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Ez 1040 Form 2012

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Ez 1040 Form 2012

Ez 1040 form 2012 7. Ez 1040 form 2012   Depreciation, Depletion, and Amortization Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Overview of DepreciationWhat Property Can Be Depreciated? What Property Cannot Be Depreciated? When Does Depreciation Begin and End? Can You Use MACRS To Depreciate Your Property? What Is the Basis of Your Depreciable Property? How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions? Section 179 Expense DeductionWhat Property Qualifies? What Property Does Not Qualify? How Much Can You Deduct? How Do You Elect the Deduction? When Must You Recapture the Deduction? Claiming the Special Depreciation AllowanceWhat is Qualified Property? How Can You Elect Not To Claim the Allowance? When Must You Recapture an Allowance Figuring Depreciation Under MACRSWhich Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS? What Is the Placed-in-Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies? Which Convention Applies? Which Depreciation Method Applies? How Is the Depreciation Deduction Figured? How Do You Use General Asset Accounts? When Do You Recapture MACRS Depreciation? Additional Rules for Listed PropertyWhat Is Listed Property? What Is the Business-Use Requirement? Do the Passenger Automobile Limits Apply? Depletion Who Can Claim Depletion? Figuring Depletion AmortizationBusiness Start-Up Costs Reforestation Costs Section 197 Intangibles What's New for 2013 Increased section 179 expense deduction dollar limits. Ez 1040 form 2012  The maximum amount you can elect to deduct for most section 179 property you placed in service in 2013 is $500,000. Ez 1040 form 2012 This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. Ez 1040 form 2012 See Dollar Limits under Section 179 Expense Deduction , later. Ez 1040 form 2012 Extension of special depreciation allowance for certain qualified property acquired after December 31, 2007. Ez 1040 form 2012 . Ez 1040 form 2012  You may be able to take a 50% special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Ez 1040 form 2012 See Claiming the Special Depreciation Allowance , later. Ez 1040 form 2012 Expiration of the 3- year recovery period for certain race horses. Ez 1040 form 2012  The 3-year recovery period for race horses two years old or younger will expire for such horses placed in service after December 31, 2013. Ez 1040 form 2012 Introduction If you buy or make improvements to farm property such as machinery, equipment, livestock, or a structure with a useful life of more than a year, you generally cannot deduct its entire cost in one year. Ez 1040 form 2012 Instead, you must spread the cost over the time you use the property and deduct part of it each year. Ez 1040 form 2012 For most types of property, this is called depreciation. Ez 1040 form 2012 This chapter gives information on depreciation methods that generally apply to property placed in service after 1986. Ez 1040 form 2012 For information on depreciating pre-1987 property, see Publication 534, Depreciating Property Placed in Service Before 1987. Ez 1040 form 2012 Topics - This chapter discusses: Overview of depreciation Section 179 expense deduction Special depreciation allowance Modified Accelerated Cost Recovery System (MACRS) Listed property Basic information on cost depletion (including timber depletion) and percentage depletion Amortization of the costs of going into business, reforestation costs, the costs of pollution control facilities, and the costs of section 197 intangibles Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) T (Timber), Forest Activities Schedule 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. Ez 1040 form 2012 It is important to keep good records for property you depreciate. Ez 1040 form 2012 Do not file these records with your return. Ez 1040 form 2012 Instead, you should keep them as part of the permanent records of the depreciated property. Ez 1040 form 2012 They will help you verify the accuracy of the depreciation of assets placed in service in the current and previous tax years. Ez 1040 form 2012 For general information on recordkeeping, see Publication 583, Starting a Business and Keeping Records. Ez 1040 form 2012 For specific information on keeping records for section 179 property and listed property, see Publication 946, How To Depreciate Property. Ez 1040 form 2012 Overview of Depreciation This overview discusses basic information on the following. Ez 1040 form 2012 What property can be depreciated. Ez 1040 form 2012 What property cannot be depreciated. Ez 1040 form 2012 When depreciation begins and ends. Ez 1040 form 2012 Whether MACRS can be used to figure depreciation. Ez 1040 form 2012 What is the basis of your depreciable property. Ez 1040 form 2012 How to treat repairs and improvements. Ez 1040 form 2012 When you must file Form 4562. Ez 1040 form 2012 How you can correct depreciation claimed incorrectly. Ez 1040 form 2012 What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, equipment, vehicles, certain livestock, and furniture. Ez 1040 form 2012 You can also depreciate certain intangible property, such as copyrights, patents, and computer software. Ez 1040 form 2012 To be depreciable, the property must meet all the following requirements. Ez 1040 form 2012 It must be property you own. Ez 1040 form 2012 It must be used in your business or income-producing activity. Ez 1040 form 2012 It must have a determinable useful life. Ez 1040 form 2012 It must have a useful life that extends substantially beyond the year you place it in service. Ez 1040 form 2012 Property You Own To claim depreciation, you usually must be the owner of the property. Ez 1040 form 2012 You are considered as owning property even if it is subject to a debt. Ez 1040 form 2012 Leased property. Ez 1040 form 2012   You can depreciate leased property only if you retain the incidents of ownership in the property. Ez 1040 form 2012 This means you bear the burden of exhaustion of the capital investment in the property. Ez 1040 form 2012 Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. Ez 1040 form 2012 You can, however, depreciate any capital improvements you make to the leased property. Ez 1040 form 2012 See Additions and Improvements under Which Recovery Period Applies in chapter 4 of Publication 946. Ez 1040 form 2012   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. Ez 1040 form 2012 However, you cannot depreciate the cost of the property if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased. Ez 1040 form 2012 Life tenant. Ez 1040 form 2012   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. Ez 1040 form 2012 See Certain term interests in property , later, for an exception. Ez 1040 form 2012 Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. Ez 1040 form 2012 If you use property to produce income (investment use), the income must be taxable. Ez 1040 form 2012 You cannot depreciate property that you use solely for personal activities. Ez 1040 form 2012 However, if you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the percentage of business or investment use. Ez 1040 form 2012 Example 1. Ez 1040 form 2012   If you use your car for farm business, you can deduct depreciation based on its percentage of use in farming. Ez 1040 form 2012 If you also use it for investment purposes, you can depreciate it based on its percentage of investment use. Ez 1040 form 2012 Example 2. Ez 1040 form 2012   If you use part of your home for business, you may be able to deduct depreciation on that part based on its business use. Ez 1040 form 2012 For more information, see Business Use of Your Home in chapter 4. Ez 1040 form 2012 Inventory. Ez 1040 form 2012   You can never depreciate inventory because it is not held for use in your business. Ez 1040 form 2012 Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. Ez 1040 form 2012 Livestock. Ez 1040 form 2012   Livestock purchased for draft, breeding, or dairy purposes can be depreciated only if they are not kept in an inventory account. Ez 1040 form 2012 Livestock you raise usually has no depreciable basis because the costs of raising them are deducted and not added to their basis. Ez 1040 form 2012 However, see Immature livestock under When Does Depreciation Begin and End , later, for a special rule. Ez 1040 form 2012 Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. Ez 