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E Filing Income Tax

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E Filing Income Tax

E filing income tax 5. E filing income tax   Table and Worksheets for the Self-Employed Table of Contents Community property laws. E filing income tax As discussed in chapters 2 and 4, if you are self-employed, you must use the rate table or rate worksheet and deduction worksheet to figure your deduction for contributions you made for yourself to a SEP-IRA or qualified plan. E filing income tax First, use either the rate table or rate worksheet to find your reduced contribution rate. E filing income tax Then complete the deduction worksheet to figure your deduction for contributions. E filing income tax The table and the worksheets in chapter 5 apply only to self-employed individuals who have only one defined contribution plan, such as a profit-sharing plan. E filing income tax A SEP plan is treated as a profit-sharing plan. E filing income tax However, do not use this worksheet for SARSEPs. E filing income tax Rate table for self-employed. E filing income tax   If your plan's contribution rate is a whole percentage (for example, 12% rather than 12½%), you can use the table on the next page to find your reduced contribution rate. E filing income tax Otherwise, use the rate worksheet provided below. E filing income tax   First, find your plan contribution rate (the contribution rate stated in your plan) in Column A of the table. E filing income tax Then read across to the rate under Column B. E filing income tax Enter the rate from Column B in step 4 of the Deduction Worksheet for Self-Employed on this page. E filing income tax    Example. E filing income tax You are a sole proprietor with no employees. E filing income tax If your plan's contribution rate is 10% of a participant's compensation, your rate is 0. E filing income tax 090909. E filing income tax Enter this rate in step 4 of the Deduction Worksheet for Self-Employed on this page. E filing income tax Deduction Worksheet for Self-Employed   Step 1           Enter your net profit from line 31, Schedule C (Form 1040); line 3, Schedule C-EZ (Form 1040); line 34, Schedule F (Form 1040)*; or box 14, code A**, Schedule K-1 (Form 1065)*. E filing income tax For information on other income included in net profit from self-employment, see the Instructions for Schedule SE, Form 1040. E filing income tax       *Reduce this amount by any amount reported on Schedule SE (Form 1040), line 1b. E filing income tax       **General partners should reduce this amount by the same additional expenses subtracted from box 14, code A to determine the amount on line 1 or 2 of Schedule SE. E filing income tax     Step 2           Enter your deduction for self-employment tax from Form 1040, line 27             Step 3           Net earnings from self-employment. E filing income tax Subtract step 2 from step 1     Step 4           Enter your rate from the Rate Table for Self-Employed or Rate Worksheet for Self-Employed     Step 5           Multiply step 3 by step 4     Step 6           Multiply $255,000 by your plan contribution rate (not the reduced rate)     Step 7           Enter the smaller of step 5 or step 6     Step 8           Contribution dollar limit $51,000     • If you made any elective deferrals to your self-employed plan, go to step 9. E filing income tax         • Otherwise, skip steps 9 through 20 and enter the smaller of step 7 or step 8 on step 21. E filing income tax       Step 9           Enter your allowable elective deferrals (including designated Roth contributions) made to your self-employed plan during 2013. E filing income tax Do not enter more than $17,500     Step 10           Subtract step 9 from step 8     Step 11           Subtract step 9 from step 3       Step 12           Enter one-half of step 11     Step 13           Enter the smallest of step 7, 10, or 12     Step 14           Subtract step 13 from step 3     Step 15           Enter the smaller of step 9 or step 14       • If you made catch-up contributions, go to step 16. E filing income tax         • Otherwise, skip steps 16 through 18 and go to step 19. E filing income tax       Step 16           Subtract step 15 from step 14     Step 17           Enter your catch-up contributions (including designated Roth contributions), if any. E filing income tax Do not enter more than $5,500     Step 18           Enter the smaller of step 16 or step 17     Step 19           Add steps 13, 15, and 18. E filing income tax     Step 20           Enter the amount of designated Roth contributions included on lines 9 and 17. E filing income tax     Step 21           Subtract step 20 from step 19. E filing income tax This is your maximum deductible contribution. E filing income tax                 Next: Enter your actual contribution, not to exceed your maximum deductible contribution, on Form 1040, line 28. E filing income tax   Rate worksheet for self-employed. E filing income tax   If your plan's contribution rate is not a whole percentage (for example, 10½%), you cannot use the Rate Table for Self-Employed. E filing income tax Use the following worksheet instead. E filing income tax Rate Worksheet for Self-Employed 1) Plan contribution rate as a decimal (for example, 10½% = 0. E filing income tax 105)   2) Rate in line 1 plus 1 (for example, 0. E filing income tax 105 + 1 = 1. E filing income tax 105)   3) Self-employed rate as a decimal rounded to at least 3 decimal places (line 1 ÷ line 2) (for example, 0. E filing income tax 105 ÷ 1. E filing income tax 105 = 0. E filing income tax 095)   Figuring your deduction. E filing income tax   Now that you have your self-employed rate from either the rate table or rate worksheet, you can figure your maximum deduction for contributions for yourself by completing the Deduction Worksheet for Self-Employed. E filing income tax Community property laws. E filing income tax   If you reside in a community property state and you are married