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Amended Tax Return

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Amended Tax Return

Amended tax return 4. Amended tax return   How Income of Aliens Is Taxed Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Resident Aliens Nonresident AliensTrade or Business in the United States Effectively Connected Income The 30% Tax Income From Real Property Transportation Tax Interrupted Period of Residence Expatriation TaxExpatriation Before June 4, 2004 Expatriation After June 3, 2004, and Before June 17, 2008 Expatriation After June 16, 2008 Introduction Resident and nonresident aliens are taxed in different ways. Amended tax return Resident aliens are generally taxed in the same way as U. Amended tax return S. Amended tax return citizens. Amended tax return Nonresident aliens are taxed based on the source of their income and whether or not their income is effectively connected with a U. Amended tax return S. Amended tax return trade or business. Amended tax return The following discussions will help you determine if income you receive during the tax year is effectively connected with a U. Amended tax return S. Amended tax return trade or business and how it is taxed. Amended tax return Topics - This chapter discusses: Income that is effectively connected with a U. Amended tax return S. Amended tax return trade or business. Amended tax return Income that is not effectively connected with a U. Amended tax return S. Amended tax return trade or business. Amended tax return Interrupted period of residence. Amended tax return Expatriation tax. Amended tax return Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 1212 List of Original Issue Discount Instruments Form (and Instructions) 6251 Alternative Minimum Tax—Individuals Schedule D (Form 1040) Capital Gains and Losses See chapter 12 for information about getting these publications and forms. Amended tax return Resident Aliens Resident aliens are generally taxed in the same way as U. Amended tax return S. Amended tax return citizens. Amended tax return This means that their worldwide income is subject to U. Amended tax return S. Amended tax return tax and must be reported on their U. Amended tax return S. Amended tax return tax return. Amended tax return Income of resident aliens is subject to the graduated tax rates that apply to U. Amended tax return S. Amended tax return citizens. Amended tax return Resident aliens use the Tax Table or Tax Computation Worksheets located in the Form 1040 instructions, which apply to U. Amended tax return S. Amended tax return citizens. Amended tax return Nonresident Aliens A nonresident alien's income that is subject to U. Amended tax return S. Amended tax return income tax must be divided into two categories: Income that is effectively connected with a trade or business in the United States, and Income that is not effectively connected with a trade or business in the United States (discussed under The 30% Tax, later). Amended tax return The difference between these two categories is that effectively connected income, after allowable deductions, is taxed at graduated rates. Amended tax return These are the same rates that apply to U. Amended tax return S. Amended tax return citizens and residents. Amended tax return Income that is not effectively connected is taxed at a flat 30% (or lower treaty) rate. Amended tax return If you were formerly a U. Amended tax return S. Amended tax return citizen or resident alien, these rules may not apply. Amended tax return See Expatriation Tax, later, in this chapter. Amended tax return Trade or Business in the United States Generally, you must be engaged in a trade or business during the tax year to be able to treat income received in that year as effectively connected with that trade or business. Amended tax return Whether you are engaged in a trade or business in the United States depends on the nature of your activities. Amended tax return The discussions that follow will help you determine whether you are engaged in a trade or business in the United States. Amended tax return Personal Services If you perform personal services in the United States at any time during the tax year, you usually are considered engaged in a trade or business in the United States. Amended tax return Certain compensation paid to a nonresident alien by a foreign employer is not included in gross income. Amended tax return For more information, see Services Performed for Foreign Employer in chapter 3. Amended tax return Other Trade or Business Activities Other examples of being engaged in a trade or business in the United States follow. Amended tax return Students and trainees. Amended tax return   You are considered engaged in a trade or business in the United States if you are temporarily present in the United States as a nonimmigrant under an “F,” “J,” “M,” or “Q” visa. Amended tax return A nonresident alien temporarily present in the United States under a “J” visa includes a nonresident alien individual admitted to the United States as an exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961. Amended tax return The taxable part of any scholarship or fellowship grant that is U. Amended tax return S. Amended tax return source income is treated as effectively connected with a trade or business in the United States. Amended tax return Business operations. Amended tax return   If you own and operate a business in the United States selling services, products, or merchandise, you are, with certain exceptions, engaged in a trade or business in the United States. Amended tax return Partnerships. Amended tax return   If you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you are considered to be engaged in a trade or business in the United States. Amended tax return Beneficiary of an estate or trust. Amended tax return   If you are the beneficiary of an estate or trust that is engaged in a trade or business in the United States, you are treated as being engaged in the same trade or business. Amended tax return Trading in stocks, securities, and commodities. Amended tax return   If your only U. Amended tax return S. Amended tax return business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U. Amended tax return S. Amended tax return resident broker or other agent, you are not engaged in a trade or business in the United States. Amended tax return   For transactions in stocks or securities, this applies to any nonresident alien, including a dealer or broker in stocks and securities. Amended tax return   For transactions in commodities, this applies to commodities that are usually traded on an organized commodity exchange and to transactions that are usually carried out at such an exchange. Amended tax return   This discussion does not apply if you have a U. Amended tax return S. Amended tax return office or other fixed place of business at any time during the tax year through which, or by the direction of which, you carry out your transactions in stocks, securities, or commodities. Amended tax return Trading for a nonresident alien's own account. Amended tax return   You are not engaged in a trade or business in the United States if trading for your own account in stocks, securities, or commodities is your only U. Amended tax return S. Amended tax return business activity. Amended tax return This applies even if the trading takes place while you are present in the United States or is done by your employee or your broker or other agent. Amended tax return   This does not apply to trading for your own account if you are a dealer in stocks, securities, or commodities. Amended tax return This does not necessarily mean, however, that as a dealer you are considered to be engaged in a trade or business in the United States. Amended tax return Determine that based on the facts and circumstances in each case or under the rules given above in Trading in stocks, securities, and commodities . Amended tax return Effectively Connected Income If you are engaged in a U. Amended tax return S. Amended tax return trade or business, all income, gain, or loss for the tax year that you get from sources within the United States (other than certain investment income) is treated as effectively connected income. Amended tax return This applies whether or not there is any connection between the income and the trade or business being carried on in the United States during the tax year. Amended tax return Two tests, described next under Investment Income, determine whether certain items of investment income (such as interest, dividends, and royalties) are treated as effectively connected with that business. Amended tax return In limited circumstances, some kinds of foreign source income may be treated as effectively connected with a trade or business in the United States. Amended tax return For a discussion of these rules, see Foreign Income , later. Amended tax return Investment Income Investment income from U. Amended tax return S. Amended tax return sources that may or may not be treated as effectively connected with a U. Amended tax return S. Amended tax return trade or business generally falls into the following three categories. Amended tax return Fixed or determinable income (interest, dividends, rents, royalties, premiums, annuities, etc. Amended tax return ). Amended tax return Gains (some of which are considered capital gains) from the sale or exchange of the following types of property. Amended tax return Timber, coal, or domestic iron ore with a retained economic interest. Amended tax return Patents, copyrights, and similar property on which you receive contingent payments after October 4, 1966. Amended tax return Patents transferred before October 5, 1966. Amended tax return Original issue discount obligations. Amended tax return Capital gains (and losses). Amended tax return Use the two tests, described next, to determine whether an item of U. Amended tax return S. Amended tax return source income falling in one of the three categories above and received during the tax year is effectively connected with your U. Amended tax return S. Amended tax return trade or business. Amended tax return If the tests indicate that the item of income is effectively connected, you must include it with your other effectively connected income. Amended tax return If the item of income is not effectively connected, include it with all other income discussed under The 30% Tax later, in this chapter. Amended tax return Asset-use test. Amended tax return   This test usually applies to income that is not directly produced by trade or business activities. Amended tax return Under this test, if an item of income is from assets (property) used in, or held for use in, the trade or business in the United States, it is considered effectively connected. Amended tax return   An asset is used in, or held for use in, the trade or business in the United States if the asset is: Held for the principal purpose of promoting the conduct of a trade or business in the United States, Acquired and held in the ordinary course of the trade or business conducted in the United States (for example, an account receivable or note receivable arising from that trade or business), or Otherwise held to meet the present needs of the trade or business in the United States and not its anticipated future needs. Amended tax return Generally, stock of a corporation is not treated as an asset used in, or held for use in, a trade or business in the United States. Amended tax return Business-activities test. Amended tax return   This test usually applies when income, gain, or loss comes directly from the active conduct of the trade or business. Amended tax return The business-activities test is most important when: Dividends or interest are received by a dealer in stocks or securities, Royalties are received in the trade or business of licensing patents or similar property, or Service fees are earned by a servicing business. Amended tax return Under this test, if the conduct of the U. Amended tax return S. Amended tax return trade or business was a material factor in producing the income, the income is considered effectively connected. Amended tax return Personal Service Income You usually are engaged in a U. Amended tax return S. Amended tax return trade or business when you perform personal services in the United States. Amended tax return Personal service income you receive in a tax year in which you are engaged in a U. Amended tax return S. Amended tax return trade or business is effectively connected with a U. Amended tax return S. Amended tax return trade or business. Amended tax return Income received in a year other than the year you performed the services is also effectively connected if it would have been effectively connected if received in the year you performed the services. Amended tax return Personal service income includes wages, salaries, commissions, fees, per diem allowances, and employee allowances and bonuses. Amended tax return The income may be paid to you in the form of cash, services, or property. Amended tax return If you are engaged in a U. Amended tax return S. Amended tax return trade or business only because you perform personal services in the United States during the tax year, income and gains from assets, and gains and losses from the sale or exchange of capital assets are generally not effectively connected with your trade or business. Amended tax return However, if there is a direct economic relationship between your holding of the asset and your trade or business of performing personal services, the income, gain, or loss is effectively connected. Amended tax return Pensions. Amended tax return   If you were a nonresident alien engaged in a U. Amended tax return S. Amended tax return trade or business after 1986 because you performed personal services in the United States, and you later receive a pension or retirement pay attributable to these services, such payments are effectively connected income in each year you receive them. Amended tax return This is true whether or not you are engaged in a U. Amended tax return S. Amended tax return trade or business in the year you receive the retirement pay. Amended tax return Transportation Income Transportation income (defined in chapter 2) is effectively connected if you meet both of the following conditions. Amended tax return You had a fixed place of business in the United States involved in earning the income. Amended tax return At least 90% of your U. Amended tax return S. Amended tax return source transportation income is attributable to regularly scheduled transportation. Amended tax return “Fixed place of business” generally means a place, site, structure, or other similar facility through which you engage in a trade or business. Amended tax return “Regularly scheduled transportation” means that a ship or aircraft follows a published schedule with repeated sailings or flights at regular intervals between the same points for voyages or flights that begin or end in the United States. Amended tax return This definition applies to both scheduled and chartered air transportation. Amended tax return If you do not meet the two conditions above, the income is not effectively connected and is taxed at a 4% rate. Amended tax return See Transportation Tax, later, in this chapter. Amended tax return Business Profits and Losses and Sales Transactions All profits or losses from U. Amended tax return S. Amended tax return sources that are from the operation of a business in the United States are effectively connected with a trade or business in the United States. Amended tax return For example, profit from the sale in the United States of inventory property purchased either in this country or in a foreign country is effectively connected trade or business income. Amended tax return A share of U. Amended tax return S. Amended tax return source profits or losses of a partnership that is engaged in a trade or business in the United States is also effectively connected with a trade or business in the United States. Amended tax return Real Property Gain or Loss Gains and losses from the sale or exchange of U. Amended tax return S. Amended tax return real property interests (whether or not they are capital assets) are taxed as if you are engaged in a trade or business in the United States. Amended tax return You must treat the gain or loss as effectively connected with that trade or business. Amended tax return U. Amended tax return S. Amended tax return real property interest. Amended tax return   This is any interest in real property located in the United States or the U. Amended tax return S. Amended tax return Virgin Islands or any interest (other than as a creditor) in a domestic corporation that is a U. Amended tax return S. Amended tax return real property holding corporation. Amended tax return Real property includes the following. Amended tax return Land and unsevered natural products of the land, such as growing crops and timber, and mines, wells, and other natural deposits. Amended tax return Improvements on land, including buildings, other permanent structures, and their structural components. Amended tax return Personal property associated with the use of real property, such as equipment used in farming, mining, forestry, or construction or property used in lodging facilities or rented office space, unless the personal property is: Disposed of more than one year before or after the disposition of the real property, or Separately sold to persons unrelated either to the seller or to the buyer of the real property. Amended tax return U. Amended tax return S. Amended tax return real property holding corporation. Amended tax return   A corporation is a