1040 form 2012 This means it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Ez 1040 form 2012 Irrigation systems and water wells. Ez 1040 form 2012   Irrigation systems and wells used in a trade or business can be depreciated if their useful life can be determined. Ez 1040 form 2012 You can depreciate irrigation systems and wells composed of masonry, concrete, tile, metal, or wood. Ez 1040 form 2012 In addition, you can depreciate costs for moving dirt to construct irrigation systems and water wells composed of these materials. Ez 1040 form 2012 However, land preparation costs for center pivot irrigation systems are not depreciable. Ez 1040 form 2012 Dams, ponds, and terraces. Ez 1040 form 2012   In general, you cannot depreciate earthen dams, ponds, and terraces unless the structures have a determinable useful life. Ez 1040 form 2012 What Property Cannot Be Depreciated? Certain property cannot be depreciated, even if the requirements explained earlier are met. Ez 1040 form 2012 This includes the following. Ez 1040 form 2012 Land. Ez 1040 form 2012 You can never depreciate the cost of land because land does not wear out, become obsolete, or get used up. Ez 1040 form 2012 The cost of land generally includes the cost of clearing, grading, planting, and landscaping. Ez 1040 form 2012 Although you cannot depreciate land, you can depreciate certain costs incurred in preparing land for business use. Ez 1040 form 2012 See chapter 1 of Publication 946. Ez 1040 form 2012 Property placed in service and disposed of in the same year. Ez 1040 form 2012 Determining when property is placed in service is explained later. Ez 1040 form 2012 Equipment used to build capital improvements. Ez 1040 form 2012 You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Ez 1040 form 2012 Intangible property such as section 197 intangibles. Ez 1040 form 2012 This property does not have a determinable useful life and generally cannot be depreciated. Ez 1040 form 2012 However, see Amortization , later. Ez 1040 form 2012 Special rules apply to computer software (discussed below). Ez 1040 form 2012 Certain term interests (discussed below). Ez 1040 form 2012 Computer software. Ez 1040 form 2012   Computer software is generally not a section 197 intangible even if acquired in connection with the acquisition of a business, if it meets all of the following tests. Ez 1040 form 2012 It is readily available for purchase by the general public. Ez 1040 form 2012 It is subject to a nonexclusive license. Ez 1040 form 2012 It has not been substantially modified. Ez 1040 form 2012   If the software meets the tests above, it can be depreciated and may qualify for the section 179 expense deduction and the special depreciation allowance (if applicable), discussed later. Ez 1040 form 2012 Certain term interests in property. Ez 1040 form 2012   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. Ez 1040 form 2012 This rule does not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. Ez 1040 form 2012 For more information, see chapter 1 of Publication 946. Ez 1040 form 2012 When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. Ez 1040 form 2012 You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. Ez 1040 form 2012 Placed in Service Property is placed in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Ez 1040 form 2012 Even if you are not using the property, it is in service when it is ready and available for its specific use. Ez 1040 form 2012 Example. Ez 1040 form 2012 You bought a planter for use in your farm business. Ez 1040 form 2012 The planter was delivered in December 2012 after harvest was over. Ez 1040 form 2012 You begin to depreciate the planter for 2012 because it was ready and available for its specific use in 2012, even though it will not be used until the spring of 2013. Ez 1040 form 2012 If your planter comes unassembled in December 2012 and is put together in February 2013, it is not placed in service until 2013. Ez 1040 form 2012 You begin to depreciate it in 2013. Ez 1040 form 2012 If your planter was delivered and assembled in February 2013 but not used until April 2013, it is placed in service in February 2013, because this is when the planter was ready for its specified use. Ez 1040 form 2012 You begin to depreciate it in 2013. Ez 1040 form 2012 Fruit or nut trees and vines. Ez 1040 form 2012   If you acquire an orchard, grove, or vineyard before the trees or vines have reached the income-producing stage, and they have a preproductive period of more than 2 years, you must capitalize the preproductive-period costs under the uniform capitalization rules (unless you elect not to use these rules). Ez 1040 form 2012 See chapter 6 for information about the uniform capitalization rules. Ez 1040 form 2012 Your depreciation begins when the trees and vines reach the income-producing stage (that is, when they bear fruit, nuts, or grapes in quantities sufficient to commercially warrant harvesting). Ez 1040 form 2012 Immature livestock. Ez 1040 form 2012   Depreciation for livestock begins when the livestock reaches the age of maturity. Ez 1040 form 2012 If you bought immature livestock for drafting purposes, depreciation begins when they can be worked. Ez 1040 form 2012 If you bought immature livestock for dairy purposes, depreciation begins when they can be milked. Ez 1040 form 2012 If you bought immature livestock for breeding purposes, depreciation begins when they can be bred. Ez 1040 form 2012 Your basis for depreciation is your initial cost for the immature livestock. Ez 1040 form 2012 Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle. Ez 1040 form 2012 For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. Ez 1040 form 2012 Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. Ez 1040 form 2012 This happens when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. Ez 1040 form 2012 Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Ez 1040 form 2012 You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Ez 1040 form 2012 You sell or exchange the property. Ez 1040 form 2012 You convert the property to personal use. Ez 1040 form 2012 You abandon the property. Ez 1040 form 2012 You transfer the property to a supplies or scrap account. Ez 1040 form 2012 The property is destroyed. Ez 1040 form 2012 For information on abandonment of property, see chapter 8. Ez 1040 form 2012 For information on destroyed property, see chapter 11 and Publication 547, Casualties, Disasters, and Thefts. Ez 1040 form 2012 Can You Use MACRS To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most business and investment property placed in service after 1986. Ez 1040 form 2012 MACRS is explained later under Figuring Depreciation Under MACRS . Ez 1040 form 2012 You cannot use MACRS to depreciate the following property. Ez 1040 form 2012 Property you placed in service before 1987. Ez 1040 form 2012 Use the methods discussed in Publication 534. Ez 1040 form 2012 Certain property owned or used in 1986. Ez 1040 form 2012 See chapter 1 of Publication 946. Ez 1040 form 2012 Intangible property. Ez 1040 form 2012 Films, video tapes, and recordings. Ez 1040 form 2012 Certain corporate or partnership property acquired in a nontaxable transfer. Ez 1040 form 2012 Property you elected to exclude from MACRS. Ez 1040 form 2012 For more information, see chapter 1 of Publication 946. Ez 1040 form 2012 What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. Ez 1040 form 2012 To determine basis, you need to know the cost or other basis of your property. Ez 1040 form 2012 Cost or other basis. Ez 1040 form 2012   The basis of property you buy is usually its cost plus amounts you paid for items such as sales tax, freight charges, and installation and testing fees. Ez 1040 form 2012 The cost includes the amount you pay in cash, debt obligations, other property, or services. Ez 1040 form 2012   There are times when you cannot use cost as basis. Ez 1040 form 2012 In these situations, the fair market value (FMV) or the adjusted basis of the property may be used. Ez 1040 form 2012 Adjusted basis. Ez 1040 form 2012   To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. Ez 1040 form 2012 Basis adjustment for depreciation allowed or allowable. Ez 1040 form 2012   After you place your property in service, you must reduce the basis of the property by the depreciation allowed or allowable, whichever is greater. Ez 1040 form 2012 Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Ez 1040 form 