and filing a separate return, disregard community property laws for step 1 of the Deduction Worksheet for Self-Employed. E filing income tax Enter on step 1 the total net profit you actually earned. E filing income tax Rate Table for Self-Employed Column A  If the plan contri- bution rate is: (shown as %) Column B  Your rate is: (shown as decimal) 1 . E filing income tax 009901 2 . E filing income tax 019608 3 . E filing income tax 029126 4 . E filing income tax 038462 5 . E filing income tax 047619 6 . E filing income tax 056604 7 . E filing income tax 065421 8 . E filing income tax 074074 9 . E filing income tax 082569 10 . E filing income tax 090909 11 . E filing income tax 099099 12 . E filing income tax 107143 13 . E filing income tax 115044 14 . E filing income tax 122807 15 . E filing income tax 130435 16 . E filing income tax 137931 17 . E filing income tax 145299 18 . E filing income tax 152542 19 . E filing income tax 159664 20 . E filing income tax 166667 21 . E filing income tax 173554 22 . E filing income tax 180328 23 . E filing income tax 186992 24 . E filing income tax 193548 25* . E filing income tax 200000* *The deduction for annual employer contributions (other than elective deferrals) to a SEP plan, a profit-sharing plan, or a money purchase plan cannot be more than 20% of your net earnings (figured without deducting contributions for yourself) from the business that has the plan. E filing income tax Example. E filing income tax You are a sole proprietor with no employees. E filing income tax The terms of your plan provide that you contribute 8½% (. E filing income tax 085) of your compensation to your plan. E filing income tax Your net profit from line 31, Schedule C (Form 1040) is $200,000. E filing income tax You have no elective deferrals or catch-up contributions. E filing income tax Your self-employment tax deduction on line 27 of Form 1040 is $9,728. E filing income tax See the filled-in portions of both Schedule SE (Form 1040), Self-Employment Income, and Form 1040, later. E filing income tax You figure your self-employed rate and maximum deduction for employer contributions you made for yourself as follows. E filing income tax Deduction Worksheet for Self-Employed   Step 1           Enter your net profit from line 31, Schedule C (Form 1040); line 3, Schedule C-EZ (Form 1040); line 34, Schedule F (Form 1040)*; or box 14, code A**, Schedule K-1 (Form 1065)*. E filing income tax For information on other income included in net profit from self-employment, see the Instructions for Schedule SE, Form 1040. E filing income tax $200,000     *Reduce this amount by any amount reported on Schedule SE (Form 1040), line 1b. E filing income tax       **General partners should reduce this amount by the same additional expenses subtracted from box 14, code A to determine the amount on line 1 or 2 of Schedule SE. E filing income tax     Step 2           Enter your deduction for self-employment tax from Form 1040, line 27 9,728           Step 3           Net earnings from self-employment. E filing income tax Subtract step 2 from step 1 190,272   Step 4           Enter your rate from the Rate Table for Self-Employed or Rate Worksheet for Self-Employed 0. E filing income tax 078   Step 5           Multiply step 3 by step 4 14,841   Step 6           Multiply $255,000 by your plan contribution rate (not the reduced rate) 21,675   Step 7           Enter the smaller of step 5 or step 6 14,841   Step 8           Contribution dollar limit $51,000     • If you made any elective deferrals to your self-employed plan, go to step 9. E filing income tax         • Otherwise, skip steps 9 through 20 and enter the smaller of step 7 or step 8 on step 21. E filing income tax       Step 9           Enter your allowable elective deferrals (including designated Roth contributions) made to your self-employed plan during 2013. E filing income tax Do not enter more than $17,500 N/A   Step 10           Subtract step 9 from step 8     Step 11           Subtract step 9 from step 3       Step 12           Enter one-half of step 11     Step 13           Enter the smallest of step 7, 10, or 12     Step 14           Subtract step 13 from step 3     Step 15           Enter the smaller of step 9 or step 14       • If you made catch-up contributions, go to step 16. E filing income tax         • Otherwise, skip steps 16 through 18 and go to step 19. E filing income tax       Step 16           Subtract step 15 from step 14     Step 17           Enter your catch-up contributions (including designated Roth contributions), if any. E filing income tax Do not enter more than $5,500     Step 18           Enter the smaller of step 16 or step 17     Step 19           Add steps 13, 15, and 18. E filing income tax     Step 20           Enter the amount of designated Roth contributions included on lines 9 and 17     Step 21           Subtract step 20 from step 19. E filing income tax This is your maximum deductible contribution $14,841                 Next: Enter your actual contribution, not to exceed your maximum deductible contribution, on Form 1040, line 28. E filing income tax   See the filled-in Deduction Worksheet for Self-Employed on this page. E filing income tax Rate Worksheet for Self-Employed 1) Plan contribution rate as a decimal (for example, 10½% = 0. E filing income tax 105) 0. E filing income tax 085 2) Rate in line 1 plus 1 (for example, 0. E filing income tax 105 + 1 = 1. E filing income tax 105) 1. E filing income tax 085 3) Self-employed rate as a decimal rounded to at least 3 decimal places (line 1 ÷ line 2) (for example, 0. E filing income tax 105 ÷ 1. E filing income tax 105 = 0. E filing income tax 095) 0. E filing income tax 078 This image is too large to be displayed in the current screen. E filing income tax Please click the link to view the image. E filing income tax Portion of Form 1040 and Portion of Schedule SE Prev  Up  Next   Home   More Online Publications
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The E Filing Income Tax