U. Amended tax return S. Amended tax return real property holding corporation if the fair market value of the corporation's U. Amended tax return S. Amended tax return real property interests are at least 50% of the total fair market value of: The corporation's U. Amended tax return S. Amended tax return real property interests, plus The corporation's interests in real property located outside the United States, plus The corporation's other assets that are used in, or held for use in, a trade or business. Amended tax return   Gain or loss on the sale of the stock in any domestic corporation is taxed as if you are engaged in a U. Amended tax return S. Amended tax return trade or business unless you establish that the corporation is not a U. Amended tax return S. Amended tax return real property holding corporation. Amended tax return   A U. Amended tax return S. Amended tax return real property interest does not include a class of stock of a corporation that is regularly traded on an established securities market, unless you hold more than 5% of the fair market value of that class of stock. Amended tax return An interest in a foreign corporation owning U. Amended tax return S. Amended tax return real property generally is not a U. Amended tax return S. Amended tax return real property interest unless the corporation chooses to be treated as a domestic corporation. Amended tax return Qualified investment entities. Amended tax return   Special rules apply to qualified investment entities (QIEs). Amended tax return A QIE is any real estate investment trust (REIT) or any regulated investment company (RIC) that is a U. Amended tax return S. Amended tax return real property holding corporation. Amended tax return    Generally, any distribution from a QIE to a shareholder that is attributable to gain from the sale or exchange of a U. Amended tax return S. Amended tax return real property interest is treated as a U. Amended tax return S. Amended tax return real property gain by the shareholder receiving the distribution. Amended tax return A distribution by a QIE on stock regularly traded on an established securities market in the United States is not treated as gain from the sale or exchange of a U. Amended tax return S. Amended tax return real property interest if you did not own more than 5% of that stock at any time during the 1-year period ending on the date of the distribution. Amended tax return A distribution that you do not treat as gain from the sale or exchange of a U. Amended tax return S. Amended tax return real property interest is included in your gross income as a regular dividend. Amended tax return Note. Amended tax return Beginning January 1, 2014 (unless extended by legislation), a RIC that is a U. Amended tax return S. Amended tax return real property holding corporation will only be treated as a QIE for certain distributions from the RIC that are directly or indirectly attributable to distributions received by the RIC from a REIT. Amended tax return Domestically controlled QIE. Amended tax return   The sale of an interest in a domestically controlled QIE is not the sale of a U. Amended tax return S. Amended tax return real property interest. Amended tax return The entity is domestically controlled if at all times during the testing period less than 50% in value of its stock was held, directly or indirectly, by foreign persons. Amended tax return The testing period is the shorter of (a) the 5-year period ending on the date of disposition, or (b) the period during which the entity was in existence. Amended tax return Wash sale. Amended tax return    If you dispose of an interest in a domestically controlled QIE in an applicable wash sale transaction, special rules apply. Amended tax return An applicable wash sale transaction is one in which you: Dispose of an interest in the domestically controlled QIE during the 30-day period before the ex-dividend date of a distribution that you would (but for the disposition) have treated as gain from the sale or exchange of a U. Amended tax return S. Amended tax return real property interest, and Acquire, or enter into a contract or option to acquire, a substantially identical interest in that entity during the 61-day period that began on the first day of the 30-day period. Amended tax return If this occurs, you are treated as having gain from the sale or exchange of a U. Amended tax return S. Amended tax return real property interest in an amount equal to the distribution made after June 15, 2006, that would have been treated as such gain. Amended tax return This also applies to any substitute dividend payment. Amended tax return   A transaction is not treated as an applicable wash sale transaction if: You actually receive the distribution from the domestically controlled QIE related to the interest disposed of, or acquired, in the transaction, or You dispose of any class of stock in a QIE that is regularly traded on an established securities market in the United States but only if you did not own more than 5% of that class of stock at any time during the 1-year period ending on the date of the distribution. Amended tax return Alternative minimum tax. Amended tax return   There may be a minimum tax on your net gain from the disposition of U. Amended tax return S. Amended tax return real property interests. Amended tax return Figure the amount of this tax, if any, on Form 6251. Amended tax return Withholding of tax. Amended tax return   If you dispose of a U. Amended tax return S. Amended tax return real property interest, the buyer may have to withhold tax. Amended tax return See the discussion of Tax Withheld on Real Property Sales in chapter 8. Amended tax return Foreign Income You must treat three kinds of foreign source income as effectively connected with a trade or business in the United States if: You have an office or other fixed place of business in the United States to which the income can be attributed, That office or place of business is a material factor in producing the income, and The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Amended tax return An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Amended tax return The three kinds of foreign source income are listed below. Amended tax return Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the United States or from any interest in such property. Amended tax return Included are rents or royalties for the use, or for the privilege of using, outside the United States, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the United States. Amended tax return Dividends, interest, or amounts received for the provision of a guarantee of indebtedness issued after September 27, 2010, from the active conduct of a banking, financing, or similar business in the United States. Amended tax return A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. Amended tax return Income, gain, or loss from the sale outside the United States, through the U. Amended tax return S. Amended tax return office or other fixed place of business, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Amended tax return Item (3) will not apply if you sold the property for use, consumption, or disposition outside the United States and an office or other fixed place of business in a foreign country was a material factor in the sale. Amended tax return Any foreign source income that is equivalent to any item of income described above is treated as effectively connected with a U. Amended tax return S. Amended tax return trade or business. Amended tax return For example, foreign source interest and dividend equivalents are treated as U. Amended tax return S. Amended tax return effectively connected income if the income is derived by a foreign person in the active conduct of a banking, financing, or similar business within the United States. Amended tax return Tax on Effectively Connected Income Income you receive during the tax year that is effectively connected with your trade or business in the United States is, after allowable deductions, taxed at the rates that apply to U. Amended tax return S. Amended tax return citizens and residents. Amended tax return Generally, you can receive effectively connected income only if you are a nonresident alien engaged in trade or business in the United States during the tax year. Amended tax return However, income you receive from the sale or exchange of property, the performance of services, or any other transaction in another tax year is treated as effectively connected in that year if it would have been effectively connected in the year the transaction took place or you performed the services. Amended tax return Example. Amended tax return Ted Richards, a nonresident alien, entered the United States in August 2012, to perform personal services in the U. Amended tax return S. Amended tax return office of his overseas employer. Amended tax return He worked in the U. Amended tax return S. Amended tax return office until December 25, 2012, but did not leave this country until January 11, 2013. Amended tax return On January 8, 2013, he received his final paycheck for services performed in the United States during 2012. Amended tax return All of Ted's income during his stay here is U. Amended tax return S. Amended tax return source income. Amended tax return During 2012, Ted was engaged in the trade or business of performing personal services in the United States. Amended tax return Therefore, all amounts paid to him in 2012 for services performed in the United States during 2012 are effectively connected with that trade or business during 2012. Amended tax return The salary payment Ted received in January 2013 is U. Amended tax return S. Amended tax return source income to him in 2013. Amended tax return It is effectively connected with a trade or business in the United States because he was engaged in a trade or business in the United States during 2012 when he performed the services that earned the income. Amended tax return Real property income. Amended tax return   You may be able to choose to treat all income from real property as effectively connected. Amended tax return See Income From Real Property , later, in this chapter. Amended tax return The 30% Tax Tax at a 30% (or lower treaty) rate applies to certain items of income or gains from U. Amended tax return S. Amended tax return sources but only if the items are not effectively connected with your U. Amended tax return S. Amended tax return trade or business. Amended tax return Fixed or Determinable Income The 30% (or lower treaty) rate applies to the gross amount of U. Amended tax return S. Amended tax return source fixed or determinable annual or periodic gains, profits, or income. Amended tax return Income is fixed when it is paid in amounts known ahead of time. Amended tax return Income is determinable whenever there is a basis for figuring the amount to be paid. Amended tax return Income can be periodic if it is paid from time to time. Amended tax return It does not have to be paid annually or at regular intervals. Amended tax return Income can be determinable or periodic even if the length of time during which the payments are made is increased or decreased. Amended tax return Items specifically included as fixed or determinable income are interest (other than original issue discount), dividends, dividend equivalent payments (defined in chapter 2), rents, premiums, annuities, salaries, wages, and other compensation. Amended tax return A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. Amended tax return Other items of income, such as royalties, also may be subject to the 30% tax. Amended tax return Some fixed or determinable income may be exempt from U. Amended tax return S. Amended tax return tax. Amended tax return See chapter 3 if you are not sure whether the income is taxable. Amended tax return Original issue discount (OID). Amended tax return   If you sold, exchanged, or received a payment on a bond or other debt instrument that was issued at a discount after March 31, 1972, all or part of the original issue discount (OID) (other than portfolio interest) may be subject to the 30% tax. Amended tax return The amount of OID is the difference between the stated redemption price at maturity and the issue price of the debt instrument. Amended tax return The 30% tax applies in the following circumstances. Amended tax return You received a payment on a debt instrument. Amended tax return In this case, the amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the OID previously taken into account. Amended tax return But the tax on the OID cannot be more than the payment minus the tax on the interest payment on the debt instrument. Amended tax return You sold or exchanged the debt instrument. Amended tax return The amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the amount already taxed in (1) above. Amended tax return   Report on your return the amount of OID shown on Form 1042-S, Foreign Person's U. Amended tax return S. Amended tax return Source Income Subject to Withholding, if you bought the debt instrument at original issue. Amended tax return However, you must recompute your proper share of OID shown on Form 1042-S if any of the following apply. Amended tax return You bought the debt instrument at a premium or paid an acquisition premium. Amended tax return The debt instrument is a stripped bond or a stripped coupon (including zero coupon instruments backed by U. Amended tax return S. Amended tax return Treasury securities). Amended tax return The debt instrument is a contingent payment or inflation-indexed debt instrument. Amended tax return For the definition of premium and acquisition premium and instructions on how to recompute OID, get Publication 1212. Amended tax return   If you held a bond or other debt instrument that was issued at a discount before April 1, 1972, contact the IRS for further information. Amended tax return See chapter 12. Amended tax return Gambling Winnings In general, nonresident aliens are subject to the 30% tax on the gross proceeds from gambling won in the United States if that income is not effectively connected with a U. Amended tax return S. Amended tax return trade or business and is not exempted by treaty. Amended tax return However, no tax is imposed on nonbusiness gambling income a nonresident alien wins playing blackjack, baccarat, craps, roulette, or big-6 wheel in the United States. Amended tax return Nonresident aliens are taxed at graduated rates on net gambling income won in the United States that is effectively connected with a U. Amended tax return S. Amended tax return trade or business. Amended tax return Social Security Benefits A nonresident alien must include 85% of any U. Amended tax return S. Amended tax return social security benefit (and the social security equivalent part of a tier 1 railroad retirement benefit) in U. Amended tax return S. Amended tax return source fixed or determinable annual or periodic income. Amended tax return Social security benefits include monthly retirement, survivor, and disability benefits. Amended tax return This income is exempt under some tax treaties. Amended tax return See Table 1 in Publication 901, U. Amended tax return S. Amended tax return Tax Treaties, for a list of tax treaties that exempt U. Amended tax return S. Amended tax return social security benefits from U. Amended tax return S. Amended tax return tax. Amended tax return Sales or Exchanges of Capital Assets These rules apply only to those capital gains and losses from sources in the United States that are not effectively connected with a trade or business in the United States. Amended tax return They apply even if you are engaged in a trade or business in the United States. Amended tax return These rules do not apply to the sale or exchange of a U. Amended tax return S. Amended tax return real property interest or to the sale of any property that is effectively connected with a trade or business in the United States. Amended tax return See Real Property Gain or Loss , earlier, under Effectively Connected Income. Amended tax return A capital asset is everything you own except: Inventory. Amended tax return Business accounts or notes receivable. Amended tax return Depreciable property used in a trade or business. Amended tax return Real property used in a trade or business. Amended tax return Supplies regularly used in a trade or business. Amended tax return Certain copyrights, literary or musical or artistic compositions, letters or memoranda, or similar property. Amended tax return Certain U. Amended tax return S. Amended tax return government publications. Amended tax return Certain commodities derivative financial instruments held by a commodities derivatives dealer. Amended tax return Hedging transactions. Amended tax return A capital gain is a gain on the sale or exchange of a capital asset. Amended tax return A capital loss is a loss on the sale or exchange of a capital asset. Amended tax return If the sale is in foreign currency, for the purpose of determining gain, the cost and selling price of the property should be expressed in U. Amended tax return S. Amended tax return currency at the rate of exchange prevailing as of the date of the purchase and date of the sale, respectively. Amended tax return You may want to read Publication 544. Amended tax return However, use Publication 544 only to determine what is a sale or exchange of a capital asset, or what is treated as such. Amended tax return Specific tax treatment that applies to U. Amended tax return S. Amended tax return citizens or residents generally does not apply to you. Amended tax return The following gains are subject to the 30% (or lower treaty) rate without regard to the 183-day