, see chapter 4 in Publication 463. Www free state taxes com 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. Www free state taxes com A debt includes any indebtedness for which you are liable or which attaches to property you hold. Www free state taxes com You can exclude canceled debt from income in the following situations. Www free state taxes com 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). Www free state taxes com 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. Www free state taxes com However, in situation (3), you must reduce the basis of your depreciable property by the excluded amount. Www free state taxes com For more information about canceled debt in a bankruptcy case or during insolvency, see Publication 908, Bankruptcy Tax Guide. Www free state taxes com For more information about canceled debt that is qualified farm debt, see chapter 3 in Publication 225. Www free state taxes com For more information about qualified real property business debt, see chapter 5 in Publication 334, Tax Guide for Small Business. Www free state taxes com 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. Www free state taxes com For more information on the rules for the sale of a home, see Publication 523. Www free state taxes com 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. Www free state taxes com This also applies to amounts you received under an employer's adoption assistance program and excluded from income. Www free state taxes com For more information Form 8839, Qualified Adoption Expenses. Www free state taxes com 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. Www free state taxes com You must reduce your basis in that property by the credit claimed. Www free state taxes com For more information, see Form 8882, Credit for Employer-Provided Child Care Facilities and Services. Www free state taxes com Adjustments to Basis Example In January 2005, you paid $80,000 for real property to be used as a factory. Www free state taxes com You also paid commissions of $2,000 and title search and legal fees of $600. Www free state taxes com 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. Www free state taxes com Immediately you spent $20,000 in remodeling the building before you placed it in service. Www free state taxes com You were allowed depreciation of $14,526 for the years 2005 through 2009. Www free state taxes com In 2008 you had a $5,000 casualty loss from a that was not covered by insurance on the building. Www free state taxes com You claimed a deduction for this loss. Www free state taxes com You spent $5,500 to repair the damages and extend the useful life of the building. Www free state taxes com 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. Www free state taxes com It is not affected by any of the above adjustments. Www free state taxes com Basis Other Than Cost There are many times when you cannot use cost as basis. Www free state taxes com In these cases, the fair market value or the adjusted basis of property may be used. Www free state taxes com Adjusted basis is discussed earlier. Www free state taxes com Fair market value (FMV). Www free state taxes com   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. Www free state taxes com Sales of similar property on or about the same date may be helpful in figuring the property's FMV. Www free state taxes com Property Received for Services If you receive property for services, include the property's FMV in income. Www free state taxes com The amount you include in income becomes your basis. Www free state taxes com 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. Www free state taxes com Bargain Purchases A bargain purchase is a purchase of an item for less than its FMV. Www free state taxes com 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. Www free state taxes com Your basis in the property is its FMV (your purchase price plus the amount you include in income). Www free state taxes com If the difference between your purchase price and the FMV represents a qualified employee discount, do not include the difference in income. Www free state taxes com However, your basis in the property is still its FMV. Www free state taxes com See Employee Discounts in Publication 15-B. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com When the property becomes substantially vested, include the FMV, less any amount you paid for the property, in income. Www free state taxes com Example. Www free state taxes com 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. Www free state taxes com The stock is under a substantial risk of forfeiture and is not substantially vested when you receive it. Www free state taxes com You do not report any income until you have completed the 5 years of service that satisfy the condition. Www free state taxes com Fair market value. Www free state taxes com   Figure the FMV of property you received without considering any restriction except one that by its terms will never end. Www free state taxes com Example. Www free state taxes com You received stock from your employer for services you performed. Www free state taxes com If you want to sell the stock while you are still employed, you must sell the stock to your employer at book value. Www free state taxes com At your retirement or death, you or your estate must offer to sell the stock to your employer at its book value. Www free state taxes com This is a restriction that by its terms will never end and you must consider it when you figure the FMV. Www free state taxes com Election. Www free state taxes com   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. Www free state taxes com If you make this choice, the substantially vested rules do not apply. Www free state taxes com Your basis is the amount you paid plus the amount you included in income. Www free state taxes com   See the discussion of Restricted Property in Publication 525 for more information. Www free state taxes com Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Www