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Free Tax Usa 2010

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Free Tax Usa 2010

Free tax usa 2010 Publication 334 - Introductory Material Table of Contents IntroductionOrdering forms and publications. Free tax usa 2010 Tax questions. Free tax usa 2010 Future Developments What's New for 2013 What's New for 2014 Reminders Photographs of Missing Children Introduction The purpose of this publication is to provide general information about the federal tax laws that apply to small business owners who are sole proprietors and to statutory employees. Free tax usa 2010 This publication has information on business income, expenses, and tax credits that may help you file your income tax return. Free tax usa 2010 Are you self-employed?   You are self-employed if you carry on a trade or business as a sole proprietor or an independent contractor. Free tax usa 2010 Sole proprietor. Free tax usa 2010   A sole proprietor is someone who owns an unincorporated business by himself or herself. Free tax usa 2010 However, if you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation. Free tax usa 2010 Trade or business. Free tax usa 2010    A trade or business is generally an activity carried on to make a profit. Free tax usa 2010 The facts and circumstances of each case determine whether or not an activity is a trade or business. Free tax usa 2010 You do not need to actually make a profit to be in a trade or business as long as you have a profit motive. Free tax usa 2010 You do need to make ongoing efforts to further the interests of your business. Free tax usa 2010   You do not have to carry on regular full-time business activities to be self-employed. Free tax usa 2010 Having a part-time business in addition to your regular job or business may be self-employment. Free tax usa 2010 Independent contractor. Free tax usa 2010    People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. Free tax usa 2010 However, whether they are independent contractors or employees depends on the facts in each case. Free tax usa 2010 The general rule is that an individual is an independent contractor if the payer has the right to control or to direct only the result of the work and not how it will be done. Free tax usa 2010 The earnings of a person who is working as an independent contractor are subject to self-employment tax. Free tax usa 2010 For more information on determining whether you are an employee or independent contractor, see Publication 15-A, Employer's Supplemental Tax Guide. Free tax usa 2010 Statutory employee. Free tax usa 2010   A statutory employee has a checkmark in box 13 of his or her Form W-2, Wage and Tax Statement. Free tax usa 2010 Statutory employees use Schedule C or C-EZ to report their wages and expenses. Free tax usa 2010 Limited liability company (LLC). Free tax usa 2010   A limited liability company (LLC) is an entity formed under state law by filing articles of organization. Free tax usa 2010 Generally, a single-member LLC is disregarded as an entity separate from its owner and reports its income and deductions on its owner's federal income tax return. Free tax usa 2010 An owner who is an individual may use Schedule C or C-EZ. Free tax usa 2010 Business owned and operated by spouses. Free tax usa 2010   If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Free tax usa 2010 Do not use Schedule C or C-EZ. Free tax usa 2010 Instead, file Form 1065, U. Free tax usa 2010 S. Free tax usa 2010 Return of Partnership Income. Free tax usa 2010 For more information, see Publication 541, Partnerships. Free tax usa 2010    Exception—Community income. Free tax usa 2010 If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. Free tax usa 2010 S. Free tax usa 2010 possession, you can treat the business either as a sole proprietorship or a partnership. Free tax usa 2010 The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Free tax usa 2010 A change in your reporting position will be treated as a conversion of the entity. Free tax usa 2010    Exception—Qualified joint venture. Free tax usa 2010 If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. Free tax usa 2010 Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. Free tax usa 2010 For an explanation of "material participation," see the Instructions for Schedule C, line G. Free tax usa 2010   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Free tax usa 2010 Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. Free tax usa 2010 For more information, see Qualified Joint Ventures in the Instructions for Schedule SE. Free tax usa 2010 This publication does not cover the topics listed in the following table. Free tax usa 2010    IF you need information about: THEN you should see: Corporations Publication 542 Farming Publication 225 Fishermen (Capital Construction Fund)  Publication 595 Partnerships Publication 541 Passive activities Publication 925 Recordkeeping Publication 583 Rental Publication 527 S corporations Instructions for Form 1120S What you need to know. Free tax usa 2010   Table A provides a list of questions you need to answer to help you meet your federal tax obligations. Free tax usa 2010 After each question is the location in this publication where you will find the related discussion. Free tax usa 2010 Table A. Free tax usa 2010 What You Need To Know About Federal Taxes (Note. Free tax usa 2010 The following is a list of questions you may need to answer so you can fill out your federal income tax return. Free tax usa 2010 Chapters are given to help you find the related discussion in this publication. Free tax usa 2010 ) What must I know   Where to find the answer   What kinds of federal taxes do I have to pay? How do I pay them?   See chapter 1. Free tax usa 2010 What forms must I file?   See chapter 1. Free tax usa 2010 What must I do if I have employees?   See Employment Taxes in chapter 1. Free tax usa 2010 Do I have to start my tax year in January, or can I start it in any other month?   