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Fillable 1040ez 2012

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Fillable 1040ez 2012

Fillable 1040ez 2012 Part Three -   Gains and Losses The four chapters in this part discuss investment gains and losses, including how to figure your basis in property. Fillable 1040ez 2012 A gain from selling or trading stocks, bonds, or other investment property may be taxed or it may be tax free, at least in part. Fillable 1040ez 2012 A loss may or may not be deductible. Fillable 1040ez 2012 These chapters also discuss gains from selling property you personally use — including the special rules for selling your home. Fillable 1040ez 2012 Nonbusiness casualty and theft losses are discussed in chapter 25 in Part Five. Fillable 1040ez 2012 Table of Contents 13. Fillable 1040ez 2012   Basis of PropertyIntroduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds 14. Fillable 1040ez 2012   Sale of PropertyReminder Introduction Useful Items - You may want to see: Sales and TradesWhat Is a Sale or Trade? How To Figure Gain or Loss Nontaxable Trades Transfers Between Spouses Related Party Transactions Capital Gains and LossesCapital or Ordinary Gain or Loss Capital Assets and Noncapital Assets Holding Period Nonbusiness Bad Debts Wash Sales Rollover of Gain From Publicly Traded Securities 15. Fillable 1040ez 2012   Selling Your HomeReminder Introduction Useful Items - You may want to see: Main Home Figuring Gain or LossSelling Price Amount Realized Adjusted Basis Amount of Gain or Loss Dispositions Other Than Sales Determining Basis Excluding the GainMaximum Exclusion Ownership and Use Tests Reduced Maximum Exclusion Business Use or Rental of Home Reporting the SaleSeller-financed mortgage. Fillable 1040ez 2012 More information. Fillable 1040ez 2012 Special SituationsException for sales to related persons. Fillable 1040ez 2012 Recapturing (Paying Back) a Federal Mortgage Subsidy 16. Fillable 1040ez 2012   Reporting Gains and Losses What's New Introduction Useful Items - You may want to see: Reporting Capital Gains and Losses Exception 1. Fillable 1040ez 2012 Exception 2. Fillable 1040ez 2012 File Form 1099-B or Form 1099-S with the IRS. Fillable 1040ez 2012 Capital Losses Capital Gain Tax Rates Prev  Up  Next   Home   More Online Publications
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References for Recalls

Before you buy a used vehicle or other secondhand product, check to be sure it hasn't been recalled for safety reasons. Some recalls ban the sale of an item, while others ask consumers to return the item for replacement or repair. Sometimes, a seller provides a part that reduces the danger of using the product.

If you're buying a product for a child, be especially vigilant. Each year, there are about 400 recalls of children's products such as toys, clothing, and jewelry. Visit the websites below for the latest safety recalls. You can also sign up for free email notifications. This information could save a child's life.

The Fillable 1040ez 2012

Fillable 1040ez 2012 Publication 551 - Main Content Table of Contents Cost BasisStocks and Bonds Real Property Business Assets Allocating the Basis Adjusted BasisIncreases to Basis Decreases to Basis Adjustments to Basis Example Basis Other Than CostProperty Received for Services Taxable Exchanges Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed to Business or Rental Use How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Fillable 1040ez 2012 Cost Basis The basis of property you buy is usually its cost. Fillable 1040ez 2012 The cost is the amount you pay in cash, debt obligations, other property, or services. Fillable 1040ez 2012 Your cost also includes amounts you pay for the following items. Fillable 1040ez 2012 Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if assumed for the seller). Fillable 1040ez 2012  You may also have to capitalize (add to basis) certain other costs related to buying or producing property. Fillable 1040ez 2012 Loans with low or no interest. Fillable 1040ez 2012   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. Fillable 1040ez 2012 You generally have unstated interest if your interest rate is less than the applicable federal rate. Fillable 1040ez 2012 For more information, see Unstated Interest and Original Issue Discount in Publication 537. Fillable 1040ez 2012 Purchase of a business. Fillable 1040ez 2012   When you purchase a trade or business, you generally purchase all assets used in the business operations, such as land, buildings, and machinery. Fillable 1040ez 2012 Allocate the price among the various assets, including any section 197 intangibles. Fillable 1040ez 2012 See Allocating the Basis, later. Fillable 1040ez 2012 Stocks and Bonds The basis of stocks or bonds you buy is generally the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. Fillable 1040ez 2012 If you get stocks or bonds other than by purchase, your basis is usually determined by the fair market value (FMV) or the previous owner's adjusted basis of the stock. Fillable 1040ez 2012 You must adjust the basis of stocks for certain events that occur after purchase. Fillable 1040ez 2012 See Stocks and Bonds in chapter 4 of Publication 550 for more information on the basis of stock. Fillable 1040ez 2012 Identifying stock or bonds sold. Fillable 1040ez 2012   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. Fillable 1040ez 2012 If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Fillable 1040ez 2012 For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Fillable 1040ez 2012 Mutual fund shares. Fillable 1040ez 2012   If you sell mutual fund shares acquired at different times and prices, you can choose to use an average basis. Fillable 1040ez 2012 For more information, see Publication 550. Fillable 1040ez 2012 Real Property Real property, also called real estate, is land and generally anything built on or attached to it. Fillable 1040ez 2012 If you buy real property, certain fees and other expenses become part of your cost basis in the property. Fillable 1040ez 2012 Real estate taxes. Fillable 1040ez 2012   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Fillable 1040ez 2012 You cannot deduct them as taxes. Fillable 1040ez 2012   If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. Fillable 1040ez 2012 Do not include that amount in the basis of the property. Fillable 1040ez 2012 If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Fillable 1040ez 2012 Settlement costs. Fillable 1040ez 2012   Your basis includes the settlement fees and closing costs for buying property. Fillable 1040ez 2012 You cannot include in your basis the fees and costs for getting a loan on property. Fillable 1040ez 2012 A fee for buying property is a cost that must be paid even if you bought the property for cash. Fillable 1040ez 2012   The following items are some of the settlement fees or closing costs you can include in the basis of your property. Fillable 1040ez 2012 Abstract fees (abstract of title fees); Charges for installing utility services; Legal fees (including title search and preparation of the sales contract and deed); Recording fees; Surveys; Transfer taxes; Owner's title insurance; and Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Fillable 1040ez 2012   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Fillable 1040ez 2012   The following items are some settlement fees and closing costs you cannot include in the basis of the property. Fillable 1040ez 2012 Casualty insurance premiums. Fillable 1040ez 2012 Rent for occupancy of the property before closing. Fillable 1040ez 2012 Charges for utilities or other services related to occupancy of the property before closing. Fillable 1040ez 2012 Charges connected with getting a loan. Fillable 1040ez 2012 The following are examples of these charges. Fillable 1040ez 2012 Points (discount points, loan origination fees). Fillable 1040ez 2012 Mortgage insurance premiums. Fillable 1040ez 2012 Loan assumption fees. Fillable 1040ez 2012 Cost of a credit report. Fillable 1040ez 2012 Fees for an appraisal required by a lender. Fillable 1040ez 2012 Fees for refinancing a mortgage. Fillable 1040ez 2012 If these costs relate to business property, items (1) through (3) are deductible as business expenses. Fillable 1040ez 2012 Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan. Fillable 1040ez 2012 Points. Fillable 1040ez 2012   If you pay points to obtain a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. Fillable 1040ez 2012 Generally, you deduct the points over the term of the loan. Fillable 1040ez 2012 For more information on how to deduct points, see Points in chapter 4 of Publication 