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E File Form 1040x

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E File Form 1040x

E file form 1040x 1. E file form 1040x   403(b) Plan Basics Table of Contents What Is a 403(b) Plan? What Are the Benefits of Contributing to a 403(b) Plan?Excluded. E file form 1040x Deducted. E file form 1040x Who Can Participate in a 403(b) Plan?Ministers. E file form 1040x Who Can Set Up a 403(b) Account? How Can Contributions Be Made to My 403(b) Account? Do I Report Contributions on My Tax Return? How Much Can Be Contributed to My 403(b) Account? This chapter introduces you to 403(b) plans and accounts. E file form 1040x Specifically, the chapter answers the following questions. E file form 1040x What is a 403(b) plan? What are the benefits of contributing to a 403(b) plan? Who can participate in a 403(b) plan? Who can set up a 403(b) account? How can contributions be made to my 403(b) account? Do I report contributions on my tax return? How much can be contributed to my 403(b) account? What Is a 403(b) Plan? A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers. E file form 1040x Individual accounts in a 403(b) plan can be any of the following types. E file form 1040x An annuity contract, which is a contract provided through an insurance company, A custodial account, which is an account invested in mutual funds, or A retirement income account set up for church employees. E file form 1040x Generally, retirement income accounts can invest in either annuities or mutual funds. E file form 1040x We use the term “403(b) account” to refer to any one of these funding arrangements throughout this publication, unless otherwise specified. E file form 1040x What Are the Benefits of Contributing to a 403(b) Plan?  There are three benefits to contributing to a 403(b) plan. E file form 1040x The first benefit is that you do not pay income tax on allowable contributions until you begin making withdrawals from the plan, usually after you retire. E file form 1040x Allowable contributions to a 403(b) plan are either excluded or deducted from your income. E file form 1040x However, if your contributions are made to a Roth contribution program, this benefit does not apply. E file form 1040x Instead, you pay income tax on the contributions to the plan but distributions from the plan (if certain requirements are met) are tax free. E file form 1040x Note. E file form 1040x Generally, employees must pay social security and Medicare tax on their contributions to a 403(b) plan, including those made under a salary reduction agreement. E file form 1040x See chapter 4, Limit on Elective Deferrals , for more information. E file form 1040x The second benefit is that earnings and gains on amounts in your 403(b) account are not taxed until you withdraw them. E file form 1040x Earnings and gains on amounts in a Roth contribution program are not taxed if your withdrawals are qualified distributions. E file form 1040x Otherwise, they are taxed when you withdraw them. E file form 1040x The third benefit is that you may be eligible to take a credit for elective deferrals contributed to your 403(b) account. E file form 1040x See chapter 10, Retirement Savings Contributions Credit (Saver's Credit) . E file form 1040x Excluded. E file form 1040x   If an amount is excluded from your income, it is not included in your total wages on your Form W-2. E file form 1040x This means that you do not report the excluded amount on your tax return. E file form 1040x Deducted. E file form 1040x   If an amount is deducted from your income, it is included with your other wages on your Form W-2. E file form 1040x You report this amount on your tax return, but you are allowed to subtract it when figuring the amount of income on which you must pay tax. E file form 1040x Who Can Participate in a 403(b) Plan? Any eligible employee can participate in a 403(b) plan. E file form 1040x Eligible employees. E file form 1040x   The following employees are eligible to participate in a 403(b) plan. E file form 1040x Employees of tax-exempt organizations established under section 501(c)(3). E file form 1040x These organizations are usually referred to as section 501(c)(3) organizations or simply 501(c)(3) organizations. E file form 1040x Employees of public school systems who are involved in the day-to-day operations of a school. E file form 1040x Employees of cooperative hospital service organizations. E file form 1040x Civilian faculty and staff of the Uniformed Services University of the Health Sciences. E file form 1040x Employees of public school systems organized by Indian tribal governments. E file form 1040x Certain ministers (explained next). E file form 1040x Ministers. E file form 1040x   The following ministers are eligible employees for whom a 403(b) account can be established. E file form 1040x Ministers employed by section 501(c)(3) organizations. E file form 1040x Self-employed ministers. E file form 1040x A self-employed minister is treated as employed by a tax-exempt organization that is a qualified employer. E file form 1040x Ministers (chaplains) who meet both of the following requirements. E file form 1040x They are employed by organizations that are not section 501(c)(3) organizations. E file form 1040x They function as ministers in their day-to-day professional responsibilities with their employers. E file form 1040x   Throughout this publication, the term chaplain will be used to mean ministers described in the third category in the list above. E file form 1040x Example. E file form 1040x A minister employed as a chaplain by a state-run prison and a chaplain in the United States Armed Forces are eligible employees because their employers are not section 501(c)(3) organizations and they are employed as ministers. E file form 1040x Who Can