rule, discussed later. Amended tax return Gains on the disposal of timber, coal, or domestic iron ore with a retained economic interest. Amended tax return Gains on contingent payments received from the sale or exchange of patents, copyrights, and similar property after October 4, 1966. Amended tax return Gains on certain transfers of all substantial rights to, or an undivided interest in, patents if the transfers were made before October 5, 1966. Amended tax return Gains on the sale or exchange of original issue discount obligations. Amended tax return Gains in (1) are not subject to the 30% (or lower treaty) rate if you choose to treat the gains as effectively connected with a U. Amended tax return S. Amended tax return trade or business. Amended tax return See Income From Real Property , later. Amended tax return 183-day rule. Amended tax return   If you were in the United States for 183 days or more during the tax year, your net gain from sales or exchanges of capital assets is taxed at a 30% (or lower treaty) rate. Amended tax return For purposes of the 30% (or lower treaty) rate, net gain is the excess of your capital gains from U. Amended tax return S. Amended tax return sources over your capital losses from U. Amended tax return S. Amended tax return sources. Amended tax return This rule applies even if any of the transactions occurred while you were not in the United States. Amended tax return   To determine your net gain, consider the amount of your gains and losses that would be recognized and taken into account only if, and to the extent that, they would be recognized and taken into account if you were in a U. Amended tax return S. Amended tax return trade or business during the year and the gains and losses were effectively connected with that trade or business during the tax year. Amended tax return   In arriving at your net gain, do not take the following into consideration. Amended tax return The four types of gains listed earlier. Amended tax return The deduction for a capital loss carryover. Amended tax return Capital losses in excess of capital gains. Amended tax return Exclusion for gain from the sale or exchange of qualified small business stock (section 1202 exclusion). Amended tax return Losses from the sale or exchange of property held for personal use. Amended tax return However, losses resulting from casualties or thefts may be deductible on Schedule A (Form 1040NR). Amended tax return See Itemized Deductions in chapter 5. Amended tax return   If you are not engaged in a trade or business in the United States and have not established a tax year for a prior period, your tax year will be the calendar year for purposes of the 183-day rule. Amended tax return Also, you must file your tax return on a calendar-year basis. Amended tax return   If you were in the United States for less than 183 days during the tax year, capital gains (other than gains listed earlier) are tax exempt unless they are effectively connected with a trade or business in the United States during your tax year. Amended tax return Reporting. Amended tax return   Report your gains and losses from the sales or exchanges of capital assets that are not effectively connected with a trade or business in the United States on page 4 of Form 1040NR. Amended tax return Report gains and losses from sales or exchanges of capital assets (including real property) that are effectively connected with a trade or business in the United States on a separate Schedule D (Form 1040), Form 4797, or both. Amended tax return Attach them to Form 1040NR. Amended tax return Income From Real Property If you have income from real property located in the United States that you own or have an interest in and hold for the production of income, you can choose to treat all income from that property as income effectively connected with a trade or business in the United States. Amended tax return The choice applies to all income from real property located in the United States and held for the production of income and to all income from any interest in such property. Amended tax return This includes income from rents, royalties from mines, oil or gas wells, or other natural resources. Amended tax return It also includes gains from the sale or exchange of timber, coal, or domestic iron ore with a retained economic interest. Amended tax return You can make this choice only for real property income that is not otherwise effectively connected with your U. Amended tax return S. Amended tax return trade or business. Amended tax return If you make the choice, you can claim deductions attributable to the real property income and only your net income from real property is taxed. Amended tax return This choice does not treat a nonresident alien, who is not otherwise engaged in a U. Amended tax return S. Amended tax return trade or business, as being engaged in a trade or business in the United States during the year. Amended tax return Example. Amended tax return You are a nonresident alien and are not engaged in a U. Amended tax return S. Amended tax return trade or business. Amended tax return You own a single-family house in the United States that you rent out. Amended tax return Your rental income for the year is $10,000. Amended tax return This is your only U. Amended tax return S. Amended tax return source income. Amended tax return As discussed earlier under The 30% Tax, the rental income is subject to a tax at a 30% (or lower treaty) rate. Amended tax return You received a Form 1042-S showing that your tenants properly withheld this tax from the rental income. Amended tax return You do not have to file a U. Amended tax return S. Amended tax return tax return (Form 1040NR) because your U. Amended tax return S. Amended tax return tax liability is satisfied by the withholding of tax. Amended tax return If you make the choice discussed earlier, you can offset the $10,000 income by certain rental expenses. Amended tax return (See Publication 527, Residential Rental Property, for information on rental expenses. Amended tax return ) Any resulting net income is taxed at graduated rates. Amended tax return If you make this choice, report the rental income and expenses on Schedule E (Form 1040) and attach the schedule to Form 1040NR. Amended tax return For the first year you make the choice, also attach the statement discussed next. Amended tax return Making the choice. Amended tax return   Make the initial choice by attaching a statement to your return, or amended return, for the year of the choice. Amended tax return Include the following in your statement. Amended tax return That you are making the choice. Amended tax return Whether the choice is under Internal Revenue Code section 871(d) (explained earlier) or a tax treaty. Amended tax return A complete list of all your real property, or any interest in real property, located in the United States. Amended tax return Give the legal identification of U. Amended tax return S. Amended tax return timber, coal, or iron ore in which you have an interest. Amended tax return The extent of your ownership in the property. Amended tax return The location of the property. Amended tax return A description of any major improvements to the property. Amended tax return The dates you owned the property. Amended tax return Your income from the property. Amended tax return Details of any previous choices and revocations of the real property income choice. Amended tax return   This choice stays in effect for all later tax years unless you revoke it. Amended tax return Revoking the choice. Amended tax return   You can revoke the choice without IRS approval by filing Form 1040X, Amended U. Amended tax return S. Amended tax return Individual Income Tax Return, for the year you made the choice and for later tax years. Amended tax return You must file Form 1040X within 3 years from the date your return was filed or 2 years from the time the tax was paid, whichever is later. Amended tax return If this time period has expired for the year of choice, you cannot revoke the choice for that year. Amended tax return However, you may revoke the choice for later tax years only if you have IRS approval. Amended tax return For information on how to get IRS approval, see Regulation section 1. Amended tax return 871-10(d)(2). Amended tax return Transportation Tax A 4% tax rate applies to transportation income that is not effectively connected because it does not meet the two conditions listed earlier under Transportation Income . Amended tax return If you receive transportation income subject to the 4% tax, you should figure the tax and show it on line 57 of Form 1040NR. Amended tax return Attach a statement to your return that includes the following information (if applicable). Amended tax return Your name, taxpayer identification number, and tax year. Amended tax return A description of the types of services performed (whether on or off board). Amended tax return Names of vessels or registration numbers of aircraft on which you performed the services. Amended tax return Amount of U. Amended tax return S. Amended tax return source transportation income derived from each type of service for each vessel or aircraft for the calendar year. Amended tax return Total amount of U. Amended tax return S. Amended tax return source transportation income derived from all types of services for the calendar year. Amended tax return This 4% tax applies to your U. Amended tax return S. Amended tax return source gross transportation income. Amended tax return This only includes transportation income that is treated as derived from sources in the United States if the transportation begins or ends in the United States. Amended tax return For transportation income from personal services, the transportation must be between the United States and a U. Amended tax return S. Amended tax return possession. Amended tax return For personal services of a nonresident alien, this only applies to income derived from, or in connection with, an aircraft. Amended tax return Interrupted Period of Residence You are subject to tax under a special rule if you interrupt your period of U. Amended tax return S. Amended tax return residence with a period of nonresidence. Amended tax return The special rule applies if you meet all of the following conditions. Amended tax return You were a U. Amended tax return S. Amended tax return resident for a period that includes at least 3 consecutive calendar years. Amended tax return You were a U. Amended tax return S. Amended tax return resident for at least 183 days in each of those years. Amended tax return You ceased to be treated as a U. Amended tax return S. Amended tax return resident. Amended tax return You then again became a U. Amended tax return S. Amended tax return resident before the end of the third calendar year after the end of the period described in (1) above. Amended tax return Under this special rule, you are subject to tax on your U. Amended tax return S. Amended tax return source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) for the period you were a nonresident alien, unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. Amended tax return S. Amended tax return trade or business. Amended tax return For information on how to figure the special tax, see How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) under Expatriation Tax , below. Amended tax return Example. Amended tax return John Willow, a citizen of New Zealand, entered the United States on April 1, 2008, as a lawful permanent resident. Amended tax return On August 1, 2010, John ceased to be a lawful permanent resident and returned to New Zealand. Amended tax return During his period of residence, he was present in the United States for at least 183 days in each of three consecutive years (2008, 2009, and 2010). Amended tax return He returned to the United States on October 5, 2013, as a lawful permanent resident. Amended tax return He became a resident before the close of the third calendar year (2013) beginning after the end of his first period of residence (August 1, 2010). Amended tax return Therefore, he is subject to tax under the special rule for the period of nonresidence (August 2, 2010, through October 4, 2013) if it is more than the tax that would normally apply to him as a nonresident alien. Amended tax return Reporting requirements. Amended tax return   If you are subject to this tax for any year in the period you were a nonresident alien, you must file Form 1040NR for that year. Amended tax return The return is due by the due date (including extensions) for filing your U. Amended tax return S. Amended tax return income tax return for the year that you again become a U. Amended tax return S. Amended tax return resident. Amended tax return If you already filed returns for that period, you must file amended returns. Amended tax return You must attach a statement to your return that identifies the source of all of your U. Amended tax return S. Amended tax return and foreign gross income and the items of income subject to this special rule. Amended tax return Expatriation Tax The expatriation tax provisions apply to U. Amended tax return S. Amended tax return citizens who have renounced their citizenship and long-term residents who have ended their residency. Amended tax return The rules that apply are based on the dates of expatriation, which are described in the following sections. Amended tax return Expatriation Before June 4, 2004. Amended tax return Expatriation After June 3, 2004, and Before June 17, 2008. Amended tax return Expatriation After June 16, 2008. Amended tax return Long-term resident defined. Amended tax return   You are a long-term resident if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your residency ends. Amended tax return In determining if you meet the 8-year requirement, do not count any year that you are treated as a resident of a foreign country under a tax treaty and do not waive treaty benefits. Amended tax return Expatriation Before June 4, 2004 If you expatriated before June 4, 2004, the expatriation rules apply if one of the principal purposes of the action is the avoidance of U. Amended tax return S. Amended tax return taxes. Amended tax return Unless you received a ruling from the IRS that you did not expatriate to avoid U. Amended tax return S. Amended tax return taxes, you are presumed to have tax avoidance as a principal purpose if: Your average annual net income tax for the last 5 tax years ending before the date of your action to relinquish your citizenship or terminate your residency was more than $100,000, or Your net worth on the date of your action was $500,000 or more. Amended tax return The amounts above are adjusted for inflation if your expatriation action is after 1997 (see Table 4-1). Amended tax return Table 4-1. Amended tax return Inflation-Adjusted Amounts for Expatriation Actions Before June 4, 2004 IF you expatriated during . Amended tax return . Amended tax return . Amended tax return   THEN the rules outlined on this page apply if . Amended tax return . Amended tax return . Amended tax return     Your 5-year average annual net income tax was more than . Amended tax return . Amended tax return . Amended tax return OR Your net worth equaled or exceeded . Amended tax return . Amended tax return . Amended tax return 1999   110,000   552,000 2000   112,000   562,000 2001   116,000   580,000 2002   120,000   599,000 2003   122,000   608,000 2004 (before June 4)*   124,000   622,000 *If you expatriated after June 3, 2004, see Expatriation After June 3, 2004, and Before June 17, 2008 or Expatriation After June 16, 2008. Amended tax return Reporting requirements. Amended tax return   If you lost your U. Amended tax return S. Amended tax return citizenship, you should have filed Form 8854 with a consular office or a federal court at the time of loss of citizenship. Amended tax return If you ended your long-term residency, you should have filed Form 8854 with the Internal Revenue Service when you filed your dual-status tax return for the year your residency ended. Amended tax return   Your U. Amended tax return S. Amended tax return residency is considered to have ended when you ceased to be a lawful permanent resident or you began to be treated as a resident of another country under a tax treaty and do not waive treaty benefits. Amended tax return Penalties. Amended tax return   If you failed to file Form 8854, you may have to pay a penalty equal to the greater of 5% of the expatriation tax or $1,000. Amended tax return The penalty will be assessed for each year of the 10-year period beginning on the date of expatriation during which your failure to file continues. Amended tax return The penalty will not be imposed if you can show that the failure is due to reasonable cause and not willful neglect. Amended tax return Expatriation tax. Amended tax return   The expatriation tax applies to the 10-year period following the date of expatriation or termination of residency. Amended tax return It is figured in the same way as for those expatriating after June 3, 2004, and before June 17, 2008. Amended tax return See How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) in the next section. Amended tax return Expatriation After June 3, 2004, and Before June 17, 2008 If you expatriated after June 3, 2004, and before June 17, 2008, the expatriation rules apply to you if any of the following statements apply. Amended tax return Your average annual net income tax for the 5 tax years ending before the date of expatriation or termination of residency is more than: $124,000 if you expatriated or terminated residency in 2004. Amended tax return $127,000 if you expatriated or terminated residency in 2005. Amended