E filing income tax 13. E filing income tax   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 filing income tax It is divided into the following sections. E filing income tax Cost basis. E filing income tax Adjusted basis. E filing income tax Basis other than cost. E filing income tax Your basis is the amount of your investment in property for tax purposes. E filing income tax Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. E filing income tax Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. E filing income tax If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. E filing income tax Only the basis allocated to the business or investment use of the property can be depreciated. E filing income tax Your original basis in property is adjusted (increased or decreased) by certain events. E filing income tax For example, if you make improvements to the property, increase your basis. E filing income tax If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. E filing income tax Keep accurate records of all items that affect the basis of your property. E filing income tax For more information on keeping records, see chapter 1. E filing income tax 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 filing income tax The cost is the amount you pay in cash, debt obligations, other property, or services. E filing income tax 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 filing income tax In addition, the basis of real estate and business assets may include other items. E filing income tax Loans with low or no interest. E filing income tax    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 filing income tax You generally have unstated interest if your interest rate is less than the applicable federal rate. E filing income tax   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. E filing income tax Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. E filing income tax If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. E filing income tax Lump sum purchase. E filing income tax   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 filing income tax Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. E filing income tax Figure the basis of each asset by multiplying the lump sum by a fraction. E filing income tax The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. E filing income tax    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 filing income tax Fair market value (FMV). E filing income tax   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 filing income tax Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. E filing income tax Assumption of mortgage. E filing income tax   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 filing income tax Settlement costs. E filing income tax   Your basis includes the settlement fees and closing costs you paid for buying the property. E filing income tax (A fee for buying property is a cost that must be paid even if you buy the property for cash. E filing income tax ) Do not include fees and costs for getting a loan on the property in your basis. E filing income tax   The following are some of the settlement fees or closing costs you can include in the basis of your property. E filing income tax Abstract fees (abstract of title fees). E filing income tax Charges for installing utility services. E filing income tax Legal fees (including fees for the title search and preparation of the sales contract and deed). E filing income tax Recording fees. E filing income tax Survey fees. E filing income tax Transfer taxes. E filing income tax Owner's title insurance. E filing income tax 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 filing income tax   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. E filing income tax   The following are some of the settlement fees and closing costs you cannot include in the basis of property. E filing income tax Casualty insurance premiums. E filing income tax Rent for occupancy of the property before closing. E filing income tax Charges for utilities or other services related to occupancy of the property before closing. E filing income tax 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 filing income tax Fees for refinancing a mortgage. E filing income tax Real estate taxes. E filing income tax   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 filing income tax You cannot deduct them as an expense. E filing income tax    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 filing income tax Do not include that amount in the basis of your property. E filing income tax If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. E filing income tax Points. E filing income tax   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 filing income tax Generally, you deduct the points over the term of the loan. E filing income tax For more information on how to deduct points, see chapter 23. E filing income tax Points on home mortgage. E filing income tax   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. E filing income tax If certain requirements are met, you can deduct the points in full for the year in which they are paid. E filing income tax Reduce the basis of your home by any seller-paid points. E filing income tax 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 filing income tax The result is the adjusted basis. E filing income tax Increases to Basis Increase the basis of any property by all items properly added to a capital account. E filing income tax Examples of items that increase basis are shown in Table 13-1. E filing income tax These include the items discussed below. E filing income tax Improvements. E filing income tax   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 filing income tax 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 filing income tax Assessments for local improvements. E filing income tax   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. E filing income tax Do not deduct them as taxes. E filing income tax