Set Up a 403(b) Account? You cannot set up your own 403(b) account. E file form 1040x Only employers can set up 403(b) accounts. E file form 1040x A self-employed minister cannot set up a 403(b) account for his or her benefit. E file form 1040x If you are a self-employed minister, only the organization (denomination) with which you are associated can set up an account for your benefit. E file form 1040x How Can Contributions Be Made to My 403(b) Account? Generally, only your employer can make contributions to your 403(b) account. E file form 1040x However, some plans will allow you to make after-tax contributions (defined below). E file form 1040x The following types of contributions can be made to 403(b) accounts. E file form 1040x Elective deferrals . E file form 1040x These are contributions made under a salary reduction agreement. E file form 1040x This agreement allows your employer to withhold money from your paycheck to be contributed directly into a 403(b) account for your benefit. E file form 1040x Except for Roth contributions, you do not pay income tax on these contributions until you withdraw them from the account. E file form 1040x If your contributions are Roth contributions, you pay taxes on your contributions but any qualified distributions from your Roth account are tax free. E file form 1040x Nonelective contributions . E file form 1040x These are employer contributions that are not made under a salary reduction agreement. E file form 1040x Nonelective contributions include matching contributions, discretionary contributions, and mandatory contributions from your employer. E file form 1040x You do not pay income tax on these contributions until you withdraw them from the account. E file form 1040x After-tax contributions . E file form 1040x These are contributions (that are not Roth contributions) you make with funds that you must include in income on your tax return. E file form 1040x A salary payment on which income tax has been withheld is a source of these contributions. E file form 1040x If your plan allows you to make after-tax contributions, they are not excluded from income and you cannot deduct them on your tax return. E file form 1040x A combination of any of the three contribution types listed above. E file form 1040x Self-employed minister. E file form 1040x   If you are a self-employed minister, you are considered both an employee and an employer, and you can contribute to a retirement income account for your own benefit. E file form 1040x Do I Report Contributions on My Tax Return? Generally, you do not report contributions to your 403(b) account (except Roth contributions) on your tax return. E file form 1040x Your employer will report contributions on your 2013 Form W-2. E file form 1040x Elective deferrals will be shown in box 12 and the Retirement plan box will be checked in box 13. E file form 1040x If you are a self-employed minister or chaplain, see the discussions next. E file form 1040x Self-employed ministers. E file form 1040x   If you are a self-employed minister, you must report the total contributions as a deduction on your tax return. E file form 1040x Deduct your contributions on line 28 of the 2013 Form 1040. E file form 1040x Chaplains. E file form 1040x   If you are a chaplain and your employer does not exclude contributions made to your 403(b) account from your earned income, you may be able to take a deduction for those contributions on your tax return. E file form 1040x    However, if your employer has agreed to exclude the contributions from your earned income, you will not be allowed a deduction on your tax return. E file form 1040x   If you can take a deduction, include your contributions on line 36 of the 2013 Form 1040. E file form 1040x Enter the amount of your deduction and write “403(b)” on the dotted line next to line 36. E file form 1040x How Much Can Be Contributed to My 403(b) Account? There are limits on the amount of contributions that can be made to your 403(b) account each year. E file form 1040x If contributions made to your 403(b) account are more than these contribution limits, penalties may apply. E file form 1040x Chapters 2 through 6 provide information on how to determine the amount that can be contributed to your 403(b) account. E file form 1040x Worksheets are provided in Chapter 9 to help you determine the maximum amount that can be contributed to your 403(b) account each year. E file form 1040x Chapter 7, Excess Contributions , describes how to prevent excess contributions and how to get an excess contribution corrected. E file form 1040x Prev  Up  Next   Home   More Online Publications
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The E File Form 1040x

E file form 1040x 13. E file form 1040x   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. E file form 1040x It is divided into the following sections. E file form 1040x Cost basis. E file form 1040x Adjusted basis. E file form 1040x Basis other than cost. E file form 1040x Your basis is the amount of your investment in property for tax purposes. E file form 1040x Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. E file form 1040x Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. E file form 1040x If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. E file form 1040x Only the basis allocated to the business or investment use of the property can be depreciated. E file form 1040x Your original basis in property is adjusted (increased or decreased) by certain events. E file form 1040x For example, if you make improvements to the property, increase your basis. E file form 1040x If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. E file form 1040x Keep accurate records of all items that affect the basis of your property. E file form 1040x For more information on keeping records, see chapter 