tax return $131,000 if you expatriated or terminated residency in 2006. Amended tax return $136,000 if you expatriated or terminated residency in 2007. Amended tax return $139,000 if you expatriated or terminated residency in 2008. Amended tax return Your net worth is $2 million or more on the date of your expatriation or termination of residency. Amended tax return You fail to certify on Form 8854 that you have complied with all U. Amended tax return S. Amended tax return federal tax obligations for the 5 tax years preceding the date of your expatriation or termination of residency. Amended tax return Exception for dual-citizens and certain minors. Amended tax return   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) earlier. Amended tax return However, they still must provide the certification required in (3). Amended tax return Certain dual-citizens. Amended tax return   You may qualify for the exception described above if all of the following apply. Amended tax return You became at birth a U. Amended tax return S. Amended tax return citizen and a citizen of another country and you continue to be a citizen of that other country. Amended tax return You were never a resident alien of the United States (as defined in chapter 1). Amended tax return You never held a U. Amended tax return S. Amended tax return passport. Amended tax return You were present in the United States for no more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your loss of U. Amended tax return S. Amended tax return citizenship. Amended tax return Certain minors. Amended tax return   You may qualify for the exception described above if you meet all of the following requirements. Amended tax return You became a U. Amended tax return S. Amended tax return citizen at birth. Amended tax return Neither of your parents was a U. Amended tax return S. Amended tax return citizen at the time of your birth. Amended tax return You expatriated before you were 18½. Amended tax return You were present in the United States for not more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your expatriation. Amended tax return Tax consequences of presence in the United States. Amended tax return   The following rules apply if you do not meet the exception above for dual-citizens and certain minors and the expatriation rules would otherwise apply to you. Amended tax return   The expatriation tax does not apply to any tax year during the 10-year period if you are physically present in the United States for more than 30 days during the calendar year ending in that year. Amended tax return Instead, you are treated as a U. Amended tax return S. Amended tax return citizen or resident and taxed on your worldwide income for that tax year. Amended tax return You must file Form 1040, 1040A, or 1040EZ and figure your tax as prescribed in the instructions for those forms. Amended tax return   When counting the number of days of presence during a calendar year, count any day you were physically present in the United States at any time during the day. Amended tax return However, do not count any days (up to a limit of 30 days) on which you performed personal services in the United States for an employer who is not related to you if either of the following apply. Amended tax return You have ties with other countries. Amended tax return You have ties with other countries if: You became (within a reasonable period after your expatriation or termination of residency) a citizen or resident of the country in which you, your spouse, or either of your parents were born, and You became fully liable for income tax in that country. Amended tax return You were physically present in the United States for 30 days or less during each year in the 10-year period ending on the date of expatriation or termination of residency. Amended tax return Do not count any day you were an exempt individual or were unable to leave the United States because of a medical condition that arose while you were in the United States. Amended tax return See Exempt individual and Medical condition in chapter 1 under Substantial Presence Test, but disregard the information about Form 8843. Amended tax return Related employer. Amended tax return   If your employer in the United States is any of the following, then your employer is related to you. Amended tax return You must count any days you performed services in the United States for that employer as days of presence in the United States. Amended tax return Members of your family. Amended tax return This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. Amended tax return ), and lineal descendants (children, grandchildren, etc. Amended tax return ). Amended tax return A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. Amended tax return A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. Amended tax return (See Publication 550, chapter 4, Constructive ownership of stock, for how to determine whether you directly or indirectly own outstanding stock. Amended tax return ) A tax-exempt charitable or educational organization that is directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. Amended tax return Date of tax expatriation. Amended tax return   For purposes of U. Amended tax return S. Amended tax return tax rules, the date of your expatriation or termination of residency is the later of the dates on which you perform the following actions. Amended tax return You notify either the Department of State or the Department of Homeland Security (whichever is appropriate) of your expatriating act or termination of residency. Amended tax return You file Form 8854 in accordance with the form instructions. Amended tax return Annual return. Amended tax return   If the expatriation tax applies to you, you must file Form 8854 each year during the 10-year period following the date of expatriation. Amended tax return You must file this form even if you owe no U. Amended tax return S. Amended tax return tax. Amended tax return Penalty. Amended tax return   If you fail to file Form 8854 for any tax year, fail to include all information required to be shown on the form, or include incorrect information, you may have to pay a penalty of $10,000. Amended tax return You will not have to pay a penalty if you show that the failure is due to reasonable cause and not to willful neglect. Amended tax return How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) If the expatriation tax applies to you, you are generally subject to tax on your U. Amended tax return S. Amended tax return source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. Amended tax return S. Amended tax return trade or business. Amended tax return For this purpose, U. Amended tax return S. Amended tax return source gross income (defined in chapter 2) includes gains from the sale or exchange of: Property (other than stock or debt obligations) located in the United States, Stock issued by a U. Amended tax return S. Amended tax return domestic corporation, and Debt obligations of U. Amended tax return S. Amended tax return persons or of the United States, a state or political subdivision thereof, or the District of Columbia. Amended tax return U. Amended tax return S. Amended tax return source income also includes any income or gain derived from stock in certain controlled foreign corporations if you owned, or were considered to own, at any time during the 2-year period ending on the date of expatriation, more than 50% of: The total combined voting power of all classes of that corporation's stock, or The total value of the stock. Amended tax return The income or gain is considered U. Amended tax return S. Amended tax return source income only to the extent of your share of earnings and profits earned or accumulated before the date of expatriation and during the periods you met the ownership requirements discussed above. Amended tax return Any exchange of property is treated as a sale of the property at its fair market value on the date of the exchange and any gain is treated as U. Amended tax return S. Amended tax return source gross income in the tax year of the exchange unless you enter into a gain recognition agreement under Notice 97-19. Amended tax return Other information. Amended tax return   For more information on the expatriation tax provisions, including exceptions to the tax and special U. Amended tax return S. Amended tax return source rules, see section 877 of the Internal Revenue Code. Amended tax return Expatriation Tax Return If you expatriated or terminated your U. Amended tax return S. Amended tax return residency, or you are subject to the expatriation tax, you must file Form 8854, Initial and Annual Expatriation Statement. Amended tax return Attach it to Form 1040NR if you are required to file that form. Amended tax return If you are present in the United States following your expatriation and are subject to tax as a U. Amended tax return S. Amended tax return citizen or resident, file Form 8854 with Form 1040. Amended tax return Expatriation After June 16, 2008 If you expatriated after June 16, 2008, the expatriation rules apply to you if you meet any of the following conditions. Amended tax return Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than: $139,000 if you expatriated or terminated residency in 2008. Amended tax return $145,000 if you expatriated or terminated residency in 2009 or 2010. Amended tax return $147,000 if you expatriated or terminated residency in 2011. Amended tax return $151,000 if you expatriated or terminated residency in 2012. Amended tax return $155,000 if you expatriated or terminated residency in 2013. Amended tax return Your net worth is $2 million or more on the date of your expatriation or termination of residency. Amended tax return You fail to certify on Form 8854 that you have complied with all U. Amended tax return S. Amended tax return federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency. Amended tax return Exception for dual-citizens and certain minors. Amended tax return   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) above. Amended tax return However, they still must provide the certification required in (3) above. Amended tax return Certain dual-citizens. Amended tax return   You may qualify for the exception described above if both of the following apply. Amended tax return You became at birth a U. Amended tax return S. Amended tax return citizen and a citizen of another country and you continue to be a citizen of, and are taxed as a resident of, that other country. Amended tax return You have been a resident of the United States for not more than 10 years during the 15-year tax period ending with the tax year during which the expatriation occurs. Amended tax return For the purpose of determining U. Amended tax return S. Amended tax return residency, use the substantial presence test described in chapter 1. Amended tax return Certain minors. Amended tax return   You may qualify for the exception described earlier if you meet both of the following requirements. Amended tax return You expatriated before you were 18½. Amended tax return You have been a resident of the United States for not more than 10 tax years before the expatriation occurs. Amended tax return For the purpose of determining U. Amended tax return S. Amended tax return residency, use the substantial presence test described in chapter 1. Amended tax return Expatriation date. Amended tax return   Your expatriation date is the date you relinquish U. Amended tax return S. Amended tax return citizenship (in the case of a former citizen) or terminate your long-term residency (in the case of a former U. Amended tax return S. Amended tax return resident). Amended tax return Former U. Amended tax return S. Amended tax return citizen. Amended tax return   You are considered to have relinquished your U. Amended tax return S. Amended tax return citizenship on the earliest of the following dates. Amended tax return The date you renounced U. Amended tax return S. Amended tax return citizenship before a diplomatic or consular officer of the United States (provided that the voluntary renouncement was later confirmed by the issuance of a certificate of loss of nationality). Amended tax return The date you furnished to the State Department a signed statement of voluntary relinquishment of U. Amended tax return S. Amended tax return nationality confirming the performance of an expatriating act (provided that the voluntary relinquishment was later confirmed by the issuance of a certificate of loss of nationality). Amended tax return The date the State Department issued a certificate of loss of nationality. Amended tax return The date that a U. Amended tax return S. Amended tax return court canceled your certificate of naturalization. Amended tax return Former long-term resident. Amended tax return   You are considered to have terminated your long-term residency on the earliest of the following dates. Amended tax return The date you voluntarily relinquished your lawful permanent resident status by filing Department of Homeland Security Form I-407 with a U. Amended tax return S. Amended tax return consular or immigration officer, and the Department of Homeland Security determined that you have, in fact, abandoned your lawful permanent resident status. Amended tax return The date you became subject to a final administrative order for your removal from the United States under the Immigration and Nationality Act and you actually left the United States as a result of that order. Amended tax return If you were a dual resident of the United States and a country with which the United States has an income tax treaty, the date you began to be treated as a resident of that country and you determined that, for purposes of the treaty, you are a resident of the treaty country and notify the IRS of that treatment on Forms 8833 and 8854. Amended tax return See Effect of Tax Treaties in chapter 1 for more information about dual residents. Amended tax return How To Figure the Expatriation Tax (If You Expatriate After June 16, 2008) In the year you expatriate, you are subject to income tax on the net unrealized gain (or loss) in your property as if the property had been sold for its fair market value on the day before your expatriation date (“mark-to-market tax”). Amended tax return This applies to most types of property interests you held on the date of relinquishment of citizenship or termination of residency. Amended tax return But see Exceptions , later. Amended tax return Gains arising from deemed sales must be taken into account for the tax year of the deemed sale without regard to other U. Amended tax return S. Amended tax return internal revenue laws. Amended tax return Losses from deemed sales must be taken into account to the extent otherwise provided under U. Amended tax return S. Amended tax return internal revenue laws. Amended tax return However, Internal Revenue Code section 1091 (relating to the disallowance of losses on wash sales of stock and securities) does not apply. Amended tax return The net gain that you otherwise must include in your income is reduced (but not below zero) by: $600,000 if you expatriated or terminated residency before January 1, 2009. Amended tax return $626,000 if you expatriated or terminated residency in 2009. Amended tax return $627,000 if you expatriated or terminated residency in 2010. Amended tax return $636,000 if you expatriated or terminated residency in 2011. Amended tax return $651,000 if you expatriated or terminated residency in 2012. Amended tax return $668,000 if you expatriated or terminated residency in 2013. Amended tax return Exceptions. Amended tax return   The mark-to-market tax does not apply to the following. Amended tax return Eligible deferred compensation items. Amended tax return Ineligible deferred compensation items. Amended tax return Interests in nongrantor trusts. Amended tax return Specified tax deferred accounts. Amended tax return Instead, items (1) and (3) may be subject to withholding at source. Amended tax return In the case of item (2), you are treated as receiving the present value of your accrued benefit as of the day before the expatriation date. Amended tax return In the case of item (4), you are treated as receiving a distribution of your entire interest in the account on the day before your expatriation date. Amended tax return See paragraphs (d), (e), and (f) of section 877A for more information. Amended tax return Expatriation Tax Return If you expatriated or terminated your U. Amended tax return S. Amended tax return residency, or you are subject to the expatriation rules (as discussed earlier in the first paragraph under Expatriation After June 16, 2008), you must file Form 8854. Amended tax return Attach it to Form 1040 or Form 1040NR if you are required to file either of those forms. Amended tax return Deferral of payment of mark-to-market tax. Amended tax return   You can make an irrevocable election to defer payment of the mark-to-market tax imposed on the deemed sale of property. Amended tax return If you make this election, the following rules apply. Amended tax return You can make the election on a property-by-property basis. Amended tax return The deferred tax attributable to a particular property is due on the return for the tax year in which you dispose of the property. Amended tax return Interest is charged for the period the tax is deferred. Amended tax return The due date for the payment of the deferred tax cannot be extended beyond the earlier of the following dates. Amended tax return The due date of the return required for the year of death. Amended tax return The time that the security provided for the property fails to be adequate. Amended tax return See item (6) below. Amended tax return You make the election on Form 8854. Amended tax return You must provide adequate security (such as a bond). Amended tax return You must make an irrevocable waiver of any right under any treaty of the United States which would preclude assessment or collection of the mark-to-market tax. Amended tax return   For more information about the deferral of payment, see the Instructions for Form 8854. Amended tax return Prev  Up  Next   Home   More Online Publications
