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Amended 1040x Instructions

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Amended 1040x Instructions

Amended 1040x instructions 1. Amended 1040x instructions   Gain or Loss Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesGain or Loss From Sales and Exchanges Abandonments Foreclosures and RepossessionsAmount realized on a nonrecourse debt. Amended 1040x instructions Amount realized on a recourse debt. Amended 1040x instructions Involuntary ConversionsCondemnations Nontaxable ExchangesLike-Kind Exchanges Other Nontaxable Exchanges Transfers to Spouse Rollover of Gain From Publicly Traded Securities Gains on Sales of Qualified Small Business Stock Exclusion of Gain From Sale of DC Zone Assets Topics - This chapter discusses: Sales and exchanges Abandonments Foreclosures and repossessions Involuntary conversions Nontaxable exchanges Transfers to spouse Rollovers and exclusions for certain capital gains Useful Items - You may want to see: Publication 523 Selling Your Home 537 Installment Sales 547 Casualties, Disasters, and Thefts 550 Investment Income and Expenses 551 Basis of Assets 908 Bankruptcy Tax Guide 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1040 U. Amended 1040x instructions S. Amended 1040x instructions Individual Income Tax Return 1040X Amended U. Amended 1040x instructions S. Amended 1040x instructions Individual Income Tax Return 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets Although the discussions in this chapter may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. Amended 1040x instructions However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Amended 1040x instructions See chapter 5 for information about getting publications and forms. Amended 1040x instructions Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Amended 1040x instructions An exchange is a transfer of property for other property or services. Amended 1040x instructions The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. Amended 1040x instructions Sale or lease. Amended 1040x instructions    Some agreements that seem to be leases may really be conditional sales contracts. Amended 1040x instructions The intention of the parties to the agreement can help you distinguish between a sale and a lease. Amended 1040x instructions   There is no test or group of tests to prove what the parties intended when they made the agreement. Amended 1040x instructions You should consider each agreement based on its own facts and circumstances. Amended 1040x instructions For more information, see chapter 3 in Publication 535, Business Expenses. Amended 1040x instructions Cancellation of a lease. Amended 1040x instructions    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. Amended 1040x instructions Payments received by a landlord (lessor) for the cancellation of a lease are essentially a substitute for rental payments and are taxed as ordinary income in the year in which they are received. Amended 1040x instructions Copyright. Amended 1040x instructions    Payments you receive for granting the exclusive use of (or right to exploit) a copyright throughout its life in a particular medium are treated as received from the sale of property. Amended 1040x instructions It does not matter if the payments are a fixed amount or a percentage of receipts from the sale, performance, exhibition, or publication of the copyrighted work, or an amount based on the number of copies sold, performances given, or exhibitions made. Amended 1040x instructions Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. Amended 1040x instructions   If the copyright was used in your trade or business and you held it longer than a year, the gain or loss may be a section 1231 gain or loss. Amended 1040x instructions For more information, see Section 1231 Gains and Losses in chapter 3. Amended 1040x instructions Easement. Amended 1040x instructions   The amount received for granting an easement is subtracted from the basis of the property. Amended 1040x instructions If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. Amended 1040x instructions If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received. Amended 1040x instructions   Any amount received that is more than the basis to be reduced is a taxable gain. Amended 1040x instructions The transaction is reported as a sale of property. Amended 1040x instructions   If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property. Amended 1040x instructions However, if you make a qualified conservation contribution of a restriction or easement granted in perpetuity, it is treated as a charitable contribution and not a sale or exchange, even though you keep a beneficial interest in the property affected by the easement. Amended 1040x instructions   If you grant an easement on your property (for example, a right-of-way over it) under condemnation or threat of condemnation, you are considered to have made a forced sale, even though you keep the legal title. Amended 1040x instructions Although you figure gain or loss on the easement in the same way as a sale of property, the gain or loss is treated as a gain or loss from a condemnation. Amended 1040x instructions See Gain or Loss From Condemnations, later. Amended 1040x instructions Property transferred to satisfy debt. Amended 1040x instructions   A transfer of property to satisfy a debt is an exchange. Amended 1040x instructions Note's maturity date extended. Amended 1040x instructions   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. Amended 1040x instructions Also, it is not considered a closed and completed transaction that would result in a gain or loss. Amended 1040x instructions However, an extension will be treated as a taxable exchange of the outstanding note for a new and materially different note if the changes in the terms of the note are significant. Amended 1040x instructions Each case must be determined by its own facts. Amended 1040x instructions For more information, see Regulations section 1. Amended 1040x instructions 1001-3. Amended 1040x instructions Transfer on death. Amended 1040x instructions   The transfer of property of a decedent to an executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or exchange or other disposition. Amended 1040x instructions No taxable gain or deductible loss results from the transfer. Amended 1040x instructions Bankruptcy. Amended 1040x instructions   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. Amended 1040x instructions Consequently, the transfer generally does not result in gain or loss. Amended 1040x instructions For more information, see Publication 908, Bankruptcy Tax Guide. Amended 1040x instructions Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. Amended 1040x instructions A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. Amended 1040x instructions A loss is the adjusted basis of the property that is more than the amount you realize. Amended 1040x instructions   Table 1-1. Amended 1040x instructions How To Figure Whether You Have a Gain or Loss IF your. Amended 1040x instructions . Amended 1040x instructions . Amended 1040x instructions THEN you have a. Amended 1040x instructions . Amended 1040x instructions . Amended 1040x instructions Adjusted basis is more than the amount realized, Loss. Amended 1040x instructions Amount realized is more than the adjusted basis, Gain. Amended 1040x instructions Basis. Amended 1040x instructions   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. Amended 1040x instructions The basis of property you buy is usually its cost. Amended 1040x instructions However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. Amended 1040x instructions See Basis Other Than Cost in Publication 551, Basis of Assets. Amended 1040x instructions Special rules apply to property acquired from a decedent who died in 2010 and the executor made the election to file Form 8939, Allocation of Increase in Basis for Property Received From a Decedent. Amended 1040x instructions See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Amended 1040x instructions Adjusted basis. Amended 1040x instructions   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. Amended 1040x instructions Increases include costs of any improvements having a useful life of more than 1 year. Amended 1040x instructions Decreases include depreciation and casualty losses. Amended 1040x instructions For more details and additional examples, see Adjusted Basis in Publication 551. Amended 1040x instructions Amount realized. Amended 1040x instructions   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (defined below) of all property or services you receive. Amended 1040x instructions The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Amended 1040x instructions Fair market value. Amended 1040x instructions   Fair market value (FMV) is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. Amended 1040x instructions If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. Amended 1040x instructions If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. Amended 1040x instructions Example. Amended 1040x instructions You used a building in your business that cost you $70,000. Amended 1040x instructions You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. Amended 1040x instructions You sold the building for $100,000 plus property having an FMV of $20,000. Amended 1040x instructions The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. Amended 1040x instructions The selling expenses were $4,000. Amended 1040x instructions Your gain on the sale is figured as follows. Amended 1040x instructions Amount realized:     Cash $100,000   FMV of property received 20,000   Real estate taxes assumed by buyer 3,000   Mortgage assumed by  buyer 17,000   Total 140,000   Minus: Selling expenses 4,000 $136,000 Adjusted basis:     Cost of building $70,000   Improvements 20,000   Total $90,000   Minus: Depreciation 10,000   Adjusted basis   $80,000 Gain on sale $56,000 Amount recognized. Amended 1040x instructions   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. Amended 1040x instructions Recognized gains must be included in gross income. Amended 1040x instructions Recognized losses are deductible from gross income. Amended 1040x instructions However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. Amended 1040x instructions See Nontaxable Exchanges, later. Amended 1040x instructions Also, a loss from the sale or other disposition of property held for personal use is not deductible, except in the case of a casualty or theft. Amended 1040x instructions Interest in property. Amended 1040x instructions   The amount you realize from the disposition of a life interest in property, an interest in property for a set number of years, or an income interest in a trust is a recognized gain under certain circumstances. Amended 1040x instructions If you received the interest as a gift, inheritance, or in a transfer from a spouse or former spouse incident to a divorce, the amount realized is a recognized gain. Amended 1040x instructions Your basis in the property is disregarded. Amended 1040x instructions This rule does not apply if all interests in the property are disposed of at the same time. Amended 1040x instructions Example 1. Amended 1040x instructions Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. Amended 1040x instructions You decide to sell your life interest in the farm. Amended 1040x instructions The entire amount you receive is a recognized gain. Amended 1040x instructions Your basis in the farm is disregarded. Amended 1040x instructions Example 2. Amended 1040x instructions The facts are the same as in Example 1, except that your brother joins you in selling the farm. Amended 1040x instructions The entire interest in the property is sold, so your basis in the farm is not disregarded. Amended 1040x instructions Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. Amended 1040x instructions Canceling a sale of real property. Amended 1040x instructions   If you sell real property under a sales contract that allows the buyer to return the property for a full refund and the buyer does so, you may not have to recognize gain or loss on the sale. Amended 1040x instructions If the buyer returns the property in the year of sale, no gain or loss is recognized. Amended 1040x instructions This cancellation of the sale in the same year it occurred places both you and the buyer in the same positions you were in before the sale. Amended 1040x instructions If the buyer returns the property in a later tax year, you must recognize gain (or loss, if allowed) in the year of the sale. Amended 1040x instructions When the property is returned in a later year, you acquire a new basis in the property. Amended 1040x instructions That basis is equal to the amount you pay to the buyer. Amended 1040x instructions Bargain Sale If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. Amended 1040x instructions You have a gain if the amount realized is more than your adjusted basis in the property. Amended 1040x instructions However, you do not have a loss if the amount realized is less than the adjusted basis of the property. Amended 1040x instructions Bargain sales to charity. Amended 1040x instructions   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. Amended 1040x instructions If a charitable deduction for the contribution is allowable, you must allocate your adjusted basis in the property between the part sold and the part contributed based on the fair market value of each. Amended 1040x instructions The adjusted basis of the part sold is figured as follows. Amended 1040x instructions Adjusted basis of entire property × Amount realized (fair market value of part sold)   Fair market value of entire property   Based on this allocation rule, you will have a gain even if the amount realized is not more than your adjusted basis in the property. Amended 1040x instructions This allocation rule does not apply if a charitable contribution deduction is not allowable. Amended 1040x instructions   