However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. E filing income tax Example. E filing income tax 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 filing income tax Add the assessment to your property's basis. E filing income tax In this example, the assessment is a depreciable asset. E filing income tax 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 filing income tax Examples of items that decrease basis are shown in Table 13-1. E filing income tax These include the items discussed below. E filing income tax Table 13-1. E filing income tax 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 filing income tax   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 filing income tax    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 filing income tax   For more information on casualty and theft losses, see chapter 25. E filing income tax Depreciation and section 179 deduction. E filing income tax   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 filing income tax   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. E filing income tax Example. E filing income tax 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 filing income tax You added an improvement to the duplex that cost $10,000. E filing income tax In February last year, the duplex was damaged by fire. E filing income tax Up to that time, you had been allowed depreciation of $23,000. E filing income tax You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. E filing income tax You deducted a casualty loss of $1,000 on your income tax return for last year. E filing income tax You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. E filing income tax You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. E filing income tax 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 filing income tax Your basis in the land is its original cost of $5,000. E filing income tax Easements. E filing income tax   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. E filing income tax It reduces the basis of the affected part of the property. E filing income tax 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 filing income tax   If the gain is on a capital asset, see chapter 16 for information about how to report it. E filing income tax If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. E filing income tax Exclusion of subsidies for energy conservation measures. E filing income tax   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 filing income tax Reduce the basis of the property for which you received the subsidy by the excluded amount. E filing income tax For more information about this subsidy, see chapter 12. E filing income tax Postponed gain from sale of home. E filing income tax    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 filing income tax For more information on the rules for the sale of a home, see chapter 15. E filing income tax Basis Other Than Cost There are many times when you cannot use cost as basis. E filing income tax In these cases, the fair market value or the adjusted basis of the property can be used. E filing income tax Fair market value (FMV) and adjusted basis were discussed earlier. E filing income tax Property Received for Services If you receive property for your services, include the FMV of the property in income. E filing income tax The amount you include in income becomes your basis. E filing income tax 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 filing income tax Restricted property. E filing income tax   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 filing income tax 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 filing income tax 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 filing income tax For more information, see Restricted Property in Publication 525. E filing income tax Bargain purchases. E filing income tax   A bargain purchase is a purchase of an item for less than its FMV. E filing income tax 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 filing income tax Your basis in the property is its FMV (your purchase price plus the amount you include in income). E filing income tax   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. E filing income tax However, your basis in the property is still its FMV. E filing income tax See Employee Discounts in Publication 15-B. E filing income tax Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. E filing income tax A taxable gain or deductible loss also is known as a recognized gain or loss. E filing income tax 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 filing income tax 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 filing income tax Similar or related property. E filing income tax   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 filing income tax Decrease the basis by the following. E filing income tax Any loss you recognize on the involuntary conversion. E filing income tax Any money you receive that you do not spend on similar property. E filing income tax Increase the basis by the following. E filing income tax Any gain you recognize on the involuntary conversion. E filing income tax Any cost of acquiring the replacement property. E filing income tax Money or property not similar or related. E filing income tax    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 filing income tax Example. E filing income tax The state condemned your property. E filing income tax The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. E filing income tax You realized a gain of $5,000 ($31,000 − $26,000). E filing income tax You bought replacement property similar in use to the converted property for $29,000. E filing income tax You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. E filing income tax Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. E filing income tax 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 filing income tax   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. E filing income tax Basis for depreciation. E