free state taxes com A taxable gain or deductible loss is also known as a recognized gain or loss. Www free state taxes com 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. Www free state taxes com A taxable exchange occurs when you receive cash or property not similar or related in use to the property exchanged. Www free state taxes com Example. Www free state taxes com You trade a tract of farm land with an adjusted basis of $3,000 for a tractor that has an FMV of $6,000. Www free state taxes com You must report a taxable gain of $3,000 for the land. Www free state taxes com The tractor has a basis of $6,000. Www free state taxes com 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. Www free state taxes com Similar or related property. Www free state taxes com   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. Www free state taxes com However, make the following adjustments. Www free state taxes com Decrease the basis by the following. Www free state taxes com Any loss you recognize on the conversion, and Any money you receive that you do not spend on similar property. Www free state taxes com Increase the basis by the following. Www free state taxes com Any gain you recognize on the conversion, and Any cost of acquiring the replacement property. Www free state taxes com Money or property not similar or related. Www free state taxes com   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. Www free state taxes com Example. Www free state taxes com The state condemned your property. Www free state taxes com The property had an adjusted basis of $26,000 and the state paid you $31,000 for it. Www free state taxes com You realized a gain of $5,000 ($31,000 − $26,000). Www free state taxes com You bought replacement property similar in use to the converted property for $29,000. Www free state taxes com You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Www free state taxes com Your gain not recognized is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Www free state taxes com 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. Www free state taxes com   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Www free state taxes com Example. Www free state taxes com 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. Www free state taxes com Allocate the replacement property's $26,000 basis between land and buildings based on their respective costs. Www free state taxes com More information. Www free state taxes com   For more information about condemnations, see Involuntary Conversions in Publication 544. Www free state taxes com For more information about casualty and theft losses, see Publication 547. Www free state taxes com Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Www free state taxes com If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. Www free state taxes com A nontaxable gain or loss is also known as an unrecognized gain or loss. Www free state taxes com Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Www free state taxes com 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. Www free state taxes com There must also be an exchange of like-kind property. Www free state taxes com For more information, see Like-Kind Exchanges in Publication 544. Www free state taxes com The basis of the property you receive is the same as the basis of the property you gave up. Www free state taxes com Example. Www free state taxes com You exchange real estate (adjusted basis $50,000, FMV $80,000) held for investment for other real estate (FMV $80,000) held for investment. Www free state taxes com Your basis in the new property is the same as the basis of the old ($50,000). Www free state taxes com Exchange expenses. Www free state taxes com   Exchange expenses are generally the closing costs you pay. Www free state taxes com They include such items as brokerage commissions, attorney fees, deed preparation fees, etc. Www free state taxes com Add them to the basis of the like-kind property received. Www free state taxes com Property plus cash. Www free state taxes com   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. Www free state taxes com Example. Www free state taxes com You trade in a truck (adjusted basis $3,000) for another truck (FMV $7,500) and pay $4,000. Www free state taxes com Your basis in the new truck is $7,000 (the $3,000 basis of the old truck plus the $4,000 paid). Www free state taxes com Special rules for related persons. Www free state taxes com   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. Www free state taxes com Each person must report any gain or loss not recognized on the original exchange. Www free state taxes com Each person reports it on the tax return filed for the year in which the later disposition occurs. Www free state taxes com If this rule applies, the basis of the property received in the original exchange will be its fair market value. Www free state taxes com   These rules generally do not apply to the following kinds of property dispositions. Www free state taxes com 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. Www free state taxes com Related persons. Www free state taxes com   Generally, related persons are ancestors, lineal descendants, brothers and sisters (whole or half), and a spouse. Www free state taxes com   For other related persons (for example, two corporations, an individual and a corporation, a grantor and fiduciary, etc. Www free state taxes com ), see Nondeductible Loss in chapter 2 of Publication 544. Www free state taxes com Exchange of business property. Www free state taxes com   Exchanging the assets of one business for the assets of another business is a multiple property exchange. Www free state taxes com For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. Www free state taxes com Partially Nontaxable Exchange A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like property. Www free state taxes com The basis of the property you receive is the same as