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The Amended Tax Return

Amended tax return 4. Amended tax return   Sales and Trades of Investment Property Table of Contents IntroductionNominees. Amended tax return Topics - This chapter discusses: Useful Items - You may want to see: What Is a Sale or Trade?Dividend versus sale or trade. Amended tax return Worthless Securities Constructive Sales of Appreciated Financial Positions Section 1256 Contracts Marked to Market Basis of Investment PropertyCost Basis Basis Other Than Cost Adjusted Basis Stocks and Bonds How To Figure Gain or LossFair market value. Amended tax return Debt paid off. Amended tax return Payment of cash. Amended tax return Special Rules for Mutual Funds Nontaxable TradesLike-Kind Exchanges Corporate Stocks Exchange of Shares In One Mutual Fund For Shares In Another Mutual Fund Insurance Policies and Annuities U. Amended tax return S. Amended tax return Treasury Notes or Bonds Transfers Between Spouses Related Party TransactionsGain on Sale or Trade of Depreciable Property Capital Gains and LossesCapital or Ordinary Gain or Loss Holding Period Nonbusiness Bad Debts Short Sales Wash Sales Options Straddles Sales of Stock to ESOPs or Certain Cooperatives Rollover of Gain From Publicly Traded Securities Gains on Qualified Small Business Stock Exclusion of Gain From DC Zone Assets Reporting Capital Gains and LossesException 1. Amended tax return Exception 2. Amended tax return Section 1256 contracts and straddles. Amended tax return Market discount bonds. Amended tax return File Form 1099-B or Form 1099-S with the IRS. Amended tax return Capital Losses Capital Gain Tax Rates Special Rules for Traders in SecuritiesHow To Report Introduction This chapter explains the tax treatment of sales and trades of investment property. Amended tax return Investment property. Amended tax return   This is property that produces investment income. Amended tax return Examples include stocks, bonds, and Treasury bills and notes. Amended tax return Property used in a trade or business is not investment property. Amended tax return Form 1099-B. Amended tax return   If you sold property such as stocks, bonds, mutual funds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. Amended tax return You should receive the statement by February 15 of the next year. Amended tax return It will show the gross proceeds from the sale. Amended tax return The IRS will also get a copy of Form 1099-B from the broker. Amended tax return   Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. Amended tax return If you sold a covered security in 2013, your broker will send you a Form 1099-B (or substitute statement) that shows your basis. Amended tax return This will help you complete Form 8949. Amended tax return Generally, a covered security is a security you acquired after 2010, with certain exceptions explained in the Instructions for Form 8949. Amended tax return    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in this chapter. Amended tax return Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). Amended tax return Nominees. Amended tax return   If someone receives gross proceeds as a nominee for you, that person will give you a Form 1099-B, which will show gross proceeds received on your behalf. Amended tax return   If you receive a Form 1099-B that includes gross proceeds belonging to another person, see Nominees , later under Reporting Capital Gains and Losses for more information. Amended tax return Other property transactions. Amended tax return   Certain transfers of property are discussed in other IRS publications. Amended tax return These include: Sale of your main home, discussed in Publication 523, Selling Your Home; Installment sales, covered in Publication 537; Various types of transactions involving business property, discussed in Publication 544, Sales and Other Dispositions of Assets; Transfers of property at death, covered in Publication 559; and Disposition of an interest in a passive activity, discussed in Publication 925. Amended tax return Topics - This chapter discusses: What Is a Sale or Trade? , Basis of Investment Property , Adjusted Basis , How To Figure Gain or Loss , Nontaxable trades , Transfers Between Spouses , Related Party Transactions , Capital Gains and Losses , Reporting Capital Gains and Losses , and Special Rules for Traders in Securities . Amended tax return Useful Items - You may want to see: Publication 551 Basis of Assets Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 6781 Gains and Losses From Section 1256 Contracts and Straddles 8582 Passive Activity Loss Limitations 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Amended tax return What Is a Sale or Trade? This section explains what is a sale or trade. Amended tax return It also explains certain transactions and events that are treated as sales or trades. Amended tax return A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. Amended tax return A trade is a transfer of property for other property or services, and may be taxed in the same way as a sale. Amended tax return Sale and purchase. Amended tax return   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. Amended tax return The sale and purchase are two separate transactions. Amended tax return But see Like-Kind Exchanges under Nontaxable Trades, later. Amended tax return Redemption of stock. Amended tax return   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. Amended tax return Dividend versus sale or trade. Amended tax return   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. Amended tax return Both direct and indirect ownership of stock will be considered. Amended tax return The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend — see Dividends and Other Distributions in chapter 1, There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. Amended tax return Redemption or retirement of bonds. Amended tax return   A redemption or retirement of bonds or notes at their maturity generally is treated as a sale or trade. Amended tax return See Stocks, stock rights, and bonds and Discounted Debt Instruments under Capital or Ordinary Gain or Loss, later. Amended tax return   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. Amended tax return For details, see Regulations section 1. Amended tax return 1001-3. Amended tax return Surrender of stock. Amended tax return   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. Amended tax return The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. Amended tax return Trade of investment property for an annuity. Amended tax return   The transfer of investment property to a corporation, trust, fund, foundation, or other organization, in exchange for a fixed annuity contract that will make guaranteed annual payments to you for life, is a taxable trade. Amended tax return If the present value of the annuity is more than your basis in the property traded, you have a taxable gain in the year of the trade. Amended tax return Figure the present value of the annuity according to factors used by commercial insurance companies issuing annuities. Amended tax return Transfer by inheritance. Amended tax return   The transfer of property of a decedent to the executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or other disposition. Amended tax return No taxable gain or deductible loss results from the transfer. Amended tax return Termination of certain rights and obligations. Amended tax return   The cancellation, lapse, expiration, or other termination of a right or obligation (other than a securities futures contract) with respect to property that is a capital asset (or that would be a capital asset if you acquired it) is treated as a sale. Amended tax return Any gain or loss is treated as a capital gain or loss. Amended tax return   This rule does not apply to the retirement of a debt instrument. Amended tax return See Redemption or retirement of bonds , earlier. Amended tax return Worthless Securities Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. Amended tax return This affects whether your capital loss is long term or short term. Amended tax return See Holding Period , later. Amended tax return Worthless securities also include securities that you abandon after March 12, 2008. Amended tax return To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. Amended tax return All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. Amended tax return If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. Amended tax return Do not deduct them in the year the stock became worthless. Amended tax return How to report loss. Amended tax return   Report worthless securities in Form 8949, Part I or Part II, whichever applies. Amended tax return    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. Amended tax return See Form 8949 and the Instructions for Form 8949. Amended tax return Filing a claim for refund. Amended tax return   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. Amended tax return You must use Form 1040X, Amended U. Amended tax return S. Amended tax return Individual Income Tax Return, to amend your return for the year the security became worthless. Amended tax return You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. Amended tax return (Claims not due to worthless securities or bad debts generally must be filed within 3 years from the date a return is filed, or 2 years from the date the tax is paid, whichever is later. Amended tax return ) For more information about filing a claim, see Publication 556. Amended tax return Constructive Sales of Appreciated Financial Positions You are treated as having made a constructive sale when you enter into certain transactions involving an appreciated financial position (defined later) in stock, a partnership interest, or certain debt instruments. Amended tax return You must recognize gain as if the position were disposed of at its fair market value on the date of the constructive sale. Amended tax return This gives you a new holding period for the position that begins on the date of the constructive sale. Amended tax return Then, when you close the transaction, you reduce your gain (or increase your loss) by the gain recognized on the constructive sale. Amended tax return Constructive sale. Amended tax return   You are treated as having made a constructive sale of an appreciated financial position if you: Enter into a short sale of the same or substantially identical property, Enter into an offsetting notional principal contract relating to the same or substantially identical property, Enter into a futures or forward contract to deliver the same or substantially identical property (including a forward contract that provides for cash settlement), or Acquire the same or substantially identical property (if the appreciated financial position is a short sale, an offsetting notional principal contract, or a futures or forward contract). Amended tax return   You are also treated as having made a constructive sale of an appreciated financial position if a person related to you enters into a transaction described above with a view toward avoiding the constructive sale treatment. Amended tax return For this purpose, a related person is any related party described under Related Party Transactions , later in this chapter. Amended tax return Exception for nonmarketable securities. Amended tax return   You are not treated as having made a constructive sale solely because you entered into a contract for sale of any stock, debt instrument, or partnership interest that is not a marketable security if it settles within 1 year of the date you enter into it. Amended tax return Exception for certain closed transactions. Amended tax return   Do not treat a transaction as a constructive sale if all of the following are true. Amended tax return You closed the transaction on or before the 30th day after the end of your tax year. Amended tax return You held the appreciated financial position throughout the 60-day period beginning on the date you closed the transaction. Amended tax return Your risk of loss was not reduced at any time during that 60-day period by holding certain other positions. Amended tax return   If a closed transaction is reestablished in a substantially similar position during the 60-day period beginning on the date the first transaction was closed, this exception still applies if the reestablished position is closed before the 30th day after the end of your tax year in which the first transaction was closed and, after that closing, (2) and (3) above are true. Amended tax return   This exception also applies to successive short sales of an entire appreciated financial position. Amended tax return For more information, see Revenue Ruling 2003-1 in Internal Revenue Bulletin 2003-3. Amended tax return This bulletin is available at www. Amended tax return irs. Amended tax return gov/pub/irs-irbs/irb03-03. Amended tax return pdf. Amended tax return Appreciated financial position. Amended tax return   This is any interest in stock, a partnership interest, or a debt instrument (including a futures or forward contract, a short sale, or an option) if disposing of the interest would result in a gain. Amended tax return Exceptions. Amended tax return   An appreciated financial position does not include the following. Amended tax return Any position from which all of the appreciation is accounted for under marked-to-market rules, including section 1256 contracts (described later under Section 1256 Contracts Marked to Market ). Amended tax return Any position in a debt instrument if: The position unconditionally entitles the holder to receive a specified principal amount, The interest payments (or other similar amounts) with respect to the position are payable at a fixed rate or a variable rate described in Regulations section 1. Amended tax return 860G-1(a)(3), and The position is not convertible, either directly or indirectly, into stock of the issuer (or any related person). Amended tax return Any hedge with respect to a position described in (2). Amended tax return Certain trust instruments treated as stock. Amended tax return   For the constructive sale rules, an interest in an actively traded trust is treated as stock unless substantially all of the value of the property held by the trust is debt that qualifies for the exception to the definition of an appreciated financial position (explained in (2) above). Amended tax return Sale of appreciated financial position. Amended tax return   A transaction treated as a constructive sale of an appreciated financial position is not treated as a constructive sale of any other appreciated financial position, as long as you continue to hold the original position. Amended tax return However, if you hold another appreciated financial position and dispose of the original position before closing the transaction that resulted in the constructive sale, you are treated as if, at the same time, you constructively sold the other appreciated financial position. Amended tax return Section 1256 Contracts Marked to Market If you hold a section 1256 contract at the end of the tax year, you generally must treat it as sold at its fair market value on the last business day of the tax year. Amended tax return Section 1256 Contract A section 1256 contract is any: Regulated futures contract, Foreign currency contract, Nonequity option, Dealer equity option, or Dealer securities futures contract. Amended tax return Exceptions. Amended tax return   A section 1256 contract does not include: Interest rate swaps, Currency swaps, Basis swaps, Interest rate caps, Interest rate floors, Commodity swaps, Equity swaps, Equity index swaps, Credit default swaps, or Similar agreements. Amended tax return For more details, including definitions of these terms, see section 1256. Amended tax return Regulated futures contract. Amended tax return   This is a contract that: Provides that amounts which must be deposited to, or can be withdrawn from, your margin account depend on daily market conditions (a system of marking to market), and Is traded on, or subject to the rules of, a qualified board of exchange. Amended tax return A qualified board of exchange is a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission, any board of trade or exchange approved by the Secretary of the Treasury, or a national securities exchange registered with the Securities and Exchange Commission. Amended tax return Foreign currency contract. Amended tax return   This is a contract that: Requires delivery of a foreign currency that has positions traded through regulated futures contracts (or settlement of which depends on the value of that type of foreign currency), Is traded in the interbank market, and Is entered into at arm's length at a price determined by reference to the price in the interbank market. Amended tax return   Bank forward contracts with maturity dates longer than the maturities ordinarily available for regulated futures contracts are considered to meet the definition of a foreign currency contract if the above three conditions are satisfied. Amended tax return   Special rules apply to certain foreign currency transactions. Amended tax return These transactions may result in ordinary