See Accounting Periods in chapter 2. Free tax usa 2010 What method can I use to account for my income and expenses?   See Accounting Methods in chapter 2. Free tax usa 2010 What kinds of business income do I have to report on my tax return?   See chapter 5. Free tax usa 2010 What kinds of business expenses can I deduct on my tax return?   See Business Expenses in chapter 8. Free tax usa 2010 What kinds of expenses are not deductible as business expenses?   See Expenses You Cannot Deduct in chapter 8. Free tax usa 2010 What happens if I have a business loss? Can I deduct it?   See chapter 9. Free tax usa 2010 What must I do if I disposed of business property during the year?   See chapter 3. Free tax usa 2010 What are my rights as a taxpayer?   See chapter 11. Free tax usa 2010 Where do I go if I need help with federal tax matters?   See chapter 12. Free tax usa 2010 IRS mission. Free tax usa 2010   Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. Free tax usa 2010 Comments and suggestions. Free tax usa 2010   We welcome your comments about this publication and your suggestions for future editions. Free tax usa 2010   You can write to us at the following address:  Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Free tax usa 2010 NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Free tax usa 2010 Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Free tax usa 2010   You can send your comments from www. Free tax usa 2010 irs. Free tax usa 2010 gov/formspubs/. Free tax usa 2010 Click on “More Information” then on “Comment on Tax Forms and Publications. Free tax usa 2010 ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Free tax usa 2010 Ordering forms and publications. Free tax usa 2010   Visit  www. Free tax usa 2010 irs. Free tax usa 2010 gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Free tax usa 2010  Internal Revenue Service 1201 N. Free tax usa 2010 Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Free tax usa 2010   If you have a tax question, check the information available on IRS. Free tax usa 2010 gov or call 1-800-829-1040. Free tax usa 2010 We cannot answer tax questions sent to either of the above addresses. Free tax usa 2010 Future Developments For the latest information about developments related to Publication 334, such as legislation enacted after it was published, go to www. Free tax usa 2010 irs. Free tax usa 2010 gov/pub334. Free tax usa 2010 What's New for 2013 The following are some of the tax changes for 2013. Free tax usa 2010 For information on other changes, go to IRS. Free tax usa 2010 gov. Free tax usa 2010 Tax rates. Free tax usa 2010 . Free tax usa 2010  For tax years beginning in 2013, the social security part of the self-employment tax increases to 12. Free tax usa 2010 4%. Free tax usa 2010 The Medicare part of the tax remains at 2. Free tax usa 2010 9%. Free tax usa 2010 As a result, the self-employment tax is 15. Free tax usa 2010 3%. Free tax usa 2010 Maximum net earnings. Free tax usa 2010  The maximum net self-employment earnings subject to the social security part of the self-employment tax increases to $113,700 for 2013. Free tax usa 2010 There is no maximum limit on earnings subject to the Medicare part. Free tax usa 2010 Standard mileage rate. Free tax usa 2010  For 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 56. Free tax usa 2010 5 cents per mile. Free tax usa 2010 For more information, see Car and Truck Expenses in chapter 8. Free tax usa 2010 Simplified method for business use of home deduction. Free tax usa 2010 . Free tax usa 2010  The IRS now provides a simplified method to determine your expenses for business use of your home. Free tax usa 2010 For more information, see Business Use of Your Home in chapter 8. Free tax usa 2010 What's New for 2014 The following are some of the tax changes for 2014. Free tax usa 2010 For information on other changes, go to IRS. Free tax usa 2010 gov. Free tax usa 2010 Standard mileage rate. Free tax usa 2010  For 2014, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 56 cents per mile. Free tax usa 2010 Self-employment tax. Free tax usa 2010  The maximum net self-employment earnings subject to the social security part of the self-employment tax is $117,000 for 2014. Free tax usa 2010 Reminders Accounting methods. Free tax usa 2010  Certain small business taxpayers may be eligible to adopt or change to the cash method of accounting and may not be required to account for inventories. Free tax usa 2010 For more information, see Inventories in chapter 2. Free tax usa 2010 Reportable transactions. Free tax usa 2010  You must file Form 8886, Reportable Transaction Disclosure Statement, to report certain transactions. Free tax usa 2010 You may have to pay a penalty if you are required to file Form 8886 but do not do so. Free tax usa 2010 You may also have to pay interest and penalties on any reportable transaction understatements. Free tax usa 2010 Reportable transactions include: Transactions the same as or substantially similar to tax avoidance transactions identified by the IRS, Transactions offered to you under conditions of confidentiality for which you paid an advisor a minimum fee, Transactions for which you have, or a related party has, contractual protection against disallowance of the tax benefits, Transactions that result in losses of at least $2 million in any single tax year ($50,000 if from certain foreign currency transactions) or $4 million in any combination of tax years, and Transactions the same or substantially similar to one of the types of transactions the IRS has identified as a transaction of interest. Free tax usa 2010 For more information, see the Instructions for Form 8886. Free tax usa 2010 Photographs of Missing Children The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Free tax usa 2010 Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Free tax usa 2010 You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Free tax usa 2010 Prev  Up  Next   Home   More Online Publications
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Understanding your CP259A Notice