535. Fillable 1040ez 2012 Points on home mortgage. Fillable 1040ez 2012   Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. Fillable 1040ez 2012 If certain requirements are met, you can deduct the points in full for the year in which they are paid. Fillable 1040ez 2012 Reduce the basis of your home by any seller-paid points. Fillable 1040ez 2012 For more information, see Points in Publication 936, Home Mortgage Interest Deduction. Fillable 1040ez 2012 Assumption of mortgage. Fillable 1040ez 2012   If you buy property and assume (or buy subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 If you buy a building for $20,000 cash and assume a mortgage of $80,000 on it, your basis is $100,000. Fillable 1040ez 2012 Constructing assets. Fillable 1040ez 2012   If you build property or have assets built for you, your expenses for this construction are part of your basis. Fillable 1040ez 2012 Some of these expenses include the following costs. Fillable 1040ez 2012 Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. Fillable 1040ez 2012 In addition, if you own a business and use your employees, material, and equipment to build an asset, do not deduct the following expenses. Fillable 1040ez 2012 You must include them in the asset's basis. Fillable 1040ez 2012 Employee wages paid for the construction work, reduced by any employment credits allowed; Depreciation on equipment you own while it is used in the construction; Operating and maintenance costs for equipment used in the construction; and The cost of business supplies and materials used in the construction. Fillable 1040ez 2012    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. Fillable 1040ez 2012 Business Assets If you purchase property to use in your business, your basis is usually its actual cost to you. Fillable 1040ez 2012 If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. Fillable 1040ez 2012 In certain circumstances, you may be subject to the uniform capitalization rules, next. Fillable 1040ez 2012 Uniform Capitalization Rules The uniform capitalization rules specify the costs you add to basis in certain circumstances. Fillable 1040ez 2012 Activities subject to the rules. Fillable 1040ez 2012   You must use the uniform capitalization rules if you do any of the following in your trade or business or activity carried on for profit. Fillable 1040ez 2012 Produce real or tangible personal property for use in the business or activity, Produce real or tangible personal property for sale to customers, or Acquire property for resale. Fillable 1040ez 2012 However, this rule does not apply to personal property if your average annual gross receipts for the 3 previous tax years are $10 million or less. Fillable 1040ez 2012   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. Fillable 1040ez 2012 Treat property produced for you under a contract as produced by you up to the amount you pay or costs you otherwise incur for the property. Fillable 1040ez 2012 Tangible personal property includes films, sound recordings, video tapes, books, or similar property. Fillable 1040ez 2012    Under the uniform capitalization rules, you must capitalize all direct costs and an allocable part of most indirect costs you incur due to your production or resale activities. Fillable 1040ez 2012 To capitalize means to include certain expenses in the basis of property you produce or in your inventory costs rather than deduct them as a current expense. Fillable 1040ez 2012 You recover these costs through deductions for depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Fillable 1040ez 2012   Any cost you cannot use to figure your taxable income for any tax year is not subject to the uniform capitalization rules. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 If you incur a business meal expense for which your deduction would be limited to 50% of the cost of the meal, that amount is subject to the uniform capitalization rules. Fillable 1040ez 2012 The nondeductible part of the cost is not subject to the uniform capitalization rules. Fillable 1040ez 2012 More information. Fillable 1040ez 2012   For more information about these rules, see the regulations under section 263A of the Internal Revenue Code and Publication 538, Accounting Periods and Methods. Fillable 1040ez 2012 Exceptions. Fillable 1040ez 2012   The following are not subject to the uniform capitalization rules. Fillable 1040ez 2012 Property you produce that you do not use in your trade, business, or activity conducted for profit; Qualified creative expenses you pay or incur as a free-lance (self-employed) writer, photographer, or artist that are otherwise deductible on your tax return; Property you produce under a long-term contract, except for certain home construction contracts; Research and experimental expenses deductible under section 174 of the Internal Revenue Code; and Costs for personal property acquired for resale if your (or your predecessor's) average annual gross receipts for the 3 previous tax years do not exceed $10 million. Fillable 1040ez 2012 For other exceptions to the uniform capitalization rules, see section 1. Fillable 1040ez 2012 263A-1(b) of the regulations. Fillable 1040ez 2012   For information on the special rules that apply to costs incurred in the business of farming, see chapter 6 of Publication 225, Farmer's Tax Guide. Fillable 1040ez 2012 Intangible Assets Intangible assets include goodwill, patents, copyrights, trademarks, trade names, and franchises. Fillable 1040ez 2012 The basis of an intangible asset is usually the cost to buy or create it. Fillable 1040ez 2012 If you acquire multiple assets, for example a going business for a lump sum, see Allocating the Basis below to figure the basis of the individual assets. Fillable 1040ez 2012 The basis of certain intangibles can be amortized. Fillable 1040ez 2012 See chapter 8 of Publication 535 for information on the amortization of these costs. Fillable 1040ez 2012 Patents. Fillable 1040ez 2012   The basis of a patent you get for an invention is the cost of development, such as research and experimental expenditures, drawings, working models, and attorneys' and governmental fees. Fillable 1040ez 2012 If you deduct the research and experimental expenditures as current business expenses, you cannot include them in the basis of the patent. Fillable 1040ez 2012 The value of the inventor's time spent on an invention is not part of the basis. Fillable 1040ez 2012 Copyrights. Fillable 1040ez 2012   If you are an author, the basis of a copyright will usually be the cost of getting the copyright plus copyright fees, attorneys' fees, clerical assistance, and the cost of plates that remain in your possession. Fillable 1040ez 2012 Do not include the value of your time as the author, or any other person's time you did not pay for. Fillable 1040ez 2012 Franchises, trademarks, and trade names. Fillable 1040ez 2012   If you buy a franchise, trademark, or trade name, the basis is its cost, unless you can deduct your payments as a business expense. Fillable 1040ez 2012 Allocating the Basis If you buy multiple assets for a lump sum, allocate the amount you pay among the assets you receive. Fillable 1040ez 2012 You must make this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. Fillable 1040ez 2012 See Trade or Business Acquired below. Fillable 1040ez 2012 Group of Assets Acquired If you buy multiple assets for a lump sum, you and the seller may agree to a specific allocation of the purchase price among the assets in the sales contract. Fillable 1040ez 2012 If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. Fillable 1040ez 2012 However, see Trade or Business Acquired, next. Fillable 1040ez 2012 Trade or Business Acquired If you acquire a trade or business, allocate the consideration paid to the various assets acquired. Fillable 1040ez 2012 Generally, reduce the consideration paid by any cash and general deposit accounts (including checking and savings accounts) received. Fillable 1040ez 2012 Allocate the remaining consideration to the other business assets received in proportion to (but not more than) their fair market value in the following order. Fillable 1040ez 2012 Certificates of deposit, U. Fillable 1040ez 2012 S. Fillable 1040ez 2012 Government securities, foreign currency, and actively traded personal property, including stock and securities. Fillable 1040ez 2012 Accounts receivable, other debt instruments, and assets you mark to market at least annually for federal income tax purposes. Fillable 1040ez 2012 Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held primarily for sale to customers in the ordinary course of business. Fillable 1040ez 2012 All other assets