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Form 1040 Nr

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Form 1040 Nr

Form 1040 nr 14. Form 1040 nr   Sale of Property Table of Contents Reminder 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 Reminder Foreign income. Form 1040 nr  If you are a U. Form 1040 nr S. Form 1040 nr citizen who sells property located outside the United States, you must report all gains and losses from the sale of that property on your tax return unless it is exempt by U. Form 1040 nr S. Form 1040 nr law. Form 1040 nr This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the payer. Form 1040 nr Introduction This chapter discusses the tax consequences of selling or trading investment property. Form 1040 nr It explains the following. Form 1040 nr What a sale or trade is. Form 1040 nr Figuring gain or loss. Form 1040 nr Nontaxable trades. Form 1040 nr Related party transactions. Form 1040 nr Capital gains or losses. Form 1040 nr Capital assets and noncapital assets. Form 1040 nr Holding period. Form 1040 nr Rollover of gain from publicly traded securities. Form 1040 nr Other property transactions. Form 1040 nr   Certain transfers of property are not discussed here. Form 1040 nr They are discussed in other IRS publications. Form 1040 nr These include the following. Form 1040 nr Sales of a main home, covered in chapter 15. Form 1040 nr Installment sales, covered in Publication 537, Installment Sales. Form 1040 nr Transactions involving business property, covered in Publication 544, Sales and Other Dispositions of Assets. Form 1040 nr Dispositions of an interest in a passive activity, covered in Publication 925, Passive Activity and At-Risk Rules. Form 1040 nr    Publication 550, Investment Income and Expenses (Including Capital Gains and Losses), provides a more detailed discussion about sales and trades of investment property. Form 1040 nr Publication 550 includes information about the rules covering nonbusiness bad debts, straddles, section 1256 contracts, puts and calls, commodity futures, short sales, and wash sales. Form 1040 nr It also discusses investment-related expenses. Form 1040 nr Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 8949 Sales and Other Dispositions of Capital Assets 8824 Like-Kind Exchanges Sales and Trades If you sold property such as stocks, bonds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. Form 1040 nr Generally, you should receive the statement by February 15 of the next year. Form 1040 nr It will show the gross proceeds from the sale. Form 1040 nr If you sold a covered security in 2013, your 1099-B (or substitute statement) will show your basis. Form 1040 nr Generally, a covered security is a security you acquired after 2010, with certain exceptions. Form 1040 nr See the Instructions for Form 8949. Form 1040 nr The IRS will also get a copy of Form 1099-B from the broker. Form 1040 nr Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. Form 1040 nr What Is a Sale or Trade? This section explains what is a sale or trade. Form 1040 nr It also explains certain transactions and events that are treated as sales or trades. Form 1040 nr A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. Form 1040 nr A trade is a transfer of property for other property or services and may be taxed in the same way as a sale. Form 1040 nr Sale and purchase. Form 1040 nr   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. Form 1040 nr The sale and purchase are two separate transactions. Form 1040 nr But see Like-kind exchanges under Nontaxable Trades, later. Form 1040 nr Redemption of stock. Form 1040 nr   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. Form 1040 nr Dividend versus sale or trade. Form 1040 nr   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. Form 1040 nr Both direct and indirect ownership of stock will be considered. Form 1040 nr The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend (see chapter 8), There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. Form 1040 nr Redemption or retirement of bonds. Form 1040 nr   A redemption or retirement of bonds or notes at their maturity is generally treated as a sale or trade. Form 1040 nr   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. Form 1040 nr For details, see Regulations section 1. Form 1040 nr 1001-3. Form 1040 nr Surrender of stock. Form 1040 nr   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. Form 1040 nr The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. Form 1040 nr Worthless securities. Form 1040 nr    Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. Form 1040 nr This affects whether your capital loss is long term or short term. Form 1040 nr See Holding Period , later. Form 1040 nr   Worthless securities also include securities that you abandon after March 12, 2008. Form 1040 nr To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. Form 1040 nr All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. Form 1040 nr    If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. Form 1040 nr Do not deduct them in the year the stock became worthless. Form 1040 nr How to report loss. Form 1040 nr    Report worthless securities in Part I or Part II, whichever applies, of Form 8949. Form 1040 nr In column (a), enter “Worthless. Form 1040 nr ”    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. Form 1040 nr See Form 8949 and the Instructions for Form 8949. Form 1040 nr For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Form 1040 nr See also Schedule D (Form 1040), Form 8949, and their separate instructions. Form 1040 nr Filing a claim for refund. Form 1040 nr   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. Form 1040 nr You must use Form 1040X, Amended U. Form 1040 nr S. Form 1040 nr Individual Income Tax Return, to amend your return for the year the security became worthless. Form 1040 nr You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. Form 1040 nr For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. Form 1040 nr How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. Form 1040 nr Gain. Form 1040 nr   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. Form 1040 nr Loss. Form 1040 nr   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. Form 1040 nr Adjusted basis. Form 1040 nr   The adjusted basis of property is your original cost or other original basis properly adjusted (increased or decreased) for certain items. Form 1040 nr See chapter 13 for more information about determining the adjusted basis of property. Form 1040 nr Amount realized. Form 1040 nr   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). Form 1040 nr Amount realized includes the money you receive plus the fair market value of any property or services you receive. Form 1040 nr If you received a note or other debt instrument for the property, see How To Figure Gain or Loss in chapter 4 of Publication 550 to figure the amount realized. Form 1040 nr If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. Form 1040 nr For more information, see Publication 537. Form 1040 nr Fair market value. Form 1040 nr   Fair market value is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Form 1040 nr Example. Form 1040 nr You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. Form 1040 nr Your gain is $3,000 ($10,000 − $7,000). Form 1040 nr Debt paid off. Form 1040 nr    A debt against the property, or against you, that is paid off as a part of the transaction, or that is assumed by the buyer, must be included in the amount realized. Form 1040 nr This is true even if neither you nor the buyer is personally liable for the debt. Form 1040 nr For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. Form 1040 nr Example. Form 1040 nr You sell stock that you had pledged as security for a bank loan of $8,000. Form 1040 nr Your basis in the stock is $6,000. Form 1040 nr The buyer pays off your bank loan and pays you $20,000 in cash. Form 1040 nr The amount realized is $28,000 ($20,000 + $8,000). Form 1040 nr Your gain is $22,000 ($28,000 − $6,000). Form 1040 nr Payment of cash. Form 1040 nr   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. Form 1040 nr Determine your gain or loss by subtracting the cash you pay plus the adjusted basis of the property you trade in from the amount you realize. Form 1040 nr If the result is a positive number, it is a gain. Form 1040 nr If the result is a negative number, it is a loss. Form 1040 nr No gain or loss. Form 1040 nr   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. Form 1040 nr In this case, you may have neither a gain nor a loss. Form 1040 nr See Basis Other Than Cost in chapter 13. Form 1040 nr Nontaxable Trades This section discusses trades that generally do not result in a taxable gain or deductible loss. Form 1040 nr For more information on nontaxable trades, see chapter 1 of Publication 544. Form 1040 nr Like-kind exchanges. Form 1040 nr   If you trade business or investment property for other business or investment property of a like kind, you do not pay tax on any gain or deduct any loss until you sell or dispose of the property you receive. Form 1040 nr To be nontaxable, a trade must meet all six of the following conditions. Form 1040 nr The property must be business or investment property. Form 1040 nr You must hold both the property you trade and the property you receive for productive use in your trade or business or for investment. Form 1040 nr Neither property may be property used for personal purposes, such as your home or family car. Form 