gain or loss treatment. Amended tax return For details, see Internal Revenue Code section 988 and Regulations sections 1. Amended tax return 988-1(a)(7) and 1. Amended tax return 988-3. Amended tax return Nonequity option. Amended tax return   This is any listed option (defined later) that is not an equity option. Amended tax return Nonequity options include debt options, commodity futures options, currency options, and broad-based stock index options. Amended tax return A broad-based stock index is based on the value of a group of diversified stocks or securities (such as the Standard and Poor's 500 index). Amended tax return Warrants based on a stock index that are economically, substantially identical in all material respects to options based on a stock index are treated as options based on a stock index. Amended tax return Cash-settled options. Amended tax return   Cash-settled options based on a stock index and either traded on or subject to the rules of a qualified board of exchange are nonequity options if the Securities and Exchange Commission (SEC) determines that the stock index is broad based. Amended tax return   This rule does not apply to options established before the SEC determines that the stock index is broad based. Amended tax return Listed option. Amended tax return   This is any option traded on, or subject to the rules of, a qualified board or exchange (as discussed earlier under Regulated futures contract). Amended tax return A listed option, however, does not include an option that is a right to acquire stock from the issuer. Amended tax return Dealer equity option. Amended tax return   This is any listed option that, for an options dealer: Is an equity option, Is bought or granted by that dealer in the normal course of the dealer's business activity of dealing in options, and Is listed on the qualified board of exchange where that dealer is registered. Amended tax return   An “options dealer” is any person registered with an appropriate national securities exchange as a market maker or specialist in listed options. Amended tax return Equity option. Amended tax return   This is any option: To buy or sell stock, or That is valued directly or indirectly by reference to any stock or narrow-based security index. Amended tax return  Equity options include options on a group of stocks only if the group is a narrow-based stock index. Amended tax return Dealer securities futures contract. Amended tax return   For any dealer in securities futures contracts or options on those contracts, this is a securities futures contract (or option on such a contract) that: Is entered into by the dealer (or, in the case of an option, is purchased or granted by the dealer) in the normal course of the dealer's activity of dealing in this type of contract (or option), and Is traded on a qualified board or exchange (as defined under Regulated futures contract , earlier). Amended tax return A securities futures contract that is not a dealer securities futures contract is treated as described later under Securities Futures Contracts . Amended tax return Marked-to-Market Rules A section 1256 contract that you hold at the end of the tax year will generally be treated as sold at its fair market value on the last business day of the tax year, and you must recognize any gain or loss that results. Amended tax return That gain or loss is taken into account in figuring your gain or loss when you later dispose of the contract, as shown in the example under 60/40 rule, below. Amended tax return Hedging exception. Amended tax return   The marked-to-market rules do not apply to hedging transactions. Amended tax return See Hedging Transactions , later. Amended tax return 60/40 rule. Amended tax return   Under the marked-to-market system, 60% of your capital gain or loss will be treated as a long-term capital gain or loss, and 40% will be treated as a short-term capital gain or loss. Amended tax return This is true regardless of how long you actually held the property. Amended tax return Example. Amended tax return On June 22, 2012, you bought a regulated futures contract for $50,000. Amended tax return On December 31, 2012 (the last business day of your tax year), the fair market value of the contract was $57,000. Amended tax return You recognized a $7,000 gain on your 2012 tax return, treated as 60% long-term and 40% short-term capital gain. Amended tax return On February 1, 2013, you sold the contract for $56,000. Amended tax return Because you recognized a $7,000 gain on your 2012 return, you recognize a $1,000 loss ($57,000 − $56,000) on your 2013 tax return, treated as 60% long-term and 40% short-term capital loss. Amended tax return Limited partners or entrepreneurs. Amended tax return   The 60/40 rule does not apply to dealer equity options or dealer securities futures contracts that result in capital gain or loss allocable to limited partners or limited entrepreneurs (defined later under Hedging Transactions ). Amended tax return Instead, these gains or losses are treated as short term. Amended tax return Terminations and transfers. Amended tax return   The marked-to-market rules also apply if your obligation or rights under section 1256 contracts are terminated or transferred during the tax year. Amended tax return In this case, use the fair market value of each section 1256 contract at the time of termination or transfer to determine the gain or loss. Amended tax return Terminations or transfers may result from any offsetting, delivery, exercise, assignment, or lapse of your obligation or rights under section 1256 contracts. Amended tax return Loss carryback election. Amended tax return   An individual having a net section 1256 contracts loss (defined later), generally can elect to carry this loss back 3 years instead of carrying it over to the next year. Amended tax return See How To Report , later, for information about reporting this election on your return. Amended tax return   The loss carried back to any year under this election cannot be more than the net section 1256 contracts gain in that year. Amended tax return In addition, the amount of loss carried back to an earlier tax year cannot increase or produce a net operating loss for that year. Amended tax return   The loss is carried to the earliest carryback year first, and any unabsorbed loss amount can then be carried to each of the next 2 tax years. Amended tax return In each carryback year, treat 60% of the carryback amount as a long-term capital loss and 40% as a short-term capital loss from section 1256 contracts. Amended tax return   If only a portion of the net section 1256 contracts loss is absorbed by carrying the loss back, the unabsorbed portion can be carried forward, under the capital loss carryover rules, to the year following the loss. Amended tax return (See Capital Losses under Reporting Capital Gains and Losses, later. Amended tax return ) Figure your capital loss carryover as if, for the loss year, you had an additional short-term capital gain of 40% of the amount of net section 1256 contracts loss absorbed in the carryback years and an additional long-term capital gain of 60% of the absorbed loss. Amended tax return In the carryover year, treat any capital loss carryover from losses on section 1256 contracts as if it were a loss from section 1256 contracts for that year. Amended tax return Net section 1256 contracts loss. Amended tax return   This loss is the lesser of: The net capital loss for your tax year determined by taking into account only the gains and losses from section 1256 contracts, or The capital loss carryover to the next tax year determined without this election. Amended tax return Net section 1256 contracts gain. Amended tax return   This gain is the lesser of: The capital gain net income for the carryback year determined by taking into account only gains and losses from section 1256 contracts, or The capital gain net income for that year. Amended tax return  Figure your net section 1256 contracts gain for any carryback year without regard to the net section 1256 contracts loss for the loss year or any later tax year. Amended tax return Traders in section 1256 contracts. Amended tax return   Gain or loss from the trading of section 1256 contracts is capital gain or loss subject to the marked-to-market rules. Amended tax return However, this does not apply to contracts held for purposes of hedging property if any loss from the property would be an ordinary loss. Amended tax return Treatment of underlying property. Amended tax return   The determination of whether an individual's gain or loss from any property is ordinary or capital gain or loss is made without regard to the fact that the individual is actively engaged in dealing in or trading section 1256 contracts related to that property. Amended tax return How To Report If you disposed of regulated futures or foreign currency contracts in 2013 (or had unrealized profit or loss on these contracts that were open at the end of 2012 or 2013), you should receive Form 1099-B, or substitute statement, from your broker. Amended tax return Form 6781. Amended tax return   Use Part I of Form 6781 to report your gains and losses from all section 1256 contracts that are open at the end of the year or that were closed out during the year. Amended tax return This includes the amount shown in box 10 of Form 1099-B. Amended tax return Then enter the net amount of these gains and losses on Schedule D (Form 1040), line 4 or line 11, as appropriate. Amended tax return Include a copy of Form 6781 with your income tax return. Amended tax return   If the Form 1099-B you receive includes a straddle or hedging transaction, defined later, it may be necessary to show certain adjustments on Form 6781. Amended tax return Follow the Form 6781 instructions for completing Part I. Amended tax return Loss carryback election. Amended tax return   To carry back your loss under the election procedures described earlier, file Form 1040X or Form 1045, Application for Tentative Refund, for the year to which you are carrying the loss with an amended Form 6781 and an amended Schedule D (Form 1040) attached. Amended tax return Follow the instructions for completing Form 6781 for the loss year to make this election. Amended tax return Hedging Transactions The marked-to-market rules, described earlier, do not apply to hedging transactions. Amended tax return A transaction is a hedging transaction if both of the following conditions are met. Amended tax return You entered into the transaction in the normal course of your trade or business primarily to manage the risk of: Price changes or currency fluctuations on ordinary property you hold (or will hold), or Interest rate or price changes, or currency fluctuations, on your current or future borrowings or ordinary obligations. Amended tax return You clearly identified the transaction as being a hedging transaction before the close of the day on which you entered into it. Amended tax return This hedging transaction exception does not apply to transactions entered into by or for any syndicate. Amended tax return A syndicate is a partnership, S corporation, or other entity (other than a regular corporation) that allocates more than 35% of its losses to limited partners or limited entrepreneurs. Amended tax return A limited entrepreneur is a person who has an interest in an enterprise (but not as a limited partner) and who does not actively participate in its management. Amended tax return However, an interest is not considered held by a limited partner or entrepreneur if the interest holder actively participates (or did so for at least 5 full years) in the management of the entity, or is the spouse, child (including a legally adopted child), grandchild, or parent of an individual who actively participates in the management of the entity. Amended tax return Hedging loss limit. Amended tax return   If you are a limited partner or entrepreneur in a syndicate, the amount of a hedging loss you can claim is limited. Amended tax return A “hedging loss” is the amount by which the allowable deductions in a tax year that resulted from a hedging transaction (determined without regard to the limit) are more than the income received or accrued during the tax year from this transaction. Amended tax return   Any hedging loss allocated to you for the tax year is limited to your taxable income for that year from the trade or business in which the hedging transaction occurred. Amended tax return Ignore any hedging transaction items in determining this taxable income. Amended tax return If you have a hedging loss that is disallowed because of this limit, you can carry it over to the next tax year as a deduction resulting from a hedging transaction. Amended tax return   If the hedging transaction relates to property other than stock or securities, the limit on hedging losses applies if the limited partner or entrepreneur is an individual. Amended tax return   The limit on hedging losses does not apply to any hedging loss to the extent that it is more than all your unrecognized gains from hedging transactions at the end of the tax year that are from the trade or business in which the hedging transaction occurred. Amended tax return The term “unrecognized gain” has the same meaning as defined under Loss Deferral Rules in Straddles, later. Amended tax return Sale of property used in a hedge. Amended tax return   Once you identify personal property as being part of a hedging transaction, you must treat gain from its sale or exchange as ordinary income, not capital gain. Amended tax return Self-Employment Income Gains and losses derived in the ordinary course of a commodity or option dealer's trading in section 1256 contracts and property related to these contracts are included in net earnings from self-employment. Amended tax return See the Instructions for Schedule SE (Form 1040). Amended tax return In addition, the rules relating to contributions to self-employment retirement plans apply. Amended tax return For information on retirement plan contributions, see Publication 560 and Publication 590. Amended tax return Basis of Investment Property Basis is a way of measuring your investment in property for tax purposes. Amended tax return You must know the basis of your property to determine whether you have a gain or loss on its sale or other disposition. Amended tax return Investment property you buy normally has an original basis equal to its cost. Amended tax return If you get property in some way other than buying it, such as by gift or inheritance, its fair market value may be important in figuring the basis. Amended tax return Cost Basis The basis of property you buy is usually its cost. Amended tax return The cost is the amount you pay in cash, debt obligations, or other property or services. Amended tax return Unstated interest. Amended tax return   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. Amended tax return You generally have unstated interest if your interest rate is less than the applicable federal rate. Amended tax return For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Amended tax return Basis Other Than Cost There are times when you must use a basis other than cost. Amended tax return In these cases, you may need to know the property's fair market value or the adjusted basis of the previous owner. Amended tax return Fair market value. Amended tax return   This is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Amended tax return Sales of similar property, around the same date, may be helpful in figuring fair market value. Amended tax return Property Received for Services If you receive investment property for services, you must include the property's fair market value in income. Amended tax return The amount you include in income then becomes your basis in the property. Amended tax return If the services were performed for a price that was agreed to beforehand, this price will be accepted as the fair market value of the property if there is no evidence to the contrary. Amended tax return Restricted property. Amended tax return   If you receive, as payment for services, property that is subject to certain restrictions, your basis in the property generally is its fair market value when it becomes substantially vested. Amended tax return Property becomes substantially vested when it is transferable or is no longer subject to substantial risk of forfeiture, whichever happens first. Amended tax return See Restricted Property in Publication 525 for more information. Amended tax return Bargain purchases. Amended tax return   If you buy investment property at less than fair market value, as payment for services, you must include the difference in income. Amended tax return Your basis in the property is the price you pay plus the amount you include in income. Amended tax return Property Received in Taxable Trades If you received investment property in trade for other property, the basis of the new property is its fair market value at the time of the trade unless you received the property in a nontaxable trade. Amended tax return Example. Amended tax return You trade A Company stock for B Company stock having a fair market value of $1,200. Amended tax return If the adjusted basis of the A Company stock is less than $1,200, you have a taxable gain on the trade. Amended tax return If the adjusted basis of the A Company stock is more than $1,200, you have a deductible loss on the trade. Amended tax return The basis of your B Company stock is $1,200. Amended tax return If you later sell the B Company stock for $1,300, you will have a gain of $100. Amended tax return Property Received in Nontaxable Trades If you have a nontaxable trade, you do not recognize gain or