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. Amended 1040x instructions Example. Amended 1040x instructions You sold property with a fair market value of $10,000 to a charitable organization for $2,000 and are allowed a deduction for your contribution. Amended 1040x instructions Your adjusted basis in the property is $4,000. Amended 1040x instructions Your gain on the sale is $1,200, figured as follows. Amended 1040x instructions Sales price $2,000 Minus: Adjusted basis of part sold ($4,000 × ($2,000 ÷ $10,000)) 800 Gain on the sale $1,200 Property Used Partly for Business or Rental Generally, if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property. Amended 1040x instructions You must subtract depreciation you took or could have taken from the basis of the business or rental part. Amended 1040x instructions However, see the special rule below for a home used partly for business or rental. Amended 1040x instructions You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. Amended 1040x instructions Gain or loss on the business or rental part of the property may be a capital gain or loss or an ordinary gain or loss, as discussed in chapter 3 under Section 1231 Gains and Losses. Amended 1040x instructions Any gain on the personal part of the property is a capital gain. Amended 1040x instructions You cannot deduct a loss on the personal part. Amended 1040x instructions Home used partly for business or rental. Amended 1040x instructions    If you use property partly as a home and partly for business or to produce rental income, the computation and treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. Amended 1040x instructions See Property Used Partly for Business or Rental, in Publication 523. Amended 1040x instructions Property Changed to Business or Rental Use You cannot deduct a loss on the sale of property you purchased or constructed for use as your home and used as your home until the time of sale. Amended 1040x instructions You can deduct a loss on the sale of property you acquired for use as your home but changed to business or rental property and used as business or rental property at the time of sale. Amended 1040x instructions However, if the adjusted basis of the property at the time of the change was more than its fair market value, the loss you can deduct is limited. Amended 1040x instructions Figure the loss you can deduct as follows. Amended 1040x instructions Use the lesser of the property's adjusted basis or fair market value at the time of the change. Amended 1040x instructions Add to (1) the cost of any improvements and other increases to basis since the change. Amended 1040x instructions Subtract from (2) depreciation and any other decreases to basis since the change. Amended 1040x instructions Subtract the amount you realized on the sale from the result in (3). Amended 1040x instructions If the amount you realized is more than the result in (3), treat this result as zero. Amended 1040x instructions The result in (4) is the loss you can deduct. Amended 1040x instructions Example. Amended 1040x instructions You changed your main home to rental property 5 years ago. Amended 1040x instructions At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. Amended 1040x instructions This year, you sold the property for $55,000. Amended 1040x instructions You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. Amended 1040x instructions Although your loss on the sale is $7,380 [($75,000 − $12,620) − $55,000], the amount you can deduct as a loss is limited to $2,380, figured as follows. Amended 1040x instructions Lesser of adjusted basis or fair market value at time of the change $70,000 Plus: Cost of any improvements and any other additions to basis after the change -0-   70,000 Minus: Depreciation and any other decreases to basis after the change 12,620   57,380 Minus: Amount you realized from the sale 55,000 Deductible loss $2,380 Gain. Amended 1040x instructions   If you have a gain on the sale, you generally must recognize the full amount of the gain. Amended 1040x instructions You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. Amended 1040x instructions   You may be able to exclude all or part of the gain if you owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Amended 1040x instructions However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. Amended 1040x instructions   For more information, see Business Use or Rental of Home in Publication 523. Amended 1040x instructions In addition, special rules apply if the home sold was acquired in a like-kind exchange. Amended 1040x instructions See Special Situations in Publication 523. Amended 1040x instructions Also see Like-Kind Exchanges, later. Amended 1040x instructions Abandonments The abandonment of property is a disposition of property. Amended 1040x instructions You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. Amended 1040x instructions Generally, abandonment is not treated as a sale or exchange of the property. Amended 1040x instructions If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Amended 1040x instructions If your adjusted basis is more than the amount you realize (if any), then you have a loss. Amended 1040x instructions Loss from abandonment of business or investment property is deductible as a loss. Amended 1040x instructions A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Amended 1040x instructions This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. Amended 1040x instructions If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. Amended 1040x instructions The abandonment loss is deducted in the tax year in which the loss is sustained. Amended 1040x instructions If the abandoned property is secured by debt, special rules apply. Amended 1040x instructions The tax consequences of abandonment of property that is secured by debt depend on whether you are personally liable for the debt (recourse debt) or you are not personally liable for the debt (nonrecourse debt). Amended 1040x instructions For more information, including examples, see chapter 3 of Publication 4681. Amended 1040x instructions You cannot deduct any loss from abandonment of your home or other property held for personal use only. Amended 1040x instructions Cancellation of debt. Amended 1040x instructions   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you may realize ordinary income equal to the canceled debt. Amended 1040x instructions This income is separate from any loss realized from abandonment of the property. Amended 1040x instructions   You must report this income on your tax return unless one of the following applies. Amended 1040x instructions The cancellation is intended as a gift. Amended 1040x instructions The debt is qualified farm debt. Amended 1040x instructions The debt is qualified real property business debt. Amended 1040x instructions You are insolvent or bankrupt. Amended 1040x instructions The debt is qualified principal residence indebtedness. Amended 1040x instructions File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. Amended 1040x instructions For more information, including other exceptions and exclusion, see Publication 4681. Amended 1040x instructions Forms 1099-A and 1099-C. Amended 1040x instructions   If you abandon property that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your loss from the abandonment. Amended 1040x instructions However, if your debt is canceled and the lender must file Form 1099-C, the lender may include the information about the abandonment on that form instead of on Form 1099-A, and send you Form 1099-C only. Amended 1040x instructions The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Amended 1040x instructions For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Amended 1040x instructions Foreclosures and Repossessions If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Amended 1040x instructions The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Amended 1040x instructions This is true even if you voluntarily return the property to the lender. Amended 1040x instructions You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. Amended 1040x instructions Buyer's (borrower's) gain or loss. Amended 1040x instructions   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Amended 1040x instructions The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Amended 1040x instructions See Gain or Loss From Sales and Exchanges, earlier. Amended 1040x instructions You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. Amended 1040x instructions Amount realized on a nonrecourse debt. Amended 1040x instructions   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full debt canceled by the transfer. Amended 1040x instructions The full canceled debt is included even if the fair market value of the property is less than the canceled debt. Amended 1040x instructions Example 1. Amended 1040x instructions Chris bought a new car for $15,000. Amended 1040x instructions He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. Amended 1040x instructions Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. Amended 1040x instructions The credit company repossessed the car because he stopped making loan payments. Amended 1040x instructions The balance due after taking into account the payments Chris made was $10,000. Amended 1040x instructions The fair market value of the car when repossessed was $9,000. Amended 1040x instructions The amount Chris realized on the repossession is $10,000. Amended 1040x instructions That is the outstanding amount of the debt canceled by the repossession, even though the car's fair market value is less than $10,000. Amended 1040x instructions Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). Amended 1040x instructions He has a $5,000 nondeductible loss. Amended 1040x instructions Example 2. Amended 1040x instructions Abena paid $200,000 for her home. Amended 1040x instructions She paid $15,000 down and borrowed the remaining $185,000 from a bank. Amended 1040x instructions Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. Amended 1040x instructions The bank foreclosed on the loan because Abena stopped making payments. Amended 1040x instructions When the bank foreclosed on the loan, the balance due was $180,000, the fair market value of the house was $170,000, and Abena's adjusted basis was $175,000 due to a casualty loss she had deducted. Amended 1040x instructions The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. Amended 1040x instructions She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). Amended 1040x instructions She has a $5,000 realized gain. Amended 1040x instructions Amount realized on a recourse debt. Amended 1040x instructions   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Amended 1040x instructions You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Amended 1040x instructions The amount realized does not include the canceled debt that is your income from cancellation of debt. Amended 1040x instructions See Cancellation of debt, below. Amended 1040x instructions Seller's (lender's) gain or loss on repossession. Amended 1040x instructions   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Amended 1040x instructions For more information, see Repossession in Publication 537. Amended 1040x instructions    Table 1-2. Amended 1040x instructions Worksheet for Foreclosures and Repossessions Part 1. Amended 1040x instructions Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Amended 1040x instructions Complete this part only  if you were personally liable for the debt. Amended 1040x instructions Otherwise,  go to Part 2. Amended 1040x instructions   1. Amended 1040x instructions Enter the amount of outstanding debt immediately before the transfer of   property reduced by any amount for which you remain personally liable after   the transfer of property   2. Amended 1040x instructions Enter the fair market value of the transferred property   3. Amended 1040x instructions Ordinary income from cancellation of debt upon foreclosure or    repossession. Amended 1040x instructions * Subtract line 2 from line 1. Amended 1040x instructions   If less than zero, enter zero   Part 2. Amended 1040x instructions Figure your gain or loss from foreclosure or repossession. Amended 1040x instructions   4. Amended 1040x instructions If you completed Part 1, enter the smaller of line 1 or line 2. Amended 1040x instructions   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. Amended 1040x instructions Enter any proceeds you received from the foreclosure sale   6. Amended 1040x instructions Add lines 4 and 5   7. Amended 1040x instructions Enter the adjusted basis of the transferred property   8. Amended 1040x instructions Gain or loss from foreclosure or repossession. Amended 1040x instructions Subtract line 7  from line 6   * The income may not be taxable. Amended 1040x instructions See Cancellation of debt. Amended 1040x instructions Cancellation of debt. Amended 1040x instructions   If property that is repossessed or foreclosed on secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the fair market value of the property. Amended 1040x instructions This income is separate from any gain or loss realized from the foreclosure or repossession. Amended 1040x instructions Report the income from cancellation of a debt related to a business or rental activity as business or rental income. Amended 1040x instructions    You can use Table 1-2 to figure your income from cancellation of debt. Amended 1040x instructions   You must report this income on your tax return unless one of the following applies. Amended 1040x instructions The cancellation is intended as a gift. Amended 1040x instructions The debt is qualified farm debt. Amended 1040x instructions The debt is qualified real property business debt. Amended 1040x instructions You are insolvent or bankrupt. Amended 1040x instructions The debt is qualified principal residence indebtedness. Amended 1040x instructions File Form 982 to report the income exclusion. Amended 1040x instructions Example 1. Amended 1040x instructions Assume the same facts as in Example 1 