1. E file form 1040x Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. E file form 1040x The cost is the amount you pay in cash, debt obligations, other property, or services. E file form 1040x Your cost also includes amounts you pay for the following items: Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if you assume liability for the seller). E file form 1040x In addition, the basis of real estate and business assets may include other items. E file form 1040x Loans with low or no interest. E file form 1040x    If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus any amount considered to be unstated interest. E file form 1040x You generally have unstated interest if your interest rate is less than the applicable federal rate. E file form 1040x   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. E file form 1040x Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. E file form 1040x If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. E file form 1040x Lump sum purchase. E file form 1040x   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. E file form 1040x Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. E file form 1040x Figure the basis of each asset by multiplying the lump sum by a fraction. E file form 1040x The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. E file form 1040x    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. E file form 1040x Fair market value (FMV). E file form 1040x   FMV is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the necessary facts. E file form 1040x Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. E file form 1040x Assumption of mortgage. E file form 1040x   If you buy property and assume (or buy the property subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. E file form 1040x Settlement costs. E file form 1040x   Your basis includes the settlement fees and closing costs you paid for buying the property. E file form 1040x (A fee for buying property is a cost that must be paid even if you buy the property for cash. E file form 1040x ) Do not include fees and costs for getting a loan on the property in your basis. E file form 1040x   The following are some of the settlement fees or closing costs you can include in the basis of your property. E file form 1040x Abstract fees (abstract of title fees). E file form 1040x Charges for installing utility services. E file form 1040x Legal fees (including fees for the title search and preparation of the sales contract and deed). E file form 1040x Recording fees. E file form 1040x Survey fees. E file form 1040x Transfer taxes. E file form 1040x Owner's title insurance. E file form 1040x Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. E file form 1040x   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. E file form 1040x   The following are some of the settlement fees and closing costs you cannot include in the basis of property. E file form 1040x Casualty insurance premiums. E file form 1040x Rent for occupancy of the property before closing. E file form 1040x Charges for utilities or other services related to occupancy of the property before closing. E file form 1040x Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. E file form 1040x Fees for refinancing a mortgage. E file form 1040x Real estate taxes. E file form 1040x   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. E file form 1040x You cannot deduct them as an expense. E file form 1040x    If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. E file form 1040x Do not include that amount in the basis of your property. E file form 1040x If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. E file form 1040x Points. E file form 1040x   If you pay points to get a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. E file form 1040x Generally, you deduct the points over the term of the loan. E file form 1040x For more information on how to deduct points, see chapter 23. E file form 1040x Points on home mortgage. E file form 1040x   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. E file form 1040x If certain requirements are met, you can deduct the points in full for the year in which they are paid. E file form 1040x Reduce the basis of your home by any seller-paid points. E file form 1040x Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. E file form 1040x The result is the adjusted basis. E file form 1040x Increases to Basis Increase the basis of any property by all items properly added to a capital account. E file form 1040x Examples of items that increase basis are shown in Table 13-1. E file form 1040x These include the items discussed below. E file form 1040x Improvements. E file form 1040x   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. E file form 1040x For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. E file form 1040x Assessments for local improvements. E file form 1040x   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. E file form 1040x Do not deduct them as taxes. E file form 1040x However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. E file form 1040x Example. E file form 1040x Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. E file form 1040x Add the assessment to your property's basis. E file form 1040x In this example, the assessment is a depreciable asset. E file form 1040x Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. E file form 1040x Examples of items that decrease basis are shown in Table 13-1. E file form 1040x These include the items discussed below. E file form 1040x Table 13-1. E file form 1040x Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. E file form 1040x   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. E file form 1040x    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. E file form 1040x   For more information on