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2010 Tax Preparation Software

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2010 Tax Preparation Software

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

2010 tax preparation software 13. 2010 tax preparation software   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. 2010 tax preparation software It is divided into the following sections. 2010 tax preparation software Cost basis. 2010 tax preparation software Adjusted basis. 2010 tax preparation software Basis other than cost. 2010 tax preparation software Your basis is the amount of your investment in property for tax purposes. 2010 tax preparation software Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. 2010 tax preparation software Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. 2010 tax preparation software If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. 2010 tax preparation software Only the basis allocated to the business or investment use of the property can be depreciated. 2010 tax preparation software Your original basis in property is adjusted (increased or decreased) by certain events. 2010 tax preparation software For example, if you make improvements to the property, increase your basis. 2010 tax preparation software If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. 2010 tax preparation software Keep accurate records of all items that affect the basis of your property. 2010 tax preparation software For more information on keeping records, see chapter 1. 2010 tax preparation software Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. 2010 tax preparation software The cost is the amount you pay in cash, debt obligations, other property, or services. 2010 tax preparation software Your cost also includes amounts you pay for the following items: 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 you assume liability for the seller). 2010 tax preparation software In addition, the basis of real estate and business assets may include other items. 2010 tax preparation software Loans with low or no interest. 2010 tax preparation software    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 any amount considered to be unstated interest. 2010 tax preparation software You generally have unstated interest if your interest rate is less than the applicable federal rate. 2010 tax preparation software   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. 2010 tax preparation software Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. 2010 tax preparation software If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. 2010 tax preparation software Lump sum purchase. 2010 tax preparation software   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. 2010 tax preparation software Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. 2010 tax preparation software Figure the basis of each asset by multiplying the lump sum by a fraction. 2010 tax preparation software The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. 2010 tax preparation software    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. 2010 tax preparation software Fair market value (FMV). 2010 tax preparation software   FMV is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the necessary facts. 2010 tax preparation software Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. 2010 tax preparation software Assumption of mortgage. 2010 tax preparation software   If you buy property and assume (or buy the property 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. 2010 tax preparation software Settlement costs. 2010 tax preparation software   Your basis includes the settlement fees and closing costs you paid for buying the property. 2010 tax preparation software (A fee for buying property is a cost that must be paid even if you buy the property for cash. 2010 tax preparation software ) Do not include fees and costs for getting a loan on the property in your basis. 2010 tax preparation software   The following are some of the settlement fees or closing costs you can include in the basis of your property. 2010 tax preparation software Abstract fees (abstract of title fees). 2010 tax preparation software Charges for installing utility services. 2010 tax preparation software Legal fees (including fees for the title search and preparation of the sales contract and deed). 2010 tax preparation software Recording fees. 2010 tax preparation software Survey fees. 2010 tax preparation software Transfer taxes. 2010 tax preparation software Owner's title insurance. 2010 tax preparation software 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. 2010 tax preparation software   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. 2010 tax preparation software   The following are some of the settlement fees and closing costs you cannot include in the basis of property. 2010 tax preparation software Casualty insurance premiums. 2010 tax preparation software Rent for occupancy of the property before closing. 2010 tax preparation software Charges for utilities or other services related to occupancy of the property before closing. 2010 tax preparation software Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. 2010 tax preparation software Fees for refinancing a mortgage. 2010 tax preparation software Real estate taxes. 2010 tax preparation software   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. 2010 tax preparation software You cannot deduct them as an expense. 2010 tax preparation software    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. 2010 tax preparation software Do not include that amount in the basis of your property. 2010 tax preparation software If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. 2010 tax preparation software Points. 2010 tax preparation software   If you pay points to get 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. 2010 tax preparation software Generally, you deduct the points over the term of the loan. 2010 tax preparation software For more information on how to deduct points, see chapter 23. 2010 tax preparation software Points on home mortgage. 2010 tax preparation software   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. 2010 tax preparation software If certain requirements are met, you can deduct the points in full for the year in which they are paid. 2010 tax preparation software Reduce the basis of your home by any seller-paid points. 2010 tax preparation software 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 (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. 2010 tax preparation software The result is the adjusted basis. 2010 tax preparation software Increases to Basis Increase the basis of any property by all items properly added to a capital account. 2010 tax preparation software Examples of items that increase basis are shown in Table 13-1. 2010 tax preparation software These include the items discussed below. 2010 tax preparation software Improvements. 2010 tax preparation software   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. 2010 tax preparation software For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. 