Your organization didn’t file a Form 990, 990-EZ, or 990-N.


What you need to do

  • File a Form 990, 990-EZ, or 990-N
  • Complete the response form
  • Mail it to the address on the notice

    Answers to Common Questions

    What should I do if I have all ready filed Form 990, 990-EZ or 990-N?
    If you filed within the last four weeks using the same name and Employer ID number (EIN) on your notice, you don’t need to do anything. Our system may not have processed your return at the time we mailed the notice.
    If you filed more than four weeks ago or used a different name or EIN, complete the Response form starting on Page 3 and mail it to us with a signed and dated copy of the return.

    What should I do if I don’t think I have to file a Form 990, 990-EZ, or 990-N?
    Complete the response form starting on Page 3 and mail it to us.


    Understanding your notice

    Reading your notice
    Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

     

    Notice CP259A, Page 1

     

    Notice CP259A, Page 2

     

    Notice CP259A, Page 3

     

    Notice CP259A, Page 4

Page Last Reviewed or Updated: 19-Dec-2013

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Free Tax Usa 2010

Free tax usa 2010 14. Free tax usa 2010   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. Free tax usa 2010  If you are a U. Free tax usa 2010 S. Free tax usa 2010 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. Free tax usa 2010 S. Free tax usa 2010 law. Free tax usa 2010 This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the payer. Free tax usa 2010 Introduction This chapter discusses the tax consequences of selling or trading investment property. Free tax usa 2010 It explains the following. Free tax usa 2010 What a sale or trade is. Free tax usa 2010 Figuring gain or loss. Free tax usa 2010 Nontaxable trades. Free tax usa 2010 Related party transactions. Free tax usa 2010 Capital gains or losses. Free tax usa 2010 Capital assets and noncapital assets. Free tax usa 2010 Holding period. Free tax usa 2010 Rollover of gain from publicly traded securities. Free tax usa 2010 Other property transactions. Free tax usa 2010   Certain transfers of property are not discussed here. Free tax usa 2010 They are discussed in other IRS publications. Free tax usa 2010 These include the following. Free tax usa 2010 Sales of a main home, covered in chapter 15. Free tax usa 2010 Installment sales, covered in Publication 537, Installment Sales. Free tax usa 2010 Transactions involving business property, covered in Publication 544, Sales and Other Dispositions of Assets. Free tax usa 2010 Dispositions of an interest in a passive activity, covered in Publication 925, Passive Activity and At-Risk Rules. Free tax usa 2010    Publication 550, Investment Income and Expenses (Including Capital Gains and Losses), provides a more detailed discussion about sales and trades of investment property. Free tax usa 2010 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. Free tax usa 2010 It also discusses investment-related expenses. Free tax usa 2010 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. Free tax usa 2010 Generally, you should receive the statement by February 15 of the next year. Free tax usa 2010 It will show the gross proceeds from the sale. Free tax usa 2010 If you sold a covered security in 2013, your 1099-B (or substitute statement) will show your basis. Free tax usa 2010 Generally, a covered security is a security you acquired after 2010, with certain exceptions. Free tax usa 2010 See the Instructions for Form 8949. Free tax usa 2010 The IRS will also get a copy of Form 1099-B from the broker. Free tax usa 2010 Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. Free tax usa 2010 What Is a Sale or Trade? This section explains what is a sale or trade. Free tax usa 2010 It also explains certain transactions and events that are treated as sales or trades. Free tax usa 2010 A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. Free tax usa 2010 A trade is a transfer of property for other property or services and may be taxed in the same way as a sale. Free tax usa 2010 Sale and purchase. Free tax usa 2010   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. Free tax usa 2010 The sale and purchase are two separate transactions. Free tax usa 2010 But see Like-kind exchanges under Nontaxable Trades, later. Free tax usa 2010 Redemption of stock. Free tax usa 2010   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. Free tax usa 2010 Dividend versus sale or trade. Free tax usa 2010   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. Free tax usa 2010 Both direct and indirect ownership of stock will be considered. Free tax usa 2010 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. Free tax usa 2010 Redemption or retirement of bonds. Free tax usa 2010   A redemption or retirement of bonds or notes at their maturity is generally treated as a sale or trade. Free tax usa 2010   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. Free tax usa 2010 For details, see Regulations section 1. Free tax usa 2010 1001-3. Free tax usa 2010 Surrender of stock. Free tax usa 2010   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. Free tax usa 2010 The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. Free tax usa 2010 Worthless securities. Free tax usa 2010    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. Free tax usa 2010 This affects whether your capital loss is long term or short term. Free tax usa 2010 See Holding Period , later. Free tax usa 2010   Worthless securities also include securities that you abandon after March 12, 2008. Free tax usa 2010 To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. Free tax usa 2010 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. Free tax usa 2010    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. Free tax usa 2010 Do not deduct them in the year the stock became worthless. Free tax usa 2010 How to report loss. Free tax usa 2010    Report worthless securities in Part I or Part II, whichever applies, of Form 8949. Free tax usa 2010 In column (a), enter “Worthless. Free tax usa 2010 ”    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. Free tax usa 2010 See Form 8949 and the Instructions for Form 8949. Free tax usa 2010 For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Free tax usa 2010 See also Schedule D (Form 1040), Form 8949, and their separate instructions. Free tax usa 2010 Filing a claim for refund. Free tax usa 2010   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. Free tax usa 2010 You must use Form 1040X, Amended U. Free tax usa 2010 S. Free tax usa 2010 Individual Income Tax Return, to amend your return for the year the security became worthless. Free tax usa 2010 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. Free tax usa 2010 For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. Free tax usa 2010 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. Free tax usa 2010 Gain. Free tax usa 2010   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. Free tax usa 2010 Loss. Free tax usa 2010   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. Free tax usa 2010 Adjusted basis. Free tax usa 2010   The adjusted basis of property is your original cost or other original basis properly adjusted (increased or decreased) for certain items. Free tax usa 2010 See chapter 13 for more information