1040 nr The property must not be held primarily for sale. Form 1040 nr The property you trade and the property you receive must not be property you sell to customers, such as merchandise. Form 1040 nr The property must not be stocks, bonds, notes, choses in action, certificates of trust or beneficial interest, or other securities or evidences of indebtedness or interest, including partnership interests. Form 1040 nr However, see Special rules for mutual ditch, reservoir, or irrigation company stock, in chapter 4 of Publication 550 for an exception. Form 1040 nr Also, you can have a nontaxable trade of corporate stocks under a different rule, as discussed later. Form 1040 nr There must be a trade of like property. Form 1040 nr The trade of real estate for real estate, or personal property for similar personal property, is a trade of like property. Form 1040 nr The trade of an apartment house for a store building, or a panel truck for a pickup truck, is a trade of like property. Form 1040 nr The trade of a piece of machinery for a store building is not a trade of like property. Form 1040 nr Real property located in the United States and real property located outside the United States are not like property. Form 1040 nr Also, personal property used predominantly within the United States and personal property used predominantly outside the United States are not like property. Form 1040 nr The property to be received must be identified in writing within 45 days after the date you transfer the property given up in the trade. Form 1040 nr The property to be received must be received by the earlier of: The 180th day after the date on which you transfer the property given up in the trade, or The due date, including extensions, for your tax return for the year in which the transfer of the property given up occurs. Form 1040 nr    If you trade property with a related party in a like-kind exchange, a special rule may apply. Form 1040 nr See Related Party Transactions , later in this chapter. Form 1040 nr Also, see chapter 1 of Publication 544 for more information on exchanges of business property and special rules for exchanges using qualified intermediaries or involving multiple properties. Form 1040 nr Partly nontaxable exchange. Form 1040 nr   If you receive money or unlike property in addition to like property, and the above six conditions are met, you have a partly nontaxable trade. Form 1040 nr You are taxed on any gain you realize, but only up to the amount of the money and the fair market value of the unlike property you receive. Form 1040 nr You cannot deduct a loss. Form 1040 nr Like property and unlike property transferred. Form 1040 nr   If you give up unlike property in addition to the like property, you must recognize gain or loss on the unlike property you give up. Form 1040 nr The gain or loss is the difference between the adjusted basis of the unlike property and its fair market value. Form 1040 nr Like property and money transferred. Form 1040 nr   If all of the above conditions (1) – (6) are met, you have a nontaxable trade even if you pay money in addition to the like property. Form 1040 nr Basis of property received. Form 1040 nr   To figure the basis of the property received, see Nontaxable Exchanges in chapter 13. Form 1040 nr How to report. Form 1040 nr   You must report the trade of like property on Form 8824. Form 1040 nr If you figure a recognized gain or loss on Form 8824, report it on Schedule D (Form 1040), or on Form 4797, Sales of Business Property, whichever applies. Form 1040 nr See the instructions for Line 22 in the Instructions for Form 8824. Form 1040 nr   For information on using Form 4797, see chapter 4 of Publication 544. Form 1040 nr Corporate stocks. Form 1040 nr   The following trades of corporate stocks generally do not result in a taxable gain or a deductible loss. Form 1040 nr Corporate reorganizations. Form 1040 nr   In some instances, a company will give you common stock for preferred stock, preferred stock for common stock, or stock in one corporation for stock in another corporation. Form 1040 nr If this is a result of a merger, recapitalization, transfer to a controlled corporation, bankruptcy, corporate division, corporate acquisition, or other corporate reorganization, you do not recognize gain or loss. Form 1040 nr Stock for stock of the same corporation. Form 1040 nr   You can exchange common stock for common stock or preferred stock for preferred stock in the same corporation without having a recognized gain or loss. Form 1040 nr This is true for a trade between two stockholders as well as a trade between a stockholder and the corporation. Form 1040 nr Convertible stocks and bonds. Form 1040 nr   You generally will not have a recognized gain or loss if you convert bonds into stock or preferred stock into common stock of the same corporation according to a conversion privilege in the terms of the bond or the preferred stock certificate. Form 1040 nr Property for stock of a controlled corporation. Form 1040 nr   If you transfer property to a corporation solely in exchange for stock in that corporation, and immediately after the trade you are in control of the corporation, you ordinarily will not recognize a gain or loss. Form 1040 nr This rule applies both to individuals and to groups who transfer property to a corporation. Form 1040 nr It does not apply if the corporation is an investment company. Form 1040 nr   For this purpose, to be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock of the corporation. Form 1040 nr   If this provision applies to you, you may have to attach to your return a complete statement of all facts pertinent to the exchange. Form 1040 nr For details, see Regulations section 1. Form 1040 nr 351-3. Form 1040 nr Additional information. Form 1040 nr   For more information on trades of stock, see Nontaxable Trades in chapter 4 of Publication 550. Form 1040 nr Insurance policies and annuities. Form 1040 nr   You will not have a recognized gain or loss if the insured or annuitant is the same under both contracts and you trade: A life insurance contract for another life insurance contract or for an endowment or annuity contract or for a qualified long-term care insurance contract, An endowment contract for another endowment contract that provides for regular payments beginning at a date no later than the beginning date under the old contract or for an annuity contract or for a qualified long-term insurance contract, An annuity contract for annuity contract or for a qualified long-term care insurance contract, or A qualified long-term care insurance contract for a qualified long-term care insurance contract. Form 1040 nr   You also may not have to recognize gain or loss on an exchange of a portion of an annuity contract for another annuity contract. Form 1040 nr For transfers completed before October 24, 2011, see Revenue Ruling 2003-76 in Internal Revenue Bulletin 2003-33 and Revenue Procedure 2008-24 in Internal Revenue Bulletin 2008-13. Form 1040 nr Revenue Ruling 2003-76 is available at www. Form 1040 nr irs. Form 1040 nr gov/irb/2003-33_IRB/ar11. Form 1040 nr html. Form 1040 nr Revenue Procedure 2008-24 is available at www. Form 1040 nr irs. Form 1040 nr gov/irb/2008-13_IRB/ar13. Form 1040 nr html. Form 1040 nr For transfers completed on or after October 24, 2011, see Revenue Ruling 2003-76, above, and Revenue Procedure 2011-38, in Internal Revenue Bulletin 2011-30. Form 1040 nr Revenue Procedure 2011-38 is available at www. Form 1040 nr irs. Form 1040 nr gov/irb/2011-30_IRB/ar09. Form 1040 nr html. Form 1040 nr   For tax years beginning after December 31, 2010, amounts received as an annuity for a period of 10 years or more, or for the lives of one or more individuals, under any portion of an annuity, endowment, or life insurance contract, are treated as a separate contract and are considered partial annuities. Form 1040 nr A portion of an annuity, endowment, or life insurance contract may be annuitized, provided that the annuitization period is for 10 years or more or for the lives of one or more individuals. Form 1040 nr The investment in the contract is allocated between the part of the contract from which amounts are received as an annuity and the part of the contract from which amounts are not received as an annuity. Form 1040 nr   Exchanges of contracts not included in this list, such as an annuity contract for an endowment contract, or an annuity or endowment contract for a life insurance contract, are taxable. Form 1040 nr Demutualization of life insurance companies. Form 1040 nr   If you received stock in exchange for your equity interest as a policyholder or an annuitant, you generally will not have a recognized gain or loss. Form 1040 nr See Demutualization of Life Insurance Companies in Publication 550. Form 1040 nr U. Form 1040 nr S. Form 1040 nr Treasury notes or bonds. Form 1040 nr   You can trade certain issues of U. Form 1040 nr S. Form 1040 nr Treasury obligations for other issues designated by the Secretary of the Treasury, with no gain or loss recognized on the trade. Form 1040 nr See Savings bonds traded in chapter 1 of Publication 550 for more information. Form 1040 nr Transfers Between Spouses Generally, no gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or if incident to a divorce, a former spouse. Form 1040 nr This nonrecognition rule does not apply in the following situations. Form 1040 nr The recipient spouse or former spouse is a nonresident alien. Form 1040 nr Property is transferred in