filing income tax   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. E filing income tax For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. E filing income tax Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. E filing income tax If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. E filing income tax See Nontaxable Trades in chapter 14. E filing income tax Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. E filing income tax To qualify as a like-kind exchange, the property traded and the property received must be both of the following. E filing income tax Qualifying property. E filing income tax Like-kind property. E filing income tax The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. E filing income tax 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 filing income tax Qualifying property. E filing income tax   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 filing income tax Like-kind property. E filing income tax   There must be an exchange of like-kind property. E filing income tax Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. E filing income tax The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. E filing income tax Example. E filing income tax 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 filing income tax The dealer allows you $2,000 on the old truck, and you pay $4,800. E filing income tax This is a like-kind exchange. E filing income tax 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 filing income tax 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 filing income tax The basis of the new truck is the price you pay the dealer. E filing income tax Partially nontaxable exchanges. E filing income tax   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. E filing income tax 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 filing income tax Decrease the basis by the following amounts. E filing income tax Any money you receive. E filing income tax Any loss you recognize on the exchange. E filing income tax Increase the basis by the following amounts. E filing income tax Any additional costs you incur. E filing income tax Any gain you recognize on the exchange. E filing income tax If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. E filing income tax Allocation of basis. E filing income tax   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 filing income tax The rest is the basis of the like-kind property. E filing income tax More information. E filing income tax   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. E filing income tax Basis for depreciation. E filing income tax   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. E filing income tax For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. E filing income tax 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 filing income tax The same rule applies to a transfer by your former spouse that is incident to divorce. E filing income tax 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 filing income tax If the property transferred to you is a series E, series EE, or series I U. E filing income tax S. E filing income tax savings bond, the transferor must include in income the interest accrued to the date of transfer. E filing income tax 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 filing income tax For more information on these bonds, see chapter 7. E filing income tax 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 filing income tax For more information about the transfer of property from a spouse, see chapter 14. E filing income tax 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 filing income tax FMV less than donor's adjusted basis. E filing income tax   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 filing income tax 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 filing income tax 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 filing income tax See Adjusted Basis , earlier. E filing income tax Example. E filing income tax You received an acre of land as a gift. E filing income tax At the time of the gift, the land had an FMV of $8,000. E filing income tax The donor's adjusted basis was $10,000. E filing income tax After you received the property, no events occurred to increase or decrease your basis. E filing income tax 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 filing income tax 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 filing income tax If the sales price is between $8,000 and $10,000, you have neither gain nor loss. E filing income tax Business property. E filing income tax   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 filing income tax FMV equal to or greater than donor's adjusted basis. E filing income tax   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 filing income tax Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. E filing income tax   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 filing income tax See Adjusted Basis , earlier. E filing income tax   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 filing income tax Figure the increase by multiplying the gift tax paid by a fraction. E filing income tax The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. E filing income tax   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. E filing income tax 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 filing income tax Example. E filing income tax In 2013, you received a gift of property from your mother that had an FMV of $50,000. E filing income tax Her adjusted basis was $20,000. E filing income tax The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). E filing income tax She paid a gift tax of $7,320 on the property. E filing income tax 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 filing income tax 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 filing income tax 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 filing income tax However, your basis cannot exceed the FMV of the gift at the time it was