about determining the adjusted basis of property. Free tax usa 2010 Amount realized. Free tax usa 2010   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). Free tax usa 2010 Amount realized includes the money you receive plus the fair market value of any property or services you receive. Free tax usa 2010 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. Free tax usa 2010 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. Free tax usa 2010 For more information, see Publication 537. Free tax usa 2010 Fair market value. Free tax usa 2010   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. Free tax usa 2010 Example. Free tax usa 2010 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. Free tax usa 2010 Your gain is $3,000 ($10,000 − $7,000). Free tax usa 2010 Debt paid off. Free tax usa 2010    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. Free tax usa 2010 This is true even if neither you nor the buyer is personally liable for the debt. Free tax usa 2010 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. Free tax usa 2010 Example. Free tax usa 2010 You sell stock that you had pledged as security for a bank loan of $8,000. Free tax usa 2010 Your basis in the stock is $6,000. Free tax usa 2010 The buyer pays off your bank loan and pays you $20,000 in cash. Free tax usa 2010 The amount realized is $28,000 ($20,000 + $8,000). Free tax usa 2010 Your gain is $22,000 ($28,000 − $6,000). Free tax usa 2010 Payment of cash. Free tax usa 2010   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. Free tax usa 2010 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. Free tax usa 2010 If the result is a positive number, it is a gain. Free tax usa 2010 If the result is a negative number, it is a loss. Free tax usa 2010 No gain or loss. Free tax usa 2010   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. Free tax usa 2010 In this case, you may have neither a gain nor a loss. Free tax usa 2010 See Basis Other Than Cost in chapter 13. Free tax usa 2010 Nontaxable Trades This section discusses trades that generally do not result in a taxable gain or deductible loss. Free tax usa 2010 For more information on nontaxable trades, see chapter 1 of Publication 544. Free tax usa 2010 Like-kind exchanges. Free tax usa 2010   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. Free tax usa 2010 To be nontaxable, a trade must meet all six of the following conditions. Free tax usa 2010 The property must be business or investment property. Free tax usa 2010 You must hold both the property you trade and the property you receive for productive use in your trade or business or for investment. Free tax usa 2010 Neither property may be property used for personal purposes, such as your home or family car. Free tax usa 2010 The property must not be held primarily for sale. Free tax usa 2010 The property you trade and the property you receive must not be property you sell to customers, such as merchandise. Free tax usa 2010 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. Free tax usa 2010 However, see Special rules for mutual ditch, reservoir, or irrigation company stock, in chapter 4 of Publication 550 for an exception. Free tax usa 2010 Also, you can have a nontaxable trade of corporate stocks under a different rule, as discussed later. Free tax usa 2010 There must be a trade of like property. Free tax usa 2010 The trade of real estate for real estate, or personal property for similar personal property, is a trade of like property. Free tax usa 2010 The trade of an apartment house for a store building, or a panel truck for a pickup truck, is a trade of like property. Free tax usa 2010 The trade of a piece of machinery for a store building is not a trade of like property. Free tax usa 2010 Real property located in the United States and real property located outside the United States are not like property. Free tax usa 2010 Also, personal property used predominantly within the United States and personal property used predominantly outside the United States are not like property. Free tax usa 2010 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. Free tax usa 2010 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. Free tax usa 2010    If you trade property with a related party in a like-kind exchange, a special rule may apply. Free tax usa 2010 See Related Party Transactions , later in this chapter. Free tax usa 2010 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. Free tax usa 2010 Partly nontaxable exchange. Free tax usa 2010   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. Free tax usa 2010 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. Free tax usa 2010 You cannot deduct a loss. Free tax usa 2010 Like property and unlike property transferred. Free tax usa 2010   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. Free tax usa 2010 The gain or loss is the difference between the adjusted basis of the unlike property and its fair market value. Free tax usa 2010 Like property and money transferred. Free tax usa 2010   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. Free tax usa 2010 Basis of property received. Free tax usa 2010   To figure the basis of the property received, see Nontaxable Exchanges in chapter 13. Free tax usa 2010 How to report. Free tax usa 2010   You must report the trade of like property on Form 8824. Free tax usa 2010 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. Free tax usa 2010 See the instructions for Line 22 in the Instructions for Form 8824. Free tax usa 2010   For information on using Form 4797, see chapter 4 of Publication 544. Free tax usa 2010 Corporate stocks. Free tax usa 2010   The following trades of corporate stocks generally do not result in a taxable gain or a deductible loss. Free tax usa 2010 Corporate reorganizations. Free tax usa 2010   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. Free tax usa 2010 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. Free tax usa 2010 Stock for stock of the same corporation. Free tax usa 2010   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. Free tax usa 2010 This is true for a trade between two stockholders as well as a trade between a stockholder and the corporation. Free tax usa 2010 Convertible stocks and bonds. Free tax usa 2010   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. Free tax usa 2010 Property for stock of a controlled corporation. Free tax usa 2010   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. Free tax usa 2010 This rule applies both to individuals and to groups who transfer property to a corporation. Free tax usa 2010 It does not apply if the corporation is an investment company. Free tax usa 2010   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. Free tax usa 2010   If this provision applies to you, you may have to attach to your return a complete statement of all facts pertinent to the exchange. Free tax usa 2010 For details, see Regulations section 1. Free tax usa 2010 351-3. Free tax usa 2010 Additional information. Free tax usa 2010   For more information on trades of stock, see Nontaxable Trades in chapter 4 of Publication 550. Free tax usa 2010 Insurance policies and annuities. Free tax usa 2010   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. Free tax usa 2010   You also may not have to recognize gain or loss on an exchange of a portion of an annuity contract for another annuity contract. Free tax