except section 197 intangibles, goodwill, and going concern value. Fillable 1040ez 2012 Section 197 intangibles except goodwill and going concern value. Fillable 1040ez 2012 Goodwill and going concern value (whether or not they qualify as section 197 intangibles). Fillable 1040ez 2012 Agreement. Fillable 1040ez 2012   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value (FMV) of any of the assets. Fillable 1040ez 2012 This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Fillable 1040ez 2012 Reporting requirement. Fillable 1040ez 2012   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Fillable 1040ez 2012 Use Form 8594 to provide this information. Fillable 1040ez 2012 The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Fillable 1040ez 2012 More information. Fillable 1040ez 2012   See Sale of a Business in chapter 2 of Publication 544 for more information. Fillable 1040ez 2012 Land and Buildings If you buy buildings and the land on which they stand for a lump sum, allocate the basis of the property among the land and the buildings so you can figure the depreciation allowable on the buildings. Fillable 1040ez 2012 Figure the basis of each asset by multiplying the lump sum by a fraction. Fillable 1040ez 2012 The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Fillable 1040ez 2012 If you are not certain of the FMV of the land and buildings, you can allocate the basis based on their assessed values for real estate tax purposes. Fillable 1040ez 2012 Demolition of building. Fillable 1040ez 2012   Add demolition costs and other losses incurred for the demolition of any building to the basis of the land on which the demolished building was located. Fillable 1040ez 2012 Do not claim the costs as a current deduction. Fillable 1040ez 2012 Modification of building. Fillable 1040ez 2012   A modification of a building will not be treated as a demolition if the following conditions are satisfied. Fillable 1040ez 2012 75 percent or more of the existing external walls of the building are retained in place as internal or external walls, and 75 percent or more of the existing internal structural framework of the building is retained in place. Fillable 1040ez 2012   If the building is a certified historic structure, the modification must also be part of a certified rehabilitation. Fillable 1040ez 2012   If these conditions are met, add the costs of the modifications to the basis of the building. Fillable 1040ez 2012 Subdivided lots. Fillable 1040ez 2012   If you buy a tract of land and subdivide it, you must determine the basis of each lot. Fillable 1040ez 2012 This is necessary because you must figure the gain or loss on the sale of each individual lot. Fillable 1040ez 2012 As a result, you do not recover your entire cost in the tract until you have sold all of the lots. Fillable 1040ez 2012   To determine the basis of an individual lot, multiply the total cost of the tract by a fraction. Fillable 1040ez 2012 The numerator is the FMV of the lot and the denominator is the FMV of the entire tract. Fillable 1040ez 2012 Future improvement costs. Fillable 1040ez 2012   If you are a developer and sell subdivided lots before the development work is completed, you can (with IRS consent) include in the basis of the properties sold an allocation of the estimated future cost for common improvements. Fillable 1040ez 2012 See Revenue Procedure 92–29 for more information, including an explanation of the procedures for getting consent from the IRS. Fillable 1040ez 2012 Use of erroneous cost basis. Fillable 1040ez 2012   If you made a mistake in figuring the cost basis of subdivided lots sold in previous years, you cannot correct the mistake for years for which the statute of limitations (generally 3 tax years) has expired. Fillable 1040ez 2012 Figure the basis of any remaining lots by allocating the correct original cost basis of the entire tract among the original lots. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 You bought a tract of land to which you assigned a cost of $15,000. Fillable 1040ez 2012 You subdivided the land into 15 building lots of equal size and equitably divided your basis so that each lot had a basis of $1,000. Fillable 1040ez 2012 You treated the sale of each lot as a separate transaction and figured gain or loss separately on each sale. Fillable 1040ez 2012 Several years later you determine that your original basis in the tract was $22,500 and not $15,000. Fillable 1040ez 2012 You sold eight lots using $8,000 of basis in years for which the statute of limitations has expired. Fillable 1040ez 2012 You now can take $1,500 of basis into account for figuring gain or loss only on the sale of each of the remaining seven lots ($22,500 basis divided among all 15 lots). Fillable 1040ez 2012 You cannot refigure the basis of the eight lots sold in tax years barred by the statute of limitations. Fillable 1040ez 2012 Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the basis of the property. Fillable 1040ez 2012 The result of these adjustments to the basis is the adjusted basis. Fillable 1040ez 2012 Increases to Basis Increase the basis of any property by all items properly added to a capital account. Fillable 1040ez 2012 These include the cost of any improvements having a useful life of more than 1 year. Fillable 1040ez 2012 Rehabilitation expenses also increase basis. Fillable 1040ez 2012 However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis. Fillable 1040ez 2012 If you have to recapture any of the credit, increase your basis by the recaptured amount. Fillable 1040ez 2012 If you make additions or improvements to business property, keep separate accounts for them. Fillable 1040ez 2012 Also, you must depreciate the basis of each according to the depreciation rules that would apply to the underlying property if you had placed it in service at the same time you placed the addition or improvement in service. Fillable 1040ez 2012 For more information, see Publication 946. Fillable 1040ez 2012 The following items increase the basis of property. Fillable 1040ez 2012 The cost of extending utility service lines to the property; Impact fees; Legal fees, such as the cost of defending and perfecting title; Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements; Zoning costs; and The capitalized value of a redeemable ground rent. Fillable 1040ez 2012 Assessments for Local Improvements Increase the basis of property by assessments for items such as paving roads and building ditches that increase the value of the property assessed. Fillable 1040ez 2012 Do not deduct them as taxes. Fillable 1040ez 2012 However, you can deduct as taxes charges for maintenance, repairs, or interest charges related to the improvements. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected landowners for the cost of the conversion. Fillable 1040ez 2012 Add the assessment to your property's basis. Fillable 1040ez 2012 In this example, the assessment is a depreciable asset. Fillable 1040ez 2012 Deducting vs. Fillable 1040ez 2012 Capitalizing Costs Do not add to your basis costs you can deduct as current expenses. Fillable 1040ez 2012 For example, amounts paid for incidental repairs or maintenance that are deductible as business expenses cannot be added to basis. Fillable 1040ez 2012 However, you can choose either to deduct or to capitalize certain other costs. Fillable 1040ez 2012 If you capitalize these costs, include them in your basis. Fillable 1040ez 2012 If you deduct them, do not include them in your basis. Fillable 1040ez 2012 See Uniform Capitalization Rules earlier. Fillable 1040ez 2012 The costs you can choose to deduct or to capitalize include the following. Fillable 1040ez 2012 Carrying charges, such as interest and taxes, that you pay to own property, except carrying charges that must be capitalized under the uniform capitalization rules; Research and experimentation costs; Intangible drilling and development costs for oil, gas, and geothermal wells; Exploration costs for new mineral deposits; Mining development costs for a new mineral deposit; Costs of establishing, maintaining, or increasing the circulation of a newspaper or other periodical; and Costs of removing architectural and transportation barriers to people with disabilities and the elderly. Fillable 1040ez 2012 If you claim the disabled access credit, you must reduce the amount you deduct or capitalize by the amount of the credit. Fillable 1040ez 2012 For more information about deducting or capitalizing costs, see chapter 7 in Publication 535. Fillable 1040ez 2012 Table 1. Fillable 1040ez 2012 Examples of Increases and Decreases to Basis Increases to Basis Decreases to Basis Capital improvements:   