2012 Depreciation allowable is depreciation you are entitled to deduct. Ez 1040 form 2012   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. Ez 1040 form 2012   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). Ez 1040 form 2012   For more information, see chapter 6. Ez 1040 form 2012 How Do You Treat Repairs and Improvements? You generally deduct the cost of repairing business property in the same way as any other business expense. Ez 1040 form 2012 However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. Ez 1040 form 2012 Treat improvements as separate depreciable property. Ez 1040 form 2012 See chapter 1 of Publication 946 for more information. Ez 1040 form 2012 Example. Ez 1040 form 2012 You repair a small section on a corner of the roof of a barn that you rent to others. Ez 1040 form 2012 You deduct the cost of the repair as a business expense. Ez 1040 form 2012 However, if you replace the entire roof, the new roof is considered to be an improvement because it increases the value and lengthens the life for the property. Ez 1040 form 2012 You depreciate the cost of the new roof. Ez 1040 form 2012 Improvements to rented property. Ez 1040 form 2012   You can depreciate permanent improvements you make to business property you rent from someone else. Ez 1040 form 2012 Do You Have To File Form 4562? Use Form 4562 to claim your deduction for depreciation and amortization. Ez 1040 form 2012 You must complete and attach Form 4562 to your tax return if you are claiming any of the following. Ez 1040 form 2012 A section 179 expense deduction for the current year or a section 179 carryover from a prior year. Ez 1040 form 2012 Depreciation for property placed in service during the current year. Ez 1040 form 2012 Depreciation on any vehicle or other listed property, regardless of when it was placed in service. Ez 1040 form 2012 Amortization of costs that began in the current year. Ez 1040 form 2012 For more information, see the Instructions for Form 4562. Ez 1040 form 2012 How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. Ez 1040 form 2012 You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Ez 1040 form 2012 You claimed the incorrect amount because of a mathematical error made in any year. Ez 1040 form 2012 You claimed the incorrect amount because of a posting error made in any year, for example, omitting an asset from the depreciation schedule. Ez 1040 form 2012 You have not adopted a method of accounting for the property placed in service by you in tax years ending after December 29, 2003. Ez 1040 form 2012 You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Ez 1040 form 2012 Note. Ez 1040 form 2012 You have adopted a method of accounting if you used the same incorrect method of depreciation for two or more consecutively filed returns. Ez 1040 form 2012 If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. Ez 1040 form 2012 See the Instructions for Form 3115. Ez 1040 form 2012 Section 179 Expense Deduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Ez 1040 form 2012 This is the section 179 expense deduction. Ez 1040 form 2012 You can elect the section 179 expense deduction instead of recovering the cost by taking depreciation deductions. Ez 1040 form 2012 This part of the chapter explains the rules for the section 179 expense deduction. Ez 1040 form 2012 It explains what property qualifies for the deduction, what property does not qualify for the deduction, the limits that may apply, how to elect the deduction, and when you may have to recapture the deduction. Ez 1040 form 2012 For more information, see chapter 2 of Publication 946. Ez 1040 form 2012 What Property Qualifies? To qualify for the section 179 expense deduction, your property must meet all the following requirements. Ez 1040 form 2012 It must be eligible property. Ez 1040 form 2012 It must be acquired for business use. Ez 1040 form 2012 It must have been acquired by purchase. Ez 1040 form 2012 Eligible Property To qualify for the section 179 expense deduction, your property must be one of the following types of depreciable property. Ez 1040 form 2012 Tangible personal property. Ez 1040 form 2012 Qualified real property. Ez 1040 form 2012 (Special rules apply to qualified real property that you elect to treat as qualified section 179 real property. Ez 1040 form 2012 For more information, see chapter 2 of Publication 946 and section 179(f) of the Internal Revenue Code. Ez 1040 form 2012 ) Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services; A research facility used in connection with any of the activities in (a) above; or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. Ez 1040 form 2012 Single purpose agricultural (livestock) or horticultural structures. Ez 1040 form 2012 Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. Ez 1040 form 2012 Off-the-shelf computer software that is readily available for purchase by the general public, is subject to a nonexclusive lease, and has not been substantially modified. Ez 1040 form 2012 Tangible personal property. Ez 1040 form 2012   Tangible personal property is any tangible property that is not real property. Ez 1040 form 2012 It includes the following property. Ez 1040 form 2012 Machinery and equipment. Ez 1040 form 2012 Property contained in or attached to a building (other than structural components), such as milk tanks, automatic feeders, barn cleaners, and office equipment. Ez 1040 form 2012 Gasoline storage tanks and pumps at retail service stations. Ez 1040 form 2012 Livestock, including horses, cattle, hogs, sheep, goats, and mink and other fur-bearing animals. Ez 1040 form 2012 Facility used for the bulk storage of fungible commodities. Ez 1040 form 2012   A facility used for the bulk storage of fungible commodities is qualifying property for purposes of the section 179 expense deduction if it is used in connection with any of the activities listed earlier in item (3)(a). Ez 1040 form 2012 Bulk storage means the storage of a commodity in a large mass before it is used. Ez 1040 form 2012 Grain bins. Ez 1040 form 2012   A grain bin is an example of a storage facility that is qualifying section 179 property. Ez 1040 form 2012 It is a facility used in connection with the production of grain or livestock for the bulk storage of fungible commodities. Ez 1040 form 2012 Single purpose agricultural or horticultural structures. Ez 1040 form 2012   A single purpose agricultural (livestock) or horticultural structure is qualifying property for purposes of the section 179 expense deduction. Ez 1040 form 2012 Agricultural structure. Ez 1040 form 2012   A single purpose agricultural (livestock) structure is any building or enclosure specifically designed, constructed, and used for both the following reasons. Ez 1040 form 2012 To house, raise, and feed a particular type of livestock and its produce. Ez 1040 form 2012 To house the equipment, including any replacements, needed to house, raise, or feed the livestock. Ez 1040 form 2012 For this purpose, livestock includes poultry. Ez 1040 form 2012   Single purpose structures are qualifying property if used, for example, to breed chickens or hogs, produce milk from dairy cattle, or produce feeder cattle or pigs, broiler chickens, or eggs. Ez 1040 form 2012 The facility must include, as an integral part of the structure or enclosure, equipment necessary to house, raise, and feed the livestock. Ez 1040 form 2012 Horticultural structure. Ez 1040 form 2012   A single purpose horticultural structure is either of the following. Ez 1040 form 2012 A greenhouse specifically designed, constructed, and used for the commercial production of plants. Ez 1040 form 2012 A structure specifically designed, constructed, and used for the commercial production of mushrooms. Ez 1040 form 2012 Use of structure. Ez 1040 form 2012   A structure must be used only for the purpose that qualified it. Ez 1040 form 2012 For example, a hog barn will not be qualifying property if you use it to house poultry. Ez 1040 form 2012 Similarly, using part of your greenhouse to sell plants will make the greenhouse nonqualifying property. Ez 1040 form 2012   If a structure includes work space, the work space can be used only for the following activities. Ez 1040 form 2012 Stocking, caring for, or collecting livestock or plants or their produce. Ez 1040 form 2012 Maintaining the enclosure or structure. Ez 1040 form 2012 Maintaining or replacing the equipment or stock enclosed or housed in the