given to you. E filing income tax 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 filing income tax The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. E filing income tax 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 filing income tax 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 filing income tax 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 filing income tax For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. E filing income tax Property inherited from a decedent who died in 2010. E filing income tax   If you inherited property from a decedent who died in 2010, special rules may apply. E filing income tax For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. E filing income tax Community property. E filing income tax   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 filing income tax 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 filing income tax 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 filing income tax Example. E filing income tax You and your spouse owned community property that had a basis of $80,000. E filing income tax When your spouse died, half the FMV of the community interest was includible in your spouse's estate. E filing income tax The FMV of the community interest was $100,000. E filing income tax The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). E filing income tax The basis of the other half to your spouse's heirs is also $50,000. E filing income tax For more information about community property, see Publication 555, Community Property. E filing income tax 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 filing income tax To do so, you must figure its basis for depreciation at the time of the change. E filing income tax An example of changing property held for personal use to business or rental use would be renting out your former personal residence. E filing income tax Basis for depreciation. E filing income tax   The basis for depreciation is the lesser of the following amounts. E filing income tax The FMV of the property on the date of the change. E filing income tax Your adjusted basis on the date of the change. E filing income tax Example. E filing income tax Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. E filing income tax 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 filing income tax Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. E filing income tax Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). E filing income tax 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 filing income tax 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 filing income tax Sale of property. E filing income tax   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 filing income tax Gain. E filing income tax   The basis for figuring a gain is your adjusted basis in the property when you sell the property. E filing income tax Example. E filing income tax 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 filing income tax Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). E filing income tax Loss. E filing income tax   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 filing income tax Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . E filing income tax Example. E filing income tax 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 filing income tax 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 filing income tax Reduce that amount ($180,000) by the depreciation deductions ($37,500). E filing income tax The basis for loss is $142,500 ($180,000 − $37,500). E filing income tax 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 filing income tax 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 filing income tax You must adjust the basis of stocks for certain events that occur after purchase. E filing income tax 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 filing income tax This rule applies only when the additional stock received is identical to the stock held. E filing income tax Also reduce your basis when you receive nontaxable distributions. E filing income tax They are a return of capital. E filing income tax Example. E filing income tax In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. E filing income tax In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. E filing income tax In 2013 XYZ declared a 2-for-1 stock split. E filing income tax 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 filing income tax Other basis. E filing income tax   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. E filing income tax For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. E filing income tax Identifying stocks or bonds sold. E filing income tax   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 filing income tax 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 filing income tax For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. E filing income tax Mutual fund shares. E filing income tax   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 filing income tax For more information, see Publication 550. E filing income tax Bond premium. E filing income tax   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 filing income tax See Bond Premium Amortization in chapter 3 of Publication 550 for more information. E filing income tax 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 filing income tax Original issue discount (OID) on debt instruments. E filing income tax   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. E filing income tax See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. E filing income tax Tax-exempt obligations. E filing income tax    OID on tax-exempt obligations is generally not taxable. E filing income tax 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 filing income tax The accrued OID is added to the basis of the obligation to determine your gain or loss. E filing income tax See chapter 4 of Publication 550. E filing income tax Prev  Up  Next   Home   More Online Publications