Putting an addition on your home   Replacing an entire roof  Paving your driveway  Installing central air conditioning Rewiring your home Exclusion from income of subsidies for energy conservation measures  Casualty or theft loss deductions and insurance reimbursements  Vehicle credits Assessments for local improvements: Water connections Sidewalks Roads Section 179 deduction  Casualty losses: Restoring damaged property Depreciation  Nontaxable corporate distributions Legal fees:  Cost of defending and perfecting a title   Zoning costs   Decreases to Basis The following are some items that reduce the basis of property. Fillable 1040ez 2012 Section 179 deduction; Nontaxable corporate distributions; Deductions previously allowed (or allowable) for amortization, depreciation, and depletion; Exclusion of subsidies for energy conservation measures; Vehicle credits; Residential energy credits; Postponed gain from sale of home; Investment credit (part or all) taken; Casualty and theft losses and insurance reimbursement; Certain canceled debt excluded from income; Rebates from a manufacturer or seller; Easements; Gas-guzzler tax; Adoption tax benefits; and Credit for employer-provided child care. Fillable 1040ez 2012 Some of these items are discussed next. Fillable 1040ez 2012 Casualties and Thefts If you have a casualty or theft loss, decrease the basis in your property by any insurance or other reimbursement and by any deductible loss not covered by insurance. Fillable 1040ez 2012 You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use. Fillable 1040ez 2012 To make this determination, compare the repaired property to the property before the casualty. Fillable 1040ez 2012 For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts. Fillable 1040ez 2012 Easements The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. Fillable 1040ez 2012 It reduces the basis of the affected part of the property. Fillable 1040ez 2012 If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Fillable 1040ez 2012 Vehicle Credits Unless you elect not to claim the qualified plug-in electric vehicle credit, the alternative motor vehicle credit, or the qualified plug-in electric drive motor vehicle credit, you may have to reduce the basis of each qualified vehicle by certain amounts reported. Fillable 1040ez 2012 For more information, see Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit; Form 8910, Alternative Motor Vehicle Credit; Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit;and the related instructions. Fillable 1040ez 2012 Gas-Guzzler Tax Decrease the basis in your car by the gas-guzzler (fuel economy) tax if you begin using the car within 1 year of the date of its first sale for ultimate use. Fillable 1040ez 2012 This rule also applies to someone who later buys the car and begins using it not more than 1 year after the original sale for ultimate use. Fillable 1040ez 2012 If the car is imported, the one-year period begins on the date of entry or withdrawal of the car from the warehouse if that date is later than the date of the first sale for ultimate use. Fillable 1040ez 2012 Section 179 Deduction If you take the section 179 deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. Fillable 1040ez 2012 For more information about the section 179 deduction, see Publication 946. Fillable 1040ez 2012 Exclusion of Subsidies for Energy Conservation Measures You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of any energy conservation measure for a dwelling unit. Fillable 1040ez 2012 Reduce the basis of the property for which you received the subsidy by the excluded amount. Fillable 1040ez 2012 For more information on this subsidy, see Publication 525. Fillable 1040ez 2012 Depreciation Decrease the basis of property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. Fillable 1040ez 2012 If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. Fillable 1040ez 2012 If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. Fillable 1040ez 2012 Unless a timely election is made not to deduct the special depreciation allowance for property placed in service after September 10, 2001, decrease the property's basis by the special depreciation allowance you deducted or could have deducted. Fillable 1040ez 2012 If you deducted more depreciation than you should have, decrease your basis by the amount equal to the depreciation you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for the year. Fillable 1040ez 2012 In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation capitalized under the uniform capitalization rules. Fillable 1040ez 2012 For information on figuring depreciation, see Publication 946. Fillable 1040ez 2012 If you are claiming depreciation on a business vehicle, see Publication 463. Fillable 1040ez 2012 If the car is not used more than 50% for business during the tax year, you may have to recapture excess depreciation. Fillable 1040ez 2012 Include the excess depreciation in your gross income and add it to your basis in the property. Fillable 1040ez 2012 For information on the computation of excess depreciation, see chapter 4 in Publication 463. Fillable 1040ez 2012 Canceled Debt Excluded From Income If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. Fillable 1040ez 2012 A debt includes any indebtedness for which you are liable or which attaches to property you hold. Fillable 1040ez 2012 You can exclude canceled debt from income in the following situations. Fillable 1040ez 2012 Debt canceled in a bankruptcy case or when you are insolvent, Qualified farm debt, and Qualified real property business debt (provided you are not a C corporation). Fillable 1040ez 2012 If you exclude from income canceled debt under situation (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. Fillable 1040ez 2012 However, in situation (3), you must reduce the basis of your depreciable property by the excluded amount. Fillable 1040ez 2012 For more information about canceled debt in a bankruptcy case or during insolvency, see Publication 908, Bankruptcy Tax Guide. Fillable 1040ez 2012 For more information about canceled debt that is qualified farm debt, see chapter 3 in Publication 225. Fillable 1040ez 2012 For more information about qualified real property business debt, see chapter 5 in Publication 334, Tax Guide for Small Business. Fillable 1040ez 2012 Postponed Gain From Sale of Home If you postponed gain from the sale of your main home before May 7, 1997, you must reduce the basis of your new home by the postponed gain. Fillable 1040ez 2012 For more information on the rules for the sale of a home, see Publication 523. Fillable 1040ez 2012 Adoption Tax Benefits If you claim an adoption credit for the cost of improvements you added to the basis of your home, decrease the basis of your home by the credit allowed. Fillable 1040ez 2012 This also applies to amounts you received under an employer's adoption assistance program and excluded from income. Fillable 1040ez 2012 For more information Form 8839, Qualified Adoption Expenses. Fillable 1040ez 2012 Employer-Provided Child Care If you are an employer, you can claim the employer-provided child care credit on amounts you paid or incurred to acquire, construct, rehabilitate, or expand property used as part of your qualified child care facility. Fillable 1040ez 2012 You must reduce your basis in that property by the credit claimed. Fillable 1040ez 2012 For more information, see Form 8882, Credit for Employer-Provided Child Care Facilities and Services. Fillable 1040ez 2012 Adjustments to Basis Example In January 2005, you paid $80,000 for real property to be used as a factory. Fillable 1040ez 2012 You also paid commissions of $2,000 and title search and legal fees of $600. Fillable 1040ez 2012 You allocated the total cost of $82,600 between the land and the building—$10,325 for the land and $72,275 for the building. Fillable 1040ez 2012 Immediately you spent $20,000 in remodeling the building before you placed it in service. Fillable 1040ez 2012 You were allowed depreciation of $14,526 for the years 2005 through 2009. Fillable 1040ez 2012 In 2008 you had a $5,000 casualty loss from a that was not covered by insurance on the building. Fillable 1040ez 2012 You claimed a deduction for this loss. Fillable 1040ez 2012 You spent $5,500 to repair the damages and extend the useful life of the building. Fillable 1040ez 2012 The adjusted basis of the building on January 1, 2010, is figured as follows: Original cost of building including fees and commissions $72,275 Adjustments to basis:     Add:         Improvements 20,000   Repair of damages 5,500       $97,775 Subtract:       Depreciation $14,526     Deducted casualty loss 5,000 