loss until you dispose of the property you received in the trade. Amended tax return See Nontaxable Trades , later. Amended tax return The basis of property you received in a nontaxable or partly nontaxable trade is generally the same as the adjusted basis of the property you gave up. Amended tax return Increase this amount by any cash you paid, additional costs you had, and any gain recognized. Amended tax return Reduce this amount by any cash or unlike property you received, any loss recognized, and any liability of yours that was assumed or treated as assumed. Amended tax return Property Received From Your Spouse If property is transferred to you from your spouse (or former spouse, if the transfer is incident to your divorce), your basis is the same as your spouse's or former spouse's adjusted basis just before the transfer. Amended tax return See Transfers Between Spouses , later. Amended tax return Recordkeeping. Amended tax return The transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of the transfer. Amended tax return Property Received as a Gift To figure your basis in property that you received as a gift, you must know its adjusted basis to the donor just before it was given to you, its fair market value at the time it was given to you, the amount of any gift tax paid on it, and the date it was given to you. Amended tax return Fair market value less than donor's adjusted basis. Amended tax return   If the fair market value of the property at the time of the gift was less than the donor's adjusted basis just before the gift, your basis for gain on its sale or other disposition is the same as the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. Amended tax return Your basis for loss is its fair market value at the time of the gift plus or minus any required adjustments to basis during the period you hold the property. Amended tax return No gain or loss. Amended tax return   If you use the basis for figuring a gain and the result is a loss, and then use the basis for figuring a loss and the result is a gain, you will have neither a gain nor a loss. Amended tax return Example. Amended tax return You receive a gift of investment property having an adjusted basis of $10,000 at the time of the gift. Amended tax return The fair market value at the time of the gift is $9,000. Amended tax return You later sell the property for $9,500. Amended tax return You have neither gain nor loss. Amended tax return Your basis for figuring gain is $10,000, and $9,500 minus $10,000 results in a $500 loss. Amended tax return Your basis for figuring loss is $9,000, and $9,500 minus $9,000 results in a $500 gain. Amended tax return Fair market value equal to or more than donor's adjusted basis. Amended tax return   If the fair market value of the property at the time of the gift was equal to or more than the donor's adjusted basis just before the gift, your basis for gain or loss on its sale or other disposition is the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. Amended tax return Also, you may be allowed to add to the donor's adjusted basis all or part of any gift tax paid, depending on the date of the gift. Amended tax return Gift received before 1977. Amended tax return   If you received property as a gift before 1977, your basis in the property is the donor's adjusted basis increased by the total gift tax paid on the gift. Amended tax return However, your basis cannot be more than the fair market value of the gift at the time it was given to you. Amended tax return Example 1. Amended tax return You were given XYZ Company stock in 1976. Amended tax return At the time of the gift, the stock had a fair market value of $21,000. Amended tax return The donor's adjusted basis was $20,000. Amended tax return The donor paid a gift tax of $500 on the gift. Amended tax return Your basis for gain or loss is $20,500, the donor's adjusted basis plus the amount of gift tax paid. Amended tax return Example 2. Amended tax return The facts are the same as in Example 1 except that the gift tax paid was $1,500. Amended tax return Your basis is $21,000, the donor's adjusted basis plus the gift tax paid, but limited to the fair market value of the stock at the time of the gift. Amended tax return Gift received after 1976. Amended tax return   If you received property as a gift after 1976, your basis is the donor's adjusted basis increased by the part of the gift tax paid that was for the net increase in value of the gift. Amended tax return You figure this part by multiplying the gift tax paid on the gift by a fraction. Amended tax return The numerator (top part) is the net increase in value of the gift and the denominator (bottom part) is the amount of the gift. Amended tax return   The net increase in value of the gift is the fair market value of the gift minus the donor's adjusted basis. Amended tax return The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Amended tax return Example. Amended tax return In 2013, you received a gift of property from your mother. Amended tax return At the time of the gift, the property had a fair market value of $101,000 and an adjusted basis to her of $40,000. Amended tax return The amount of the gift for gift tax purposes was $87,000 ($101,000 minus the $14,000 annual exclusion), and your mother paid a gift tax of $21,000. Amended tax return You figure your basis in the following way: Fair market value $101,000 Minus: Adjusted basis 40,000 Net increase in value of gift $61,000 Gift tax paid $21,000 Multiplied by . Amended tax return 701 ($61,000 ÷ $87,000) . Amended tax return 701 Gift tax due to net increase in value $14,721 Plus: Adjusted basis of property to  your mother 40,000 Your basis in the property $54,721 Part sale, part gift. Amended tax return   If you get property in a transfer that is partly a sale and partly a gift, your basis is the larger of the amount you paid for the property or the transferor's adjusted basis in the property at the time of the transfer. Amended tax return Add to that amount the amount of any gift tax paid on the gift, as described in the preceding discussion. Amended tax return For figuring loss, your basis is limited to the property's fair market value at the time of the transfer. Amended tax return Gift tax information. Amended tax return   For information on gift tax, see Publication 950, Introduction to Estate and Gift Taxes. Amended tax return For information on figuring the amount of gift tax to add to your basis, see Property Received as a Gift in Publication 551. Amended tax return Property Received as Inheritance Before or after 2010. Amended tax return   If you inherited property from a decedent who died before or after 2010, or who died in 2010 and the executor of the decedent's estate elected not to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, your basis in that property generally is its fair market value (its appraised value on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return) on: The date of the decedent's death, or The later alternate valuation date if the estate qualifies for, and elects to use, alternate valuation. Amended tax return If no Form 706 was filed, use the appraised value on the date of death for state inheritance or transmission taxes. Amended tax return For stocks and bonds, if no Form 706 was filed and there are no state inheritance or transmission taxes, see the Form 706 instructions for figuring the fair market value of the stocks and bonds on the date of the decedent's death. Amended tax return Appreciated property you gave the decedent. Amended tax return   Your basis in certain appreciated property that you inherited is the decedent's adjusted basis in the property immediately before death rather than its fair market value. Amended tax return This applies to appreciated property that you or your spouse gave the decedent as a gift during the 1-year period ending on the date of death. Amended tax return Appreciated property is any property whose fair market value on the day you gave it to the decedent was more than its adjusted basis. Amended tax return More information. Amended tax return   See Publication 551 for more information on the basis of inherited property, including community property, property held by a surviving tenant in a joint tenancy or tenancy by the entirety, a qualified joint interest, and a farm or closely held business. Amended tax return Inherited in 2010 and executor elected to file Form 8939. Amended tax return   If you inherited property from a decedent who died in 2010 and the executor made the election to file Form 8939, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to figure your basis. Amended tax return Adjusted Basis Before you can figure any gain or loss on a sale, exchange, or other disposition of property or figure allowable depreciation, depletion, or amortization, you usually must make certain adjustments (increases and decreases) to the basis of the property. Amended tax return The result of these adjustments to the basis is the adjusted basis. Amended tax return Adjustments to the basis of stocks and bonds are explained in the following discussion. Amended tax return For information about other adjustments to basis, see Publication 551. Amended tax return Stocks and Bonds The basis of stocks or bonds you own generally is the purchase price plus the costs of purchase, such as commissions and recording or transfer fees. Amended tax return If you acquired stock or bonds other than by purchase, your basis is usually determined by fair market value or the previous owner's adjusted basis as discussed earlier under Basis Other Than Cost . Amended tax return The basis of stock must be adjusted for certain events that occur after purchase. Amended tax return For example, if you receive more stock from nontaxable stock dividends or stock splits, you must reduce the basis of your original stock. Amended tax return You must also reduce your basis when you receive nondividend distributions (discussed in chapter 1). Amended tax return These distributions, up to the amount of your basis, are a nontaxable return of capital. Amended tax return The IRS partners with companies that offer Form 8949 and Schedule D (Form 1040) software that can import trades from many brokerage firms and accounting software to help you keep track of your adjusted basis in securities. Amended tax return To find out more, go to www. Amended tax return irs. Amended tax return gov/Filing/Filing-Options. Amended tax return Identifying stock or bonds sold. Amended tax return   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. Amended tax return Adequate identification. Amended tax return   You will make an adequate identification if you show that certificates representing shares of stock from a lot that you bought on a certain date or for a certain price were delivered to your broker or other agent. Amended tax return Broker holds stock. Amended tax return   If you have left the stock certificates with your broker or other agent, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred at the time of the sale or transfer, and Receive a written confirmation of this from your broker or other agent within a reasonable time. Amended tax return  Stock identified this way is the stock sold or transferred even if stock certificates from a different lot are delivered to the broker or other agent. Amended tax return Single stock certificate. Amended tax return   If you bought stock in different lots at different times and you hold a single stock certificate for this stock, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred when you deliver the certificate to your broker or other agent, and Receive a written confirmation of this from your broker or other agent within a reasonable time. Amended tax return   If you sell part of the stock represented by a single certificate directly to the buyer instead of through a broker, you will make an adequate identification if you keep a written record of the particular stock that you intend to sell. Amended tax return Bonds. Amended tax return   These methods of identification also apply to bonds sold or transferred. Amended tax return Identification not possible. Amended tax return   If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Amended tax return Except for certain mutual fund shares, discussed later, you cannot use the average price per share to figure gain or loss on the sale of the shares. Amended tax return Example. Amended tax return You bought 100 shares of stock of XYZ Corporation in 1998 for $10 a share. Amended tax return In January 1999 you bought another 200 shares for $11 a share. Amended tax return In July 1999 you gave your son 50 shares. Amended tax return In December 2001 you bought 100 shares for $9 a share. Amended tax return In April 2013 you sold 130 shares. Amended tax return You cannot identify the shares you disposed of, so you must use the stock you acquired first to figure the basis. Amended tax return The shares of stock you gave your son had a basis of $500 (50 × $10). Amended tax return You figure the basis of the 130 shares of stock you sold in 2013 as follows: 50 shares (50 × $10) balance of stock bought in 1998 $ 500 80 shares (80 × $11) stock bought in January 1999 880 Total basis of stock sold in 2013 $1,380 Shares in a mutual fund or REIT. Amended tax return    The basis of shares in a mutual fund (or other regulated investment company) or a real estate investment trust (REIT) is generally figured in the same way as the basis of other stock and usually includes any commissions or load charges paid for the purchase. Amended tax return Example. Amended tax return You bought 100 shares of Fund A for $10 a share. Amended tax return You paid a $50 commission to the broker for the purchase. Amended tax return Your cost basis for each share is $10. Amended tax return 50 ($1,050 ÷ 100). Amended tax return Commissions and load charges. Amended tax return   The fees and charges you pay to acquire or redeem shares of a mutual fund are not deductible. Amended tax return You can usually add acquisition fees and charges to your cost of the shares and thereby increase your basis. Amended tax return A fee paid to redeem the shares is usually a reduction in the redemption price (sales price). Amended tax return   You cannot add your entire acquisition fee or load charge to the cost of the mutual fund shares acquired if all of the following conditions apply. Amended tax return You get a reinvestment right because of the purchase of the shares or the payment of the fee or charge. Amended tax return You dispose of the shares within 90 days of the purchase date. Amended tax return You acquire new shares in the same mutual fund or another mutual fund, for which the fee or charge is reduced or waived because of the reinvestment right you got when you acquired the original shares. Amended tax return   The amount of the original fee or charge in excess of the reduction in (3) is added to the cost of the original shares. Amended tax return The rest of the original fee or charge is added to the cost basis of the new shares (unless all three conditions above also apply to the purchase of the new shares). Amended tax return Choosing average basis for mutual fund shares. Amended tax return   You can choose to use the average basis of mutual fund shares if you acquired the identical shares at various times and prices, or you acquired the shares after 2010 in connection with a dividend reinvestment plan, and left them on deposit in an account kept by a custodian or agent. Amended tax return The methods you can use to figure average basis are explained later. Amended tax return Undistributed capital gains. Amended tax return   If you had to include in your income any undistributed capital gains of the mutual fund or REIT, increase your basis in the stock by the difference between the amount you included and the amount of tax paid for you by the fund or REIT. Amended tax return See Undistributed capital gains of mutual funds and REITs under Capital Gain Distributions in chapter 1. Amended tax return Reinvestment right. Amended tax return   This is the right to acquire mutual fund shares in the same or another mutual fund without paying a fee or load charge, or by paying a reduced fee or load charge. Amended tax return      The original cost basis of mutual fund shares you acquire by reinvesting your distributions is the amount of the distributions used to purchase each full or fractional share. Amended tax return This rule applies even if the distribution is an exempt-interest dividend that you do not report as income. Amended tax return Table 4-1. Amended tax return This is a worksheet you can use to keep track of the adjusted basis of your mutual fund shares. Amended tax return Enter the cost per share when you acquire new shares and any adjustments to their basis when the adjustment occurs. Amended tax return This worksheet will help you figure the adjusted basis when you sell or redeem shares. Amended tax return Table 4-1. Amended tax return Mutual Fund Record Mutual Fund Acquired1 Adjustment to Basis Per Share Adjusted2 Basis Per Share Sold or redeemed Date Number of Shares Cost Per Share Date Number of Shares                                                                                                                                                                                                                                                                         1 Include share received from reinvestment of distributions. Amended tax return 2 Cost plus or minus adjustments. Amended tax return Automatic investment service. Amended tax return   If you participate in an automatic investment service, your basis for each share of