trust and liability exceeds basis. Form 1040 nr Gain must be recognized to the extent the amount of the liabilities assumed by the trust, plus any liabilities on the property, exceed the adjusted basis of the property. Form 1040 nr For other situations, see Transfers Between Spouses in chapter 4 of Publication 550. Form 1040 nr Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is treated by the recipient as a gift and is not considered a sale or exchange. Form 1040 nr The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Form 1040 nr This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its fair market value at the time of transfer or any consideration paid by the recipient. Form 1040 nr This rule applies for purposes of determining loss as well as gain. Form 1040 nr Any gain recognized on a transfer in trust increases the basis. Form 1040 nr A transfer of property is incident to a divorce if the transfer occurs within 1 year after the date on which the marriage ends, or if the transfer is related to the ending of the marriage. Form 1040 nr Related Party Transactions Special rules apply to the sale or trade of property between related parties. Form 1040 nr Gain on sale or trade of depreciable property. Form 1040 nr   Your gain from the sale or trade of property to a related party may be ordinary income, rather than capital gain, if the property can be depreciated by the party receiving it. Form 1040 nr See chapter 3 of Publication 544 for more information. Form 1040 nr Like-kind exchanges. Form 1040 nr   Generally, if you trade business or investment property for other business or investment property of a like kind, no gain or loss is recognized. Form 1040 nr See Like-kind exchanges , earlier, under Nontaxable Trades. Form 1040 nr   This rule also applies to trades of property between related parties, defined next under Losses on sales or trades of property. Form 1040 nr However, if either you or the related party disposes of the like property within 2 years after the trade, you both must report any gain or loss not recognized on the original trade on your return filed for the year in which the later disposition occurs. Form 1040 nr See Related Party Transactions in chapter 4 of Publication 550 for exceptions. Form 1040 nr Losses on sales or trades of property. Form 1040 nr   You cannot deduct a loss on the sale or trade of property, other than a distribution in complete liquidation of a corporation, if the transaction is directly or indirectly between you and the following related parties. Form 1040 nr Members of your family. Form 1040 nr This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. Form 1040 nr ), and lineal descendants (children, grandchildren, etc. Form 1040 nr ). Form 1040 nr A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. Form 1040 nr A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. Form 1040 nr (See Constructive ownership of stock , later. Form 1040 nr ) A tax-exempt charitable or educational organization directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. Form 1040 nr   In addition, a loss on the sale or trade of property is not deductible if the transaction is directly or indirectly between the following related parties. Form 1040 nr A grantor and fiduciary, or the fiduciary and beneficiary, of any trust. Form 1040 nr Fiduciaries of two different trusts, or the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. Form 1040 nr A trust fiduciary and a corporation of which more than 50% in value of the outstanding stock is directly or indirectly owned by or for the trust, or by or for the grantor of the trust. Form 1040 nr A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest, or the profits interest, in the partnership. Form 1040 nr Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Form 1040 nr Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Form 1040 nr An executor and a beneficiary of an estate (except in the case of a sale or trade to satisfy a pecuniary bequest). Form 1040 nr Two corporations that are members of the same controlled group. Form 1040 nr (Under certain conditions, however, these losses are not disallowed but must be deferred. Form 1040 nr ) Two partnerships if the same persons own, directly or indirectly, more than 50% of the capital interests or the profit interests in both partnerships. Form 1040 nr Multiple property sales or trades. Form 1040 nr   If you sell or trade to a related party a number of blocks of stock or pieces of property in a lump sum, you must figure the gain or loss separately for each block of stock or piece of property. Form 1040 nr The gain on each item may be taxable. Form 1040 nr However, you cannot deduct the loss on any item. Form 1040 nr Also, you cannot reduce gains from the sales of any of these items by losses on the sales of any of the other items. Form 1040 nr Indirect transactions. Form 1040 nr   You cannot deduct your loss on the sale of stock through your broker if, under a prearranged plan, a related party buys the same stock you had owned. Form 1040 nr This does not apply to a trade between related parties through an exchange that is purely coincidental and is not prearranged. Form 1040 nr Constructive ownership of stock. Form 1040 nr   In determining whether a person directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Form 1040 nr Rule 1. Form 1040 nr   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Form 1040 nr Rule 2. Form 1040 nr   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Form 1040 nr Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Form 1040 nr Rule 3. Form 1040 nr   An individual owning, other than by applying rule 2, any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Form 1040 nr Rule 4. Form 1040 nr   When applying rule 1, 2, or 3, stock constructively owned by a person under rule 1 is treated as actually owned by that person. Form 1040 nr But stock constructively owned by an individual under rule 2 or rule 3 is not treated as owned by that individual for again applying either rule 2 or rule 3 to make another person the constructive owner of the stock. Form 1040 nr Property received from a related party. Form 1040 nr    If you sell or trade at a gain property you acquired from a related party, you recognize the gain only to the extent it is more than the loss previously disallowed to the related party. Form 1040 nr This rule applies only if you are the original transferee and you acquired the property by purchase or exchange. Form 1040 nr This rule does not apply if the related party's loss was disallowed because of the wash sale rules described in chapter 4 of Publication 550 under Wash Sales. Form 1040 nr   If you sell or trade at a loss property you acquired from a related party, you cannot recognize the loss that was not allowed to the related party. Form 1040 nr Example 1. Form 1040 nr Your brother sells you stock for $7,600. Form 1040 nr His cost basis is $10,000. Form 1040 nr Your brother cannot deduct the loss of $2,400. Form 1040 nr Later, you sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900. Form 1040 nr Your reportable gain is $500 (the $2,900 gain minus the $2,400 loss not allowed to your brother). Form 1040 nr Example 2. Form 1040 nr If, in Example 1, you sold the stock for $6,900 instead of $10,500, your recognized loss is only $700 (your $7,600 basis minus $6,900). Form 1040 nr You cannot deduct the loss that was not allowed to your brother. Form 1040 nr Capital Gains and Losses This section discusses the tax treatment of gains and losses from different types of investment transactions. Form 1040 nr Character of gain or loss. Form 1040 nr   You need to classify your gains and losses as either ordinary or capital gains or losses. Form 1040 nr You then need to classify your capital gains and losses as either short term or long term. Form 1040 nr If you have long-term gains and losses, you must identify your 28% rate gains and losses. Form 1040 nr If you have a net capital gain, you must also identify any unrecaptured section 1250 gain. Form 1040 nr   The correct classification and identification helps you figure the limit on capital losses and the correct tax on capital gains. Form 1040 nr Reporting capital gains and losses is explained in chapter 16. Form 1040 nr Capital or Ordinary Gain or Loss If you have a taxable gain or a deductible loss from a transaction, it may be either a capital gain or loss or an ordinary gain or loss, depending on the circumstances. Form 1040 nr Generally, a sale or trade of a capital asset (defined next) results in a capital gain or loss. Form 1040 nr A sale or trade of a noncapital asset generally results in ordinary gain or loss. Form 1040 nr Depending on the circumstances, a gain or loss on a sale or trade of property used in a trade or business may be treated as either capital or ordinary, as explained in Publication 544. Form 1040 nr In some situations, part of your gain or loss may be a capital gain or loss and part may be an ordinary gain or loss. Form 1040 nr Capital Assets and Noncapital Assets For the most part, everything you own and use for personal purposes, pleasure, or investment is a capital asset. Form 1040 nr Some examples are: Stocks or bonds held in your personal account, A house owned and used by you and your family, Household furnishings, A car used for pleasure or commuting, Coin or stamp collections, Gems and jewelry, and Gold, silver, or any other metal. Form 1040 nr Any property you own is a capital asset, except the following noncapital assets. Form 1040 nr