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File Free Federal And State Taxes Online

File free federal and state taxes online Publication 971 - Introductory Material Table of Contents What's New IntroductionOrdering forms and publications. File free federal and state taxes online Questions about innocent spouse relief. File free federal and state taxes online Useful Items - You may want to see: What's New Expanded filing deadline for equitable relief. File free federal and state taxes online  The period of time in which you may request equitable relief has been expanded. File free federal and state taxes online See How To Request Relief later. File free federal and state taxes online More information. File free federal and state taxes online   For more information about the latest developments on Publication 971, go to www. File free federal and state taxes online irs. File free federal and state taxes online gov/pub971. File free federal and state taxes online Introduction When you file a joint income tax return, the law makes both you and your spouse responsible for the entire tax liability. File free federal and state taxes online This is called joint and several liability. File free federal and state taxes online Joint and several liability applies not only to the tax liability you show on the return but also to any additional tax liability the IRS determines to be due, even if the additional tax is due to income, deductions, or credits of your spouse or former spouse. File free federal and state taxes online You remain jointly and severally liable for the taxes, and the IRS still can collect from you, even if you later divorce and the divorce decree states that your former spouse will be solely responsible for the tax. File free federal and state taxes online In some cases, a spouse (or former spouse) will be relieved of the tax, interest, and penalties on a joint tax return. File free federal and state taxes online Three types of relief are available to married persons who filed joint returns. File free federal and state taxes online Innocent spouse relief. File free federal and state taxes online Separation of liability relief. File free federal and state taxes online Equitable relief. File free federal and state taxes online Married persons who did not file joint returns, but who live in community property states, may also qualify for relief. File free federal and state taxes online See Community Property Laws , later. File free federal and state taxes online This publication explains these types of relief, who may qualify for them, and how to get them. File free federal and state taxes online You can also use the Innocent Spouse Tax Relief Eligibility Explorer at IRS. File free federal and state taxes online gov by entering “Innocent Spouse” in the search box. File free federal and state taxes online What this publication does not cover. File free federal and state taxes online   This publication does not discuss injured spouse relief. File free federal and state taxes online You are an injured spouse if your share of the overpayment shown on your joint return was, or is expected to be, applied (offset) against your spouse's legally enforceable past-due federal taxes, state income taxes, state unemployment compensation debts, child or spousal support payments, or a federal nontax debt, such as a student loan. File free federal and state taxes online If you are an injured spouse, you may be entitled to receive a refund of your share of the overpayment. File free federal and state taxes online For more information, see Form 8379, Injured Spouse Allocation. File free federal and state taxes online Comments and suggestions. File free federal and state taxes online   We welcome your comments about this publication and your suggestions for future editions. File free federal and state taxes online   You can write to us at the following address:  Internal Revenue Service Individual Forms and Publications Branch SE:W:CAR:MP:T:I 1111 Constitution Ave. File free federal and state taxes online NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. File free federal and state taxes online Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. File free federal and state taxes online   You can email us at taxforms@irs. File free federal and state taxes online gov. File free federal and state taxes online Please put “Publications Comment” on the subject line. File free federal and state taxes online You can also send us comments from www. File free federal and state taxes online irs. File free federal and state taxes online gov/formspubs/, select “Comment on Tax Forms and Publications” under “Information about. File free federal and state taxes online ”   Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products. File free federal and state taxes online Ordering forms and publications. File free federal and state taxes online   Visit www. File free federal and state taxes online irs. File free federal and state taxes online gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received. File free federal and state taxes online  Internal Revenue Service 1201 N. File free federal and state taxes online Mitsubishi Motorway Bloomington, IL 61705-6613 Questions about innocent spouse relief. File free federal and state taxes online The IRS can help you with your request for innocent spouse relief. File free federal and state taxes online If you are working with an IRS employee, you can ask that employee, or you can call 866-897-4270. File free federal and state taxes online Useful Items - You may want to see: Publications 504 Divorced or Separated Individuals 555 Community Property 556 Examination of Returns, Appeal Rights, and Claims for Refund 594 The IRS Collection Process Forms (and Instructions) 8857 Request for Innocent Spouse Relief Prev  Up  Next   Home   More Online Publications
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Individual Taxpayer Identification Number (ITIN)

Effective January 1, 2013, the IRS implemented new procedures that affect the Individual Taxpayer Identification Number (ITIN) application process. Some of the information below, including the documentation requirements for individuals seeking an ITIN, has been superseded by these changes. Taxpayers and their representatives should review these program changes,which are further explained in these Frequently Asked Questions, before requesting an ITIN.  

Effective January 1, 2013, authorized representatives for Certifying Acceptance Agents are required to complete forensic training and submit the original certificate of completion with their Form 13551 "Application to Participate in the IRS Acceptance Agent Program."

Effective January 1, 2013, Individual Taxpayer Identification Number(s) (ITIN) issued on or after January 1, 2013, will expire on December 31st five years after the ITIN was issued. For more information, taxpayers and their representatives should review these program changes.


Acceptance Agents' Alert (Posted July 1, 2010)

Effective July 1, 2010, all applicants applying to become an authorized representative of an acceptance agent or certifying acceptance agent are required to take the mandatory Acceptance Agent training and submit the certification form along with the new, renewing or amended Form 13551.

New ITIN Acceptance Agent Program Changes
(Posted January 7, 2013)

Acceptance Agents Applications - Open Season

The Internal Revenue Service (IRS) will be accepting and processing Forms 13551, Application to Participate in the IRS Acceptance Agent Program, during open season May 1-August 31 of each year for new and renewing applicants. We will continue to accept amended applications throughout the year.

Alert:
The Acceptance Agent Program processes applications on a first-in, first-out basis. Existing approved acceptance agents who submitted a renewing application that was not rejected can continue to operate under the old agreement until the new agreement is finalized.

General ITIN Information

  • What is an ITIN?
  • What is an ITIN used for?
  • Who needs an ITIN?
  • How do I know if I need an ITIN?
  • How do I apply for an ITIN?
  • When should I apply for an ITIN?
  • Where can I get help with my ITIN application?
  • How and when can I expect to receive my ITIN?
  • When does my ITIN expire?


REVISED APPLICATION STANDARDS FOR ITINs

  • What are the revised application standards for ITINs?
  • Why did IRS change from an ITIN card to an authorization letter?
  • Why did IRS revise the ITIN application process?
  • What documents are acceptable as proof of identity and foreign status?


FORMS AND PUBLICATIONS

Before submitting Form 13551 to apply to participate in the Acceptance Agent Program, access and complete the mandatory
Acceptance Agent training


 Additional ITIN Information

 

  • How can I obtain an ITIN from abroad?
  • Are ITINs valid for identification?
  • Are ITINs valid for work purposes?
  • Can ITINs be used as proof of identification to obtain a state driver's license?
  • What do I do when I am assigned a social security number (SSN)? 
  • What ITIN information is available in Spanish? 
  • What ITIN information is available for tax professionals?
  • What is an ITIN Acceptance Agent?
  • How can I become an acceptance Agent?
  • What information is available for Foreign Property Buyers/Sellers? 
Page Last Reviewed or Updated: 19-Mar-2014

The File Free Federal And State Taxes Online

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