structure. Ez 1040 form 2012 Property Acquired by Purchase To qualify for the section 179 expense deduction, your property must have been acquired by purchase. Ez 1040 form 2012 For example, property acquired by gift or inheritance does not qualify. Ez 1040 form 2012 Property acquired from a related person (that is, your spouse, ancestors, or lineal descendants) is not considered acquired by purchase. Ez 1040 form 2012 Example. Ez 1040 form 2012 Ken is a farmer. Ez 1040 form 2012 He purchased two tractors, one from his brother and one from his father. Ez 1040 form 2012 He placed both tractors in service in the same year he bought them. Ez 1040 form 2012 The tractor purchased from his father does not qualify for the section 179 expense deduction because he is a related person (as defined above). Ez 1040 form 2012 The tractor purchased from his brother does qualify for the deduction because Ken is not a related person (as defined above). Ez 1040 form 2012 What Property Does Not Qualify? Land and improvements. Ez 1040 form 2012   Land and land improvements, do not qualify as section 179 property. Ez 1040 form 2012 Land improvements include nonagricultural fences, swimming pools, paved parking areas, wharves, docks, bridges, and fences. Ez 1040 form 2012 However, agricultural fences do qualify as section 179 property. Ez 1040 form 2012 Similarly, field drainage tile also qualifies as section 179 property. Ez 1040 form 2012 Excepted property. Ez 1040 form 2012   Even if the requirements explained in the preceding discussions are met, farmers cannot elect the section 179 expense deduction for the following property. Ez 1040 form 2012 Certain property you lease to others (if you are a noncorporate lessor). Ez 1040 form 2012 Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. Ez 1040 form 2012 Property used by a tax-exempt organization (other than a tax-exempt farmers' cooperative) unless the property is used mainly in a taxable unrelated trade or business. Ez 1040 form 2012 Property used by governmental units or foreign persons or entities (except property used under a lease with a term of less than 6 months). Ez 1040 form 2012 How Much Can You Deduct? Your section 179 expense deduction is generally the cost of the qualifying property. Ez 1040 form 2012 However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. Ez 1040 form 2012 These limits apply to each taxpayer, not to each business. Ez 1040 form 2012 However, see Married individuals under Dollar Limits , later. Ez 1040 form 2012 See also the special rules for applying the limits for partnerships and S corporations under Partnerships and S Corporations , later. Ez 1040 form 2012 If you deduct only part of the cost of qualifying property as a section 179 expense deduction, you can generally depreciate the cost you do not deduct. Ez 1040 form 2012 Use Part I of Form 4562 to figure your section 179 expense deduction. Ez 1040 form 2012 Partial business use. Ez 1040 form 2012   When you use property for business and nonbusiness purposes, you can elect the section 179 expense deduction only if you use it more than 50% for business in the year you place it in service. Ez 1040 form 2012 If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. Ez 1040 form 2012 Use the resulting business cost to figure your section 179 expense deduction. Ez 1040 form 2012 Trade-in of other property. Ez 1040 form 2012   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 expense deduction includes only the cash you paid. Ez 1040 form 2012 For example, if you buy (for cash and a trade-in) a new tractor for use in your business, your cost for the section 179 expense deduction is the cash you paid. Ez 1040 form 2012 It does not include the adjusted basis of the old tractor you trade for the new tractor. Ez 1040 form 2012 Example. Ez 1040 form 2012 J-Bar Farms traded two cultivators having a total adjusted basis of $6,800 for a new cultivator costing $13,200. Ez 1040 form 2012 They received an $8,000 trade-in allowance for the old cultivators and paid $5,200 cash for the new cultivator. Ez 1040 form 2012 J-Bar also traded a used pickup truck with an adjusted basis of $8,000 for a new pickup truck costing $35,000. Ez 1040 form 2012 They received a $5,000 trade-in allowance and paid $30,000 cash for the new pickup truck. Ez 1040 form 2012 Only the cash paid by J-Bar qualifies for the section 179 expense deduction. Ez 1040 form 2012 J-Bar's business costs that qualify for a section 179 expense deduction are $35,200 ($5,200 + $30,000). Ez 1040 form 2012 Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 is $500,000. Ez 1040 form 2012 If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 expense deduction among the items in any way, as long as the total deduction is not more than $500,000. Ez 1040 form 2012 Qualified real property that you elect to treat as section 179 property is limited to $250,000 of the maximum section 179 deduction of $500,000 for 2013. Ez 1040 form 2012 You do not have to claim the full $500,000. Ez 1040 form 2012 For specific information on the section 179 dollar limits, see chapter 2 of Publication 946. Ez 1040 form 2012 Reduced dollar limit for cost exceeding $2 million. Ez 1040 form 2012   If the cost of your qualifying section 179 property placed in service in 2013 is over $2 million, you must reduce the dollar limit (but not below zero) by the amount of cost over $2 million. Ez 1040 form 2012 If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 expense deduction and you cannot carry over the cost that is more than $2,500,000. Ez 1040 form 2012 Example. Ez 1040 form 2012 This year, James Smith placed in service machinery costing $2,050,000. Ez 1040 form 2012 Because this cost is $50,000 more than $2 million, he must reduce his dollar limit to $450,000 ($500,000 − $50,000). Ez 1040 form 2012 Limits for sport utility vehicles. Ez 1040 form 2012   The total amount you can elect to deduct for certain sport utility vehicles and certain other vehicles placed in service in 2013 is $25,000. Ez 1040 form 2012 This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, and highways that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. Ez 1040 form 2012   For more information, see chapter 2 of Publication 946. Ez 1040 form 2012 Limits for passenger automobiles. Ez 1040 form 2012   For a passenger automobile that is placed in service in 2013, the total section 179 and depreciation deduction is limited. Ez 1040 form 2012 See Do the Passenger Automobile Limits Apply , later. Ez 1040 form 2012 Married individuals. Ez 1040 form 2012   If you are married, how you figure your section 179 expense deduction depends on whether you file jointly or separately. Ez 1040 form 2012 If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Ez 1040 form 2012 If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2 million. Ez 1040 form 2012 You must allocate the dollar limit (after any reduction) equally between you, unless you both elect a different allocation. Ez 1040 form 2012 If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. Ez 1040 form 2012 Joint return after separate returns. Ez 1040 form 2012   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. Ez 1040 form 2012 The dollar limit (after reduction for any cost of section 179 property over $2 million). Ez 1040 form 2012 The total cost of section 179 property you and your spouse elected to expense on your separate returns. Ez 1040 form 2012 Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Ez 1040 form 2012 Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. Ez 1040 form 2012 Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. Ez 1040 form 2012 See Carryover of disallowed deduction , later. Ez 1040 form 2012 Taxable income. Ez 1040 form 2012   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. Ez 1040 form 2012 In addition to net income or loss from a sole proprietorship, partnership, or S corporation, net income or loss derived from a trade or business also includes the following items. Ez 1040 form 2012 Section 1231 gains (or losses) as discussed in chapter 9. Ez 1040 form 2012 Interest from working capital of your trade or business. Ez 1040 form 2012 Wages, salaries, tips, or other pay earned by you (or your spouse if you file a joint return) as an employee of any employer. Ez 1040 form 2012   In addition, figure taxable income without regard to any of the following. Ez 1040 form 2012 The section 179 expense deduction. Ez 1040 form 2012 The