Property held mainly for sale to customers or property that will physically become a part of the merchandise for sale to customers. Form 1040 nr For an exception, see Capital Asset Treatment for Self-Created Musical Works , later. Form 1040 nr Depreciable property used in your trade or business, even if fully depreciated. Form 1040 nr Real property used in your trade or business. Form 1040 nr A copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property that is: Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Acquired under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced. Form 1040 nr For an exception to this rule, see Capital Asset Treatment for Self-Created Musical Works , later. Form 1040 nr Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of property described in (1). Form 1040 nr U. Form 1040 nr S. Form 1040 nr Government publications that you received from the government free or for less than the normal sales price, or that you acquired under circumstances entitling you to the basis of someone who received the publications free or for less than the normal sales price. Form 1040 nr Certain commodities derivative financial instruments held by commodities derivatives dealers. Form 1040 nr Hedging transactions, but only if the transaction is clearly identified as a hedging transaction before the close of the day on which it was acquired, originated, or entered into. Form 1040 nr Supplies of a type you regularly use or consume in the ordinary course of your trade or business. Form 1040 nr Investment Property Investment property is a capital asset. Form 1040 nr Any gain or loss from its sale or trade is generally a capital gain or loss. Form 1040 nr Gold, silver, stamps, coins, gems, etc. Form 1040 nr   These are capital assets except when they are held for sale by a dealer. Form 1040 nr Any gain or loss you have from their sale or trade generally is a capital gain or loss. Form 1040 nr Stocks, stock rights, and bonds. Form 1040 nr   All of these (including stock received as a dividend) are capital assets except when held for sale by a securities dealer. Form 1040 nr However, if you own small business stock, see Losses on Section 1244 (Small Business) Stock , later, and Losses on Small Business Investment Company Stock, in chapter 4 of Publication 550. Form 1040 nr Personal Use Property Property held for personal use only, rather than for investment, is a capital asset, and you must report a gain from its sale as a capital gain. Form 1040 nr However, you cannot deduct a loss from selling personal use property. Form 1040 nr Capital Asset Treatment for Self-Created Musical Works You can elect to treat musical compositions and copyrights in musical works as capital assets when you sell or exchange them if: Your personal efforts created the property, or You acquired the property under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced. Form 1040 nr You must make a separate election for each musical composition (or copyright in a musical work) sold or exchanged during the tax year. Form 1040 nr You must make the election on or before the due date (including extensions) of the income tax return for the tax year of the sale or exchange. Form 1040 nr You must make the election on Form 8949 by treating the sale or exchange as the sale or exchange of a capital asset, according to Form 8949, Schedule D (Form 1040), and their separate instructions. Form 1040 nr For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Form 1040 nr See also Schedule D (Form 1040), Form 8949, and their separate instructions. Form 1040 nr You can revoke the election if you have IRS approval. Form 1040 nr To get IRS approval, you must submit a request for a letter ruling under the appropriate IRS revenue procedure. Form 1040 nr See, for example, Rev. Form 1040 nr Proc. Form 1040 nr 2013-1, corrected by Announcement 2013–9, and amplified and modified by Rev. Form 1040 nr Proc. Form 1040 nr 2013–32, available at www. Form 1040 nr irs. Form 1040 nr gov/irb/2013-01_IRB/ar06. Form 1040 nr html. Form 1040 nr Alternatively, you are granted an automatic 6-month extension from the due date of your income tax return (excluding extensions) to revoke the election, provided you timely file your income tax return, and within this 6-month extension period, you file Form 1040X that treats the sale or exchange as the sale or exchange of property that is not a capital asset. Form 1040 nr Discounted Debt Instruments Treat your gain or loss on the sale, redemption, or retirement of a bond or other debt instrument originally issued at a discount or bought at a discount as capital gain or loss, except as explained in the following discussions. Form 1040 nr Short-term government obligations. Form 1040 nr   Treat gains on short-term federal, state, or local government obligations (other than tax-exempt obligations) as ordinary income up to your ratable share of the acquisition discount. Form 1040 nr This treatment applies to obligations with a fixed maturity date not more than 1 year from the date of issue. Form 1040 nr Acquisition discount is the stated redemption price at maturity minus your basis in the obligation. Form 1040 nr   However, do not treat these gains as income to the extent you previously included the discount in income. Form 1040 nr See Discount on Short-Term Obligations in chapter 1 of Publication 550. Form 1040 nr Short-term nongovernment obligations. Form 1040 nr   Treat gains on short-term nongovernment obligations as ordinary income up to your ratable share of original issue discount (OID). Form 1040 nr This treatment applies to obligations with a fixed maturity date of not more than 1 year from the date of issue. Form 1040 nr   However, to the extent you previously included the discount in income, you do not have to include it in income again. Form 1040 nr See Discount on Short-Term Obligations in chapter 1 of Publication 550. Form 1040 nr Tax-exempt state and local government bonds. Form 1040 nr   If these bonds were originally issued at a discount before September 4, 1982, or you acquired them before March 2, 1984, treat your part of OID as tax-exempt interest. Form 1040 nr To figure your gain or loss on the sale or trade of these bonds, reduce the amount realized by your part of OID. Form 1040 nr   If the bonds were issued after September 3, 1982, and acquired after March 1, 1984, increase the adjusted basis by your part of OID to figure gain or loss. Form 1040 nr For more information on the basis of these bonds, see Discounted Debt Instruments in chapter 4 of Publication 550. Form 1040 nr   Any gain from market discount is usually taxable on disposition or redemption of tax-exempt bonds. Form 1040 nr If you bought the bonds before May 1, 1993, the gain from market discount is capital gain. Form 1040 nr If you bought the bonds after April 30, 1993, the gain is ordinary income. Form 1040 nr   You figure the market discount by subtracting the price you paid for the bond from the sum of the original issue price of the bond and the amount of accumulated OID from the date of issue that represented interest to any earlier holders. Form 1040 nr For more information, see Market Discount Bonds in chapter 1 of Publication 550. Form 1040 nr    A loss on the sale or other disposition of a tax-exempt state or local government bond is deductible as a capital loss. Form 1040 nr Redeemed before maturity. Form 1040 nr   If a state or local bond issued before June 9, 1980, is redeemed before it matures, the OID is not taxable to you. Form 1040 nr   If a state or local bond issued after June 8, 1980, is redeemed before it matures, the part of OID earned while you hold the bond is not taxable to you. Form 1040 nr However, you must report the unearned part of OID as a capital gain. Form 1040 nr Example. Form 1040 nr On July 2, 2002, the date of issue, you bought a 20-year, 6% municipal bond for $800. Form 1040 nr The face amount of the bond was $1,000. Form 1040 nr The $200 discount was OID. Form 1040 nr At the time the bond was issued, the issuer had no intention of redeeming it before it matured. Form 1040 nr The bond was callable at its face amount beginning 10 years after the issue date. Form 1040 nr The issuer redeemed the bond at the end of 11 years (July 2, 2013) for its face amount of $1,000 plus accrued annual interest of $60. Form 1040 nr The OID earned during the time you held the bond, $73, is not taxable. Form 1040 nr The $60 accrued annual interest also is not taxable. Form 1040 nr However, you must report the unearned part of OID ($127) as a capital gain. Form 1040 nr Long-term debt instruments issued after 1954 and before May 28, 1969 (or before July 2, 1982, if a government instrument). Form 1040 nr   If you sell, trade, or redeem for a gain one of these debt instruments, the part of your gain that is not more than your ratable share of the OID at the time of the sale or redemption is ordinary income. Form 1040 nr The rest of the gain is capital gain. Form 1040 nr If, however, there was an intention to call the debt instrument before maturity, all of your gain that is not more than the entire OID is treated as ordinary income at the time of the sale. Form 1040 nr This treatment of taxable gain also applies to corporate instruments issued after May 27, 1969, under a written commitment that was binding on May 27, 1969, and at all times thereafter. Form 1040 nr Long-term debt instruments issued after May 27, 1969 (or after July 1, 1982, if a government instrument). Form 1040 nr   If you hold one of these