usa 2010 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. Free tax usa 2010 Revenue Ruling 2003-76 is available at www. Free tax usa 2010 irs. Free tax usa 2010 gov/irb/2003-33_IRB/ar11. Free tax usa 2010 html. Free tax usa 2010 Revenue Procedure 2008-24 is available at www. Free tax usa 2010 irs. Free tax usa 2010 gov/irb/2008-13_IRB/ar13. Free tax usa 2010 html. Free tax usa 2010 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. Free tax usa 2010 Revenue Procedure 2011-38 is available at www. Free tax usa 2010 irs. Free tax usa 2010 gov/irb/2011-30_IRB/ar09. Free tax usa 2010 html. Free tax usa 2010   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. Free tax usa 2010 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. Free tax usa 2010 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. Free tax usa 2010   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. Free tax usa 2010 Demutualization of life insurance companies. Free tax usa 2010   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. Free tax usa 2010 See Demutualization of Life Insurance Companies in Publication 550. Free tax usa 2010 U. Free tax usa 2010 S. Free tax usa 2010 Treasury notes or bonds. Free tax usa 2010   You can trade certain issues of U. Free tax usa 2010 S. Free tax usa 2010 Treasury obligations for other issues designated by the Secretary of the Treasury, with no gain or loss recognized on the trade. Free tax usa 2010 See Savings bonds traded in chapter 1 of Publication 550 for more information. Free tax usa 2010 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. Free tax usa 2010 This nonrecognition rule does not apply in the following situations. Free tax usa 2010 The recipient spouse or former spouse is a nonresident alien. Free tax usa 2010 Property is transferred in trust and liability exceeds basis. Free tax usa 2010 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. Free tax usa 2010 For other situations, see Transfers Between Spouses in chapter 4 of Publication 550. Free tax usa 2010 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. Free tax usa 2010 The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Free tax usa 2010 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. Free tax usa 2010 This rule applies for purposes of determining loss as well as gain. Free tax usa 2010 Any gain recognized on a transfer in trust increases the basis. Free tax usa 2010 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. Free tax usa 2010 Related Party Transactions Special rules apply to the sale or trade of property between related parties. Free tax usa 2010 Gain on sale or trade of depreciable property. Free tax usa 2010   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. Free tax usa 2010 See chapter 3 of Publication 544 for more information. Free tax usa 2010 Like-kind exchanges. Free tax usa 2010   Generally, if you trade business or investment property for other business or investment property of a like kind, no gain or loss is recognized. Free tax usa 2010 See Like-kind exchanges , earlier, under Nontaxable Trades. Free tax usa 2010   This rule also applies to trades of property between related parties, defined next under Losses on sales or trades of property. Free tax usa 2010 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. Free tax usa 2010 See Related Party Transactions in chapter 4 of Publication 550 for exceptions. Free tax usa 2010 Losses on sales or trades of property. Free tax usa 2010   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. Free tax usa 2010 Members of your family. Free tax usa 2010 This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. Free tax usa 2010 ), and lineal descendants (children, grandchildren, etc. Free tax usa 2010 ). Free tax usa 2010 A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. Free tax usa 2010 A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. Free tax usa 2010 (See Constructive ownership of stock , later. Free tax usa 2010 ) 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. Free tax usa 2010   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. Free tax usa 2010 A grantor and fiduciary, or the fiduciary and beneficiary, of any trust. Free tax usa 2010 Fiduciaries of two different trusts, or the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. Free tax usa 2010 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. Free tax usa 2010 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. Free tax usa 2010 Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Free tax usa 2010 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. Free tax usa 2010 An executor and a beneficiary of an estate (except in the case of a sale or trade to satisfy a pecuniary bequest). Free tax usa 2010 Two corporations that are members of the same controlled group. Free tax usa 2010 (Under certain conditions, however, these losses are not disallowed but must be deferred. Free tax usa 2010 ) Two partnerships if the same persons own, directly or indirectly, more than 50% of the capital interests or the profit interests in both partnerships. Free tax usa 2010 Multiple property sales or trades. Free tax usa 2010   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. Free tax usa 2010 The gain on each item may be taxable. Free tax usa 2010 However, you cannot deduct the loss on any item. Free tax usa 2010 Also, you cannot reduce gains from the sales of any of these items by losses on the sales of any of the other items. Free tax usa 2010 Indirect transactions. Free tax usa 2010   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. Free tax usa 2010 This does not apply to a trade between related parties through an exchange that is purely coincidental and is not prearranged. Free tax usa 2010 Constructive ownership of stock. Free tax usa 2010   In determining whether a person directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Free tax usa 2010 Rule 1. Free tax usa 2010   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. Free tax usa 2010 Rule 2. Free tax usa 2010   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Free tax usa 2010 Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Free tax usa 2010 Rule 3. Free tax usa 2010   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. Free tax usa 2010 Rule 4. Free tax usa 2010   When applying rule 1, 2, or 3, stock constructively owned by a person under rule 1 is treated as actually owned by that person. Free tax usa 2010 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. Free tax usa 2010 Property received from a related party. Free tax usa 2010    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. Free tax usa 2010 This rule applies only if you are the original transferee and you acquired the property by purchase or exchange. Free tax usa 2010 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. Free tax usa 2010   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. Free tax usa 2010 Example 1. Free tax usa 2010 Your brother sells you stock for $7,600. Free tax usa 2010 His cost basis is $10,000. Free tax usa 2010 Your brother cannot deduct the loss of $2,400. Free tax usa 2010 Later, you sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900. Free tax usa 2010 Your reportable gain is $500 (the $2,900 gain minus the $2,400 loss not allowed to your brother). Free tax usa 2010 Example 2. Free tax usa 2010 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). Free