under Amount realized on a nonrecourse debt, earlier, except Chris is personally liable for the car loan (recourse debt). Amended 1040x instructions In this case, the amount he realizes is $9,000. Amended 1040x instructions This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). Amended 1040x instructions Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). Amended 1040x instructions He has a $6,000 nondeductible loss. Amended 1040x instructions He also is treated as receiving ordinary income from cancellation of debt. Amended 1040x instructions That income is $1,000 ($10,000 − $9,000). Amended 1040x instructions This is the part of the canceled debt not included in the amount realized. Amended 1040x instructions Example 2. Amended 1040x instructions Assume the same facts as in Example 2 under Amount realized on a nonrecourse debt, earlier, except Abena is personally liable for the loan (recourse debt). Amended 1040x instructions In this case, the amount she realizes is $170,000. Amended 1040x instructions This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). Amended 1040x instructions Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). Amended 1040x instructions She has a $5,000 nondeductible loss. Amended 1040x instructions She also is treated as receiving ordinary income from cancellation of debt. Amended 1040x instructions (The debt is not exempt from tax as discussed under Cancellation of debt, above. Amended 1040x instructions ) That income is $10,000 ($180,000 − $170,000). Amended 1040x instructions This is the part of the canceled debt not included in the amount realized. Amended 1040x instructions Forms 1099-A and 1099-C. Amended 1040x instructions   A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A showing the information you need to figure your gain or loss. Amended 1040x instructions However, if the lender also cancels part of your debt and must file Form 1099-C, the lender may include the information about the foreclosure or repossession on that form instead of on Form 1099-A and send you Form 1099-C only. Amended 1040x instructions The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Amended 1040x instructions For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Amended 1040x instructions Involuntary Conversions An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. Amended 1040x instructions Involuntary conversions are also called involuntary exchanges. Amended 1040x instructions Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. Amended 1040x instructions You report the gain or deduct the loss on your tax return for the year you realize it. Amended 1040x instructions You cannot deduct a loss from an involuntary conversion of property you held for personal use unless the loss resulted from a casualty or theft. Amended 1040x instructions However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. Amended 1040x instructions Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. Amended 1040x instructions Your basis for the new property is the same as your basis for the converted property. Amended 1040x instructions This means that the gain is deferred until a taxable sale or exchange occurs. Amended 1040x instructions If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can elect to postpone reporting the gain on the property purchased. Amended 1040x instructions This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. Amended 1040x instructions If you have a gain or loss from the destruction or theft of property, see Publication 547. Amended 1040x instructions Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. Amended 1040x instructions The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. Amended 1040x instructions The owner receives a condemnation award (money or property) in exchange for the property taken. Amended 1040x instructions A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. Amended 1040x instructions Example. Amended 1040x instructions A local government authorized to acquire land for public parks informed you that it wished to acquire your property. Amended 1040x instructions After the local government took action to condemn your property, you went to court to keep it. Amended 1040x instructions But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. Amended 1040x instructions This is a condemnation of private property for public use. Amended 1040x instructions Threat of condemnation. Amended 1040x instructions   A threat of condemnation exists if a representative of a government body or a public official authorized to acquire property for public use informs you that the government body or official has decided to acquire your property. Amended 1040x instructions You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. Amended 1040x instructions   The sale of your property to someone other than the condemning authority will also qualify as an involuntary conversion, provided you have reasonable grounds to believe that your property will be condemned. Amended 1040x instructions If the buyer of this property knows at the time of purchase that it will be condemned and sells it to the condemning authority, this sale also qualifies as an involuntary conversion. Amended 1040x instructions Reports of condemnation. Amended 1040x instructions   A threat of condemnation exists if you learn of a decision to acquire your property for public use through a report in a newspaper or other news medium, and this report is confirmed by a representative of the government body or public official involved. Amended 1040x instructions You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. Amended 1040x instructions If you relied on oral statements made by a government representative or public official, the Internal Revenue Service (IRS) may ask you to get written confirmation of the statements. Amended 1040x instructions Example. Amended 1040x instructions Your property lies along public utility lines. Amended 1040x instructions The utility company has the authority to condemn your property. Amended 1040x instructions The company informs you that it intends to acquire your property by negotiation or condemnation. Amended 1040x instructions A threat of condemnation exists when you receive the notice. Amended 1040x instructions Related property voluntarily sold. Amended 1040x instructions   A voluntary sale of your property may be treated as a forced sale that qualifies as an involuntary conversion if the property had a substantial economic relationship to property of yours that was condemned. Amended 1040x instructions A substantial economic relationship exists if together the properties were one economic unit. Amended 1040x instructions You also must show that the condemned property could not reasonably or adequately be replaced. Amended 1040x instructions You can elect to postpone reporting the gain by buying replacement property. Amended 1040x instructions See Postponement of Gain, later. Amended 1040x instructions Gain or Loss From Condemnations If your property was condemned or disposed of under the threat of condemnation, figure your gain or loss by comparing the adjusted basis of your condemned property with your net condemnation award. Amended 1040x instructions If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. Amended 1040x instructions You can postpone reporting gain from a condemnation if you buy replacement property. Amended 1040x instructions If only part of your property is condemned, you can treat the cost of restoring the remaining part to its former usefulness as the cost of replacement property. Amended 1040x instructions See Postponement of Gain, later. Amended 1040x instructions If your net condemnation award is less than your adjusted basis, you have a loss. Amended 1040x instructions If your loss is from property you held for personal use, you cannot deduct it. Amended 1040x instructions You must report any deductible loss in the tax year it happened. Amended 1040x instructions You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. Amended 1040x instructions Main home condemned. Amended 1040x instructions   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. Amended 1040x instructions You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). Amended 1040x instructions For information on this exclusion, see Publication 523. Amended 1040x instructions If your gain is more than you can exclude but you buy replacement property, you may be able to postpone reporting the rest of the gain. Amended 1040x instructions See Postponement of Gain, later. Amended 1040x instructions Table 1-3. Amended 1040x instructions Worksheet for Condemnations Part 1. Amended 1040x instructions Gain from severance damages. Amended 1040x instructions  If you did not receive severance damages, skip Part 1 and go to Part 2. Amended 1040x instructions   1. Amended 1040x instructions Enter gross severance damages received   2. Amended 1040x instructions Enter your expenses in getting severance damages   3. Amended 1040x instructions Subtract line 2 from line 1. Amended 1040x instructions If less than zero, enter -0-   4. Amended 1040x instructions Enter any special assessment on remaining property taken out of your award   5. Amended 1040x instructions Net severance damages. Amended 1040x instructions Subtract line 4 from line 3. Amended 1040x instructions If less than zero, enter -0-   6. Amended 1040x instructions Enter the adjusted basis of the remaining property   7. Amended 1040x instructions Gain from severance damages. Amended 1040x instructions Subtract line 6 from line 5. Amended 1040x instructions If less than zero, enter -0-   8. Amended 1040x instructions Refigured adjusted basis of the remaining property. Amended 1040x instructions Subtract line 5 from line 6. Amended 1040x instructions If less than zero, enter -0-   Part 2. Amended 1040x instructions Gain or loss from condemnation award. Amended 1040x instructions   9. Amended 1040x instructions Enter the gross condemnation award received   10. Amended 1040x instructions Enter your expenses in getting the condemnation award   11. Amended 1040x instructions If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. Amended 1040x instructions If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. Amended 1040x instructions Otherwise, enter -0-   12. Amended 1040x instructions Add lines 10 and 11   13. Amended 1040x instructions Net condemnation award. Amended 1040x instructions Subtract line 12 from line 9   14. Amended 1040x instructions Enter the adjusted basis of the condemned property   15. Amended 1040x instructions Gain from condemnation award. Amended 1040x instructions If line 14 is more than line 13, enter -0-. Amended 1040x instructions Otherwise, subtract line 14 from  line 13 and skip line 16   16. Amended 1040x instructions Loss from condemnation award. Amended 1040x instructions Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. Amended 1040x instructions )   Part 3. Amended 1040x instructions Postponed gain from condemnation. Amended 1040x instructions  (Complete only if line 7 or line 15 is more than zero and you bought qualifying replacement property or made expenditures to restore the usefulness of your remaining property. Amended 1040x instructions )   17. Amended 1040x instructions If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. Amended 1040x instructions Otherwise, enter -0-   18. Amended 1040x instructions If line 15 is more than zero, enter the amount from line 13. Amended 1040x instructions Otherwise, enter -0-   19. Amended 1040x instructions Add lines 17 and 18. Amended 1040x instructions If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. Amended 1040x instructions Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. Amended 1040x instructions Subtract line 20 from line 19. Amended 1040x instructions If less than zero, enter -0-   22. Amended 1040x instructions If you completed Part 1, add lines 7 and 15. Amended 1040x instructions Otherwise, enter the amount from line 15. Amended 1040x instructions If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. Amended 1040x instructions Recognized gain. Amended 1040x instructions Enter the smaller of line 21 or line 22. Amended 1040x instructions   24. Amended 1040x instructions Postponed gain. Amended 1040x instructions Subtract line 23 from line 22. Amended 1040x instructions If less than zero, enter -0-   Condemnation award. Amended 1040x instructions   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. Amended 1040x instructions The award is also the amount you are paid for the sale of your property under threat of condemnation. Amended 1040x instructions Payment of your debts. Amended 1040x instructions   Amounts taken out of the award to pay your debts are considered paid to you. Amended 1040x instructions Amounts the government pays directly to the holder of a mortgage or lien against your property are part of your award, even if the debt attaches to the property and is not your personal liability. Amended 1040x instructions Example. Amended 1040x instructions The state condemned your property for public use. Amended 1040x instructions The award was set at $200,000. Amended 1040x instructions The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. Amended 1040x instructions You are considered to have received the entire $200,000 as a condemnation award. Amended 1040x instructions Interest on award. Amended 1040x instructions   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. Amended 1040x instructions You must report the interest separately as ordinary income. Amended 1040x instructions Payments to relocate. Amended 1040x instructions   Payments you receive to relocate and replace housing because you have been displaced from your home, business, or farm as a result of federal or federally assisted programs are not part of the condemnation award. Amended 1040x instructions Do not include them in your income. Amended 1040x instructions Replacement housing payments used to buy new property are included in the property's basis as part of your cost. Amended 1040x instructions Net condemnation