debt instruments, you must include a part of OID in your gross income each year you own the instrument. Form 1040 nr Your basis in that debt instrument is increased by the amount of OID that you have included in your gross income. Form 1040 nr See Original Issue Discount (OID) in chapter 7 for information about OID that you must report on your tax return. Form 1040 nr   If you sell or trade the debt instrument before maturity, your gain is a capital gain. Form 1040 nr However, if at the time the instrument was originally issued there was an intention to call it before its maturity, your gain generally is ordinary income to the extent of the entire OID reduced by any amounts of OID previously includible in your income. Form 1040 nr In this case, the rest of the gain is capital gain. Form 1040 nr Market discount bonds. Form 1040 nr   If the debt instrument has market discount and you chose to include the discount in income as it accrued, increase your basis in the debt instrument by the accrued discount to figure capital gain or loss on its disposition. Form 1040 nr If you did not choose to include the discount in income as it accrued, you must report gain as ordinary interest income up to the instrument's accrued market discount. Form 1040 nr The rest of the gain is capital gain. Form 1040 nr See Market Discount Bonds in chapter 1 of Publication 550. Form 1040 nr   A different rule applies to market discount bonds issued before July 19, 1984, and purchased by you before May 1, 1993. Form 1040 nr See Market discount bonds under Discounted Debt Instruments in chapter 4 of Publication 550. Form 1040 nr Retirement of debt instrument. Form 1040 nr   Any amount you receive on the retirement of a debt instrument is treated in the same way as if you had sold or traded that instrument. Form 1040 nr Notes of individuals. Form 1040 nr   If you hold an obligation of an individual issued with OID after March 1, 1984, you generally must include the OID in your income currently, and your gain or loss on its sale or retirement is generally capital gain or loss. Form 1040 nr An exception to this treatment applies if the obligation is a loan between individuals and all the following requirements are met. Form 1040 nr The lender is not in the business of lending money. Form 1040 nr The amount of the loan, plus the amount of any outstanding prior loans, is $10,000 or less. Form 1040 nr Avoiding federal tax is not one of the principal purposes of the loan. Form 1040 nr   If the exception applies, or the obligation was issued before March 2, 1984, you do not include the OID in your income currently. Form 1040 nr When you sell or redeem the obligation, the part of your gain that is not more than your accrued share of OID at that time is ordinary income. Form 1040 nr The rest of the gain, if any, is capital gain. Form 1040 nr Any loss on the sale or redemption is capital loss. Form 1040 nr Deposit in Insolvent or Bankrupt Financial Institution If you lose money you have on deposit in a bank, credit union, or other financial institution that becomes insolvent or bankrupt, you may be able to deduct your loss in one of three ways. Form 1040 nr Ordinary loss. Form 1040 nr Casualty loss. Form 1040 nr Nonbusiness bad debt (short-term capital loss). Form 1040 nr  For more information, see Deposit in Insolvent or Bankrupt Financial Institution, in chapter 4 of Publication 550. Form 1040 nr Sale of Annuity The part of any gain on the sale of an annuity contract before its maturity date that is based on interest accumulated on the contract is ordinary income. Form 1040 nr Losses on Section 1244 (Small Business) Stock You can deduct as an ordinary loss, rather than as a capital loss, your loss on the sale, trade, or worthlessness of section 1244 stock. Form 1040 nr Report the loss on Form 4797, line 10. Form 1040 nr Any gain on section 1244 stock is a capital gain if the stock is a capital asset in your hands. Form 1040 nr Report the gain on Form 8949. Form 1040 nr See Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. Form 1040 nr For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Form 1040 nr See also Schedule D (Form 1040), Form 8949, and their separate instructions. Form 1040 nr Holding Period If you sold or traded investment property, you must determine your holding period for the property. Form 1040 nr Your holding period determines whether any capital gain or loss was a short-term or long-term capital gain or loss. Form 1040 nr Long-term or short-term. Form 1040 nr   If you hold investment property more than 1 year, any capital gain or loss is a long-term capital gain or loss. Form 1040 nr If you hold the property 1 year or less, any capital gain or loss is a short-term capital gain or loss. Form 1040 nr   To determine how long you held the investment property, begin counting on the date after the day you acquired the property. Form 1040 nr The day you disposed of the property is part of your holding period. Form 1040 nr Example. Form 1040 nr If you bought investment property on February 6, 2012, and sold it on February 6, 2013, your holding period is not more than 1 year and you have a short-term capital gain or loss. Form 1040 nr If you sold it on February 7, 2013, your holding period is more than 1 year and you will have a long-term capital gain or loss. Form 1040 nr Securities traded on established market. Form 1040 nr   For securities traded on an established securities market, your holding period begins the day after the trade date you bought the securities, and ends on the trade date you sold them. Form 1040 nr    Do not confuse the trade date with the settlement date, which is the date by which the stock must be delivered and payment must be made. Form 1040 nr Example. Form 1040 nr You are a cash method, calendar year taxpayer. Form 1040 nr You sold stock at a gain on December 30, 2013. Form 1040 nr According to the rules of the stock exchange, the sale was closed by delivery of the stock 4 trading days after the sale, on January 6, 2014. Form 1040 nr You received payment of the sales price on that same day. Form 1040 nr Report your gain on your 2013 return, even though you received the payment in 2014. Form 1040 nr The gain is long term or short term depending on whether you held the stock more than 1 year. Form 1040 nr Your holding period ended on December 30. Form 1040 nr If you had sold the stock at a loss, you would also report it on your 2013 return. Form 1040 nr U. Form 1040 nr S. Form 1040 nr Treasury notes and bonds. Form 1040 nr   The holding period of U. Form 1040 nr S. Form 1040 nr Treasury notes and bonds sold at auction on the basis of yield starts the day after the Secretary of the Treasury, through news releases, gives notification of acceptance to successful bidders. Form 1040 nr The holding period of U. Form 1040 nr S. Form 1040 nr Treasury notes and bonds sold through an offering on a subscription basis at a specified yield starts the day after the subscription is submitted. Form 1040 nr Automatic investment service. Form 1040 nr   In determining your holding period for shares bought by the bank or other agent, full shares are considered bought first and any fractional shares are considered bought last. Form 1040 nr Your holding period starts on the day after the bank's purchase date. Form 1040 nr If a share was bought over more than one purchase date, your holding period for that share is a split holding period. Form 1040 nr A part of the share is considered to have been bought on each date that stock was bought by the bank with the proceeds of available funds. Form 1040 nr Nontaxable trades. Form 1040 nr   If you acquire investment property in a trade for other investment property and your basis for the new property is determined, in whole or in part, by your basis in the old property, your holding period for the new property begins on the day following the date you acquired the old property. Form 1040 nr Property received as a gift. Form 1040 nr   If you receive a gift of property and your basis is determined by the donor's adjusted basis, your holding period is considered to have started on the same day the donor's holding period started. Form 1040 nr   If your basis is determined by the fair market value of the property, your holding period starts on the day after the date of the gift. Form 1040 nr Inherited property. Form 1040 nr   Generally, if you inherited investment property, your capital gain or loss on any later disposition of that property is long-term capital gain or loss. Form 1040 nr This is true regardless of how long you actually held the property. Form 1040 nr However, if you inherited property from someone who died in 2010, see the information below. Form 1040 nr Inherited property from someone who died in 2010. Form 1040 nr   If you inherit investment property from a decedent who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to determine your holding period. Form 1040 nr Real property bought. Form 1040 nr   To figure how long you have held real property bought under an unconditional contract, begin counting on the day after you received title to it or on the day after you took possession of it and assumed the burdens and privileges of ownership, whichever happened first. Form 1040 nr However, taking delivery or possession of real property under an option agreement is not enough to start the holding period. Form 1040 nr The holding period cannot start until there is an actual contract of sale. Form 1040 nr The holding period of the seller cannot end before that