tax usa 2010 You cannot deduct the loss that was not allowed to your brother. Free tax usa 2010 Capital Gains and Losses This section discusses the tax treatment of gains and losses from different types of investment transactions. Free tax usa 2010 Character of gain or loss. Free tax usa 2010   You need to classify your gains and losses as either ordinary or capital gains or losses. Free tax usa 2010 You then need to classify your capital gains and losses as either short term or long term. Free tax usa 2010 If you have long-term gains and losses, you must identify your 28% rate gains and losses. Free tax usa 2010 If you have a net capital gain, you must also identify any unrecaptured section 1250 gain. Free tax usa 2010   The correct classification and identification helps you figure the limit on capital losses and the correct tax on capital gains. Free tax usa 2010 Reporting capital gains and losses is explained in chapter 16. Free tax usa 2010 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. Free tax usa 2010 Generally, a sale or trade of a capital asset (defined next) results in a capital gain or loss. Free tax usa 2010 A sale or trade of a noncapital asset generally results in ordinary gain or loss. Free tax usa 2010 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. Free tax usa 2010 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. Free tax usa 2010 Capital Assets and Noncapital Assets For the most part, everything you own and use for personal purposes, pleasure, or investment is a capital asset. Free tax usa 2010 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. Free tax usa 2010 Any property you own is a capital asset, except the following noncapital assets. Free tax usa 2010 Property held mainly for sale to customers or property that will physically become a part of the merchandise for sale to customers. Free tax usa 2010 For an exception, see Capital Asset Treatment for Self-Created Musical Works , later. Free tax usa 2010 Depreciable property used in your trade or business, even if fully depreciated. Free tax usa 2010 Real property used in your trade or business. Free tax usa 2010 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. Free tax usa 2010 For an exception to this rule, see Capital Asset Treatment for Self-Created Musical Works , later. Free tax usa 2010 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). Free tax usa 2010 U. Free tax usa 2010 S. Free tax usa 2010 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. Free tax usa 2010 Certain commodities derivative financial instruments held by commodities derivatives dealers. Free tax usa 2010 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. Free tax usa 2010 Supplies of a type you regularly use or consume in the ordinary course of your trade or business. Free tax usa 2010 Investment Property Investment property is a capital asset. Free tax usa 2010 Any gain or loss from its sale or trade is generally a capital gain or loss. Free tax usa 2010 Gold, silver, stamps, coins, gems, etc. Free tax usa 2010   These are capital assets except when they are held for sale by a dealer. Free tax usa 2010 Any gain or loss you have from their sale or trade generally is a capital gain or loss. Free tax usa 2010 Stocks, stock rights, and bonds. Free tax usa 2010   All of these (including stock received as a dividend) are capital assets except when held for sale by a securities dealer. Free tax usa 2010 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. Free tax usa 2010 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. Free tax usa 2010 However, you cannot deduct a loss from selling personal use property. Free tax usa 2010 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. Free tax usa 2010 You must make a separate election for each musical composition (or copyright in a musical work) sold or exchanged during the tax year. Free tax usa 2010 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. Free tax usa 2010 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. Free tax usa 2010 For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Free tax usa 2010 See also Schedule D (Form 1040), Form 8949, and their separate instructions. Free tax usa 2010 You can revoke the election if you have IRS approval. Free tax usa 2010 To get IRS approval, you must submit a request for a letter ruling under the appropriate IRS revenue procedure. Free tax usa 2010 See, for example, Rev. Free tax usa 2010 Proc. Free tax usa 2010 2013-1, corrected by Announcement 2013–9, and amplified and modified by Rev. Free tax usa 2010 Proc. Free tax usa 2010 2013–32, available at www. Free tax usa 2010 irs. Free tax usa 2010 gov/irb/2013-01_IRB/ar06. Free tax usa 2010 html. Free tax usa 2010 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. Free tax usa 2010 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. Free tax usa 2010 Short-term government obligations. Free tax usa 2010   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. Free tax usa 2010 This treatment applies to obligations with a fixed maturity date not more than 1 year from the date of issue. Free tax usa 2010 Acquisition discount is the stated redemption price at maturity minus your basis in the obligation. Free tax usa 2010   However, do not treat these gains as income to the extent you previously included the discount in income. Free tax usa 2010 See Discount on Short-Term Obligations in chapter 1 of Publication 550. Free tax usa 2010 Short-term nongovernment obligations. Free tax usa 2010   Treat gains on short-term nongovernment obligations as ordinary income up to your ratable share of original issue discount (OID). Free tax usa 2010 This treatment applies to obligations with a fixed maturity date of not more than 1 year from the date of issue. Free tax usa 2010   However, to the extent you previously included the discount in income, you do not have to include it in income again. Free tax usa 2010 See Discount on Short-Term Obligations in chapter 1 of Publication 550. Free tax usa 2010 Tax-exempt state and local government bonds. Free tax usa 2010   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. Free tax usa 2010 To figure your gain or loss on the sale or trade of these bonds, reduce the amount realized by your part of OID. Free tax usa 2010   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. Free tax usa 2010 For more information on the basis of these bonds, see Discounted Debt Instruments in chapter 4 of Publication 550. Free tax usa 2010   Any gain from market discount is usually taxable on disposition or redemption of tax-exempt bonds. Free tax usa 2010 If you bought the bonds before May 1, 1993, the gain from market discount is capital gain. Free tax usa 2010 If you bought the bonds after April 30, 1993, the gain is ordinary income. Free tax usa 2010   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. Free tax usa 2010 For more information, see Market Discount Bonds in chapter 1 of Publication 550. Free tax usa 2010    A loss on the sale or other disposition of a tax-exempt state or local government bond is deductible as a capital loss. Free tax usa 2010 Redeemed before maturity. Free tax usa 2010   If a state or local bond issued before June 9, 1980, is redeemed before it matures, the OID is not taxable to you. Free tax usa 2010   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. Free tax usa 2010 However, you must