casualty and theft losses, see chapter 25. E file form 1040x Depreciation and section 179 deduction. E file form 1040x   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. E file form 1040x   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. E file form 1040x Example. E file form 1040x You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. E file form 1040x You added an improvement to the duplex that cost $10,000. E file form 1040x In February last year, the duplex was damaged by fire. E file form 1040x Up to that time, you had been allowed depreciation of $23,000. E file form 1040x You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. E file form 1040x You deducted a casualty loss of $1,000 on your income tax return for last year. E file form 1040x You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. E file form 1040x You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. E file form 1040x Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. E file form 1040x Your basis in the land is its original cost of $5,000. E file form 1040x Easements. E file form 1040x   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. E file form 1040x It reduces the basis of the affected part of the property. E file form 1040x If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. E file form 1040x   If the gain is on a capital asset, see chapter 16 for information about how to report it. E file form 1040x If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. E file form 1040x Exclusion of subsidies for energy conservation measures. E file form 1040x   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. E file form 1040x Reduce the basis of the property for which you received the subsidy by the excluded amount. E file form 1040x For more information about this subsidy, see chapter 12. E file form 1040x Postponed gain from sale of home. E file form 1040x    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. E file form 1040x For more information on the rules for the sale of a home, see chapter 15. E file form 1040x Basis Other Than Cost There are many times when you cannot use cost as basis. E file form 1040x In these cases, the fair market value or the adjusted basis of the property can be used. E file form 1040x Fair market value (FMV) and adjusted basis were discussed earlier. E file form 1040x Property Received for Services If you receive property for your services, include the FMV of the property in income. E file form 1040x The amount you include in income becomes your basis. E file form 1040x If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. E file form 1040x Restricted property. E file form 1040x   If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested. E file form 1040x However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. E file form 1040x Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). E file form 1040x For more information, see Restricted Property in Publication 525. E file form 1040x Bargain purchases. E file form 1040x   A bargain purchase is a purchase of an item for less than its FMV. E file form 1040x If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. E file form 1040x Your basis in the property is its FMV (your purchase price plus the amount you include in income). E file form 1040x   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. E file form 1040x However, your basis in the property is still its FMV. E file form 1040x See Employee Discounts in Publication 15-B. E file form 1040x Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. E file form 1040x A taxable gain or deductible loss also is known as a recognized gain or loss. E file form 1040x If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. E file form 1040x Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. E file form 1040x Similar or related property. E file form 1040x   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. E file form 1040x Decrease the basis by the following. E file form 1040x Any loss you recognize on the involuntary conversion. E file form 1040x Any money you receive that you do not spend on similar property. E file form 1040x Increase the basis by the following. E file form 1040x Any gain you recognize on the involuntary conversion. E file form 1040x Any cost of acquiring the replacement property. E file form 1040x Money or property not similar or related. E file form 1040x    If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the conversion. E file form 1040x Example. E file form 1040x The state condemned your property. E file form 1040x The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. E file form 1040x You realized a gain of $5,000 ($31,000 − $26,000). E file form 1040x You bought replacement property similar in use to the converted property for $29,000. E file form 1040x You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. E file form 1040x Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. E file form 1040x The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. E file form 1040x   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. E file form 1040x Basis for depreciation. E file form 1040x   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. E file form 1040x For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. E file form 1040x Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. E file form 1040x If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. E file form 1040x See Nontaxable Trades in chapter 14. E file form 1040x Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. E file form 1040x To qualify as a like-kind exchange, the property traded and the property received must be both of the following. E file form 1040x Qualifying property. E file form 1040x Like-kind property. E file form 1040x The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. E