stock, including fractional shares, bought by the bank or other agent is the purchase price plus a share of the broker's commission. Amended tax return Dividend reinvestment plans. Amended tax return   If you participate in a dividend reinvestment plan and receive stock from the corporation at a discount, your basis is the full fair market value of the stock on the dividend payment date. Amended tax return You must include the amount of the discount in your income. Amended tax return Public utilities. Amended tax return   If, before 1986, you excluded from income the value of stock you had received under a qualified public utility reinvestment plan, your basis in that stock is zero. Amended tax return Stock dividends. Amended tax return   Stock dividends are distributions made by a corporation of its own stock. Amended tax return Generally, stock dividends are not taxable to you. Amended tax return However, see Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1 for some exceptions. Amended tax return If the stock dividends are not taxable, you must divide your basis for the old stock between the old and new stock. Amended tax return New and old stock identical. Amended tax return   If the new stock you received as a nontaxable dividend is identical to the old stock on which the dividend was declared, divide the adjusted basis of the old stock by the number of shares of old and new stock. Amended tax return The result is your basis for each share of stock. Amended tax return Example 1. Amended tax return You owned one share of common stock that you bought for $45. Amended tax return The corporation distributed two new shares of common stock for each share held. Amended tax return You then had three shares of common stock. Amended tax return Your basis in each share is $15 ($45 ÷ 3). Amended tax return Example 2. Amended tax return You owned two shares of common stock. Amended tax return You bought one for $30 and the other for $45. Amended tax return The corporation distributed two new shares of common stock for each share held. Amended tax return You had six shares after the distribution—three with a basis of $10 each ($30 ÷ 3) and three with a basis of $15 each ($45 ÷ 3). Amended tax return New and old stock not identical. Amended tax return   If the new stock you received as a nontaxable dividend is not identical to the old stock on which it was declared, the basis of the new stock is calculated differently. Amended tax return Divide the adjusted basis of the old stock between the old and the new stock in the ratio of the fair market value of each lot of stock to the total fair market value of both lots on the date of distribution of the new stock. Amended tax return Example. Amended tax return You bought a share of common stock for $100. Amended tax return Later, the corporation distributed a share of preferred stock for each share of common stock held. Amended tax return At the date of distribution, your common stock had a fair market value of $150 and the preferred stock had a fair market value of $50. Amended tax return You figure the basis of the old and new stock by dividing your $100 basis between them. Amended tax return The basis of your common stock is $75 (($150 ÷ $200) × $100), and the basis of the new preferred stock is $25 (($50 ÷ $200) × $100). Amended tax return Stock bought at various times. Amended tax return   Figure the basis of stock dividends received on stock you bought at various times and at different prices by allocating to each lot of stock the share of the stock dividends due to it. Amended tax return Taxable stock dividends. Amended tax return   If your stock dividend is taxable when you receive it, the basis of your new stock is its fair market value on the date of distribution. Amended tax return The basis of your old stock does not change. Amended tax return Stock splits. Amended tax return   Figure the basis of stock splits in the same way as stock dividends if identical stock is distributed on the stock held. Amended tax return Stock rights. Amended tax return   A stock right is a right to acquire a corporation's stock. Amended tax return It may be exercised, it may be sold if it has a market value, or it may expire. Amended tax return Stock rights are rarely taxable when you receive them. Amended tax return See Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1. Amended tax return Taxable stock rights. Amended tax return   If you receive stock rights that are taxable, the basis of the rights is their fair market value at the time of distribution. Amended tax return The basis of the old stock does not change. Amended tax return Nontaxable stock rights. Amended tax return   If you receive nontaxable stock rights and allow them to expire, they have no basis. Amended tax return   If you exercise or sell the nontaxable stock rights and if, at the time of distribution, the stock rights had a fair market value of 15% or more of the fair market value of the old stock, you must divide the adjusted basis of the old stock between the old stock and the stock rights. Amended tax return Use a ratio of the fair market value of each to the total fair market value of both at the time of distribution. Amended tax return   If the fair market value of the stock rights was less than 15%, their basis is zero. Amended tax return However, you can choose to divide the basis of the old stock between the old stock and the stock rights. Amended tax return To make the choice, attach a statement to your return for the year in which you received the rights, stating that you choose to divide the basis of the stock. Amended tax return Basis of new stock. Amended tax return   If you exercise the stock rights, the basis of the new stock is its cost plus the basis of the stock rights exercised. Amended tax return Example. Amended tax return You own 100 shares of ABC Company stock, which cost you $22 per share. Amended tax return The ABC Company gave you 10 nontaxable stock rights that would allow you to buy 10 more shares at $26 per share. Amended tax return At the time the stock rights were distributed, the stock had a market value of $30, not including the stock rights. Amended tax return Each stock right had a market value of $3. Amended tax return The market value of the stock rights was less than 15% of the market value of the stock, but you chose to divide the basis of your stock between the stock and the rights. Amended tax return You figure the basis of the rights and the basis of the old stock as follows: 100 shares × $22 = $2,200, basis of old stock   100 shares × $30 = $3,000, market value of old stock   10 rights × $3 = $30, market value of rights   ($3,000 ÷ $3,030) × $2,200 = $2,178. Amended tax return 22, new basis of old stock   ($30 ÷ $3,030) × $2,200 = $21. Amended tax return 78, basis of rights   If you sell the rights, the basis for figuring gain or loss is $2. Amended tax return 18 ($21. Amended tax return 78 ÷ 10) per right. Amended tax return If you exercise the rights, the basis of the stock you acquire is the price you pay ($26) plus the basis of the right exercised ($2. Amended tax return 18), or $28. Amended tax return 18 per share. Amended tax return The remaining basis of the old stock is $21. Amended tax return 78 per share. Amended tax return Investment property received in liquidation. Amended tax return   In general, if you receive investment property as a distribution in partial or complete liquidation of a corporation and if you recognize gain or loss when you acquire the property, your basis in the property is its fair market value at the time of the distribution. Amended tax return S corporation stock. Amended tax return   You must increase your basis in stock of an S corporation by your pro rata share of the following items. Amended tax return All income items of the S corporation, including tax-exempt income, that are separately stated and passed through to you as a shareholder. Amended tax return The nonseparately stated income of the S corporation. Amended tax return The amount of the deduction for depletion (other than oil and gas depletion) that is more than the basis of the property being depleted. Amended tax return   You must decrease your basis in stock of an S corporation by your pro rata share of the following items. Amended tax return Distributions by the S corporation that were not included in your income. Amended tax return All loss and deduction items of the S corporation that are separately stated and passed through to you. Amended tax return Any nonseparately stated loss of the S corporation. Amended tax return Any expense of the S corporation that is not deductible in figuring its taxable income and not properly chargeable to a capital account. Amended tax return The amount of your deduction for depletion of oil and gas wells to the extent the deduction is not more than your share of the adjusted basis of the wells. Amended tax return However, your basis in the stock cannot be reduced below zero. Amended tax return Specialized small business investment company stock or partnership interest. Amended tax return   If you bought this stock or interest as replacement property for publicly traded securities you sold at a gain, you must reduce the basis of the stock or interest by the amount of any postponed gain on that sale. Amended tax return See Rollover of Gain From Publicly Traded Securities , later. Amended tax return Qualified small business stock. Amended tax return   If you bought this stock as replacement property for other qualified small business stock you sold at a gain, you must reduce the basis of this replacement stock by the amount of any postponed gain on the earlier sale. Amended tax return See Gains on Qualified Small Business Stock , later. Amended tax return Short sales. Amended tax return   If you cannot deduct payments you make to a lender in lieu of dividends on stock used in a short sale, the amount you pay to the lender is a capital expense, and you must add it to the basis of the stock used to close the short sale. Amended tax return   See Payments in lieu of dividends , later, for information about deducting payments in lieu of dividends. Amended tax return Premiums on bonds. Amended tax return   If you buy a bond at a premium, the premium is treated as part of your basis in the bond. Amended tax return If you choose to amortize the premium paid on a taxable bond, you must reduce the basis of the bond by the amortized part of the premium each year over the life of the bond. Amended tax return   Although you cannot deduct the premium on a tax-exempt bond, you must amortize it to determine your adjusted basis in the bond. Amended tax return You must reduce the basis of the bond by the premium you amortized for the period you held the bond. Amended tax return   See Bond Premium Amortization in chapter 3 for more information. Amended tax return Market discount on bonds. Amended tax return   If you include market discount on a bond in income currently, increase the basis of your bond by the amount of market discount you include in your income. Amended tax return See Market Discount Bonds in chapter 1 for more information. Amended tax return Bonds purchased at par value. Amended tax return   A bond purchased at par value (face amount) has no premium or discount. Amended tax return When you sell or otherwise dispose of the bond, you figure the gain or loss by comparing the bond proceeds to the purchase price of the bond. Amended tax return Example. Amended tax return You purchased a bond several years ago for its par value of $10,000. Amended tax return You sold the bond this year for $10,100. Amended tax return You have a gain of $100. Amended tax return However, if you had sold the bond for $9,900, you would have a loss of $100. Amended tax return Acquisition discount on short-term obligations. Amended tax return   If you include acquisition discount on a short-term obligation in your income currently, increase the basis of the obligation by the amount of acquisition discount you include in your income. Amended tax return See Discount on Short-Term Obligations in chapter 1 for more information. Amended tax return Original issue discount (OID) on debt instruments. Amended tax return   Increase the basis of a debt instrument by the OID you include in your income. Amended tax return See Original Issue Discount (OID) in chapter 1. Amended tax return Discounted tax-exempt obligations. Amended tax return   OID on tax-exempt obligations is generally not taxable. Amended tax return However, when you dispose of a tax-exempt obligation issued after September 3, 1982, that you acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. Amended tax return The accrued OID is added to the basis of the obligation to determine your gain or loss. Amended tax return   For information on determining OID on a long-term obligation, see Debt Instruments Issued After July 1, 1982, and Before 1985 or Debt Instruments Issued After 1984, whichever applies, in Publication 1212 under Figuring OID on Long-Term Debt Instruments. Amended tax return   If the tax-exempt obligation has a maturity of 1 year or less, accrue OID under the rules for acquisition discount on short-term obligations. Amended tax return See Discount on Short-Term Obligations in chapter 1. Amended tax return Stripped tax-exempt obligation. Amended tax return   If you acquired a stripped tax-exempt bond or coupon after October 22, 1986, you must accrue OID on it to determine its adjusted basis when you dispose of it. Amended tax return For stripped tax-exempt bonds or coupons acquired after June 10, 1987, part of this OID may be taxable. Amended tax return You accrue the OID on these obligations in the manner described in chapter 1 under Stripped Bonds and Coupons . Amended tax return   Increase your basis in the stripped tax-exempt bond or coupon by the taxable and nontaxable accrued OID. Amended tax return Also increase your basis by the interest that accrued (but was not paid and was not previously reflected in your basis) before the date you sold the bond or coupon. Amended tax return In addition, for bonds acquired after June 10, 1987, add to your basis any accrued market discount not previously reflected in basis. Amended tax return How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. Amended tax return Gain. Amended tax return   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. Amended tax return Loss. Amended tax return   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. Amended tax return Amount realized. Amended tax return   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). Amended tax return Amount realized includes the money you receive plus the fair market value of any property or services you receive. Amended tax return   If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. Amended tax return For more information, see Publication 537. Amended tax return   If a buyer of property issues a debt instrument to the seller of the property, the amount realized is determined by reference to the issue price of the debt instrument, which may or may not be the fair market value of the debt instrument. Amended tax return See Regulations section 1. Amended tax return 1001-1(g). Amended tax return However, if the debt instrument was previously issued by a third party (one not part of the sale transaction), the fair market value of the debt instrument is used to determine the amount realized. Amended tax return Fair market value. Amended tax return   Fair market value is the price at which property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Amended tax return Example. Amended tax return You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. Amended tax return Your gain is $3,000 ($10,000 – $7,000). Amended tax return If you also receive a note for $6,000 that has an issue price of $6,000, your gain is $9,000 ($10,000 + $6,000 – $7,000). Amended tax return Debt paid off. Amended tax return   A debt against the property, or against you, that is paid off as a part of the transaction or that is assumed by the buyer must be included in the amount realized. Amended tax return This is true even if neither you nor the buyer is personally liable for the debt. Amended tax return For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. Amended tax return Example. Amended tax return You sell stock that you had pledged as security for a bank loan of $8,000. Amended tax return Your basis in the stock is $6,000. Amended tax return The buyer pays off your bank loan and pays you $20,000 in cash. Amended tax return The amount realized is $28,000 ($20,000 + $8,000). Amended tax return Your gain is $22,000 ($28,000 – $6,000). Amended tax return Payment of cash. Amended tax return   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. Amended tax return Determine your gain or loss by subtracting the cash you pay and the adjusted basis of the property you trade in from the amount you realize. Amended tax return If the result is a positive number, it is a gain. Amended tax return If the result is a negative number, it is a loss. Amended tax return No gain or loss. Amended tax return   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. Amended tax return In this case, you may have neither a gain nor a loss. Amended tax return See No gain or loss in the discussion on the basis of property you received as a gift under Basis Other Than Cost, earlier. Amended tax return Special Rules for Mutual Funds To figure your gain or loss when you dispose of mutual fund shares, you need to determine which shares were sold and the basis of those shares. Amended tax return If your shares in a mutual fund were acquired all on the same day and for the same price, figuring their basis is not difficu