2010 tax preparation software Assessments for local improvements. 2010 tax preparation software   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. 2010 tax preparation software Do not deduct them as taxes. 2010 tax preparation software However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. 2010 tax preparation software Example. 2010 tax preparation software Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. 2010 tax preparation software Add the assessment to your property's basis. 2010 tax preparation software In this example, the assessment is a depreciable asset. 2010 tax preparation software Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. 2010 tax preparation software Examples of items that decrease basis are shown in Table 13-1. 2010 tax preparation software These include the items discussed below. 2010 tax preparation software Table 13-1. 2010 tax preparation software Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. 2010 tax preparation software   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. 2010 tax preparation software    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. 2010 tax preparation software   For more information on casualty and theft losses, see chapter 25. 2010 tax preparation software Depreciation and section 179 deduction. 2010 tax preparation software   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. 2010 tax preparation software   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. 2010 tax preparation software Example. 2010 tax preparation software You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. 2010 tax preparation software You added an improvement to the duplex that cost $10,000. 2010 tax preparation software In February last year, the duplex was damaged by fire. 2010 tax preparation software Up to that time, you had been allowed depreciation of $23,000. 2010 tax preparation software You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. 2010 tax preparation software You deducted a casualty loss of $1,000 on your income tax return for last year. 2010 tax preparation software You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. 2010 tax preparation software You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. 2010 tax preparation software Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. 2010 tax preparation software Your basis in the land is its original cost of $5,000. 2010 tax preparation software Easements. 2010 tax preparation software   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. 2010 tax preparation software It reduces the basis of the affected part of the property. 2010 tax preparation software 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. 2010 tax preparation software   If the gain is on a capital asset, see chapter 16 for information about how to report it. 2010 tax preparation software If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. 2010 tax preparation software Exclusion of subsidies for energy conservation measures. 2010 tax preparation software   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. 2010 tax preparation software Reduce the basis of the property for which you received the subsidy by the excluded amount. 2010 tax preparation software For more information about this subsidy, see chapter 12. 2010 tax preparation software Postponed gain from sale of home. 2010 tax preparation software    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. 2010 tax preparation software For more information on the rules for the sale of a home, see chapter 15. 2010 tax preparation software Basis Other Than Cost There are many times when you cannot use cost as basis. 2010 tax preparation software In these cases, the fair market value or the adjusted basis of the property can be used. 2010 tax preparation software Fair market value (FMV) and adjusted basis were discussed earlier. 2010 tax preparation software Property Received for Services If you receive property for your services, include the FMV of the property in income. 2010 tax preparation software The amount you include in income becomes your basis. 2010 tax preparation software 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. 2010 tax preparation software Restricted property. 2010 tax preparation software   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. 2010 tax preparation software However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. 2010 tax preparation software Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). 2010 tax preparation software For more information, see Restricted Property in Publication 525. 2010 tax preparation software Bargain purchases. 2010 tax preparation software   A bargain purchase is a purchase of an item for less than its FMV. 2010 tax preparation software If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. 2010 tax preparation software Your basis in the property is its FMV (your purchase price plus the amount you include in income). 2010 tax preparation software   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. 2010 tax preparation software However, your basis in the property is still its FMV. 2010 tax preparation software See Employee Discounts in Publication 15-B. 2010 tax preparation software Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. 2010 tax preparation software A taxable gain or deductible loss also is known as a recognized gain or loss. 2010 tax preparation software If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. 2010 tax preparation software Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. 2010 tax preparation software Similar or related property. 2010 tax preparation software   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. 2010 tax preparation software Decrease the basis by the following. 2010 tax preparation software Any loss you recognize on the involuntary conversion. 2010 tax preparation software Any money you receive that you do not spend on similar property. 2010 tax preparation software Increase the basis by the following. 2010 tax preparation software Any gain you recognize on the involuntary conversion. 2010 tax preparation software Any cost of acquiring the replacement property. 2010 tax preparation software Money or property not similar or related. 2010 tax preparation software    If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the conversion. 2010 tax preparation software Example. 2010 tax preparation software The state condemned your property. 2010 tax preparation software The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. 2010 tax preparation software You realized a gain of $5,000 ($31,000 − $26,000). 2010 tax preparation software You bought replacement property similar in use to the converted property for $29,000. 2010 tax preparation software You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. 2010 tax preparation software Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. 2010 tax preparation software The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. 2010 tax preparation software   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. 2010 tax preparation software Basis for depreciation. 