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H And R Block Taxes

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H And R Block Taxes

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

H and r block taxes Publication 556 - Introductory Material Table of Contents The IRS Mission Reminders IntroductionOrdering forms and publications. H and r block taxes Tax questions. H and r block taxes Useful Items - You may want to see: The IRS Mission 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. H and r block taxes Reminders Penalty for filing erroneous claim for refund or credit. H and r block taxes  You may have to pay a penalty if you file an erroneous claim for refund or credit. H and r block taxes See Penalty for erroneous claim for refund, later under Claims for Refund. H and r block taxes Interest and penalties suspended if notice not mailed within 36 months. H and r block taxes  If you file your return timely (including extensions), interest and certain penalties will be suspended if the IRS does not mail a notice to you within 36 months. H and r block taxes See Suspension of interest and penalties, later under Examination of Returns. H and r block taxes Fast track mediation. H and r block taxes  The IRS offers fast track mediation services to help taxpayers resolve many disputes resulting from: Examinations (audits), Offers in compromise, Trust fund recovery penalties, and Other collection actions. H and r block taxes See Fast track mediation under If You Do Not Agree. H and r block taxes Introduction The Internal Revenue Service (IRS) accepts most federal tax returns as filed. H and r block taxes However, the IRS examines (or audits) some returns to determine if income, expenses, and credits are being reported accurately. H and r block taxes If your return is selected for examination, it does not suggest that you made an error or are dishonest. H and r block taxes Returns are chosen by computerized screening, by random sample, or by an income document matching program. H and r block taxes See Examination selection criteria, later. H and r block taxes You should also know that many examinations result in a refund or acceptance of the tax return without change. H and r block taxes This publication discusses general rules and procedures that the IRS follows in examinations. H and r block taxes It explains what happens during an examination and your appeal rights, both within the IRS and in the federal court system. H and r block taxes It also explains how to file a claim for refund of tax you already paid. H and r block taxes As a taxpayer, you have the right to be treated fairly, professionally, promptly, and courteously by IRS employees. H and r block taxes Publication 1, Your Rights as a Taxpayer, explains your rights when dealing with the IRS. H and r block taxes Comments and suggestions. H and r block taxes   We welcome your comments about this publication and your suggestions for future editions. H and r block taxes   You can write to us at the following address:  Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. H and r block taxes NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. H and r block taxes Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. H and r block taxes   You can send your comments from www. H and r block taxes irs. H and r block taxes gov/formspubs/. H and r block taxes Click on “More Information” and then on “Comment on Tax Forms and Publications. H and r block taxes ”   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. H and r block taxes Ordering forms and publications. H and r block taxes   Visit www. H and r block taxes irs. H and r block taxes 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. H and r block taxes  Internal Revenue Service  1201 N. H and r block taxes Mitsubishi Motorway Bloomington, IL 61704-6613 Tax questions. H and r block taxes   If you have a tax question, check the information available on www. H and r block taxes irs. H and r block taxes gov or call 1-800-829-1040. H and r block taxes We cannot answer tax questions sent to either of the above addresses. H and r block taxes Useful Items - You may want to see: Publication 1 Your Rights as a Taxpayer 5 Your Appeal Rights and How To Prepare a Protest If You Don't Agree 547 Casualties, Disasters, and Thefts 594 The IRS Collection Process 910 Guide to Free Tax Services 971 Innocent Spouse Relief 1546 Taxpayer Advocate Service–Your Voice at the IRS 1660 Collection Appeal Rights 3605 Fast Track Mediation 3920 Tax Relief for Victims of Terrorist Attacks 4134 Low Income Taxpayer Clinic List Form (and Instructions) 843 Claim for Refund and Request for Abatement 911 Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order) 1040X Amended U. H and r block taxes S. H and r block taxes Individual Income Tax Return 2848 Power of Attorney and Declaration of Representative 4506 Request for Copy of Tax Return 4506-T Request for Transcript of Tax Return 8379 Injured Spouse Allocation 8857 Request for Innocent Spouse Relief See How To Get Tax Help , near the end of this publication, for information about getting these publications and forms. H and r block taxes Prev  Up  Next   Home   More Online Publications