self-employment tax deduction. Ez 1040 form 2012 Any net operating loss carryback or carryforward. Ez 1040 form 2012 Any unreimbursed employee business expenses. Ez 1040 form 2012 Two different taxable income limits. Ez 1040 form 2012   In addition to the business income limit for your section 179 expense deduction, you may have a taxable income limit for some other deduction (for example, charitable contributions). Ez 1040 form 2012 You may have to figure the limit for this other deduction taking into account the section 179 expense deduction. Ez 1040 form 2012 If so, complete the following steps. Ez 1040 form 2012 Step Action 1 Figure taxable income without the section 179 expense deduction or the other deduction. Ez 1040 form 2012 2 Figure a hypothetical section 179 expense deduction using the taxable income figured in Step 1. Ez 1040 form 2012 3 Subtract the hypothetical section 179 expense deduction figured in Step 2 from the taxable income figured in Step 1. Ez 1040 form 2012 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. Ez 1040 form 2012 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in  Step 1. Ez 1040 form 2012 6 Figure your actual section 179 expense deduction using the taxable income figured in Step 5. Ez 1040 form 2012 7 Subtract your actual section 179 expense deduction figured in Step 6 from the taxable income figured in Step 1. Ez 1040 form 2012 8 Figure your actual other deduction using the taxable income figured in Step 7. Ez 1040 form 2012 Example. Ez 1040 form 2012 On February 1, 2013, the XYZ farm corporation purchased and placed in service qualifying section 179 property that cost $500,000. Ez 1040 form 2012 It elects to expense the entire $500,000 cost under section 179. Ez 1040 form 2012 In June, the corporation gave a charitable contribution of $10,000. Ez 1040 form 2012 A corporation's limit on charitable contributions is figured after subtracting any section 179 expense deduction. Ez 1040 form 2012 The business income limit for the section 179 expense deduction is figured after subtracting any allowable charitable contributions. Ez 1040 form 2012 XYZ's taxable income figured without the section 179 expense deduction or the deduction for charitable contributions is $520,000. Ez 1040 form 2012 XYZ figures its section 179 expense deduction and its deduction for charitable contributions as follows. Ez 1040 form 2012 Step 1. Ez 1040 form 2012 Taxable income figured without either deduction is $520,000. Ez 1040 form 2012 Step 2. Ez 1040 form 2012 Using $520,000 as taxable income, XYZ's hypothetical section 179 expense deduction is $500,000. Ez 1040 form 2012 Step 3. Ez 1040 form 2012 $20,000 ($520,000 − $500,000). Ez 1040 form 2012 Step 4. Ez 1040 form 2012 Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. Ez 1040 form 2012 Step 5. Ez 1040 form 2012 $518,000 ($520,000 − $2,000). Ez 1040 form 2012 Step 6. Ez 1040 form 2012 Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 expense deduction. Ez 1040 form 2012 Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 expense deduction. Ez 1040 form 2012 Step 7. Ez 1040 form 2012 $20,000 ($520,000 − $500,000). Ez 1040 form 2012 Step 8. Ez 1040 form 2012 Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. Ez 1040 form 2012 Carryover of disallowed deduction. Ez 1040 form 2012   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. Ez 1040 form 2012   The amount you carry over is used in determining your section 179 expense deduction in the next year. Ez 1040 form 2012 However, it is subject to the limits in that year. Ez 1040 form 2012 If you place more than one property in service in a year, you can select the properties for which all or a part of the cost will be carried forward. Ez 1040 form 2012 Your selections must be shown in your books and records. Ez 1040 form 2012 Example. Ez 1040 form 2012 Last year, Joyce Jones placed in service a machine that cost $8,000 and elected to deduct all $8,000 under section 179. Ez 1040 form 2012 The taxable income from her business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) was $6,000. Ez 1040 form 2012 Her section 179 expense deduction was limited to $6,000. Ez 1040 form 2012 The $2,000 cost that was not allowed as a section 179 expense deduction (because of the business income limit) is carried to this year. Ez 1040 form 2012 This year, Joyce placed another machine in service that cost $9,000. Ez 1040 form 2012 Her taxable income from business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) is $10,000. Ez 1040 form 2012 Joyce can deduct the full cost of the machine ($9,000) but only $1,000 of the carryover from last year because of the business income limit. Ez 1040 form 2012 She can carry over the balance of $1,000 to next year. Ez 1040 form 2012 Partnerships and S Corporations The section 179 expense deduction limits apply both to the partnership or S corporation and to each partner or shareholder. Ez 1040 form 2012 The partnership or S corporation determines its section 179 expense deduction subject to the limits. Ez 1040 form 2012 It then allocates the deduction among its partners or shareholders. Ez 1040 form 2012 If you are a partner in a partnership or shareholder of an S corporation, you add the amount allocated from the partnership or S corporation to any section 179 costs not related to the partnership or S corporation and then apply the dollar limit to this total. Ez 1040 form 2012 To determine any reduction in the dollar limit for costs over $560,000, you do not include any of the cost of section 179 property placed in service by the partnership or S corporation. Ez 1040 form 2012 After you apply the dollar limit, you apply the business income limit to any remaining section 179 costs. Ez 1040 form 2012 For more information, see chapter 2 of Publication 946. Ez 1040 form 2012 Example. Ez 1040 form 2012 In 2013, Partnership P placed in service section 179 property with a total cost of $2,160,000. Ez 1040 form 2012 P must reduce its dollar limit by $160,000 ($2,160,000 − $2,000,000). Ez 1040 form 2012 Its maximum section 179 expense deduction is $340,000 ($500,000 − $160,000), and it elects to expense that amount. Ez 1040 form 2012 Because P's taxable income from the active conduct of all its trades or businesses for the year was $400,000, it can deduct the full $340,000. Ez 1040 form 2012 P allocates $100,000 of its section 179 expense deduction and $110,000 of its taxable income to John, one of its partners. Ez 1040 form 2012 John also conducts a business as a sole proprietor and in 2013, placed in service in that business, section 179 property costing $28,000. Ez 1040 form 2012 John's taxable income from that business was $10,000. Ez 1040 form 2012 In addition to the $100,000 allocated from P, he elects to expense the $28,000 of his sole proprietorship's section 179 costs. Ez 1040 form 2012 However, John's deduction is limited to his business taxable income of $120,000 ($110,000 from P plus $10,000 from his sole proprietorship). Ez 1040 form 2012 He carries over $8,000 ($128,000 − $120,000) of the elected section 179 costs to 2014. Ez 1040 form 2012 How Do You Elect the Deduction? You elect to take the section 179 expense deduction by completing Part I of Form 4562. Ez 1040 form 2012 If you elect the deduction for listed property, complete Part V of  Form 4562 before completing Part I. Ez 1040 form 2012   File Form 4562 with either of the following: Your original tax return (whether or not you filed it timely), or An amended return filed within the time prescribed by law. Ez 1040 form 2012 An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. Ez 1040 form 2012 The amended return must also include any resulting adjustments to taxable income. Ez 1040 form 2012 Revoking an election. Ez 1040 form 2012   An election (or any specification made in the election) to take a section 179 expense deduction for 2013 can be revoked without IRS approval by filing an amended return. Ez 1040 form 2012 The amended return must be filed within the time prescribed by law. Ez 1040 form 2012 The amended return must also include any resulting adjustments to taxable income (for example, allowable depreciation in that tax year for the item of section 179 property for which the election pertains. Ez 1040 form 2012 ) Once made, the revocation is irrevocable. Ez 1040 form 2012 When Must You Recapture the Deduction? You may have to recapture the section 179 expense deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. Ez 