report the unearned part of OID as a capital gain. Free tax usa 2010 Example. Free tax usa 2010 On July 2, 2002, the date of issue, you bought a 20-year, 6% municipal bond for $800. Free tax usa 2010 The face amount of the bond was $1,000. Free tax usa 2010 The $200 discount was OID. Free tax usa 2010 At the time the bond was issued, the issuer had no intention of redeeming it before it matured. Free tax usa 2010 The bond was callable at its face amount beginning 10 years after the issue date. Free tax usa 2010 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. Free tax usa 2010 The OID earned during the time you held the bond, $73, is not taxable. Free tax usa 2010 The $60 accrued annual interest also is not taxable. Free tax usa 2010 However, you must report the unearned part of OID ($127) as a capital gain. Free tax usa 2010 Long-term debt instruments issued after 1954 and before May 28, 1969 (or before July 2, 1982, if a government instrument). Free tax usa 2010   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. Free tax usa 2010 The rest of the gain is capital gain. Free tax usa 2010 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. Free tax usa 2010 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. Free tax usa 2010 Long-term debt instruments issued after May 27, 1969 (or after July 1, 1982, if a government instrument). Free tax usa 2010   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. Free tax usa 2010 Your basis in that debt instrument is increased by the amount of OID that you have included in your gross income. Free tax usa 2010 See Original Issue Discount (OID) in chapter 7 for information about OID that you must report on your tax return. Free tax usa 2010   If you sell or trade the debt instrument before maturity, your gain is a capital gain. Free tax usa 2010 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. Free tax usa 2010 In this case, the rest of the gain is capital gain. Free tax usa 2010 Market discount bonds. Free tax usa 2010   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. Free tax usa 2010 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. Free tax usa 2010 The rest of the gain is capital gain. Free tax usa 2010 See Market Discount Bonds in chapter 1 of Publication 550. Free tax usa 2010   A different rule applies to market discount bonds issued before July 19, 1984, and purchased by you before May 1, 1993. Free tax usa 2010 See Market discount bonds under Discounted Debt Instruments in chapter 4 of Publication 550. Free tax usa 2010 Retirement of debt instrument. Free tax usa 2010   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. Free tax usa 2010 Notes of individuals. Free tax usa 2010   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. Free tax usa 2010 An exception to this treatment applies if the obligation is a loan between individuals and all the following requirements are met. Free tax usa 2010 The lender is not in the business of lending money. Free tax usa 2010 The amount of the loan, plus the amount of any outstanding prior loans, is $10,000 or less. Free tax usa 2010 Avoiding federal tax is not one of the principal purposes of the loan. Free tax usa 2010   If the exception applies, or the obligation was issued before March 2, 1984, you do not include the OID in your income currently. Free tax usa 2010 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. Free tax usa 2010 The rest of the gain, if any, is capital gain. Free tax usa 2010 Any loss on the sale or redemption is capital loss. Free tax usa 2010 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. Free tax usa 2010 Ordinary loss. Free tax usa 2010 Casualty loss. Free tax usa 2010 Nonbusiness bad debt (short-term capital loss). Free tax usa 2010  For more information, see Deposit in Insolvent or Bankrupt Financial Institution, in chapter 4 of Publication 550. Free tax usa 2010 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. Free tax usa 2010 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. Free tax usa 2010 Report the loss on Form 4797, line 10. Free tax usa 2010 Any gain on section 1244 stock is a capital gain if the stock is a capital asset in your hands. Free tax usa 2010 Report the gain on Form 8949. Free tax usa 2010 See Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. Free tax usa 2010 For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Free tax usa 2010 See also Schedule D (Form 1040), Form 8949, and their separate instructions. Free tax usa 2010 Holding Period If you sold or traded investment property, you must determine your holding period for the property. Free tax usa 2010 Your holding period determines whether any capital gain or loss was a short-term or long-term capital gain or loss. Free tax usa 2010 Long-term or short-term. Free tax usa 2010   If you hold investment property more than 1 year, any capital gain or loss is a long-term capital gain or loss. Free tax usa 2010 If you hold the property 1 year or less, any capital gain or loss is a short-term capital gain or loss. Free tax usa 2010   To determine how long you held the investment property, begin counting on the date after the day you acquired the property. Free tax usa 2010 The day you disposed of the property is part of your holding period. Free tax usa 2010 Example. Free tax usa 2010 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. Free tax usa 2010 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. Free tax usa 2010 Securities traded on established market. Free tax usa 2010   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. Free tax usa 2010    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. Free tax usa 2010 Example. Free tax usa 2010 You are a cash method, calendar year taxpayer. Free tax usa 2010 You sold stock at a gain on December 30, 2013. Free tax usa 2010 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. Free tax usa 2010 You received payment of the sales price on that same day. Free tax usa 2010 Report your gain on your 2013 return, even though you received the payment in 2014. Free tax usa 2010 The gain is long term or short term depending on whether you held the stock more than 1 year. Free tax usa 2010 Your holding period ended on December 30. Free tax usa 2010 If you had sold the stock at a loss, you would also report it on your 2013 return. Free tax usa 2010 U. Free tax usa 2010 S. Free tax usa 2010 Treasury notes and bonds. Free tax usa 2010   The holding period of U. Free tax usa 2010 S. Free tax usa 2010 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. Free tax usa 2010 The holding period of U. Free tax usa 2010 S. Free tax usa 2010 Treasury notes and bonds sold through an offering on a subscription basis at a specified yield starts the day after the subscription is submitted. Free tax usa 2010 Automatic investment service. Free tax usa 2010   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. Free tax usa 2010 Your holding period starts on the day after the bank's purchase date. Free tax usa 2010 If a share was bought over more than one purchase date, your holding period for that share is a split holding period. Free tax usa 2010 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. Free tax usa 2010 Nontaxable trades. Free tax usa 2010   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. Free tax usa 2010 Property received as a gift. Free tax usa 2010   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. Free