award. Amended 1040x instructions   A net condemnation award is the total award you received, or are considered to have received, for the condemned property minus your expenses of obtaining the award. Amended 1040x instructions If only a part of your property was condemned, you also must reduce the award by any special assessment levied against the part of the property you retain. Amended 1040x instructions This is discussed later under Special assessment taken out of award. Amended 1040x instructions Severance damages. Amended 1040x instructions    Severance damages are not part of the award paid for the property condemned. Amended 1040x instructions They are paid to you if part of your property is condemned and the value of the part you keep is decreased because of the condemnation. Amended 1040x instructions   For example, you may receive severance damages if your property is subject to flooding because you sell flowage easement rights (the condemned property) under threat of condemnation. Amended 1040x instructions Severance damages also may be given to you if, because part of your property is condemned for a highway, you must replace fences, dig new wells or ditches, or plant trees to restore your remaining property to the same usefulness it had before the condemnation. Amended 1040x instructions   The contracting parties should agree on the specific amount of severance damages in writing. Amended 1040x instructions If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. Amended 1040x instructions   You cannot make a completely new allocation of the total award after the transaction is completed. Amended 1040x instructions However, you can show how much of the award both parties intended for severance damages. Amended 1040x instructions The severance damages part of the award is determined from all the facts and circumstances. Amended 1040x instructions Example. Amended 1040x instructions You sold part of your property to the state under threat of condemnation. Amended 1040x instructions The contract you and the condemning authority signed showed only the total purchase price. Amended 1040x instructions It did not specify a fixed sum for severance damages. Amended 1040x instructions However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. Amended 1040x instructions You may treat this part as severance damages. Amended 1040x instructions Treatment of severance damages. Amended 1040x instructions   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. Amended 1040x instructions Use them to reduce the basis of the remaining property. Amended 1040x instructions If the amount of severance damages is based on damage to a specific part of the property you kept, reduce the basis of only that part by the net severance damages. Amended 1040x instructions   If your net severance damages are more than the basis of your retained property, you have a gain. Amended 1040x instructions You may be able to postpone reporting the gain. Amended 1040x instructions See Postponement of Gain, later. Amended 1040x instructions    You can use Part 1 of Table 1-3 to figure any gain from severance damages and to refigure the adjusted basis of the remaining part of your property. Amended 1040x instructions Net severance damages. Amended 1040x instructions   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. Amended 1040x instructions You then reduce them by any special assessment (described later) levied against the remaining part of the property and retained out of the award by the condemning authority. Amended 1040x instructions The balance is your net severance damages. Amended 1040x instructions Expenses of obtaining a condemnation award and severance damages. Amended 1040x instructions   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. Amended 1040x instructions Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. Amended 1040x instructions If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. Amended 1040x instructions Example. Amended 1040x instructions You receive a condemnation award and severance damages. Amended 1040x instructions One-fourth of the total was designated as severance damages in your agreement with the condemning authority. Amended 1040x instructions You had legal expenses for the entire condemnation proceeding. Amended 1040x instructions You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. Amended 1040x instructions You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. Amended 1040x instructions Special assessment retained out of award. Amended 1040x instructions   When only part of your property is condemned, a special assessment levied against the remaining property may be retained by the governing body out of your condemnation award. Amended 1040x instructions An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. Amended 1040x instructions Examples of improvements that may cause a special assessment are widening a street and installing a sewer. Amended 1040x instructions   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. Amended 1040x instructions Example. Amended 1040x instructions To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. Amended 1040x instructions You were awarded $5,000 for this and spent $300 to get the award. Amended 1040x instructions Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. Amended 1040x instructions The city then paid you only $4,300. Amended 1040x instructions Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). Amended 1040x instructions If the $700 special assessment was not retained out of the award and you were paid $5,000, your net award would be $4,700 ($5,000 − $300). Amended 1040x instructions The net award would not change, even if you later paid the assessment from the amount you received. Amended 1040x instructions Severance damages received. Amended 1040x instructions   If severance damages are included in the condemnation proceeds, the special assessment retained out of the severance damages is first used to reduce the severance damages. Amended 1040x instructions Any balance of the special assessment is used to reduce the condemnation award. Amended 1040x instructions Example. Amended 1040x instructions You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. Amended 1040x instructions You spent $300 to obtain the severance damages. Amended 1040x instructions A special assessment of $800 was retained out of the award. Amended 1040x instructions The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. Amended 1040x instructions Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. Amended 1040x instructions Part business or rental. Amended 1040x instructions   If you used part of your condemned property as your home and part as business or rental property, treat each part as a separate property. Amended 1040x instructions Figure your gain or loss separately because gain or loss on each part may be treated differently. Amended 1040x instructions   Some examples of this type of property are a building in which you live and operate a grocery, and a building in which you live on the first floor and rent out the second floor. Amended 1040x instructions Example. Amended 1040x instructions You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. Amended 1040x instructions You rented half the building and lived in the other half. Amended 1040x instructions You paid $25,000 for the building and spent an additional $1,000 for a new roof. Amended 1040x instructions You claimed allowable depreciation of $4,600 on the rental half. Amended 1040x instructions You spent $200 in legal expenses to obtain the condemnation award. Amended 1040x instructions Figure your gain or loss as follows. Amended 1040x instructions     Resi- dential Part Busi- ness Part 1) Condemnation award received $12,000 $12,000 2) Minus: Legal expenses, $200 100 100 3) Net condemnation award $11,900 $11,900 4) Adjusted basis:       ½ of original cost, $25,000 $12,500 $12,500   Plus: ½ of cost of roof, $1,000 500 500   Total $13,000 $13,000 5) Minus: Depreciation   4,600 6) Adjusted basis, business part   $8,400 7) (Loss) on residential property ($1,100)   8) Gain on business property $3,500 The loss on the residential part of the property is not deductible. Amended 1040x instructions Postponement of Gain Do not report the gain on condemned property if you receive only property that is similar or related in service or use to the condemned property. Amended 1040x instructions Your basis for the new property is the same as your basis for the old. Amended 1040x instructions Money or unlike property received. Amended 1040x instructions   You ordinarily must report the gain if you receive money or unlike property. Amended 1040x instructions You can elect to postpone reporting the gain if you buy property that is similar or related in service or use to the condemned property within the replacement period, discussed later. Amended 1040x instructions You also can elect to postpone reporting the gain if you buy a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the condemned property. Amended 1040x instructions See Controlling interest in a corporation, later. Amended 1040x instructions   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. Amended 1040x instructions If the cost of the replacement property is less than the amount realized, you must report the gain up to the unspent part of the amount realized. Amended 1040x instructions   The basis of the replacement property is its cost, reduced by the postponed gain. Amended 1040x instructions Also, if your replacement property is stock in a corporation that owns property similar or related in service or use, the corporation generally will reduce its basis in its assets by the amount by which you reduce your basis in the stock. Amended 1040x instructions See Controlling interest in a corporation, later. Amended 1040x instructions You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. Amended 1040x instructions Postponing gain on severance damages. Amended 1040x instructions   If you received severance damages for part of your property because another part was condemned and you buy replacement property, you can elect to postpone reporting gain. Amended 1040x instructions See Treatment of severance damages, earlier. Amended 1040x instructions You can postpone reporting all your gain if the replacement property costs at least as much as your net severance damages plus your net condemnation award (if resulting in gain). Amended 1040x instructions   You also can make this election if you spend the severance damages, together with other money you received for the condemned property (if resulting in gain), to acquire nearby property that will allow you to continue your business. Amended 1040x instructions If suitable nearby property is not available and you are forced to sell the remaining property and relocate in order to continue your business, see Postponing gain on the sale of related property, next. Amended 1040x instructions   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. Amended 1040x instructions Postponing gain on the sale of related property. Amended 1040x instructions   If you sell property that is related to the condemned property and then buy replacement property, you can elect to postpone reporting gain on the sale. Amended 1040x instructions You must meet the requirements explained earlier under Related property voluntarily sold. Amended 1040x instructions You can postpone reporting all your gain if the replacement property costs at least as much as the amount realized from the sale plus your net condemnation award (if resulting in gain) plus your net severance damages, if any (if resulting in gain). Amended 1040x instructions Buying replacement property from a related person. Amended 1040x instructions   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. Amended 1040x instructions For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. Amended 1040x instructions   This rule applies to the following taxpayers. Amended 1040x instructions C corporations. Amended 1040x instructions Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. Amended 1040x instructions All others (including individuals, partnerships (other than those in (2)), and S corporations) if the total realized gain for the tax year on all involuntarily converted properties on which there is realized gain of more than $100,000. Amended 1040x instructions   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. Amended 1040x instructions If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Amended 1040x instructions If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Amended 1040x instructions Exception. Amended 1040x instructions   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. Amended 1040x instructions Advance payment. Amended 1040x instructions   If you pay a contractor in advance to build your replacement property, you have not bought replacement property unless it is finished before the end of the replacement period (discussed later). Amended 1040x instructions Replacement property. Amended 1040x instructions   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. Amended 1040x instructions You do not have to use the actual funds from the condemnation award to acquire the replacement property. Amended 1040x instructions Property you acquire by gift or inheritance does not qualify as replacement property. Amended 1040x instructions Similar or related in service or use. Amended 1040x instructions   Your replacement property must be similar or related in service or use to the property it replaces. Amended 1040x instructions   If the condemned property is real property you held for productive use in your trade or business or for investment (other than property held mainly for sale), like-kind property to be held either for productive use in trade or business or for investment will be treated as property similar or related in service or use. Amended 1040x instructions For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. Amended 1040x instructions Owner-user. Amended 1040x instructions   