file form 1040x If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. E file form 1040x Qualifying property. E file form 1040x   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. E file form 1040x Like-kind property. E file form 1040x   There must be an exchange of like-kind property. E file form 1040x Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. E file form 1040x The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. E file form 1040x Example. E file form 1040x You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. E file form 1040x The dealer allows you $2,000 on the old truck, and you pay $4,800. E file form 1040x This is a like-kind exchange. E file form 1040x The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). E file form 1040x If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). E file form 1040x The basis of the new truck is the price you pay the dealer. E file form 1040x Partially nontaxable exchanges. E file form 1040x   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. E file form 1040x The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. E file form 1040x Decrease the basis by the following amounts. E file form 1040x Any money you receive. E file form 1040x Any loss you recognize on the exchange. E file form 1040x Increase the basis by the following amounts. E file form 1040x Any additional costs you incur. E file form 1040x Any gain you recognize on the exchange. E file form 1040x If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. E file form 1040x Allocation of basis. E file form 1040x   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. E file form 1040x The rest is the basis of the like-kind property. E file form 1040x More information. E file form 1040x   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. E file form 1040x Basis for depreciation. E file form 1040x   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. E file form 1040x For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. E file form 1040x Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. E file form 1040x The same rule applies to a transfer by your former spouse that is incident to divorce. E file form 1040x However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. E file form 1040x If the property transferred to you is a series E, series EE, or series I U. E file form 1040x S. E file form 1040x savings bond, the transferor must include in income the interest accrued to the date of transfer. E file form 1040x Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. E file form 1040x For more information on these bonds, see chapter 7. E file form 1040x At the time of the transfer, the transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. E file form 1040x For more information about the transfer of property from a spouse, see chapter 14. E file form 1040x Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. E file form 1040x FMV less than donor's adjusted basis. E file form 1040x   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. E file form 1040x Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. E file form 1040x Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. E file form 1040x See Adjusted Basis , earlier. E file form 1040x Example. E file form 1040x You received an acre of land as a gift. E file form 1040x At the time of the gift, the land had an FMV of $8,000. E file form 1040x The donor's adjusted basis was $10,000. E file form 1040x After you received the property, no events occurred to increase or decrease your basis. E file form 1040x If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. E file form 1040x If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. E file form 1040x If the sales price is between $8,000 and $10,000, you have neither gain nor loss. E file form 1040x Business property. E file form 1040x   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. E file form 1040x FMV equal to or greater than donor's adjusted basis. E file form 1040x   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. E file form 1040x Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. E file form 1040x   Also, for figuring gain or loss from a sale or other disposition or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. E file form 1040x See Adjusted Basis , earlier. E file form 1040x   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. E file form 1040x Figure the increase by multiplying the gift tax paid by a fraction. E file form 1040x The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. E file form 1040x   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. E file form 1040x 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. E file form 1040x Example. E file form 1040x In 2013, you received a gift of property from your mother that had an FMV of $50,000. E file form 1040x Her adjusted basis was $20,000. E file form 1040x The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). E file form 1040x She paid a gift tax of $7,320 on the property. E file form 1040x Your basis is $26,076, figured as follows: Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000     Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . E file form 1040x 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. E file form 1040x If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. E file form 1040x However, your basis cannot exceed the FMV of the gift at the time it was given to you. E file form 1040x Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. E file form 1040x The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. E file form 1040x The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. E file form 1040x The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. E file form 1040x If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. E