1040 form 2012 In the year the business use drops to 50% or less, you include the recapture amount as ordinary income. Ez 1040 form 2012 You also increase the basis of the property by the recapture amount. Ez 1040 form 2012 Recovery periods for property are discussed later. Ez 1040 form 2012 If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. Ez 1040 form 2012 Instead, use the rules for recapturing depreciation explained in  chapter 9 under Section 1245 Property. Ez 1040 form 2012   If the property is listed property, do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. Ez 1040 form 2012 Instead, use the rules for recapturing depreciation explained in chapter 5 of Publication 946 under Recapture of Excess Depreciation. Ez 1040 form 2012 Figuring the recapture amount. Ez 1040 form 2012   To figure the amount to recapture, take the following steps. Ez 1040 form 2012 Figure the allowable depreciation for the section 179 expense deduction you claimed. Ez 1040 form 2012 Begin with the year you placed the property in service and include the year of recapture. Ez 1040 form 2012 Subtract the depreciation figured in (1) from the section 179 expense deduction you actually claimed. Ez 1040 form 2012 The result is the amount you must recapture. Ez 1040 form 2012 Example. Ez 1040 form 2012 In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. Ez 1040 form 2012 The property is not listed property. Ez 1040 form 2012 He elected a $5,000 section 179 expense deduction for the property and also elected not to claim a special depreciation allowance. Ez 1040 form 2012 He used the property only for business in 2011 and 2012. Ez 1040 form 2012 During 2013, he used the property 40% for business and 60% for personal use. Ez 1040 form 2012 He figures his recapture amount as follows. Ez 1040 form 2012 Section 179 expense deduction claimed (2011) $5,000 Minus: Allowable depreciation (instead of section 179 expense deduction):   2011 $1,250   2012 1,875   2013 ($1,250 × 40% (business)) 500 3,625 2013 — Recapture amount $1,375     Paul must include $1,375 in income for 2013. Ez 1040 form 2012 Where to report recapture. Ez 1040 form 2012   Report any recapture of the section 179 expense deduction as ordinary income in Part IV of Form 4797 and include it in income on Schedule F (Form 1040). Ez 1040 form 2012 Recapture for qualified section 179 GO Zone property. Ez 1040 form 2012   If any qualified section 179 GO Zone property ceases to be used in the GO Zone in a later year, you must recapture the benefit of the increased section 179 expense deduction as “other income. Ez 1040 form 2012 ” Claiming the Special Depreciation Allowance For qualified property (defined below) placed in service in 2013, you can take an additional 50% special depreciation allowance. Ez 1040 form 2012 The allowance is an additional deduction you can take after any section 179 expense deduction and before you figure regular depreciation under MACRS. Ez 1040 form 2012 Figure the special depreciation allowance by multiplying the depreciable basis of the qualified property by 50%. Ez 1040 form 2012 What is Qualified Property? For farmers, qualified property generally is certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Ez 1040 form 2012 Certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Ez 1040 form 2012   Certain qualified property (defined below) acquired after December 31, 2007, and before January 1, 2014, is eligible for a 50% special depreciation allowance. Ez 1040 form 2012   Qualified property includes the following: Tangible property depreciated under the Modified Accelerated Cost Recovery System (MACRS) with a recovery period of 20 years or less. Ez 1040 form 2012 Water utility property. Ez 1040 form 2012 Off-the-shelf computer software. Ez 1040 form 2012 Qualified leasehold improvement property. Ez 1040 form 2012   Qualified property must also meet all of the following tests: You must have acquired qualified property by purchase after December 31, 2007. Ez 1040 form 2012 If a binding contract to acquire the property existed before January 1, 2008, the property does not qualify. Ez 1040 form 2012 Qualified property must be placed in service after December 31, 2007 and placed in service before January 1, 2014 (before January 1, 2015 for certain property with a long production period and for certain aircraft). Ez 1040 form 2012 The original use of the property must begin with you after December 31, 2007. Ez 1040 form 2012 For more information, see chapter 3 of Publication 946. Ez 1040 form 2012 How Can You Elect Not To Claim the Allowance? You can elect, for any class of property, not to deduct the special depreciation allowance for all property in such class placed in service during the tax year. Ez 1040 form 2012 To make the election, attach a statement to your return indicating the class of property for which you are making the election. Ez 1040 form 2012 Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Ez 1040 form 2012 However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Ez 1040 form 2012 Attach the election statement to the amended return. Ez 1040 form 2012 On the amended return, write “Filed pursuant to section 301. Ez 1040 form 2012 9100-2. Ez 1040 form 2012 ” Once made, the election may not be revoked without IRS consent. Ez 1040 form 2012 If you elect not to have the special depreciation allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. Ez 1040 form 2012 When Must You Recapture an Allowance When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. Ez 1040 form 2012 For more information, see chapter 3 of Publication 946. Ez 1040 form 2012 Figuring Depreciation Under MACRS The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. Ez 1040 form 2012 MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Ez 1040 form 2012 Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. Ez 1040 form 2012 To be sure you can use MACRS to figure depreciation for your property, see Can You Use MACRS To Depreciate Your Property, earlier. Ez 1040 form 2012 This part explains how to determine which MACRS depreciation system applies to your property. Ez 1040 form 2012 It also discusses the following information that you need to know before you can figure depreciation under MACRS. Ez 1040 form 2012 Property's recovery class. Ez 1040 form 2012 Placed-in-service date. Ez 1040 form 2012 Basis for depreciation. Ez 1040 form 2012 Recovery period. Ez 1040 form 2012 Convention. Ez 1040 form 2012 Depreciation method. Ez 1040 form 2012 Finally, this part explains how to use this information to figure your depreciation deduction. Ez 1040 form 2012 Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. Ez 1040 form 2012 You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Ez 1040 form 2012 Required use of ADS. Ez 1040 form 2012   You must use ADS for the following property. Ez 1040 form 2012 All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. Ez 1040 form 2012 Listed property used 50% or less in a qualified business use. Ez 1040 form 2012 See Additional Rules for Listed Property , later. Ez 1040 form 2012 Any tax-exempt use property. Ez 1040 form 2012 Any tax-exempt bond-financed property. Ez 1040 form 2012 Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. Ez 1040 form 2012 Any tangible property used predominantly outside the United States during the year. Ez 1040 form 2012 If you are required to use ADS to depreciate your property, you cannot claim the special depreciation allowance. Ez 1040 form 2012 Electing ADS. Ez 1040 form 2012   Although your property may qualify for GDS, you can elect to use ADS. Ez 1040 form 2012 The election generally must cover all property in the same property class you placed in service during the year. Ez 1040 form 2012 However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. Ez 1040 form 2012 Once you make this election, you can never revoke it. Ez 1040 form 2012   You make the election by completing line 20 in Part III of Form 4562. Ez 1040 form 2012 Which Property Class Applies Under GDS? The following is a list of the nine property classes under GDS. Ez 1040 form 2012 3-year property. Ez 1040 form 2012 5-year property. Ez 1040 form 2012 7-year property. Ez 1040 form 2012 10-year property. Ez 1040 form 2012 15-year property. Ez 1040 form 2012 20-year property. Ez 1040 form 2012 25-year property. Ez 1040 form 2012 Residential rental property. Ez 1040 form 2012 Nonresidential real property. Ez 1040 form 2012 See Which