time. Form 1040 nr Real property repossessed. Form 1040 nr   If you sell real property but keep a security interest in it, and then later repossess the property under the terms of the sales contract, your holding period for a later sale includes the period you held the property before the original sale and the period after the repossession. Form 1040 nr Your holding period does not include the time between the original sale and the repossession. Form 1040 nr That is, it does not include the period during which the first buyer held the property. Form 1040 nr Stock dividends. Form 1040 nr   The holding period for stock you received as a taxable stock dividend begins on the date of distribution. Form 1040 nr   The holding period for new stock you received as a nontaxable stock dividend begins on the same day as the holding period of the old stock. Form 1040 nr This rule also applies to stock acquired in a “spin-off,” which is a distribution of stock or securities in a controlled corporation. Form 1040 nr Nontaxable stock rights. Form 1040 nr   Your holding period for nontaxable stock rights begins on the same day as the holding period of the underlying stock. Form 1040 nr The holding period for stock acquired through the exercise of stock rights begins on the date the right was exercised. Form 1040 nr Nonbusiness Bad Debts If someone owes you money that you cannot collect, you have a bad debt. Form 1040 nr You may be able to deduct the amount owed to you when you figure your tax for the year the debt becomes worthless. Form 1040 nr Generally, nonbusiness bad debts are bad debts that did not come from operating your trade or business, and are deductible as short-term capital losses. Form 1040 nr To be deductible, nonbusiness bad debts must be totally worthless. Form 1040 nr You cannot deduct a partly worthless nonbusiness debt. Form 1040 nr Genuine debt required. Form 1040 nr   A debt must be genuine for you to deduct a loss. Form 1040 nr A debt is genuine if it arises from a debtor-creditor relationship based on a valid and enforceable obligation to repay a fixed or determinable sum of money. Form 1040 nr Basis in bad debt required. Form 1040 nr    To deduct a bad debt, you must have a basis in it—that is, you must have already included the amount in your income or loaned out your cash. Form 1040 nr For example, you cannot claim a bad debt deduction for court-ordered child support not paid to you by your former spouse. Form 1040 nr If you are a cash method taxpayer (as most individuals are), you generally cannot take a bad debt deduction for unpaid salaries, wages, rents, fees, interest, dividends, and similar items. Form 1040 nr When deductible. Form 1040 nr   You can take a bad debt deduction only in the year the debt becomes worthless. Form 1040 nr You do not have to wait until a debt is due to determine whether it is worthless. Form 1040 nr A debt becomes worthless when there is no longer any chance that the amount owed will be paid. Form 1040 nr   It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. Form 1040 nr You must only show that you have taken reasonable steps to collect the debt. Form 1040 nr Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. Form 1040 nr How to report bad debts. Form 1040 nr    Deduct nonbusiness bad debts as short-term capital losses on Form 8949. Form 1040 nr    Make sure you report your bad debt(s) (and any other short-term transactions for which you did not receive a Form 1099-B) on Form 8949, Part I, with box C checked. Form 1040 nr    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Form 1040 nr See also Schedule D (Form 1040), Form 8949, and their separate instructions. Form 1040 nr   For each bad debt, attach a statement to your return that contains: A description of the debt, including the amount, and the date it became due, The name of the debtor, and any business or family relationship between you and the debtor, The efforts you made to collect the debt, and Why you decided the debt was worthless. Form 1040 nr For example, you could show that the borrower has declared bankruptcy, or that legal action to collect would probably not result in payment of any part of the debt. Form 1040 nr Filing a claim for refund. Form 1040 nr    If you do not deduct a bad debt on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the bad debt. Form 1040 nr To do this, use Form 1040X to amend your return for the year the debt became worthless. Form 1040 nr You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. Form 1040 nr For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. Form 1040 nr Additional information. Form 1040 nr   For more information, see Nonbusiness Bad Debts in Publication 550. Form 1040 nr For information on business bad debts, see chapter 10 of Publication 535, Business Expenses. Form 1040 nr Wash Sales You cannot deduct losses from sales or trades of stock or securities in a wash sale. Form 1040 nr A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, Acquire a contract or option to buy substantially identical stock or securities, or Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. Form 1040 nr If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). Form 1040 nr The result is your basis in the new stock or securities. Form 1040 nr This adjustment postpones the loss deduction until the disposition of the new stock or securities. Form 1040 nr Your holding period for the new stock or securities includes the holding period of the stock or securities sold. Form 1040 nr For more information, see Wash Sales, in chapter 4 of Publication 550. Form 1040 nr Rollover of Gain From Publicly Traded Securities You may qualify for a tax-free rollover of certain gains from the sale of publicly traded securities. Form 1040 nr This means that if you buy certain replacement property and make the choice described in this section, you postpone part or all of your gain. Form 1040 nr You postpone the gain by adjusting the basis of the replacement property as described in Basis of replacement property , later. Form 1040 nr This postpones your gain until the year you dispose of the replacement property. Form 1040 nr You qualify to make this choice if you meet all the following tests. Form 1040 nr You sell publicly traded securities at a gain. Form 1040 nr Publicly traded securities are securities traded on an established securities market. Form 1040 nr Your gain from the sale is a capital gain. Form 1040 nr During the 60-day period beginning on the date of the sale, you buy replacement property. Form 1040 nr This replacement property must be either common stock of, or a partnership interest in a specialized small business investment company (SSBIC). Form 1040 nr This is any partnership or corporation licensed by the Small Business Administration under section 301(d) of the Small Business Investment Act of 1958, as in effect on May 13, 1993. Form 1040 nr Amount of gain recognized. Form 1040 nr   If you make the choice described in this section, you must recognize gain only up to the following amount. Form 1040 nr The amount realized on the sale, minus The cost of any common stock or partnership interest in an SSBIC that you bought during the 60-day period beginning on the date of sale (and did not previously take into account on an earlier sale of publicly traded securities). Form 1040 nr  If this amount is less than the amount of your gain, you can postpone the rest of your gain, subject to the limit described next. Form 1040 nr If this amount is equal to or more than the amount of your gain, you must recognize the full amount of your gain. Form 1040 nr Limit on gain postponed. Form 1040 nr   The amount of gain you can postpone each year is limited to the smaller of: $50,000 ($25,000 if you are married and file a separate return), or $500,000 ($250,000 if you are married and file a separate return), minus the amount of gain you postponed for all earlier years. Form 1040 nr Basis of replacement property. Form 1040 nr   You must subtract the amount of postponed gain from the basis of your replacement property. Form 1040 nr How to report and postpone gain. Form 1040 nr    See How to report and postpone gain under Rollover of Gain From Publicly Traded Securities in chapter 4 of Publication 550 for details. Form 1040 nr Prev  Up  Next   Home   More Online Publications

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Tax Fraud Alerts
"If it sounds too good to be true, it probably is!" Seek expert advice before you subscribe to any scheme that offers instant wealth or exemption from your obligation as a United States Citizen to pay taxes. Buying into a tax evasion scheme can be very costly. To arrive at the 'Tax Fraud Alerts' page quickly, use the Keyword 'Fraud' from www.irs.gov

Criminal Investigation (CI) At-a-Glance
Criminal Investigation (CI) serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law.

What Criminal Investigation Does
Some people bend the tax law -- others break it. Criminal Investigation's job is to pursue the lawbreakers.

Criminal Investigation Statistical Data
Enforcement statistics show trends in areas of fraud. This data assists Criminal Investigation in determining where to focus our resources.

IRS Criminal Investigation Press Releases - Calendar Year 2014
Here you will find links to IRS Criminal Investigation press releases issued by the IRS Special Agents in Charge

How to Make an Offshore Voluntary Disclosure
Taxpayers wanting to report undisclosed income or assets should come in through the IRS Voluntary Disclosure Program.