tax usa 2010   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. Free tax usa 2010 Inherited property. Free tax usa 2010   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. Free tax usa 2010 This is true regardless of how long you actually held the property. Free tax usa 2010 However, if you inherited property from someone who died in 2010, see the information below. Free tax usa 2010 Inherited property from someone who died in 2010. Free tax usa 2010   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. Free tax usa 2010 Real property bought. Free tax usa 2010   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. Free tax usa 2010 However, taking delivery or possession of real property under an option agreement is not enough to start the holding period. Free tax usa 2010 The holding period cannot start until there is an actual contract of sale. Free tax usa 2010 The holding period of the seller cannot end before that time. Free tax usa 2010 Real property repossessed. Free tax usa 2010   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. Free tax usa 2010 Your holding period does not include the time between the original sale and the repossession. Free tax usa 2010 That is, it does not include the period during which the first buyer held the property. Free tax usa 2010 Stock dividends. Free tax usa 2010   The holding period for stock you received as a taxable stock dividend begins on the date of distribution. Free tax usa 2010   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. Free tax usa 2010 This rule also applies to stock acquired in a “spin-off,” which is a distribution of stock or securities in a controlled corporation. Free tax usa 2010 Nontaxable stock rights. Free tax usa 2010   Your holding period for nontaxable stock rights begins on the same day as the holding period of the underlying stock. Free tax usa 2010 The holding period for stock acquired through the exercise of stock rights begins on the date the right was exercised. Free tax usa 2010 Nonbusiness Bad Debts If someone owes you money that you cannot collect, you have a bad debt. Free tax usa 2010 You may be able to deduct the amount owed to you when you figure your tax for the year the debt becomes worthless. Free tax usa 2010 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. Free tax usa 2010 To be deductible, nonbusiness bad debts must be totally worthless. Free tax usa 2010 You cannot deduct a partly worthless nonbusiness debt. Free tax usa 2010 Genuine debt required. Free tax usa 2010   A debt must be genuine for you to deduct a loss. Free tax usa 2010 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. Free tax usa 2010 Basis in bad debt required. Free tax usa 2010    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. Free tax usa 2010 For example, you cannot claim a bad debt deduction for court-ordered child support not paid to you by your former spouse. Free tax usa 2010 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. Free tax usa 2010 When deductible. Free tax usa 2010   You can take a bad debt deduction only in the year the debt becomes worthless. Free tax usa 2010 You do not have to wait until a debt is due to determine whether it is worthless. Free tax usa 2010 A debt becomes worthless when there is no longer any chance that the amount owed will be paid. Free tax usa 2010   It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. Free tax usa 2010 You must only show that you have taken reasonable steps to collect the debt. Free tax usa 2010 Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. Free tax usa 2010 How to report bad debts. Free tax usa 2010    Deduct nonbusiness bad debts as short-term capital losses on Form 8949. Free tax usa 2010    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. Free tax usa 2010    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Free tax usa 2010 See also Schedule D (Form 1040), Form 8949, and their separate instructions. Free tax usa 2010   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. Free tax usa 2010 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. Free tax usa 2010 Filing a claim for refund. Free tax usa 2010    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. Free tax usa 2010 To do this, use Form 1040X to amend your return for the year the debt became worthless. Free tax usa 2010 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. Free tax usa 2010 For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. Free tax usa 2010 Additional information. Free tax usa 2010   For more information, see Nonbusiness Bad Debts in Publication 550. Free tax usa 2010 For information on business bad debts, see chapter 10 of Publication 535, Business Expenses. Free tax usa 2010 Wash Sales You cannot deduct losses from sales or trades of stock or securities in a wash sale. Free tax usa 2010 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. Free tax usa 2010 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). Free tax usa 2010 The result is your basis in the new stock or securities. Free tax usa 2010 This adjustment postpones the loss deduction until the disposition of the new stock or securities. Free tax usa 2010 Your holding period for the new stock or securities includes the holding period of the stock or securities sold. Free tax usa 2010 For more information, see Wash Sales, in chapter 4 of Publication 550. Free tax usa 2010 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. Free tax usa 2010 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. Free tax usa 2010 You postpone the gain by adjusting the basis of the replacement property as described in Basis of replacement property , later. Free tax usa 2010 This postpones your gain until the year you dispose of the replacement property. Free tax usa 2010 You qualify to make this choice if you meet all the following tests. Free tax usa 2010 You sell publicly traded securities at a gain. Free tax usa 2010 Publicly traded securities are securities traded on an established securities market. Free tax usa 2010 Your gain from the sale is a capital gain. Free tax usa 2010 During the 60-day period beginning on the date of the sale, you buy replacement property. Free tax usa 2010 This replacement property must be either common stock of, or a partnership interest in a specialized small business investment company (SSBIC). Free tax usa 2010 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. Free tax usa 2010 Amount of gain recognized. Free tax usa 2010   If you make the choice described in this section, you must recognize gain only up to the following amount. Free tax usa 2010 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). Free tax usa 2010  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. Free tax usa 2010 If this amount is equal to or more than the amount of your gain, you must recognize the full amount of your gain. Free tax usa 2010 Limit on gain postponed. Free tax usa 2010   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. Free tax usa 2010 Basis of replacement property. Free tax usa 2010   You must subtract the amount of postponed gain from the basis of your replacement property. Free tax usa 2010 How to report and postpone gain. Free tax usa 2010    See How to report and postpone gain under Rollover of Gain From Publicly Traded Securities in chapter 4 of Publication 550 for details. 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