Property Class Applies Under GDS in chapter 4 of Publication 946 for examples of the types of property included in each class. Ez 1040 form 2012 What Is the Placed-in-Service Date? You begin to claim depreciation when your property is placed in service for use either in a trade or business or for the production of income. Ez 1040 form 2012 The placed-in-service date for your property is the date the property is ready and available for a specific use. Ez 1040 form 2012 It is therefore not necessarily the date it is first used. Ez 1040 form 2012 If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. Ez 1040 form 2012 See Placed in Service under When Does Depreciation Begin and End , earlier, for examples illustrating when property is placed in service. Ez 1040 form 2012 What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. Ez 1040 form 2012 Reduce that amount by any credits and deductions allocable to the property. Ez 1040 form 2012 The following are examples of some of the credits and deductions that reduce basis. Ez 1040 form 2012 Any deduction for section 179 property. Ez 1040 form 2012 Any deduction for removal of barriers to the disabled and the elderly. Ez 1040 form 2012 Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Ez 1040 form 2012 Any special depreciation allowance. Ez 1040 form 2012 Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. Ez 1040 form 2012 For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property , earlier. Ez 1040 form 2012 Also, see chapter 6. Ez 1040 form 2012 For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Ez 1040 form 2012 Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. Ez 1040 form 2012 It is determined based on the depreciation system (GDS or ADS) used. Ez 1040 form 2012 See Table 7-1 for recovery periods under both GDS and ADS for some commonly used assets. Ez 1040 form 2012 For a complete list of recovery periods, see the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. Ez 1040 form 2012 House trailers for farm laborers. Ez 1040 form 2012   To depreciate a house trailer you supply as housing for those who work on your farm, use one of the following recovery periods if the house trailer is mobile (it has wheels and a history of movement). Ez 1040 form 2012 A 7-year recovery period under GDS. Ez 1040 form 2012 A 10-year recovery period under ADS. Ez 1040 form 2012   However, if the house trailer is not mobile (its wheels have been removed and permanent utilities and pipes attached to it), use one of the following recovery periods. Ez 1040 form 2012 A 20-year recovery period under GDS. Ez 1040 form 2012 A 25-year recovery period under ADS. Ez 1040 form 2012 Water wells. Ez 1040 form 2012   Water wells used to provide water for raising poultry and livestock are land improvements. Ez 1040 form 2012 If they are depreciable, use one of the following recovery periods. Ez 1040 form 2012 A 15-year recovery period under GDS. Ez 1040 form 2012 A 20-year recovery period under ADS. Ez 1040 form 2012   The types of water wells that can be depreciated were discussed earlier in Irrigation systems and water wells under Property Having a Determinable Useful Life . Ez 1040 form 2012 Table 7-1. Ez 1040 form 2012 Farm Property Recovery Periods   Recovery Period in Years Assets GDS ADS Agricultural structures (single purpose) 10 15 Automobiles 5 5 Calculators and copiers 5 6 Cattle (dairy or breeding) 5 7 Communication equipment1 7 10 Computer and peripheral equipment 5 5 Drainage facilities 15 20 Farm buildings2 20 25 Farm machinery and equipment 7 10 Fences (agricultural) 7 10 Goats and sheep (breeding) 5 5 Grain bin 7 10 Hogs (breeding) 3 3 Horses (age when placed in service)     Breeding and working (12 years or less) 7 10 Breeding and working (more than 12 years) 3 10 Racing horses 3 12 Horticultural structures (single purpose) 10 15 Logging machinery and equipment3 5 6 Nonresidential real property 394 40 Office furniture, fixtures, and equipment (not calculators, copiers, or typewriters) 7 10 Paved lots 15 20 Residential rental property 27. Ez 1040 form 2012 5 40 Tractor units (over-the-road) 3 4 Trees or vines bearing fruit or nuts 10 20 Truck (heavy duty, unloaded weight 13,000 lbs. Ez 1040 form 2012 or more) 5 6 Truck (actual weight less than 13,000 lbs) 5 5 Water wells 15 20 1 Not including communication equipment listed in other classes. Ez 1040 form 2012 2 Not including single purpose agricultural or horticultural structures. Ez 1040 form 2012 3 Used by logging and sawmill operators for cutting of timber. Ez 1040 form 2012 4 For property placed in service after May 12, 1993; for property placed in service before May 13, 1993,  the recovery period is 31. Ez 1040 form 2012 5 years. Ez 1040 form 2012 Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. Ez 1040 form 2012 The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. Ez 1040 form 2012 Use one of the following conventions. Ez 1040 form 2012 The half-year convention. Ez 1040 form 2012 The mid-month convention. Ez 1040 form 2012 The mid-quarter convention. Ez 1040 form 2012 For a detailed explanation of each convention, see Which Convention Applies in chapter 4 of Publication 946. Ez 1040 form 2012 Also, see the Instructions for Form 4562. Ez 1040 form 2012 Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. Ez 1040 form 2012 The 200% declining balance method over a GDS recovery period. Ez 1040 form 2012 The 150% declining balance method over a GDS recovery period. Ez 1040 form 2012 The straight line method over a GDS recovery period. Ez 1040 form 2012 The straight line method over an ADS recovery period. Ez 1040 form 2012 Depreciation Table. Ez 1040 form 2012   The following table lists the types of property you can depreciate under each method. Ez 1040 form 2012 The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. Ez 1040 form 2012 Depreciation Table System/Method   Type of Property GDS using  150% DB • All property used in a farming business (except real property)   • All 15- and 20-year property   • Nonfarm 3-, 5-, 7-, and 10-year property1 GDS using SL • Nonresidential real property   • Residential rental property   • Trees or vines bearing fruit or nuts   • All 3-, 5-, 7-, 10-, 15-, and 20-year property1 ADS using SL • Property used predomi- nantly outside the United States   • Farm property used when an election not to apply the uniform capitalization rules is in effect   • Tax-exempt property   • Tax-exempt bond-financed property   • Imported property2   • Any property for which you elect to use this method1 GDS using  200% DB • Nonfarm 3-, 5-, 7-, and 10-year property 1Elective method 2See section 168(g)(6) of the Internal Revenue  Code Property used in farming business. Ez 1040 form 2012   For personal property placed in service after 1988 in a farming business, you must use the 150% declining balance method over a GDS recovery period or you can elect one of the following methods. Ez 1040 form 2012 The straight line method over a GDS recovery period. Ez 1040 form 2012 The straight line method over an ADS recovery period. Ez 1040 form 2012 For property placed in service before 1999, you could have elected to use the 150% declining balance method using the ADS recovery periods for certain property classes. Ez 1040 form 2012 If you made this election, continue to use the same method and recovery period for that property. Ez 1040 form 2012 Real property. Ez 1040 form 2012   You can depreciate real property using the straight line method under either GDS or ADS. Ez 1040 form 2012 Switching to straight line. Ez 1040 form 2012   If you use a declining balance method, you switch to the straight line method in the year it provides an equal or greater deduction. Ez 1040 form 2012 If you use the MACRS percentage tables, discussed later under How Is the Depreciation Deduction Figured , you do not need to determine in which year your deduction is greater using the straight line method. Ez 1040 form 2012 The tables have the switch to the straight line method built into their rates. Ez 1040 form 2012 Fruit or nut trees and vines. Ez 1040 form 2012   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a 10-year recovery period. Ez 1040 form 2012 ADS required for some farmers. Ez 1040 form 2012   If you elect not to apply the uniform capitalization rules to any plant shown in Table 6-1 of chapter 6 and produced in your farming business, you must use ADS for all property you place in service in any year the election is in