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. Amended 1040x instructions Example. Amended 1040x instructions Your home was condemned and you invested the proceeds from the condemnation in a grocery store. Amended 1040x instructions Your replacement property is not similar or related in service or use to the condemned property. Amended 1040x instructions To be similar or related in service or use, your replacement property must also be used by you as your home. Amended 1040x instructions Owner-investor. Amended 1040x instructions   If you are an owner-investor, similar or related in service or use means that any replacement property must have the same relationship of services or uses to you as the property it replaces. Amended 1040x instructions You decide this by determining all the following information. Amended 1040x instructions Whether the properties are of similar service to you. Amended 1040x instructions The nature of the business risks connected with the properties. Amended 1040x instructions What the properties demand of you in the way of management, service, and relations to your tenants. Amended 1040x instructions Example. Amended 1040x instructions You owned land and a building you rented to a manufacturing company. Amended 1040x instructions The building was condemned. Amended 1040x instructions During the replacement period, you had a new building built on other land you already owned. Amended 1040x instructions You rented out the new building for use as a wholesale grocery warehouse. Amended 1040x instructions The replacement property is also rental property, so the two properties are considered similar or related in service or use if there is a similarity in all the following areas. Amended 1040x instructions Your management activities. Amended 1040x instructions The amount and kind of services you provide to your tenants. Amended 1040x instructions The nature of your business risks connected with the properties. Amended 1040x instructions Leasehold replaced with fee simple property. Amended 1040x instructions   Fee simple property you will use in your trade or business or for investment can qualify as replacement property that is similar or related in service or use to a condemned leasehold if you use it in the same business and for the identical purpose as the condemned leasehold. Amended 1040x instructions   A fee simple property interest generally is a property interest that entitles the owner to the entire property with unconditional power to dispose of it during his or her lifetime. Amended 1040x instructions A leasehold is property held under a lease, usually for a term of years. Amended 1040x instructions Outdoor advertising display replaced with real property. Amended 1040x instructions   You can elect to treat an outdoor advertising display as real property. Amended 1040x instructions If you make this election and you replace the display with real property in which you hold a different kind of interest, your replacement property can qualify as like-kind property. Amended 1040x instructions For example, real property bought to replace a destroyed billboard and leased property on which the billboard was located qualify as property of a like-kind. Amended 1040x instructions   You can make this election only if you did not claim a section 179 deduction for the display. Amended 1040x instructions You cannot cancel this election unless you get the consent of the IRS. Amended 1040x instructions   An outdoor advertising display is a sign or device rigidly assembled and permanently attached to the ground, a building, or any other permanent structure used to display a commercial or other advertisement to the public. Amended 1040x instructions Substituting replacement property. Amended 1040x instructions   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. Amended 1040x instructions But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. Amended 1040x instructions Controlling interest in a corporation. Amended 1040x instructions   You can replace property by acquiring a controlling interest in a corporation that owns property similar or related in service or use to your condemned property. Amended 1040x instructions You have controlling interest if you own stock having at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation. Amended 1040x instructions Basis adjustment to corporation's property. Amended 1040x instructions   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. Amended 1040x instructions You are not required to reduce the adjusted basis of the corporation's properties below your adjusted basis in the corporation's stock (determined after reduction by your postponed gain). Amended 1040x instructions   Allocate this reduction to the following classes of property in the order shown below. Amended 1040x instructions Property that is similar or related in service or use to the condemned property. Amended 1040x instructions Depreciable property not reduced in (1). Amended 1040x instructions All other property. Amended 1040x instructions If two or more properties fall in the same class, allocate the reduction to each property in proportion to the adjusted basis of all the properties in that class. Amended 1040x instructions The reduced basis of any single property cannot be less than zero. Amended 1040x instructions Main home replaced. Amended 1040x instructions   If your gain from a condemnation of your main home is more than you can exclude from your income (see Main home condemned under Gain or Loss From Condemnations, earlier), you can postpone reporting the rest of the gain by buying replacement property that is similar or related in service or use. Amended 1040x instructions The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. Amended 1040x instructions   You must reduce the basis of your replacement property by the postponed gain. Amended 1040x instructions Also, if you postpone reporting any part of your gain under these rules, you are treated as having owned and used the replacement property as your main home for the period you owned and used the condemned property as your main home. Amended 1040x instructions Example. Amended 1040x instructions City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. Amended 1040x instructions The city paid you a condemnation award of $400,000. Amended 1040x instructions Your adjusted basis in the property was $80,000. Amended 1040x instructions You realize a gain of $320,000 ($400,000 − $80,000). Amended 1040x instructions You purchased a new home for $100,000. Amended 1040x instructions You can exclude $250,000 of the realized gain from your gross income. Amended 1040x instructions The amount realized is then treated as being $150,000 ($400,000 − $250,000) and the gain realized is $70,000 ($150,000 amount realized − $80,000 adjusted basis). Amended 1040x instructions You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). Amended 1040x instructions The remaining $20,000 of realized gain is postponed. Amended 1040x instructions Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). Amended 1040x instructions Replacement period. Amended 1040x instructions   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. Amended 1040x instructions This is the replacement period. Amended 1040x instructions   The replacement period for a condemnation begins on the earlier of the following dates. Amended 1040x instructions The date on which you disposed of the condemned property. Amended 1040x instructions The date on which the threat of condemnation began. Amended 1040x instructions   The replacement period generally ends 2 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Amended 1040x instructions However, see the exceptions below. Amended 1040x instructions Three-year replacement period for certain property. Amended 1040x instructions   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Amended 1040x instructions However, this 3-year replacement period cannot be used if you replace the condemned property by acquiring control of a corporation owning property that is similar or related in service or use. Amended 1040x instructions Five-year replacement period for certain property. Amended 1040x instructions   The replacement period ends 5 years after the end of the first tax year in which any part of the gain is realized on the compulsory or involuntary conversion of the following qualified property. Amended 1040x instructions Property in any Midwestern disaster area compulsorily or involuntarily converted on or after the applicable disaster date as a result of severe storms, tornadoes, or flooding, but only if substantially all of the use of the replacement property is in a Midwestern disaster area. Amended 1040x instructions Property in the Kansas disaster area compulsorily or involuntarily converted after May 3, 2007, but only if substantially all of the use of the replacement property is in the Kansas disaster area. Amended 1040x instructions Property in the Hurricane Katrina disaster area compulsorily or involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, but only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Amended 1040x instructions Extended replacement period for taxpayers affected by other federally declared disasters. Amended 1040x instructions    If you are affected by a federally declared disaster, the IRS may grant disaster relief by extending the periods to perform certain tax-related acts for 2013, including the replacement period, by up to one year. Amended 1040x instructions For more information visit www. Amended 1040x instructions irs. Amended 1040x instructions gov/uac/Tax-Relief-in-Disaster-Situations. Amended 1040x instructions Weather-related sales of livestock in an area eligible for federal assistance. Amended 1040x instructions   Generally, if the sale or exchange of livestock is due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. Amended 1040x instructions    If the weather-related conditions continue for longer than 3 years, the replacement period may be extended on a regional basis until the end of your first drought-free year for the applicable region. Amended 1040x instructions See Notice 2006-82. Amended 1040x instructions You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. Amended 1040x instructions irs. Amended 1040x instructions gov/irb/2006-39_IRB/ar13. Amended 1040x instructions html. Amended 1040x instructions    Each year, the IRS publishes a list of counties, districts, cities, or parishes for which exceptional, extreme, or severe drought was reported during the preceding 12 months. Amended 1040x instructions If you qualified for a 4-year replacement period for livestock sold or exchanged on account of drought and your replacement period is scheduled to expire at the end of 2013 (or at the end of the tax year that includes August 31, 2013), see Notice 2013-62. Amended 1040x instructions You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. Amended 1040x instructions irs. Amended 1040x instructions gov/irb/2013-45_IRB/ar04. Amended 1040x instructions html. Amended 1040x instructions The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. Amended 1040x instructions Determining when gain is realized. Amended 1040x instructions   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. Amended 1040x instructions If the condemning authority makes deposits with the court, you realize gain when you withdraw (or have the right to withdraw) amounts that are more than your basis. Amended 1040x instructions   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. Amended 1040x instructions A replacement will be too late if you wait for a final determination that does not take place in the applicable replacement period after you first realize gain. Amended 1040x instructions   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. Amended 1040x instructions All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. Amended 1040x instructions All or part of the award is actually or constructively received. Amended 1040x instructions For example, if you have an absolute right to a part of a condemnation award when it is deposited with the court, the amount deposited accrues in the year the deposit is made even though the full amount of the award is still contested. Amended 1040x instructions Replacement property bought before the condemnation. Amended 1040x instructions   If you buy your replacement property after there is a threat of condemnation but before the actual condemnation and you still hold the replacement property at the time of the condemnation, you have bought your replacement property within the replacement period. Amended 1040x instructions Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. Amended 1040x instructions Example. Amended 1040x instructions On April 3, 2012, city authorities notified you that your property would be condemned. Amended 1040x instructions On June 5, 2012, you acquired property to replace the property to be condemned. Amended 1040x instructions You still had the new property when the city took possession of your old property on September 4, 2013. Amended 1040x instructions You have made a replacement within the replacement period. Amended 1040x instructions Extension. Amended 1040x instructions   You can request an extension of the replacement period from the IRS director for your area. Amended 1040x instructions You should apply before the end of the replacement period. Amended 1040x instructions Your request should explain in detail why you need an extension. Amended 1040x instructions The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. Amended 1040x instructions An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. Amended 1040x instructions   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. Amended 1040x instructions Extensions are usually limited to a period of 1 year or less. Amended 1040x instructions The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. Amended 1040x instructions If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri
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Understanding Your CP01A Notice