2010 tax preparation software   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. 2010 tax preparation software For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. 2010 tax preparation software Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. 2010 tax preparation software If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. 2010 tax preparation software See Nontaxable Trades in chapter 14. 2010 tax preparation software Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. 2010 tax preparation software To qualify as a like-kind exchange, the property traded and the property received must be both of the following. 2010 tax preparation software Qualifying property. 2010 tax preparation software Like-kind property. 2010 tax preparation software The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. 2010 tax preparation software If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. 2010 tax preparation software Qualifying property. 2010 tax preparation software   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. 2010 tax preparation software Like-kind property. 2010 tax preparation software   There must be an exchange of like-kind property. 2010 tax preparation software Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. 2010 tax preparation software The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. 2010 tax preparation software Example. 2010 tax preparation software You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. 2010 tax preparation software The dealer allows you $2,000 on the old truck, and you pay $4,800. 2010 tax preparation software This is a like-kind exchange. 2010 tax preparation software The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). 2010 tax preparation software If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). 2010 tax preparation software The basis of the new truck is the price you pay the dealer. 2010 tax preparation software Partially nontaxable exchanges. 2010 tax preparation software   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. 2010 tax preparation software The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. 2010 tax preparation software Decrease the basis by the following amounts. 2010 tax preparation software Any money you receive. 2010 tax preparation software Any loss you recognize on the exchange. 2010 tax preparation software Increase the basis by the following amounts. 2010 tax preparation software Any additional costs you incur. 2010 tax preparation software Any gain you recognize on the exchange. 2010 tax preparation software If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. 2010 tax preparation software Allocation of basis. 2010 tax preparation software   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. 2010 tax preparation software The rest is the basis of the like-kind property. 2010 tax preparation software More information. 2010 tax preparation software   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. 2010 tax preparation software Basis for depreciation. 2010 tax preparation software   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. 2010 tax preparation software For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. 2010 tax preparation software Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. 2010 tax preparation software The same rule applies to a transfer by your former spouse that is incident to divorce. 2010 tax preparation software However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. 2010 tax preparation software If the property transferred to you is a series E, series EE, or series I U. 2010 tax preparation software S. 2010 tax preparation software savings bond, the transferor must include in income the interest accrued to the date of transfer. 2010 tax preparation software 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. 2010 tax preparation software For more information on these bonds, see chapter 7. 2010 tax preparation software At the time of the transfer, the transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. 2010 tax preparation software For more information about the transfer of property from a spouse, see chapter 14. 2010 tax preparation software Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis 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. 2010 tax preparation software FMV less than donor's adjusted basis. 2010 tax preparation software   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. 2010 tax preparation software Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. 2010 tax preparation software Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. 2010 tax preparation software See Adjusted Basis , earlier. 2010 tax preparation software Example. 2010 tax preparation software You received an acre of land as a gift. 2010 tax preparation software At the time of the gift, the land had an FMV of $8,000. 2010 tax preparation software The donor's adjusted basis was $10,000. 2010 tax preparation software After you received the property, no events occurred to increase or decrease your basis. 2010 tax preparation software If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. 2010 tax preparation software If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. 2010 tax preparation software If the sales price is between $8,000 and $10,000, you have neither gain nor loss. 2010 tax preparation software Business property. 2010 tax preparation software   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. 2010 tax preparation software FMV equal to or greater than donor's adjusted basis. 2010 tax preparation software   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. 2010 tax preparation software Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. 2010 tax preparation software   Also, for figuring gain or loss from a sale or other disposition or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. 2010 tax preparation software See Adjusted Basis , earlier. 2010 tax preparation software   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. 2010 tax preparation software Figure the increase by multiplying the gift tax paid by a fraction. 2010 tax preparation software The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. 2010 tax preparation software   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. 2010 tax preparation software 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. 2010 tax preparation software Example. 2010 tax preparation software In 2013, you received a gift of property from your mother that had an FMV of $50,000. 2010 tax preparation software Her adjusted basis was $20,000. 2010 tax preparation software The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). 2010 tax preparation software She paid a gift tax of $7,320 on the property. 2010 tax preparation software Your basis is $26,076, figured as follows: Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000     Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . 2010 tax preparation software 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. 2010 tax preparation software If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. 