effect. Ez 1040 form 2012 See chapter 6 for a discussion of the application of the uniform capitalization rules to farm property. Ez 1040 form 2012 Electing a different method. Ez 1040 form 2012   As shown in the Depreciation Table , you can elect a different method for depreciation for certain types of property. Ez 1040 form 2012 You must make the election by the due date of the return (including extensions) for the year you placed the property in service. Ez 1040 form 2012 However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). Ez 1040 form 2012 Attach the election to the amended return and write “Filed pursuant to section 301. Ez 1040 form 2012 9100-2” on the election statement. Ez 1040 form 2012 File the amended return at the same address you filed the original return. Ez 1040 form 2012 Once you make the election, you cannot change it. Ez 1040 form 2012    If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. Ez 1040 form 2012 However, you can make the election on a property-by-property basis for residential rental and nonresidential real property. Ez 1040 form 2012 Straight line election. Ez 1040 form 2012   Instead of using the declining balance method, you can elect to use the straight line method over the GDS recovery period. Ez 1040 form 2012 Make the election by entering “S/L” under column (f) in Part III of Form 4562. Ez 1040 form 2012 ADS election. Ez 1040 form 2012   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. Ez 1040 form 2012 ADS uses the straight line method of depreciation over the ADS recovery periods, which are generally longer than the GDS recovery periods. Ez 1040 form 2012 The ADS recovery periods for many assets used in the business of farming are listed in Table 7–1. Ez 1040 form 2012 Additional ADS recovery periods for other classes of property may be found in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. Ez 1040 form 2012 How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed-in-service date, basis amount, recovery period, convention, and depreciation method that applies to your property. Ez 1040 form 2012 Then you are ready to figure your depreciation deduction. Ez 1040 form 2012 You can figure it in one of two ways. Ez 1040 form 2012 You can use the percentage tables provided by the IRS. Ez 1040 form 2012 You can figure your own deduction without using the tables. Ez 1040 form 2012 Figuring your own MACRS deduction will generally result in a slightly different amount than using the tables. Ez 1040 form 2012 Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. Ez 1040 form 2012 These percentage tables are in Appendix A of Publication 946. Ez 1040 form 2012 Rules for using the tables. Ez 1040 form 2012   The following rules cover the use of the percentage tables. Ez 1040 form 2012 You must apply the rates in the percentage tables to your property's unadjusted basis. Ez 1040 form 2012 Unadjusted basis is the same basis amount you would use to figure gain on a sale but figured without reducing your original basis by any MACRS depreciation taken in earlier years. Ez 1040 form 2012 You cannot use the percentage tables for a short tax year. Ez 1040 form 2012 See chapter 4 of Publication 946 for information on how to figure the deduction for a short tax year. Ez 1040 form 2012 You generally must continue to use them for the entire recovery period of the property. Ez 1040 form 2012 You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to the property, which is depreciated as a separate property. Ez 1040 form 2012 Basis adjustment due to casualty loss. Ez 1040 form 2012   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. Ez 1040 form 2012 For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. Ez 1040 form 2012 See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. Ez 1040 form 2012 Figuring depreciation using the 150% DB method and half-year convention. Ez 1040 form 2012    Table 7-2 has the percentages for 3-, 5-, 7-, and 20-year property. Ez 1040 form 2012 The percentages are based on the 150% declining balance method with a change to the straight line method. Ez 1040 form 2012 This table covers only the half-year convention and the first 8 years for 20-year property. Ez 1040 form 2012 See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. Ez 1040 form 2012   The following examples show how to figure depreciation under MACRS using the percentages in Table 7-2 . Ez 1040 form 2012 Example 1. Ez 1040 form 2012 During the year, you bought an item of 7-year property for $10,000 and placed it in service. Ez 1040 form 2012 You do not elect a section 179 expense deduction for this property. Ez 1040 form 2012 In addition, the property is not qualified property for purposes of the special depreciation allowance. Ez 1040 form 2012 The unadjusted basis of the property is $10,000. Ez 1040 form 2012 You use the percentages in Table 7-2 to figure your deduction. Ez 1040 form 2012 Since this is 7-year property, you multiply $10,000 by 10. Ez 1040 form 2012 71% to get this year's depreciation of $1,071. Ez 1040 form 2012 For next year, your depreciation will be $1,913 ($10,000 × 19. Ez 1040 form 2012 13%). Ez 1040 form 2012 Example 2. Ez 1040 form 2012 You had a barn constructed on your farm at a cost of $20,000. Ez 1040 form 2012 You placed the barn in service this year. Ez 1040 form 2012 You elect not to claim the special depreciation allowance. Ez 1040 form 2012 The barn is 20-year property and you use the table percentages to figure your deduction. Ez 1040 form 2012 You figure this year's depreciation by multiplying $20,000 (unadjusted basis) by 3. Ez 1040 form 2012 75% to get $750. Ez 1040 form 2012 For next year, your depreciation will be $1,443. Ez 1040 form 2012 80 ($20,000 × 7. Ez 1040 form 2012 219%). Ez 1040 form 2012 Table 7-2. Ez 1040 form 2012 150% Declining Balance Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 25. Ez 1040 form 2012 0 % 15. Ez 1040 form 2012 00 % 10. Ez 1040 form 2012 71 % 3. Ez 1040 form 2012 750 % 2 37. Ez 1040 form 2012 5   25. Ez 1040 form 2012 50   19. Ez 1040 form 2012 13   7. Ez 1040 form 2012 219   3 25. Ez 1040 form 2012 0   17. Ez 1040 form 2012 85   15. Ez 1040 form 2012 03   6. Ez 1040 form 2012 677   4 12. Ez 1040 form 2012 5   16. Ez 1040 form 2012 66   12. Ez 1040 form 2012 25   6. Ez 1040 form 2012 177   5     16. Ez 1040 form 2012 66   12. Ez 1040 form 2012 25   5. Ez 1040 form 2012 713   6     8. Ez 1040 form 2012 33   12. Ez 1040 form 2012 25   5. Ez 1040 form 2012 285   7         12. Ez 1040 form 2012 25   4. Ez 1040 form 2012 888   8         6. Ez 1040 form 2012 13   4. Ez 1040 form 2012 522   Figuring depreciation using the straight line method and half-year convention. Ez 1040 form 2012   The following table has the straight line percentages for 3-, 5-, 7-, and 20-year property using the half-year convention. Ez 1040 form 2012 The table covers only the first 8 years for 20-year property. Ez 1040 form 2012 See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. Ez 1040 form 2012 Table 7-3. Ez 1040 form 2012 Straight Line Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 16. Ez 1040 form 2012 67 % 10 % 7. Ez 1040 form 2012 14 % 2. Ez 1040 form 2012 5 % 2 33. Ez 1040 form 2012 33   20   14. Ez 1040 form 2012 29   5. Ez 1040 form 2012 0   3 33. Ez 1040 form 2012 33   20   14. Ez 1040 form 2012 29   5. Ez 1040 form 2012 0   4 16. Ez 1040 form 2012 67   20   14. Ez 1040 form 2012 28   5. Ez 1040 form 2012 0   5     20   14. Ez 1040 form 2012 29   5. Ez 1040 form 2012 0   6     10   14. Ez 1040 form 2012 28   5. Ez 1040 form 2012 0   7         14. Ez 1040 form 2012 29   5. Ez 1040 form 2012 0   8         7. Ez 1040 form 2012 14   5. Ez 1040 form 2012 0    
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CP 90 - Final Notice of Intent to Levy and Notice of Your Right to a Hearing

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Purpose:   We send CP 90 to inform the recipient of our intent to levy on certain assets.
Reason for Issuance:   The recipient has a balance due on their account that we've previously sent a notice about. That balance due is still unpaid. We send a CP 90 to inform the recipient that the amount is still due, that we intend to levy on certain assets, and what steps they need to take within 30 days to prevent us from taking this action.
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Page Last Reviewed or Updated: 22-Apr-2013

The Ez 1040 Form 2012

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