19,526 Adjusted basis on January 1, 2010 $78,249 The basis of the land, $10,325, remains unchanged. Fillable 1040ez 2012 It is not affected by any of the above adjustments. Fillable 1040ez 2012 Basis Other Than Cost There are many times when you cannot use cost as basis. Fillable 1040ez 2012 In these cases, the fair market value or the adjusted basis of property may be used. Fillable 1040ez 2012 Adjusted basis is discussed earlier. Fillable 1040ez 2012 Fair market value (FMV). Fillable 1040ez 2012   FMV is the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Fillable 1040ez 2012 Sales of similar property on or about the same date may be helpful in figuring the property's FMV. Fillable 1040ez 2012 Property Received for Services If you receive property for services, include the property's FMV in income. Fillable 1040ez 2012 The amount you include in income becomes your basis. Fillable 1040ez 2012 If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Fillable 1040ez 2012 Bargain Purchases A bargain purchase is a purchase of an item for less than its FMV. Fillable 1040ez 2012 If, as compensation for services, you purchase goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. Fillable 1040ez 2012 Your basis in the property is its FMV (your purchase price plus the amount you include in income). Fillable 1040ez 2012 If the difference between your purchase price and the FMV represents a qualified employee discount, do not include the difference in income. Fillable 1040ez 2012 However, your basis in the property is still its FMV. Fillable 1040ez 2012 See Employee Discounts in Publication 15-B. Fillable 1040ez 2012 Restricted Property If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested unless you make the election discussed later. Fillable 1040ez 2012 Property becomes substantially vested when your rights in the property or the rights of any person to whom you transfer the property are not subject to a substantial risk of forfeiture. Fillable 1040ez 2012 There is substantial risk of forfeiture when the rights to full enjoyment of the property depend on the future performance of substantial services by any person. Fillable 1040ez 2012 When the property becomes substantially vested, include the FMV, less any amount you paid for the property, in income. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 Your employer gives you stock for services performed under the condition that you will have to return the stock unless you complete 5 years of service. Fillable 1040ez 2012 The stock is under a substantial risk of forfeiture and is not substantially vested when you receive it. Fillable 1040ez 2012 You do not report any income until you have completed the 5 years of service that satisfy the condition. Fillable 1040ez 2012 Fair market value. Fillable 1040ez 2012   Figure the FMV of property you received without considering any restriction except one that by its terms will never end. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 You received stock from your employer for services you performed. Fillable 1040ez 2012 If you want to sell the stock while you are still employed, you must sell the stock to your employer at book value. Fillable 1040ez 2012 At your retirement or death, you or your estate must offer to sell the stock to your employer at its book value. Fillable 1040ez 2012 This is a restriction that by its terms will never end and you must consider it when you figure the FMV. Fillable 1040ez 2012 Election. Fillable 1040ez 2012   You can choose to include in your gross income the FMV of the property at the time of transfer, less any amount you paid for it. Fillable 1040ez 2012 If you make this choice, the substantially vested rules do not apply. Fillable 1040ez 2012 Your basis is the amount you paid plus the amount you included in income. Fillable 1040ez 2012   See the discussion of Restricted Property in Publication 525 for more information. Fillable 1040ez 2012 Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Fillable 1040ez 2012 A taxable gain or deductible loss is also known as a recognized gain or loss. Fillable 1040ez 2012 If you receive property in exchange for other property in a taxable exchange, the basis of property you receive is usually its FMV at the time of the exchange. Fillable 1040ez 2012 A taxable exchange occurs when you receive cash or property not similar or related in use to the property exchanged. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 You trade a tract of farm land with an adjusted basis of $3,000 for a tractor that has an FMV of $6,000. Fillable 1040ez 2012 You must report a taxable gain of $3,000 for the land. Fillable 1040ez 2012 The tractor has a basis of $6,000. Fillable 1040ez 2012 Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, you can figure the basis of the replacement property you receive using the basis of the converted property. Fillable 1040ez 2012 Similar or related property. Fillable 1040ez 2012   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the old property's basis on the date of the conversion. Fillable 1040ez 2012 However, make the following adjustments. Fillable 1040ez 2012 Decrease the basis by the following. Fillable 1040ez 2012 Any loss you recognize on the conversion, and Any money you receive that you do not spend on similar property. Fillable 1040ez 2012 Increase the basis by the following. Fillable 1040ez 2012 Any gain you recognize on the conversion, and Any cost of acquiring the replacement property. Fillable 1040ez 2012 Money or property not similar or related. Fillable 1040ez 2012   If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the new property is its cost decreased by the gain not recognized on the conversion. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 The state condemned your property. Fillable 1040ez 2012 The property had an adjusted basis of $26,000 and the state paid you $31,000 for it. Fillable 1040ez 2012 You realized a gain of $5,000 ($31,000 − $26,000). Fillable 1040ez 2012 You bought replacement property similar in use to the converted property for $29,000. Fillable 1040ez 2012 You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Fillable 1040ez 2012 Your gain not recognized is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Fillable 1040ez 2012 The basis of the new property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of the replacement property $26,000 Allocating the basis. Fillable 1040ez 2012   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 The state in the previous example condemned your unimproved real property and the replacement property you bought was improved real property with both land and buildings. Fillable 1040ez 2012 Allocate the replacement property's $26,000 basis between land and buildings based on their respective costs. Fillable 1040ez 2012 More information. Fillable 1040ez 2012   For more information about condemnations, see Involuntary Conversions in Publication 544. Fillable 1040ez 2012 For more information about casualty and theft losses, see Publication 547. Fillable 1040ez 2012 Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Fillable 1040ez 2012 If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. Fillable 1040ez 2012 A nontaxable gain or loss is also known as an unrecognized gain or loss. Fillable 1040ez 2012 Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Fillable 1040ez 2012 To qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. Fillable 1040ez 2012 There must also be an exchange of like-kind property. Fillable 1040ez 2012 For more information, see Like-Kind Exchanges in Publication 544. Fillable 1040ez 2012 The basis of the property you receive is the same as the basis of the property you gave up. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 You exchange real estate (adjusted basis $50,000, FMV $80,000) held for investment for other real estate (FMV $80,000) held for investment. Fillable 1040ez 2012 Your basis in the new property is the same as the basis of the old ($50,000). Fillable 1040ez 2012 Exchange expenses. Fillable 1040ez 2012   Exchange expenses are generally the closing costs you pay. Fillable 1040ez 2012 They include such items as brokerage commissions, attorney fees, deed preparation fees, etc. Fillable 1040ez 2012 Add them to the basis of the like-kind property received. Fillable 1040ez 2012 Property plus cash. Fillable 1040ez 2012   If you trade property in a like-kind exchange and also pay money, the basis of the property received is the basis of the property you gave up increased by the money you paid. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 You trade in a truck (adjusted basis $3,000) for another truck (FMV $7,500) and pay $4,000. Fillable 1040ez 2012 Your basis in the new truck is $7,000 (the $3,000 basis of the old truck plus the $4,000 paid). Fillable 1040ez 2012 Special rules for related persons. Fillable 1040ez 2012   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. Fillable 1040ez 2012 Each person must report any gain or loss not recognized on the original exchange. Fillable 1040ez 2012 Each person reports it on the tax return filed for the year in which the later disposition occurs. Fillable 1040ez 2012 If this rule applies, the basis of the property received in the original exchange will be its fair market value. Fillable 1040ez 2012   These rules generally do not apply to the following kinds of property dispositions. Fillable 1040ez 2012 Dispositions due to the death of either related person, Involuntary conversions, and Dispositions in which neither the original exchange nor the subsequent disposition had as a main purpose the avoidance of federal income tax. Fillable 1040ez 2012 Related persons. Fillable 1040ez 2012   Generally, related persons are ancestors, lineal descendants, brothers and sisters (whole or half), and a spouse. Fillable 1040ez 2012   For other related persons (for example, two corporations, an individual and a corporation, a grantor and fiduciary, etc. Fillable 1040ez 2012 ), see Nondeductible Loss in chapter 2 of Publication 544. Fillable 1040ez 2012 Exchange of business property. Fillable 1040ez 2012   Exchanging the assets of one business for the assets of another business is a multiple property exchange. Fillable 1040ez 2012 For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. Fillable 1040ez 2012 Partially Nontaxable Exchange A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like property. Fillable 1040ez 2012 The basis of the property you receive is the same as the basis of the property you gave up, with the following adjustments. Fillable 1040ez 2012 Decrease the basis by the following amounts. Fillable 1040ez 2012 Any money you receive, and Any loss you recognize on the exchange. Fillable 1040ez 2012 Increase the basis by the following amounts. Fillable 1040ez 2012 Any additional costs you incur, and Any gain you recognize on the exchange. Fillable 1040ez 2012 If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 You traded a truck (adjusted basis $6,000) for a new truck (FMV $5,200) and $1,000 cash. Fillable 1040ez 2012 You realized a gain of $200 ($6,200 − $6,000). Fillable 1040ez 2012 This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($5,200 + $1,000 – $6,000). Fillable 1040ez 2012 You include all the gain in income (recognized gain) because the gain is less than the cash received. Fillable 1040ez 2012 Your basis in the new truck is: Adjusted basis of old truck $6,000 Minus: Cash received (adjustment 1(a)) 1,000   $5,000 Plus: Gain recognized (adjustment 2(b)) 200 Basis of new truck $5,200 Allocation of basis. Fillable 1040ez 2012   Allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Fillable 1040ez 2012 The rest is the basis of the like property. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 You had an adjusted basis of $15,000 in real estate you held for investment. Fillable 1040ez 2012 You exchanged it for other real estate to be held for investment with an FMV of $12,500, a truck with an FMV of $3,000, and $1,000 cash. Fillable 1040ez 2012 The truck is unlike property. Fillable 1040ez 2012 You realized a gain of $1,500 ($16,500 − $15,000). Fillable 1040ez 2012 This is the FMV of the real estate received plus the FMV of the truck received plus the cash minus the adjusted basis of the real estate you traded ($12,500 + $3,000 + $1,000 – $15,000). Fillable 1040ez 2012 You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. Fillable 1040ez 2012 Your basis in the properties you received is figured as follows. Fillable 1040ez 2012 Adjusted basis of real estate transferred $15,000 Minus: Cash received (adjustment 1(a)) 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property — the truck ($3,000). Fillable 1040ez 2012 This is the truck's FMV. Fillable 1040ez 2012 The rest ($12,500) is the basis of the real estate. Fillable 1040ez 2012 Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 You are a salesperson and you use one of your cars 100% for business. Fillable 1040ez 2012 You have used this car in your sales activities for 2 years and have depreciated it. Fillable 1040ez 2012 Your adjusted basis in the car is $22,600 and its FMV is $23,100. Fillable 1040ez 2012 You are interested in a new car, which sells for $28,000. Fillable 1040ez 2012 If you trade your old car and pay $4,900 for the new one, your basis for depreciation for the new car would be $27,500 ($4,900 plus the $22,600 basis of your old car). Fillable 1040ez 2012 However, you want a higher basis for depreciating the new car, so you agree to pay the dealer $28,000 for the new car if he will pay you $23,100 for your old car. Fillable 1040ez 2012 Because the two transactions are dependent on each other, you are treated as having exchanged your old car for the new one and paid $4,900 ($28,000 − $23,100). Fillable 1040ez 2012 Your basis for depreciating the new car is $27,500, the same as if you traded the old car. Fillable 1040ez 2012 Partial Business Use of Property If you have property used partly for business and partly for personal use, and you exchange it in a nontaxable exchange for property to be used wholly or partly in your business, the basis of the property you receive is figured as if you had exchanged two properties. Fillable 1040ez 2012 The first is an exchange of like-kind property. Fillable 1040ez 2012 The second is personal-use property on which gain is recognized and loss is not recognized. Fillable 1040ez 2012 First, figure your adjusted basis in the property as if you transferred two separate properties. Fillable 1040ez 2012 Figure the adjusted basis of each part of the property by taking into account any adjustments to basis. Fillable 1040ez 2012 Deduct the depreciation you took or could have taken from the adjusted basis of the business part. Fillable 1040ez 2012 Then figure the amount realized for your property and allocate it to the business and nonbusiness parts of the property. Fillable 1040ez 2012 The business part of the property is permitted to be exchanged tax free. Fillable 1040ez 2012 However, you must recognize any gain from the exchange of the nonbusiness part. Fillable 1040ez 2012 You are deemed to have received, in exchange for the nonbusiness part, an amount equal to its FMV on the date of the exchange. Fillable 1040ez 2012 The basis of the property you acquired is the total basis of the property transferred (adjusted to the date of the exchange), increased by any gain recognized on the nonbusiness part. Fillable 1040ez 2012 If the nonbusiness part of the property transferred is your main home, you may qualify to exclude from income all or part of the gain on that part. Fillable 1040ez 2012 For more information, see Publication 523. Fillable 1040ez 2012 Trade of car used partly in business. Fillable 1040ez 2012   If you trade in a car you used partly in your business for another car you will use in your business, your basis for depreciation of the new car is not the same as your basis for figuring a gain or loss on its sale. Fillable 1040ez 2012   For information on figuring your basis for depreciation, see Publication 463. Fillable 1040ez 2012 Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse (or former spouse if the transfer is incident to divorce), is the same as your spouse's adjusted basis. Fillable 1040ez 2012 However, adjust your basis for any gain recognized by your spouse or former spouse on property transferred in trust. Fillable 1040ez 2012 This rule applies only to a transfer of property in trust in which the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. Fillable 1040ez 2012 If the property transferred to you is a series E, series EE, or series I United States savings bond, the transferor must include in income the interest accrued to the date of transfer. Fillable 1040ez 2012 Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. Fillable 1040ez 2012 For more information on these bonds, see Publication 550. Fillable 1040ez 2012 At the time of the transfer, the transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of transfer. Fillable 1040ez 2012 For more information, see Publication 504, Divorced or Separated Individuals. Fillable 1040ez 2012 Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. Fillable 1040ez 2012 FMV Less Than Donor's Adjusted Basis If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Fillable 1040ez 2012 Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustment to basis while you held the property. Fillable 1040ez 2012 Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property (see Adjusted Basis earlier). Fillable 1040ez 2012 If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and have a gain, you have neither gain nor loss on the sale or disposition of the property. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 You received an acre of land as a gift. Fillable 1040ez 2012 At the time of the gift, the land had an FMV of $8,000. Fillable 1040ez 2012 The donor's adjusted basis was $10,000. Fillable 1040ez 2012 After you received the land, no events occurred to increase or decrease your basis. Fillable 1040ez 2012 If you sell the land for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis ($10,000) at the time of the gift as your basis to figure gain. Fillable 1040ez 2012 If you sell the land for $7,000, you will have a $1,000 loss because you must use the FMV ($8,000) at the time of the gift as your basis to figure a loss. Fillable 1040ez 2012 If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Fillable 1040ez 2012 For instance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis ($10,000), you would get a $1,000 loss. Fillable 1040ez 2012 If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain. Fillable 1040ez 2012 Business property. Fillable 1040ez 2012   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduction is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Fillable 1040ez 2012 FMV Equal to or More Than Donor's Adjusted Basis If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Fillable 1040ez 2012 Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Fillable 1040ez 2012 Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis by any required adjustments to basis while you held the property. Fillable 1040ez 2012 See Adjusted Basis earlier. Fillable 1040ez 2012 Gift received before 1977. Fillable 1040ez 2012   If you received a gift before 1977, increase your basis in the gift (the donor's adjusted basis) by any gift tax paid on it. Fillable 1040ez 2012 However, do not increase your basis above the FMV of the gift at the time it was given to you. Fillable 1040ez 2012 Example 1. Fillable 1040ez 2012 You were given a house in 1976 with an FMV of $21,000. Fillable 1040ez 2012 The donor's adjusted basis was $20,000. Fillable 1040ez 2012 The donor paid a gift tax of $500. Fillable 1040ez 2012 Your basis is $20,500, the donor's adjusted basis plus the gift tax paid. Fillable 1040ez 2012 Example 2. Fillable 1040ez 2012 If, in Example 1, the gift tax paid had been $1,500, your basis would be $21,000. Fillable 1040ez 2012 This is the donor's adjusted basis plus the gift tax paid, limited to the FMV of the house at the time you received the gift. Fillable 1040ez 2012 Gift received after 1976. Fillable 1040ez 2012   If you received a gift after 1976, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. Fillable 1040ez 2012 Figure the increase by multiplying the gift tax paid by a fraction. Fillable 1040ez 2012 The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Fillable 1040ez 2012   The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. Fillable 1040ez 2012 The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Fillable 1040ez 2012 For information on the gift tax, see Publication 950, Introduction to Estate and Gift Taxes. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 In 2010, you received a gift of property from your mother that had an FMV of $50,000. Fillable 1040ez 2012 Her adjusted basis was $20,000. Fillable 1040ez 2012 The amount of the gift for gift tax purposes was $37,000 ($50,000 minus the $13,000 annual exclusion). Fillable 1040ez 2012 She paid a gift tax of $9,000. Fillable 1040ez 2012 Your basis, $27,290, is figured as follows: Fair market value $50,000 Minus: Adjusted basis 20,000 Net increase in value $30,000 Gift tax paid $9,000 Multiplied by ($30,000 ÷ $37,000) . Fillable 1040ez 2012 81 Gift tax due to net increase in value $7,290 Adjusted basis of property to your mother 20,000 Your basis in the property $27,290 Inherited Property Special rules apply to property acquired from a decedent who died in 2010. Fillable 1040ez 2012 See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Fillable 1040ez 2012 If you inherited property from a decedent who died before 2010, your basis in property you inherit from a decedent is generally one of the following. Fillable 1040ez 2012 The FMV of the property at the date of the individual's death. Fillable 1040ez 2012 The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. Fillable 1040ez 2012 For information on the alternate valuation date, see the Instructions for Form 706. Fillable 1040ez 2012 The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. Fillable 1040ez 2012 This method is discussed later. Fillable 1040ez 2012 The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. Fillable 1040ez 2012 For information on a qualified conservation easement, see the Instructions for Form 706. Fillable 1040ez 2012 If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Fillable 1040ez 2012 For more information, see the Instructions for Form 706. Fillable 1040ez 2012 Appreciated property. Fillable 1040ez 2012   The above rule does not apply to appreciated property you receive from a decedent if you or your spouse originally gave the property to the decedent within 1 year before the decedent's death. Fillable 1040ez 2012 Your basis in this property is the same as the decedent's adjusted basis in the property immediately before his or her death, rather than its FMV. Fillable 1040ez 2012 Appreciated property is any property whose FMV on the day it was given to the decedent is more than its adjusted basis. Fillable 1040ez 2012 Community Property In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. Fillable 1040ez 2012 When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. Fillable 1040ez 2012 For this rule to apply, at least half the value of the community property interest must be includable in the decedent's gross estate, whether or not the estate must file a return. Fillable 1040ez 2012 For example, you and your spouse owned community property that had a basis of $80,000. Fillable 1040ez 2012 When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Fillable 1040ez 2012 The FMV of the community interest was $100,000. Fillable 1040ez 2012 The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Fillable 1040ez 2012 The basis of the other half to your spouse's heirs is also $50,000. Fillable 1040ez 2012 For more information on community property, see Publication 555, Community Property. Fillable 1040ez 2012 Property Held by Surviving Tenant The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 John and Jim owned, as joint tenants with right of survivorship, business property they purchased for $30,000. Fillable 1040ez 2012 John furnished two-thirds of the purchase price and Jim furnished one-third. Fillable 1040ez 2012 Depreciation deductions allowed before John's death were $12,000. Fillable 1040ez 2012 Under local law, each had a half interest in the income from the property. Fillable 1040ez 2012 At the date of John's death, the property had an FMV of $60,000, two-thirds of which is includable in John's estate. Fillable 1040ez 2012 Jim figures his basis in the property at the date of John's death as follows: Interest Jim bought with his own funds—1/3 of $30,000 cost $10,000   Interest Jim received on John's death—2/3 of $60,000 FMV 40,000 $50,000 Minus: ½ of $12,000 depreciation before John's death 6,000 Jim's basis at the date of John's death $44,000 If Jim had not contributed any part of the purchase price, his basis at the date of John's death would be $54,000. Fillable 1040ez 2012 This is figured by subtracting from the $60,000 FMV, the $6,000 depreciation allocated to Jim's half interest before the date of death. Fillable 1040ez 2012 If under local law Jim had no interest in the income from the property and he contributed no part of the purchase price, his basis at John's death would be $60,000, the FMV of the property. Fillable 1040ez 2012 Qualified Joint Interest Include one-half of the value of a qualified joint interest in the decedent's gross estate. Fillable 1040ez 2012 It does not matter how much each spouse contributed to the purchase price. Fillable 1040ez 2012 Also, it does not matter which spouse dies first. Fillable 1040ez 2012 A qualified joint interest is any interest in property held by husband and wife as either of the following. Fillable 1040ez 2012 Tenants by the entirety, or Joint tenants with right of survivorship if husband and wife are the only joint tenants. Fillable 1040ez 