2010 tax preparation software However, your basis cannot exceed the FMV of the gift at the time it was given to you. 2010 tax preparation software Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. 2010 tax preparation software The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. 2010 tax preparation software The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. 2010 tax preparation software 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. 2010 tax preparation software 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. 2010 tax preparation software For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. 2010 tax preparation software Property inherited from a decedent who died in 2010. 2010 tax preparation software   If you inherited property from a decedent who died in 2010, special rules may apply. 2010 tax preparation software For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. 2010 tax preparation software Community property. 2010 tax preparation software   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. 2010 tax preparation software 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. 2010 tax preparation software For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. 2010 tax preparation software Example. 2010 tax preparation software You and your spouse owned community property that had a basis of $80,000. 2010 tax preparation software When your spouse died, half the FMV of the community interest was includible in your spouse's estate. 2010 tax preparation software The FMV of the community interest was $100,000. 2010 tax preparation software The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). 2010 tax preparation software The basis of the other half to your spouse's heirs is also $50,000. 2010 tax preparation software For more information about community property, see Publication 555, Community Property. 2010 tax preparation software Property Changed From Personal 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 can begin to depreciate the property at the time of the change. 2010 tax preparation software To do so, you must figure its basis for depreciation at the time of the change. 2010 tax preparation software An example of changing property held for personal use to business or rental use would be renting out your former personal residence. 2010 tax preparation software Basis for depreciation. 2010 tax preparation software   The basis for depreciation is the lesser of the following amounts. 2010 tax preparation software The FMV of the property on the date of the change. 2010 tax preparation software Your adjusted basis on the date of the change. 2010 tax preparation software Example. 2010 tax preparation software Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. 2010 tax preparation software 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. 2010 tax preparation software Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. 2010 tax preparation software Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). 2010 tax preparation software 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. 2010 tax preparation software The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). 2010 tax preparation software Sale of property. 2010 tax preparation software   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. 2010 tax preparation software Gain. 2010 tax preparation software   The basis for figuring a gain is your adjusted basis in the property when you sell the property. 2010 tax preparation software Example. 2010 tax preparation software 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. 2010 tax preparation software Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). 2010 tax preparation software Loss. 2010 tax preparation software   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. 2010 tax preparation software Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . 2010 tax preparation software Example. 2010 tax preparation software 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. 2010 tax preparation software 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 (land)) on that date. 2010 tax preparation software Reduce that amount ($180,000) by the depreciation deductions ($37,500). 2010 tax preparation software The basis for loss is $142,500 ($180,000 − $37,500). 2010 tax preparation software Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. 2010 tax preparation software If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. 2010 tax preparation software You must adjust the basis of stocks for certain events that occur after purchase. 2010 tax preparation software For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. 2010 tax preparation software This rule applies only when the additional stock received is identical to the stock held. 2010 tax preparation software Also reduce your basis when you receive nontaxable distributions. 2010 tax preparation software They are a return of capital. 2010 tax preparation software Example. 2010 tax preparation software In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. 2010 tax preparation software In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. 2010 tax preparation software In 2013 XYZ declared a 2-for-1 stock split. 2010 tax preparation software You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. 2010 tax preparation software Other basis. 2010 tax preparation software   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. 2010 tax preparation software For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. 2010 tax preparation software Identifying stocks or bonds sold. 2010 tax preparation software   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 stocks or bonds. 2010 tax preparation software 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. 2010 tax preparation software For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. 2010 tax preparation software Mutual fund shares. 2010 tax preparation software   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. 2010 tax preparation software For more information, see Publication 550. 2010 tax preparation software Bond premium. 2010 tax preparation software   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. 2010 tax preparation software See Bond Premium Amortization in chapter 3 of Publication 550 for more information. 2010 tax preparation software Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. 2010 tax preparation software Original issue discount (OID) on debt instruments. 2010 tax preparation software   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. 2010 tax preparation software See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. 2010 tax preparation software Tax-exempt obligations. 2010 tax preparation software    OID on tax-exempt obligations is generally not taxable. 2010 tax preparation software However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. 2010 tax preparation software The accrued OID is added to the basis of the obligation to determine your gain or loss. 2010 tax preparation software See chapter 4 of Publication 550. 2010 tax preparation software Prev  Up  Next   Home   More Online Publications