file form 1040x For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. E file form 1040x Property inherited from a decedent who died in 2010. E file form 1040x   If you inherited property from a decedent who died in 2010, special rules may apply. E file form 1040x For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. E file form 1040x Community property. E file form 1040x   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. E file form 1040x When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. E file form 1040x For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. E file form 1040x Example. E file form 1040x You and your spouse owned community property that had a basis of $80,000. E file form 1040x When your spouse died, half the FMV of the community interest was includible in your spouse's estate. E file form 1040x The FMV of the community interest was $100,000. E file form 1040x The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). E file form 1040x The basis of the other half to your spouse's heirs is also $50,000. E file form 1040x For more information about community property, see Publication 555, Community Property. E file form 1040x Property Changed From Personal to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you can begin to depreciate the property at the time of the change. E file form 1040x To do so, you must figure its basis for depreciation at the time of the change. E file form 1040x An example of changing property held for personal use to business or rental use would be renting out your former personal residence. E file form 1040x Basis for depreciation. E file form 1040x   The basis for depreciation is the lesser of the following amounts. E file form 1040x The FMV of the property on the date of the change. E file form 1040x Your adjusted basis on the date of the change. E file form 1040x Example. E file form 1040x Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. E file form 1040x You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. E file form 1040x Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. E file form 1040x Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). E file form 1040x On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. E file form 1040x The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). E file form 1040x Sale of property. E file form 1040x   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. E file form 1040x Gain. E file form 1040x   The basis for figuring a gain is your adjusted basis in the property when you sell the property. E file form 1040x Example. E file form 1040x Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. E file form 1040x Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). E file form 1040x Loss. E file form 1040x   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. E file form 1040x Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . E file form 1040x Example. E file form 1040x Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. E file form 1040x In this case, you would start with the FMV on the date of the change to rental use ($180,000), because it is less than the adjusted basis of $203,000 ($178,000 + $25,000 (land)) on that date. E file form 1040x Reduce that amount ($180,000) by the depreciation deductions ($37,500). E file form 1040x The basis for loss is $142,500 ($180,000 − $37,500). E file form 1040x Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. E file form 1040x If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. E file form 1040x You must adjust the basis of stocks for certain events that occur after purchase. E file form 1040x For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. E file form 1040x This rule applies only when the additional stock received is identical to the stock held. E file form 1040x Also reduce your basis when you receive nontaxable distributions. E file form 1040x They are a return of capital. E file form 1040x Example. E file form 1040x In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. E file form 1040x In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. E file form 1040x In 2013 XYZ declared a 2-for-1 stock split. E file form 1040x You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. E file form 1040x Other basis. E file form 1040x   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. E file form 1040x For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. E file form 1040x Identifying stocks or bonds sold. E file form 1040x   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stocks or bonds. E file form 1040x 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. E file form 1040x For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. E file form 1040x Mutual fund shares. E file form 1040x   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. E file form 1040x For more information, see Publication 550. E file form 1040x Bond premium. E file form 1040x   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. E file form 1040x See Bond Premium Amortization in chapter 3 of Publication 550 for more information. E file form 1040x Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. E file form 1040x Original issue discount (OID) on debt instruments. E file form 1040x   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. E file form 1040x See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. E file form 1040x Tax-exempt obligations. E file form 1040x    OID on tax-exempt obligations is generally not taxable. E file form 1040x However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. E file form 1040x The accrued OID is added to the basis of the obligation to determine your gain or loss. E file form 1040x See chapter 4 of Publication 550. E file form 1040x Prev  Up  Next   Home   More Online Publications