This notice tells you about the Identity Protection Personal Identification Number (IP PIN) we sent you.


What you need to do

  • Forms 1040, 1040A, 1040EZ and 1040 PR/SS
    Be sure to enter your IP PIN in the correct place when you file your 2013 federal tax return:
    • Electronic Returns (Caution: see new joint filing rules below)
      • Your tax software or practitioner will tell you when and where to enter the IP PIN.
      • If you can’t find where to enter your IP PIN, search within your software on Identity Protection PIN or IP PIN or contact the software provider’s help desk. Due to software variations, the IRS doesn't know the location of the IP PIN within each package.
    • Paper Returns
      • Enter your IP PIN in the gray box marked “Identity Protection PIN” to the right of “Spouse’s signature and occupation”.
  • Amended Returns, Extensions and Installment Agreements
    An IP PIN is not required to file:
    • Form 1040X, Amended U.S. Individual Income Tax Return ,
    • Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, or
    • Form 433-D, Installment Agreement

If you are filing a joint return

  • Electronic Returns
    • Each taxpayer who receives an IP PIN must enter it on their tax return when filing as the primary (first SSN on the tax form) or secondary taxpayer.
      • If only one taxpayer receives an IP PIN, you must enter it with the taxpayer’s SSN to whom it belongs.
      • If both taxpayers receive an IP PIN, both taxpayers must enter the IP PIN that goes with their SSN.
  • Paper Returns
    • Only the primary taxpayer should enter their IP PIN on the tax return. The secondary taxpayer must not enter their IP PIN even if they received one
    • Note: The secondary taxpayer’s IP PIN still provides protection by preventing the fraudulent use of your SSN as the primary or secondary SSN on an e-filed return or as the primary SSN on a paper return

Important things to remember about your IP PIN

  • Store this letter with your tax records
  • A new IP PIN is assigned to you each year
  • The latest IP PIN assigned to you is your IP PIN of record and you should destroy all prior IP PINs securely
  • Do not reveal your IP PIN to anyone other than your tax preparer. Reveal it only when you are ready to sign and submit your federal income tax return
  • Use your IP PIN on your 2013 federal income tax return
    • Electronic Returns: We will reject your return if you fail to use your IP PIN.
    • Paper Returns: A significant delay processing your return and any refund you may be due will occur if you fail to use the primary taxpayer’s IP PIN.
  • Your IP PIN is not used on your state income tax return

Use on prior year returns

You must use your latest IP PIN on any delinquent 2012 or 2011 Forms 1040. 1040A, 1040EZ or 1040PR/SS returns you may file in calendar year 2014.


If you misplaced your IP PIN

Visit the Lost or Misplaced IP PINs page for instructions on how to recover your original IP PIN or request a replacement.


Answers to Common Questions

We have complete answers to questions you might have about the IP PIN process on our Frequently Asked Questions about the IP PIN page.

Page Last Reviewed or Updated: 19-Feb-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Amended 1040x Instructions