Criminal Investigation Special Agent Careers
A Career In Action! As an IRS Criminal Investigation (CI) Special Agent, you will pull together your accounting and law enforcement skills. CI special agents are duly sworn law enforcement officers who investigate complex financial crimes associated with tax evasion, money laundering, narcotics, public corruption, and much more. Are You Ready For The Challenge?

Information for Retired IRS Criminal Investigation Special Agents
Information for retired IRS Criminal Investigation special agents to apply to "Retired Law Special Agent" credentials under the Law Enforcement Officers Safety Act of 2004.

Page Last Reviewed or Updated: 28-Mar-2014

The Form 1040 Nr

Form 1040 nr 5. Form 1040 nr   Taxes Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: When To Deduct Taxes Real Estate TaxesSeparate elections. Form 1040 nr Making the election. Form 1040 nr Form 3115. Form 1040 nr Income TaxesAccrual of contested income taxes. Form 1040 nr Employment Taxes Other TaxesAdditional Medicare Tax. Form 1040 nr What's New Additional Medicare Tax. Form 1040 nr  Beginning in 2013, you must withhold a 0. Form 1040 nr 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Form 1040 nr Also, self-employed individuals may be required to pay Additional Medicare Tax on self-employment income. Form 1040 nr See Employment Taxes , and Self-employment tax , later. Form 1040 nr Introduction You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses. Form 1040 nr You cannot deduct federal income taxes, estate and gift taxes, or state inheritance, legacy, and succession taxes. Form 1040 nr Topics - This chapter discusses: When to deduct taxes Real estate taxes Income taxes Employment taxes Other taxes Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 334 Tax Guide for Small Business 510 Excise Taxes 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch SE (Form 1040) Self-Employment Tax 3115 Application for Change in Accounting Method 8959 Additional Medicare Tax See chapter 12 for information about getting publications and forms. Form 1040 nr When To Deduct Taxes Generally, you can only deduct taxes in the year you pay them. Form 1040 nr This applies whether you use the cash method or an accrual method of accounting. Form 1040 nr Under an accrual method, you can deduct a tax before you pay it if you meet the exception for recurring items discussed under Economic Performance in Publication 538. Form 1040 nr You can also elect to ratably accrue real estate taxes as discussed later under Real Estate Taxes . Form 1040 nr Limit on accrual of taxes. Form 1040 nr   A taxing jurisdiction can require the use of a date for accruing taxes that is earlier than the date it originally required. Form 1040 nr However, if you use an accrual method, and can deduct the tax before you pay it, use the original accrual date for the year of change and all future years to determine when you can deduct the tax. Form 1040 nr Example. Form 1040 nr Your state imposes a tax on personal property used in a trade or business conducted in the state. Form 1040 nr This tax is assessed and becomes a lien as of July 1 (accrual date). Form 1040 nr In 2013, the state changed the assessment and lien dates from July 1, 2014, to December 31, 2013, for property tax year 2014. Form 1040 nr Use the original accrual date (July 1, 2014) to determine when you can deduct the tax. Form 1040 nr You must also use the July 1 accrual date for all future years to determine when you can deduct the tax. Form 1040 nr Uniform capitalization rules. Form 1040 nr   Uniform capitalization rules apply to certain taxpayers who produce real property or tangible personal property for use in a trade or business or for sale to customers. Form 1040 nr They also apply to certain taxpayers who acquire property for resale. Form 1040 nr Under these rules, you either include certain costs in inventory or capitalize certain expenses related to the property, such as taxes. Form 1040 nr For more information, see chapter 1. Form 1040 nr Carrying charges. Form 1040 nr   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. Form 1040 nr You can elect to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. Form 1040 nr For more information, see chapter 7. Form 1040 nr Refunds of taxes. Form 1040 nr   If you receive a refund for any taxes you deducted in an earlier year, include the refund in income to the extent the deduction reduced your federal income tax in the earlier year. Form 1040 nr For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1. Form 1040 nr    You must include in income any interest you receive on tax refunds. Form 1040 nr Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. Form 1040 nr The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. Form 1040 nr Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. Form 1040 nr See Taxes for local benefits , later. Form 1040 nr If you use an accrual method, you generally cannot accrue real estate taxes until you pay them to the government authority. Form 1040 nr However, you can elect to ratably accrue the taxes during the year. Form 1040 nr See Electing to ratably accrue , later. Form 1040 nr Taxes for local benefits. Form 1040 nr   Generally, you cannot deduct taxes charged for local benefits and improvements that tend to increase the value of your property. Form 1040 nr These include assessments for streets, sidewalks, water mains, sewer lines, and public parking facilities. Form 1040 nr You should increase the basis of your property by the amount of the assessment. Form 1040 nr   You can deduct taxes for these local benefits only if the taxes are for maintenance, repairs, or interest charges related to those benefits. Form 1040 nr If part of the tax is for maintenance, repairs, or interest, you must be able to show how much of the tax is for these expenses to claim a deduction for that part of the tax. Form 1040 nr Example. Form 1040 nr To improve downtown commercial business, Waterfront City converted a downtown business area street into an enclosed pedestrian mall. Form 1040 nr The city assessed the full cost of construction, financed with 10-year bonds, against the affected properties. Form 1040 nr The city is paying the principal and interest with the annual payments made by the property owners. Form 1040 nr The assessments for construction costs are not deductible as taxes or as business expenses, but are depreciable capital expenses. Form 1040 nr The part of the payments used to pay the interest charges on the bonds is deductible as taxes. Form 1040 nr Charges for services. Form 1040 nr   Water bills, sewerage, and other service charges assessed against your business property are not real estate taxes, but are deductible as business expenses. Form 1040 nr Purchase or sale of real estate. Form 1040 nr   If real estate is sold, the real estate taxes must be allocated between the buyer and the seller. Form 1040 nr   The buyer and seller must allocate the real estate taxes according to the number of days in the real property tax year (the period to which the tax imposed relates) that each owned the property. Form 1040 nr Treat the seller as paying the taxes up to but not including the date of sale. Form 1040 nr Treat the buyer as paying the taxes beginning with the date of sale. Form 1040 nr You can usually find this information on the settlement statement you received at closing. Form 1040 nr   If you (the seller) use an accrual method and have not elected to ratably accrue real estate taxes, you are considered to have accrued your part of the tax on the date you sell the property. Form 1040 nr Example. Form 1040 nr Alberto Verde, a calendar year accrual method taxpayer, owns real estate in Olmo County. Form 1040 nr He has not elected to ratably accrue property taxes. Form 1040 nr November 30 of each year is the assessment and lien date for the current real property tax year, which is the calendar year. Form 1040 nr He sold the property on June 30, 2013. Form 1040 nr Under his accounting method he would not be able to claim a deduction for the taxes because the sale occurred before November 30. Form 1040 nr He is treated as having accrued his part of the tax, 181/366  (January 1–June 29), on June 30, and he can deduct it for 2013. Form 1040 nr Electing to ratably accrue. Form 1040 nr   If you use an accrual method, you can elect to accrue real estate tax related to a definite period ratably over that period. Form 1040 nr Example. Form 1040 nr Juan Sanchez is a calendar year taxpayer who uses an accrual method. Form 1040 nr His real estate taxes for the real property tax year, July 1, 2013, to June 30, 2014, are $1,200. Form 1040 nr July 1 is the assessment and lien date. Form 1040 nr If Juan elects to ratably accrue the taxes, $600 will accrue in 2013 ($1,200 × 6/12, July 1–December 31) and the balance will accrue in 2014. Form 1040 nr Separate elections. Form 1040 nr   You can elect to ratably accrue the taxes for each separate trade or business and for nonbusiness activities if you