2012 Basis. Fillable 1040ez 2012   As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of your half of the property with certain adjustments. Fillable 1040ez 2012 Decrease the cost by any deductions allowed to you for depreciation and depletion. Fillable 1040ez 2012 Increase the reduced cost by your basis in the half you inherited. Fillable 1040ez 2012 Farm or Closely Held Business Under certain conditions, when a person dies the executor or personal representative of that person's estate can choose to value the qualified real property on other than its FMV. Fillable 1040ez 2012 If so, the executor or personal representative values the qualified real property based on its use as a farm or its use in a closely held business. Fillable 1040ez 2012 If the executor or personal representative chooses this method of valuation for estate tax purposes, that value is the basis of the property for the heirs. Fillable 1040ez 2012 Qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. Fillable 1040ez 2012 Special-use valuation. Fillable 1040ez 2012   If you are a qualified heir who received special-use valuation property, your basis in the property is the estate's or trust's basis in that property immediately before the distribution. Fillable 1040ez 2012 Increase your basis by any gain recognized by the estate or trust because of post-death appreciation. Fillable 1040ez 2012 Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or the alternate valuation date. Fillable 1040ez 2012 Figure all FMVs without regard to the special-use valuation. Fillable 1040ez 2012   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. Fillable 1040ez 2012 This tax is assessed if, within 10 years after the death of the decedent, you transfer the property to a person who is not a member of your family or the property stops being used as a farm or in a closely held business. Fillable 1040ez 2012   To increase your basis in the property, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of the payment of the additional estate tax. Fillable 1040ez 2012 If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. Fillable 1040ez 2012 The increase in your basis is considered to have occurred immediately before the event that results in the additional estate tax. Fillable 1040ez 2012   You make the election by filing with Form 706-A a statement that does all of the following. Fillable 1040ez 2012 Contains your name, address, and taxpayer identification number and those of the estate; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which the election is made; and Provides any additional information required by the Instructions for Form 706-A. Fillable 1040ez 2012   For more information, see the Instructions for Form 706 and the Instructions for Form 706-A. Fillable 1040ez 2012 Property Changed to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. Fillable 1040ez 2012 An example of changing property held for personal use to business use would be renting out your former main home. Fillable 1040ez 2012 Basis for depreciation. Fillable 1040ez 2012   The basis for depreciation is the lesser of the following amounts. Fillable 1040ez 2012 The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 Several years ago you paid $160,000 to have your home built on a lot that cost $25,000. Fillable 1040ez 2012 You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. Fillable 1040ez 2012 Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Fillable 1040ez 2012 Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Fillable 1040ez 2012 On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Fillable 1040ez 2012 The basis for figuring depreciation on the house is its FMV on the date of change ($165,000) because it is less than your adjusted basis ($178,000). Fillable 1040ez 2012 Sale of property. Fillable 1040ez 2012   If you later sell or dispose of property changed to business or rental use, the basis of the property you use will depend on whether you are figuring gain or loss. Fillable 1040ez 2012 Gain. Fillable 1040ez 2012   The basis for figuring a gain is your adjusted basis when you sell the property. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. Fillable 1040ez 2012 Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Fillable 1040ez 2012 Loss. Fillable 1040ez 2012   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Fillable 1040ez 2012 Then adjust this amount for the period after the change in the property's use, as discussed earlier under Adjusted Basis, to arrive at a basis for loss. Fillable 1040ez 2012 Example. Fillable 1040ez 2012 Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. Fillable 1040ez 2012 In this case, you would start with the FMV on the date of the change to rental use ($180,000) because it is less than the adjusted basis of $203,000 ($178,000 + $25,000) on that date. Fillable 1040ez 2012 Reduce that amount ($180,000) by the depreciation deductions to arrive at a basis for loss of $142,500 ($180,000 − $37,500). Fillable 1040ez 2012 How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. Fillable 1040ez 2012 By selecting the method that is best for you, you will have quick and easy access to tax help. Fillable 1040ez 2012 Contacting your Taxpayer Advocate. Fillable 1040ez 2012   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. Fillable 1040ez 2012 We help taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving tax problems with the IRS; and those who believe that an IRS system or procedure is not working as it should. Fillable 1040ez 2012 Here are seven things every taxpayer should know about TAS. Fillable 1040ez 2012 TAS is your voice at the IRS. Fillable 1040ez 2012 Our service is free, confidential, and tailored to meet your needs. Fillable 1040ez 2012 You may be eligible for our help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should. Fillable 1040ez 2012 We help taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. Fillable 1040ez 2012 This includes businesses as well as individuals. Fillable 1040ez 2012 Our employees know the IRS and how to navigate it. Fillable 1040ez 2012 If you qualify for our help, we'll assign your case to an advocate who will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved. Fillable 1040ez 2012 We have at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. Fillable 1040ez 2012 You can call your local advocate, whose number is in your phone book, in Publication 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www. Fillable 1040ez 2012 irs. Fillable 1040ez 2012 gov/advocate. Fillable 1040ez 2012 You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059. Fillable 1040ez 2012 You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www. Fillable 1040ez 2012 taxtoolkit. Fillable 1040ez 2012 irs. Fillable 1040ez 2012 gov. Fillable 1040ez 2012 You can get updates on hot tax topics by visiting our YouTube channel at www. Fillable 1040ez 2012 youtube. Fillable 1040ez 2012 com/tasnta and our Facebook page at www. Fillable 1040ez 2012 facebook. Fillable 1040ez 2012 com/YourVoiceAtIRS, or by following our tweets at www. Fillable 1040ez 2012 twitter. Fillable 1040ez 2012 com/YourVoiceAtIRS. Fillable 1040ez 2012 Low Income Taxpayer Clinics (LITCs). Fillable 1040ez 2012   The Low Income Taxpayer Clinic program serves individuals who have a problem with the IRS and whose income is below a certain level. Fillable 1040ez 2012 LITCs are independent from the IRS. Fillable 1040ez 2012 Most LITCs can provide representation before the IRS or in court on audits, tax collection disputes, and other issues for free or a small fee. Fillable 1040ez 2012 If an individual's native language is not English, some clinics can provide multilingual information about taxpayer rights and responsibilities. Fillable 1040ez 2012 For more information, see Publication 4134, Low Income Taxpayer Clinic List. Fillable 1040ez 2012 This publication is available at IRS. Fillable 1040ez 2012 gov, by calling 1-800-TAX-FORM (1-800-829-3676), or at your local IRS office. Fillable 1040ez 2012 Free tax services. Fillable 1040ez 2012   Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. Fillable 1040ez 2012 Learn about free tax information from the IRS, including publications, services, and education and assistance programs. Fillable 1040ez 2012 The publication also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on the telephone. Fillable 1040ez 2012 The majority of the information and services listed in this publication are available to you free of charge. Fillable 1040ez 2012 If there is a fee associated with a resource or service, it is listed in the publication. Fillable 1040ez 2012   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with d