Amended 1040x instructions Publication 597 - Main Content Table of Contents Application of Treaty Personal Services Pensions, Annuities, Social Security, and AlimonyRoth IRAs. Amended 1040x instructions Tax-deferred plans. Amended 1040x instructions Investment Income From Canadian Sources Other Income Charitable ContributionsQualified charities. Amended 1040x instructions Income Tax Credits Competent Authority Assistance How To Get Tax HelpText of Treaty U. Amended 1040x instructions S. Amended 1040x instructions Taxation Canadian Taxation Application of Treaty The benefits of the income tax treaty are generally provided on the basis of residence for income tax purposes. Amended 1040x instructions That is, a person who is recognized as a resident of the United States who has income from Canada, will often pay less income tax to Canada on that income than if no treaty was in effect. Amended 1040x instructions Article IV provides definitions of residents of Canada and the United States, and provides specific criteria for applying the treaty in cases where a taxpayer is considered by both countries to be a resident. Amended 1040x instructions Saving clause. Amended 1040x instructions   In most instances, a treaty does not affect the right of a country to tax its own residents (including those who are U. Amended 1040x instructions S. Amended 1040x instructions citizens) or of the United States to tax its residents or citizens (including U. Amended 1040x instructions S. Amended 1040x instructions citizens who are residents of the foreign country). Amended 1040x instructions This provision is known as the “saving clause. Amended 1040x instructions ”   For example, an individual who is a U. Amended 1040x instructions S. Amended 1040x instructions citizen and a resident of Canada may have dividend income from a U. Amended 1040x instructions S. Amended 1040x instructions corporation. Amended 1040x instructions The treaty provides a maximum rate of 15% on dividends received by a resident of Canada from sources in the United States. Amended 1040x instructions Even though a resident of Canada, the individual is a U. Amended 1040x instructions S. Amended 1040x instructions citizen and the saving clause overrides the treaty article that limits the U. Amended 1040x instructions S. Amended 1040x instructions tax to 15%. Amended 1040x instructions    Exceptions to the saving clause can be found in Article XXIX, paragraph 3. Amended 1040x instructions Treaty-based position. Amended 1040x instructions   If you take the position that any U. Amended 1040x instructions S. Amended 1040x instructions tax is overruled or otherwise reduced by a U. Amended 1040x instructions S. Amended 1040x instructions treaty (a treaty-based position), you generally must disclose that position on Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), and attach it to your return. Amended 1040x instructions Personal Services A U. Amended 1040x instructions S. Amended 1040x instructions citizen or resident who is temporarily present in Canada during the tax year is exempt from Canadian income taxes on pay for services performed, or remittances received from the United States, if the citizen or resident qualifies under one of the treaty exemption provisions set out below. Amended 1040x instructions Income from employment (Article XV). Amended 1040x instructions   Income U. Amended 1040x instructions S. Amended 1040x instructions residents receive for the performance of dependent personal services in Canada (except as public entertainers) is exempt from Canadian tax if it is not more than $10,000 in Canadian currency for the year. Amended 1040x instructions If it is more than $10,000 for the year, it is exempt only if: The residents are present in Canada for no more than 183 days in any 12-month period beginning or ending in the year concerned, and The income is not paid by, or on behalf of, a Canadian resident and is not borne by a permanent establishment in Canada. Amended 1040x instructions    Whether there is a permanent establishment in Canada is determined by the rules set forth in Article V. Amended 1040x instructions Example. Amended 1040x instructions You are a U. Amended 1040x instructions S. Amended 1040x instructions resident employed under an 8-month contract with a Canadian firm to install equipment in their Montreal plant. Amended 1040x instructions During the calendar year you were physically present in Canada for 179 days and were paid $16,500 (Canadian) for your services. Amended 1040x instructions Although you were in Canada for not more than 183 days during the year, your income is not exempt from Canadian income tax because it was paid by a Canadian resident and was more than $10,000 (Canadian) for the year. Amended 1040x instructions Pay received by a U. Amended 1040x instructions S. Amended 1040x instructions resident for work regularly done in more than one country as an employee on a ship, aircraft, motor vehicle, or train operated by a U. Amended 1040x instructions S. Amended 1040x instructions resident is exempt from Canadian tax. Amended 1040x instructions Income from self-employment (Article VII). Amended 1040x instructions   Income from services performed (other than those performed as an employee) are taxed in Canada if they are attributable to a permanent establishment in Canada. Amended 1040x instructions This income is treated as business profits, and deductions similar to those allowed under U. Amended 1040x instructions S. Amended 1040x instructions law are allowable. Amended 1040x instructions   If you carry on (or have carried on) business in both Canada and the United States, the business profits are attributable to each country based on the profits that the permanent establishment might be expected to make if it were a distinct and separate person engaged in the same or similar activities. Amended 1040x instructions The business profits attributable to the permanent establishment include only those profits derived from assets used, risks assumed, and activities performed by the permanent establishment. Amended 1040x instructions   You may be considered to have a permanent establishment if you meet certain conditions. Amended 1040x instructions For more information, see Article V (Permanent Establishment) and Article VII (Business Profits). Amended 1040x instructions Public entertainers (Article XVI). Amended 1040x instructions   The provisions under income from employment or income from self-employment do not apply to public entertainers (such as theater, motion picture, radio, or television artistes, musicians, or athletes) from the United States who receive more than $15,000 in gross receipts in Canadian currency, including reimbursed expenses, from their entertainment activities in Canada during the calendar year. Amended 1040x instructions However, this provision for public entertainers does not apply (and the other provisions will apply) to athletes participating in team sports in leagues with regularly scheduled games in both the United States and Canada. Amended 1040x instructions Compensation paid by the U. Amended 1040x instructions S. Amended 1040x instructions Government (Article XIX). Amended 1040x instructions   Wages, salaries, and similar income (other than pensions) paid to a U. Amended 1040x instructions S. Amended 1040x instructions citizen by the United States or any of its agencies, instrumentalities, or political subdivisions for discharging governmental functions are exempt from Canadian income tax. Amended 1040x instructions   The exemption does not apply to pay for services performed in connection with any trade or business carried on for profit by the United States, or any of its agencies, instrumentalities, or political subdivisions. Amended 1040x instructions Students and apprentices (Article XX). Amended 1040x instructions   A full-time student, apprentice, or business trainee who is in Canada to study or acquire business experience is exempt from Canadian income tax on remittances received from any source outside Canada for maintenance, education, or training. Amended 1040x instructions The recipient must be or must have been a U. Amended 1040x instructions S. Amended 1040x instructions resident immediately before visiting Canada. Amended 1040x instructions   An apprentice or business trainee can claim this exemption only for a period of one year from the date the individual first arrived in Canada for the purpose of training. Amended 1040x instructions Pensions, Annuities, Social Security, and Alimony Under Article XVIII, pensions and annuities from Canadian sources paid to U. Amended 1040x instructions S. Amended 1040x instructions residents are subject to tax by Canada, but the tax is limited to 15% of the gross amount (if a periodic pension payment) or of the taxable amount (if an annuity). Amended 1040x instructions Canadian pensions and annuities paid to U. Amended 1040x instructions S. Amended 1040x instructions residents may be taxed by the United States, but the amount of any pension included in income for U. Amended 1040x instructions S. Amended 1040x instructions tax purposes may not be more than the amount that would be included in income in Canada if the recipient were a Canadian resident. Amended 1040x instructions Pensions. Amended 1040x instructions   A pension includes any payment under a pension or other retirement arrangement, Armed Forces retirement pay, war veterans pensions and allowances, and payments under a sickness, accident, or disability plan. Amended 1040x instructions It includes pensions paid by private employers and the government for services rendered. Amended 1040x instructions   Pensions also include payments from individual retirement arrangements (IRAs) in the United States, registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) in Canada. Amended 1040x instructions   Pensions do not include social security benefits. Amended 1040x instructions Roth IRAs. Amended 1040x instructions   A distribution from a Roth IRA is exempt from Canadian tax to the extent it would be exempt from U. Amended 1040x instructions S. Amended 1040x instructions tax if paid to a U. Amended 1040x instructions S. Amended 1040x instructions resident. Amended 1040x instructions In addition, you may elect to defer any tax in Canada on income accrued within the Roth IRA but not distributed by the Roth IRA. Amended 1040x instructions However, you cannot defer tax on any accruals due to contributions made after you become a Canadian resident. Amended 1040x instructions Tax-deferred plans. Amended 1040x instructions   Generally, income that accrues in a Canadian RRSP or RRIF is subject to U. Amended 1040x instructions S. Amended 1040x instructions tax, even if it is not distributed. Amended 1040x instructions However, a U. Amended 1040x instructions S. Amended 1040x instructions citizen or resident can elect to defer U. Amended 1040x instructions S. Amended 1040x instructions tax on income from the plan until the income is distributed. Amended 1040x instructions Form 8891 is used to make the election. Amended 1040x instructions Annuities. Amended 1040x instructions    An annuity is a stated sum payable periodically at stated times, during life, or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered). Amended 1040x instructions Annuities do not include: Non-periodic payments, or An annuity the cost of which was deductible for tax purposes. Amended 1040x instructions Special rules. Amended 1040x instructions    Special rules apply to pensions and annuities with respect to: Short-term assignments, Cross-border commuters, and Individuals who participate in a Canadian qualifying plan. Amended 1040x instructions Generally, distributions in such cases are deemed to be earned in the country in which the plan is established, without regard to where the services were rendered. Amended 1040x instructions Social security benefits. Amended 1040x instructions   U. Amended 1040x instructions S. Amended 1040x instructions social security benefits paid to a resident of Canada are taxed in Canada as if they were benefits under the Canada Pension Plan, except that 15% of the amount of the benefit is exempt from Canadian tax. Amended 1040x instructions Alimony. Amended 1040x instructions   Alimony and similar amounts (including child support payments) from Canadian sources paid to U. Amended 1040x instructions S. Amended 1040x instructions residents are exempt from Canadian tax. Amended 1040x instructions For purposes of U. Amended 1040x instructions S. Amended 1040x instructions tax, these amounts are excluded from income to the same extent they would be excluded from income in Canada if the recipient was a Canadian resident. Amended 1040x instructions Investment Income From Canadian Sources The treaty provides beneficial treatment for certain items of Canadian