the basis of the property you gave up, with the following adjustments. Www free state taxes com Decrease the basis by the following amounts. Www free state taxes com Any money you receive, and Any loss you recognize on the exchange. Www free state taxes com Increase the basis by the following amounts. Www free state taxes com Any additional costs you incur, and Any gain you recognize on the exchange. Www free state taxes com If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Www free state taxes com Example. Www free state taxes com You traded a truck (adjusted basis $6,000) for a new truck (FMV $5,200) and $1,000 cash. Www free state taxes com You realized a gain of $200 ($6,200 − $6,000). Www free state taxes com 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). Www free state taxes com You include all the gain in income (recognized gain) because the gain is less than the cash received. Www free state taxes com 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. Www free state taxes com   Allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Www free state taxes com The rest is the basis of the like property. Www free state taxes com Example. Www free state taxes com You had an adjusted basis of $15,000 in real estate you held for investment. Www free state taxes com 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. Www free state taxes com The truck is unlike property. Www free state taxes com You realized a gain of $1,500 ($16,500 − $15,000). Www free state taxes com 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). Www free state taxes com 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. Www free state taxes com Your basis in the properties you received is figured as follows. Www free state taxes com 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). Www free state taxes com This is the truck's FMV. Www free state taxes com The rest ($12,500) is the basis of the real estate. Www free state taxes com 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. Www free state taxes com Example. Www free state taxes com You are a salesperson and you use one of your cars 100% for business. Www free state taxes com You have used this car in your sales activities for 2 years and have depreciated it. Www free state taxes com Your adjusted basis in the car is $22,600 and its FMV is $23,100. Www free state taxes com You are interested in a new car, which sells for $28,000. Www free state taxes com 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). Www free state taxes com 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. Www free state taxes com 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). Www free state taxes com Your basis for depreciating the new car is $27,500, the same as if you traded the old car. Www free state taxes com 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. Www free state taxes com The first is an exchange of like-kind property. Www free state taxes com The second is personal-use property on which gain is recognized and loss is not recognized. Www free state taxes com First, figure your adjusted basis in the property as if you transferred two separate properties. Www free state taxes com Figure the adjusted basis of each part of the property by taking into account any adjustments to basis. Www free state taxes com Deduct the depreciation you took or could have taken from the adjusted basis of the business part. Www free state taxes com Then figure the amount realized for your property and allocate it to the business and nonbusiness parts of the property. Www free state taxes com The business part of the property is permitted to be exchanged tax free. Www free state taxes com However, you must recognize any gain from the exchange of the nonbusiness part. Www free state taxes com You are deemed to have received, in exchange for the nonbusiness part, an amount equal to its FMV on the date of the exchange. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com For more information, see Publication 523. Www free state taxes com Trade of car used partly in business. Www free state taxes com   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. Www free state taxes com   For information on figuring your basis for depreciation, see Publication 463. Www free state taxes com 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. Www free state taxes com However, adjust your basis for any gain recognized by your spouse or former spouse on property transferred in trust. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com For more information on these bonds, see Publication 550. Www free state taxes com 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. Www free state taxes com For more information, see Publication 504, Divorced or Separated Individuals. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com 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). Www free state taxes com 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. Www free state taxes com Example. Www free state taxes com You received an acre of land as a gift. Www free state taxes com At the time of the gift, the land had an FMV of $8,000. Www free state taxes com The donor's adjusted basis was $10,000. Www free state taxes com After you received the land, no events occurred to increase or decrease your basis. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Www free state taxes com 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. Www free state taxes com If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain. Www free state taxes com Business property. Www free state taxes com   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. Www free state taxes com 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. Www free state taxes com Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Www free state taxes com 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. Www free state taxes com See Adjusted Basis earlier. Www free state taxes com Gift received before 1977. Www free state taxes com   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. Www free state taxes com However, do not increase your basis above the FMV of the gift at the time it was given to you. Www free state taxes com Example 1. Www free state taxes com You were given a house in 1976 with an FMV of $21,000. Www free state taxes com The donor's adjusted basis was $20,000. Www free state taxes com The donor paid a gift tax of $500. Www free state taxes com Your basis is $20,500, the donor's adjusted basis plus the gift tax paid. Www free state taxes com Example 2. Www free state taxes com If, in Example 1, the gift tax paid had been $1,500, your basis would be $21,000. Www free state taxes com 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. Www free state taxes com Gift received after 1976. Www free state taxes com   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. Www free state taxes com Figure the increase by multiplying the gift tax paid by a fraction. Www free state taxes com The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Www free state taxes com   The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. Www free state taxes com 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. Www free state taxes com For information on the gift tax, see Publication 950, Introduction to Estate and Gift Taxes. Www free state taxes com Example. Www free state taxes com In 2010, you received a gift of property from your mother that had an FMV of $50,000. Www free state taxes com Her adjusted basis was $20,000. Www free state taxes com The amount of the gift for gift tax purposes was $37,000 ($50,000 minus the $13,000 annual exclusion). Www free state taxes com She paid a gift tax of $9,000. Www free state taxes com 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) . Www free state taxes com 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. Www free state taxes com See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Www free state taxes com 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. Www free state taxes com The FMV of the property at the date of the individual's death. Www free state taxes com The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. Www free state taxes com For information on the alternate valuation date, see the Instructions for Form 706. Www free state taxes com 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. Www free state taxes com This method is discussed later. Www free state taxes com 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. Www free state taxes com For information on a qualified conservation easement, see the Instructions for Form 706. Www free state taxes com 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. Www free state taxes com For more information, see the Instructions for Form 706. Www free state taxes com Appreciated property. Www free state taxes com   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. Www free state taxes com 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. Www free state taxes com Appreciated property is any property whose FMV on the day it was given to the decedent is more than its adjusted basis. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com For example, you and your spouse owned community property that had a basis of $80,000. Www free state taxes com When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Www free state taxes com The FMV of the community interest was $100,000. Www free state taxes com The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Www free state taxes com The basis of the other half to your spouse's heirs is also $50,000. Www free state taxes com For more information on community property, see Publication 555, Community Property. Www free state taxes com 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. Www free state taxes com Example. Www free state taxes com John and Jim owned, as joint tenants with right of survivorship, business property they purchased for $30,000. Www free state taxes com John furnished two-thirds of the purchase price and Jim furnished one-third. Www free state taxes com Depreciation deductions allowed before John's death were $12,000. Www free state taxes com Under local law, each had a half interest in the income from the property. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com Qualified Joint Interest Include one-half of the value of a qualified joint interest in the decedent's gross estate. Www free state taxes com It does not matter how much each spouse contributed to the purchase price. Www free state taxes com Also, it does not matter which spouse dies first. Www free state taxes com A qualified joint interest is any interest in property held by husband and wife as either of the following. Www free state taxes com Tenants by the entirety, or Joint tenants with right of survivorship if husband and wife are the only joint tenants. Www free state taxes com Basis. Www free state taxes com   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. Www free state taxes com Decrease the cost by any deductions allowed to you for depreciation and depletion. Www free state taxes com Increase the reduced cost by your basis in the half you inherited. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com Qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. Www free state taxes com Special-use valuation. Www free state taxes com   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. Www free state taxes com Increase your basis by any gain recognized by the estate or trust because of post-death appreciation. Www free state taxes com 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. Www free state taxes com Figure all FMVs without regard to the special-use valuation. Www free state taxes com   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. Www free state taxes com 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. Www free state taxes com   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. Www free state taxes com 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. Www free state taxes com The increase in your basis is considered to have occurred immediately before the event that results in the additional estate tax. Www free state taxes com   You make the election by filing with Form 706-A a statement that does all of the following. Www free state taxes com 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. Www free state taxes com   For more information, see the Instructions for Form 706 and the Instructions for Form 706-A. Www free state taxes com 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. Www free state taxes com An example of changing property held for personal use to business use would be renting out your former main home. Www free state taxes com Basis for depreciation. Www free state taxes com   The basis for depreciation is the lesser of the following amounts. Www free state taxes com The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. Www free state taxes com Example. Www free state taxes com Several years ago you paid $160,000 to have your home built on a lot that cost $25,000. Www free state taxes com 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. Www free state taxes com Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Www free state taxes com Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Www free state taxes com 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. Www free state taxes com 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). Www free state taxes com Sale of property. Www free state taxes com   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. Www free state taxes com Gain. Www free state taxes com   The basis for figuring a gain is your adjusted basis when you sell the property. Www free state taxes com Example. Www free state taxes com 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. Www free state taxes com Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Www free state taxes com Loss. Www free state taxes com   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. Www free state taxes com 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. Www free state taxes com Example. Www free state taxes com 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. Www free state taxes com 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. Www free state taxes com Reduce that amount ($180,000) by the depreciation deductions to arrive at a basis for loss of $142,500 ($180,000 − $37,500). Www free state taxes com 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. Www free state taxes com By selecting the method that is best for you, you will have quick and easy access to tax help. Www free state taxes com Contacting your Taxpayer Advocate. Www free state taxes com   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. Www free state taxes com 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. Www free state taxes com Here are seven things every taxpayer should know about TAS. Www free state taxes com TAS is your voice at the IRS. Www free state taxes com Our service is free, confidential, and tailored to meet your needs. Www free state taxes com 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. Www free state taxes com We help taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. Www free state taxes com This includes businesses as well as individuals. Www free state taxes com Our employees know the IRS and how to navigate it. Www free state taxes com 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. Www free state taxes com We have at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. Www free state taxes com 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. Www free state taxes com irs. Www free state taxes com gov/advocate. Www free state taxes com You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059. Www free state taxes com You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www. Www free state taxes com taxtoolkit. Www free state taxes com irs. Www free state taxes com gov. Www free state taxes com You can get updates on hot tax topics by visiting our YouTube channel at www. Www free state taxes com youtube. Www free state taxes com com/tasnta and our Facebook page at www. Www free state taxes com facebook. Www free state taxes com com/YourVoiceAtIRS, or by following our tweets at www. Www free state taxes com twitter. Www free state taxes com com/YourVoiceAtIRS. Www free state taxes com Low Income Taxpayer Clinics (LITCs). Www free state taxes com   The Low Income Taxpayer Clinic program serves individuals who have a problem with the IRS and whose income is below a certain level. Www free state taxes com LITCs are independent from the IRS. Www free state taxes com 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. Www free state taxes com If an individual's native language is not English, some clinics can provide multilingual information about taxpayer rights and responsibilities. Www free state taxes com For more information, see Publication 4134, Low Income Taxpayer Clinic List. Www free state taxes com This publication is available at IRS. Www free state taxes com gov, by calling 1-800-TAX-FORM (1-800-829-3676), or at your local IRS office. Www free state taxes com Free tax services. Www free state taxes com   Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. Www free state taxes com Learn about free tax information from the IRS, including publications, services, and education and assistance programs. Www free state taxes com The publication also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on the telephone. Www free state taxes com The majority of the information and services listed in this publication are available to you free of charge. Www free state taxes com If there is a fee associated with a resource or service, it is listed in the publication. Www free state taxes com   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with d