account for them separately. Form 1040 nr Once you elect to ratably accrue real estate taxes, you must use that method unless you get permission from the IRS to change. Form 1040 nr See Form 3115 , later. Form 1040 nr Making the election. Form 1040 nr   If you elect to ratably accrue the taxes for the first year in which you incur real estate taxes, attach a statement to your income tax return for that year. Form 1040 nr The statement should show all the following items. Form 1040 nr The trades or businesses to which the election applies and the accounting method or methods used. Form 1040 nr The period to which the taxes relate. Form 1040 nr The computation of the real estate tax deduction for that first year. Form 1040 nr   Generally, you must file your return by the due date (including extensions). Form 1040 nr However, if you timely filed your return for the year without electing to ratably accrue, you can still make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). Form 1040 nr Attach the statement to the amended return and write “Filed pursuant to section 301. Form 1040 nr 9100-2” on the statement. Form 1040 nr File the amended return at the same address where you filed the original return. Form 1040 nr Form 3115. Form 1040 nr    If you elect to ratably accrue real estate taxes for a year after the first year in which you incur real estate taxes, or if you want to revoke your election to ratably accrue real estate taxes, file Form 3115. Form 1040 nr For more information, including applicable time frames for filing, see the Instructions for Form 3115. Form 1040 nr Note. Form 1040 nr If you are filing an application for a change in accounting method filed after January 9, 2011, for a year of change ending after April 29, 2010, see Revenue Procedure 2011-14, 2011-4 I. Form 1040 nr R. Form 1040 nr B. Form 1040 nr 330, as modified and clarified by Revenue Procedure 2012-19, 2012-14 I. Form 1040 nr R. Form 1040 nr B. Form 1040 nr 689, and Revenue Procedure 2012-20, 2012-14 I. Form 1040 nr R. Form 1040 nr B. Form 1040 nr 700, or any successor. Form 1040 nr Revenue Procedure 2011-14 is available at  www. Form 1040 nr irs. Form 1040 nr gov/irb/2011-04IRB/ar08. Form 1040 nr html. Form 1040 nr Income Taxes This section discusses federal, state, local, and foreign income taxes. Form 1040 nr Federal income taxes. Form 1040 nr   You cannot deduct federal income taxes. Form 1040 nr State and local income taxes. Form 1040 nr   A corporation or partnership can deduct state and local income taxes imposed on the corporation or partnership as business expenses. Form 1040 nr An individual can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Form 1040 nr   However, an individual can deduct a state tax on gross income (as distinguished from net income) directly attributable to a trade or business as a business expense. Form 1040 nr Accrual of contested income taxes. Form 1040 nr   If you use an accrual method, and you contest a state or local income tax liability, you must accrue and deduct any contested amount in the tax year in which the liability is finally determined. Form 1040 nr   If additional state or local income taxes for a prior year are assessed in a later year, you can deduct the taxes in the year in which they were originally imposed (the prior year) if the tax liability is not contested. Form 1040 nr You cannot deduct them in the year in which the liability is finally determined. Form 1040 nr    The filing of an income tax return is not considered a contest and, in the absence of an overt act of protest, you can deduct the tax in the prior year. Form 1040 nr Also, you can deduct any additional taxes in the prior year if you do not show some affirmative evidence of denial of the liability. Form 1040 nr   However, if you consistently deduct additional assessments in the year they are paid or finally determined (including those for which there was no contest), you must continue to do so. Form 1040 nr You cannot take a deduction in the earlier year unless you receive permission to change your method of accounting. Form 1040 nr For more information on accounting methods, see When Can I Deduct an Expense in chapter 1. Form 1040 nr Foreign income taxes. Form 1040 nr   Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. Form 1040 nr S. Form 1040 nr possession. Form 1040 nr However, an individual cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. Form 1040 nr S. Form 1040 nr tax under the foreign earned income exclusion or the foreign housing exclusion. Form 1040 nr For information on these exclusions, see Publication 54, Tax Guide for U. Form 1040 nr S. Form 1040 nr Citizens and Resident Aliens Abroad. Form 1040 nr For information on the foreign tax credit, see Publication 514, Foreign Tax Credit for Individuals. Form 1040 nr Employment Taxes If you have employees, you must withhold various taxes from your employees' pay. Form 1040 nr Most employers must withhold their employees' share of social security, Medicare taxes, and Additional Medicare Tax (if applicable) along with state and federal income taxes. Form 1040 nr You may also need to pay certain employment taxes from your own funds. Form 1040 nr These include your share of social security and Medicare taxes as an employer, along with unemployment taxes. Form 1040 nr Note. Form 1040 nr Additional Medicare Tax is only imposed on the employee. Form 1040 nr There is no employer share of Additional Medicare Tax. Form 1040 nr Your deduction for wages paid is not reduced by the social security and Medicare taxes, Additional Medicare Tax, and income taxes you withhold from your employees. Form 1040 nr You can deduct the employment taxes you must pay from your own funds as taxes. Form 1040 nr Example. Form 1040 nr You pay your employee $18,000 a year. Form 1040 nr However, after you withhold various taxes, your employee receives $14,500. Form 1040 nr You also pay an additional $1,500 in employment taxes. Form 1040 nr You should deduct the full $18,000 as wages. Form 1040 nr You can deduct the $1,500 you pay from your own funds as taxes. Form 1040 nr For more information on employment taxes, see Publication 15 (Circular E). Form 1040 nr Unemployment fund taxes. Form 1040 nr   As an employer, you may have to make payments to a state unemployment compensation fund or to a state disability benefit fund. Form 1040 nr Deduct these payments as taxes. Form 1040 nr Other Taxes The following are other taxes you can deduct if you incur them in the ordinary course of your trade or business. Form 1040 nr Excise taxes. Form 1040 nr   Generally, you can deduct as a business expense all excise taxes that are ordinary and necessary expenses of carrying on your trade or business. Form 1040 nr However, see Fuel taxes , later. Form 1040 nr   For more information on excise taxes, see Publication 510. Form 1040 nr Franchise taxes. Form 1040 nr   You can deduct corporate franchise taxes as a business expense. Form 1040 nr Fuel taxes. Form 1040 nr   Generally, taxes on gasoline, diesel fuel, and other motor fuels that you use in your business are included as part of the cost of the fuel. Form 1040 nr Do not deduct these taxes as a separate item. Form 1040 nr   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. Form 1040 nr For more information, see Publication 510. Form 1040 nr Occupational taxes. Form 1040 nr   You can deduct as a business expense an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. Form 1040 nr Personal property tax. Form 1040 nr   You can deduct any tax imposed by a state or local government on personal property used in your trade or business. Form 1040 nr Sales tax. Form 1040 nr   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. Form 1040 nr If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. Form 1040 nr If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. Form 1040 nr If the property is depreciable, add the sales tax to the basis for depreciation. Form 1040 nr For more information on basis, see Publication 551. Form 1040 nr    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. Form 1040 nr Also, do not include these taxes in gross receipts or sales. Form 1040 nr Self-employment tax. Form 1040 nr   You can deduct part of your self-employment tax as a business expense in figuring your adjusted gross income. Form 1040 nr This deduction only affects your income tax. Form 1040 nr It does not affect your net earnings from self-employment or your self-employment tax. Form 1040 nr   To deduct the tax, enter on Form 1040, line 27, the amount shown on the Deduction for one-half of self-employment tax line of Schedule SE (Form 1040). Form 1040 nr   For more information on self-employment tax, see Publication 334. Form 1040 nr Additional Medicare Tax. Form 1040 nr   Beginning in 2013, you may be required to pay Additional Medicare Tax on self-employment income. Form 1040 nr See Form 8959 and the Instructions for Form 8959 for more information on the Additional Medicare Tax. Form 1040 nr Prev  Up  Next   Home   More Online Publications