source income that result from an investment of capital. Amended 1040x instructions Dividends (Article X). Amended 1040x instructions   For Canadian source dividends received by U. Amended 1040x instructions S. Amended 1040x instructions residents, the Canadian income tax generally may not be more than 15%. Amended 1040x instructions   A 5% rate applies to intercorporate dividends paid from a subsidiary to a parent corporation owning at least 10% of the subsidiary's voting stock. Amended 1040x instructions However, a 10% rate applies if the payer of the dividend is a nonresident-owned Canadian investment corporation. Amended 1040x instructions   These rates do not apply if the owner of the dividends carries on, or has carried on, a business in Canada through a permanent establishment and the holding on which the income is paid is effectively connected with that permanent establishment. Amended 1040x instructions Interest (Article XI). Amended 1040x instructions   Generally, Canadian source interest received by U. Amended 1040x instructions S. Amended 1040x instructions residents is exempt from Canadian income tax. Amended 1040x instructions   The exemption does not apply if the owner of the interest carries on, or has carried on, a business in Canada through a permanent establishment and the debt on which the income is paid is effectively connected with that permanent establishment. Amended 1040x instructions Gains from the sale of property (Article XIII). Amended 1040x instructions   Generally, gains from the sale of personal property by a U. Amended 1040x instructions S. Amended 1040x instructions resident having no permanent establishment in Canada are exempt from Canadian income tax. Amended 1040x instructions However, the exemption from Canadian tax does not apply to gains realized by U. Amended 1040x instructions S. Amended 1040x instructions residents on Canadian real property, and on personal property belonging to a permanent establishment in Canada. Amended 1040x instructions   If the property subject to Canadian tax is a capital asset and was owned by the U. Amended 1040x instructions S. Amended 1040x instructions resident on September 26, 1980, not as part of the business property of a permanent establishment in Canada, generally the taxable gain is limited to the appreciation after 1984. Amended 1040x instructions Royalties (Article XII). Amended 1040x instructions   The following are exempt from Canadian tax: Copyright royalties and other like payments for the production or reproduction of any literary, dramatic, musical, or artistic work (other than payments for motion pictures and works on film, videotape, or other means of reproduction for use in connection with television, which may be taxed at 10%), Payments for the use of, or the right to use, computer software, Payments for the use of, or the right to use, any patent or any information concerning industrial, commercial, or scientific experience (but not within a rental or franchise agreement), and Payments for broadcasting as agreed to in an exchange of notes between the countries. Amended 1040x instructions   This rate or exemption does not apply if the owner of the royalties carries on, or has carried on, a business in Canada through a permanent establishment and the right or property on which the income is paid is effectively connected with that permanent establishment. Amended 1040x instructions   This exemption (or lower rate) does not apply to royalties to explore for or to exploit mineral deposits, timber, and other natural resources. Amended 1040x instructions Other Income Generally, Canadian source income that is not specifically mentioned in the treaty, may be taxed by Canada. Amended 1040x instructions Gambling losses. Amended 1040x instructions   Canadian residents may deduct gambling losses in the U. Amended 1040x instructions S. Amended 1040x instructions against gambling winnings in the U. Amended 1040x instructions S. Amended 1040x instructions in the same manner as a U. Amended 1040x instructions S. Amended 1040x instructions resident. Amended 1040x instructions Charitable Contributions United States income tax return. Amended 1040x instructions   Under Article XXI, you may deduct contributions to certain qualified Canadian charitable organizations on your United States income tax return. Amended 1040x instructions Besides being subject to the overall limits applicable to all your charitable contributions under U. Amended 1040x instructions S. Amended 1040x instructions tax law, your charitable contributions to Canadian organizations (other than contributions to a college or university at which you or a member of your family is or was enrolled) are subject to the U. Amended 1040x instructions S. Amended 1040x instructions percentage limits on charitable contributions, applied to your Canadian source income. Amended 1040x instructions If your return does not include gross income from Canadian sources, charitable contributions to Canadian organizations are generally not deductible. Amended 1040x instructions Example. Amended 1040x instructions You are a U. Amended 1040x instructions S. Amended 1040x instructions citizen living in Canada. Amended 1040x instructions You have both U. Amended 1040x instructions S. Amended 1040x instructions and Canadian source income. Amended 1040x instructions During your tax year, you contribute to Canadian organizations that would qualify as charitable organizations under U. Amended 1040x instructions S. Amended 1040x instructions tax law if they were U. Amended 1040x instructions S. Amended 1040x instructions organizations. Amended 1040x instructions To figure the maximum amount of the contribution to Canadian organizations that you can deduct on your U. Amended 1040x instructions S. Amended 1040x instructions income tax return, multiply your adjusted gross income from Canadian sources by the percentage limit that applies to contributions under U. Amended 1040x instructions S. Amended 1040x instructions income tax law. Amended 1040x instructions Then include this amount on your return along with all your domestic charitable contributions, subject to the appropriate percentage limit required for contributions under U. Amended 1040x instructions S. Amended 1040x instructions income tax law. Amended 1040x instructions The appropriate percentage limit for U. Amended 1040x instructions S. Amended 1040x instructions tax purposes is applied to your total adjusted gross income from all sources. Amended 1040x instructions Qualified charities. Amended 1040x instructions   These Canadian organizations must meet the qualifications that a U. Amended 1040x instructions S. Amended 1040x instructions charitable organization must meet under U. Amended 1040x instructions S. Amended 1040x instructions tax law. Amended 1040x instructions Usually an organization will notify you if it qualifies. Amended 1040x instructions For further information on charitable contributions and the U. Amended 1040x instructions S. Amended 1040x instructions percentage limits, see Publication 526, Charitable Contributions. Amended 1040x instructions Canadian income tax return. Amended 1040x instructions   Under certain conditions, contributions to qualified U. Amended 1040x instructions S. Amended 1040x instructions charitable organizations may also be claimed on your Canadian income tax return if you are a Canadian resident. Amended 1040x instructions Income Tax Credits The treaty contains a credit provision (Article XXIV) for the elimination of double taxation. Amended 1040x instructions In general, the United States and Canada both allow a credit against their income tax for the income tax paid to the other country on income from sources in that other country. Amended 1040x instructions For detailed discussions of the U. Amended 1040x instructions S. Amended 1040x instructions income tax treatment of tax paid to foreign countries, see Publication 514, Foreign Tax Credit for Individuals. Amended 1040x instructions See paragraphs (4) and (5) of Article XXIV for certain provisions that affect the computation of the credit allowed by the United States for Canadian income taxes paid by U. Amended 1040x instructions S. Amended 1040x instructions citizens residing in Canada. Amended 1040x instructions Competent Authority Assistance Under Article XXVI, a U. Amended 1040x instructions S. Amended 1040x instructions citizen or resident may request assistance from the U. Amended 1040x instructions S. Amended 1040x instructions competent authority when the actions of Canada, the United States, or both, potentially result in double taxation or taxation contrary to the treaty. Amended 1040x instructions The U. Amended 1040x instructions S. Amended 1040x instructions competent authority may then consult with the Canadian competent authority to determine if the double taxation or denial of treaty benefits in question can be avoided. Amended 1040x instructions If the competent authorities are not able to reach agreement in a case, binding arbitration proceedings may apply. Amended 1040x instructions It is important that your request for competent authority assistance be made as soon as you have been notified by either Canada or the United States of proposed adjustments that would result in denial of treaty benefits or in double taxation. Amended 1040x instructions This is so that implementation of any agreement reached by the competent authorities is not barred by administrative, legal, or procedural barriers. Amended 1040x instructions For information that you should include with your request for competent authority assistance, see Revenue Procedure 2006-54, 2006-49 IRB 1035, available at www. Amended 1040x instructions irs. Amended 1040x instructions gov/irb/2006-49_IRB/ar13. Amended 1040x instructions html. Amended 1040x instructions The request should be addressed to:  Deputy Commissioner (International) Large Business and International Division Attn: Office of Tax Treaty  Internal Revenue Service 1111 Constitution Ave. Amended 1040x instructions , NW Routing: MA3-322A Washington, D. Amended 1040x instructions C. Amended 1040x instructions 20024 In addition to a timely request for assistance, you should take the following measures: File a timely protective claim for credit or refund of U. Amended 1040x instructions S. Amended 1040x instructions taxes on Form 1040X, Form 1120X, or amended Form 1041, whichever is appropriate. Amended 1040x instructions This will, among other things, give you the benefit of a foreign tax credit in case you do not qualify for the treaty benefit in question. Amended 1040x instructions For figuring this credit, attach either Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), or Form 1118, Foreign Tax Credit — Corporations, as appropriate. Amended 1040x instructions Attach your protective claim to your request for competent authority assistance. Amended 1040x instructions Take appropriate action under Canadian procedures to avoid the lapse or termination of your right of appeal under Canadian income tax law. Amended 1040x instructions How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS and the Canada Revenue Agency in several ways. Amended 1040x instructions Text of Treaty You can get the text of the U. Amended 1040x instructions S. Amended 1040x instructions —Canada income tax treaty from: Superintendent of Documents U. Amended 1040x instructions S. Amended 1040x instructions Government Printing Office P. Amended 1040x instructions O. Amended 1040x instructions Box 371954 Pittsburgh, PA 15250-7954 The treaty can also be found on the Internet at IRS. Amended 1040x instructions gov. Amended 1040x instructions U. Amended 1040x instructions S. Amended 1040x instructions Taxation During the filing season, the IRS conducts a taxpayer assistance program in Canada. Amended 1040x instructions To find out if IRS personnel will be in your area, you should contact the consular office at the nearest U. Amended 1040x instructions S. Amended 1040x instructions Embassy or consulate. Amended 1040x instructions Mail. Amended 1040x instructions For answers to technical or account questions, you can write to:   Internal Revenue Service International Section Philadelphia, PA 19255-0525 Phone. Amended 1040x instructions You can call the IRS for help at (267) 941-1000 (not a toll-free call). Amended 1040x instructions Canadian Taxation You can get information on Canadian taxation from the Canada Revenue Agency. Amended 1040x instructions The International Tax Services Office can be contacted on 1-800-267-5177 (from anywhere in Canada and the U. Amended 1040x instructions S. Amended 1040x instructions ) or on the Internet at www. Amended 1040x instructions cra-arc. Amended 1040x instructions gc. Amended 1040x instructions ca. Amended 1040x instructions Prev  Up  Next   Home   More Online Publications