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How Do I File My 2012 Taxes Now

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How Do I File My 2012 Taxes Now

How do i file my 2012 taxes now 1. How do i file my 2012 taxes now   Canceled Debts Table of Contents General RulesForm 1099-C Discounts and loan modifications Sales or other dispositions (such as foreclosures and repossessions) Abandonments Stockholder debt This chapter discusses the tax treatment of canceled debts. How do i file my 2012 taxes now General Rules Generally, if a debt for which you are personally liable is forgiven or discharged for less than the full amount owed, the debt is considered canceled in whatever amount it remained unpaid. How do i file my 2012 taxes now There are exceptions to this rule, discussed under Exceptions , later. How do i file my 2012 taxes now Generally, you must include the canceled debt in your income. How do i file my 2012 taxes now However, you may be able to exclude the canceled debt. How do i file my 2012 taxes now See Exclusions , later. How do i file my 2012 taxes now Example. How do i file my 2012 taxes now John owed $1,000 to Mary. How do i file my 2012 taxes now Mary agreed to accept and John paid $400 in satisfaction of the entire debt. How do i file my 2012 taxes now John has canceled debt of $600. How do i file my 2012 taxes now Example. How do i file my 2012 taxes now Margaret owed $1,000 to Henry. How do i file my 2012 taxes now Henry and Margaret agreed that Margaret would provide Henry with services (instead of money) in full satisfaction of the debt. How do i file my 2012 taxes now Margaret does not have canceled debt. How do i file my 2012 taxes now Instead, she has income from services. How do i file my 2012 taxes now A debt includes any indebtedness: For which you are liable, or Subject to which you hold property. How do i file my 2012 taxes now Debt for which you are personally liable is recourse debt. How do i file my 2012 taxes now All other debt is nonrecourse debt. How do i file my 2012 taxes now If you are not personally liable for the debt, you do not have ordinary income from the cancellation of debt unless you retain the collateral and either: The lender offers a discount for the early payment of the debt, or The lender agrees to a loan modification that results in the reduction of the principal balance of the debt. How do i file my 2012 taxes now See Discounts and loan modifications , later. How do i file my 2012 taxes now However, upon the disposition of the property securing a nonrecourse debt, the amount realized includes the entire unpaid amount of the debt, not just the FMV of the property. How do i file my 2012 taxes now As a result, you may realize a gain or loss if the outstanding debt immediately before the disposition is more or less than your adjusted basis in the property. How do i file my 2012 taxes now For more details on figuring your gain or loss, see chapter 2 of this publication or see Publication 544. How do i file my 2012 taxes now There are several exceptions and exclusions that may result in part or all of a canceled debt being nontaxable. How do i file my 2012 taxes now See Exceptions and Exclusions, later. How do i file my 2012 taxes now You must report any taxable canceled debt as ordinary income on: Form 1040 or Form 1040NR, line 21, if the debt is a nonbusiness debt; Schedule C (Form 1040), line 6 (or Schedule C-EZ (Form 1040), line 1), if the debt is related to a nonfarm sole proprietorship; Schedule E (Form 1040), line 3, if the debt is related to nonfarm rental of real property; Form 4835, line 6, if the debt is related to a farm rental activity for which you use Form 4835 to report farm rental income based on crops or livestock produced by a tenant; or Schedule F (Form 1040), line 8, if the debt is farm debt and you are a farmer. How do i file my 2012 taxes now Form 1099-C If you receive a Form 1099-C, that means an applicable entity has reported an identifiable event to the IRS regarding a debt you owe. How do i file my 2012 taxes now The identifiable event may be an actual cancellation of the debt or it may be an event the applicable entity is required, solely for purposes of reporting to the IRS, to treat as a cancellation of debt. How do i file my 2012 taxes now For information on the reasons an applicable entity files Form 1099-C, see Identifiable event codes, later. How do i file my 2012 taxes now Unless you meet one of the exceptions or exclusions discussed later, this canceled debt is ordinary income and must be reported on the appropriate form discussed above. How do i file my 2012 taxes now An applicable entity includes: A federal government agency, A financial institution, A credit union, and Any organization a significant trade or business of which is lending money. How do i file my 2012 taxes now Identifiable event codes. How do i file my 2012 taxes now    Box 6 of Form 1099-C should indicate the reason the creditor filed this form. How do i file my 2012 taxes now The codes shown in box 6 are explained below. How do i file my 2012 taxes now Also see the chart after the explanation for a quick reference guide for the codes used in Box 6. How do i file my 2012 taxes now Note. How do i file my 2012 taxes now Codes A through G and I identify specific occurrences resulting from an actual discharge of indebtedness. How do i file my 2012 taxes now However, Code H, Expiration of nonpayment testing period, does not necessarily identify an actual discharge of indebtedness. How do i file my 2012 taxes now Code A — Bankruptcy. How do i file my 2012 taxes now Code A is used to identify cancellation of debt as a result of a title 11 bankruptcy case. How do i file my 2012 taxes now See Bankruptcy , later. How do i file my 2012 taxes now Code B — Other judicial debt relief. How do i file my 2012 taxes now Code B is used to identify cancellation of debt as a result of a receivership, foreclosure, or similar federal or state court proceeding other than bankruptcy. How do i file my 2012 taxes now Code C — Statute of limitations or expiration of deficiency period. How do i file my 2012 taxes now Code C is used to identify cancellation of debt either when the statute of limitations for collecting the debt expires or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. How do i file my 2012 taxes now In the case of the expiration of a statute of limitations, an identifiable event occurs only if and when your affirmative defense of the statute of limitations is upheld in a final judgment or decision in a judicial proceeding, and the period for appealing the judgment or decision has expired. How do i file my 2012 taxes now Code D — Foreclosure election. How do i file my 2012 taxes now Code D is used to identify cancellation of debt when the creditor elects foreclosure remedies that statutorily end or bar the creditor's right to pursue collection of the debt. How do i file my 2012 taxes now This event applies to a mortgage lender or holder who is barred from pursuing debt collection after a power of sale in the mortgage or deed of trust is exercised. How do i file my 2012 taxes now Code E — Debt relief from probate or similar proceeding. How do i file my 2012 taxes now Code E is used to identify cancellation of debt as a result of a probate court or similar legal proceeding. How do i file my 2012 taxes now Code F — By agreement. How do i file my 2012 taxes now Code F is used to identify cancellation of debt as a result of an agreement between the creditor and the debtor to cancel the debt at less than full consideration. How do i file my 2012 taxes now Code G — Decision or policy to discontinue collection. How do i file my 2012 taxes now Code G is used to identify cancellation of debt as a result of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. How do i file my 2012 taxes now For purposes of this identifiable event, a defined policy includes both a written policy and the creditor's established business practice. How do i file my 2012 taxes now Code H — Expiration of nonpayment testing period. How do i file my 2012 taxes now Code H is used to indicate that the creditor has not received a payment on the debt during a testing period ending on December 31, 2013. How do i file my 2012 taxes now The testing period is a 36-month period increased by the number of months the creditor was prevented from engaging in collection activity by a stay in bankruptcy or similar bar under state or local law. How do i file my 2012 taxes now This identifiable event applies only for a creditor that is a financial institution or credit union (and certain of their subsidiaries), the Federal Deposit Insurance Corporation (FDIC), Resolution Trust Corporation (RTC), National Credit Union Administration (NCUA), and other Federal executive agencies. How do i file my 2012 taxes now Expiration of the nonpayment testing period does not necessarily result from an actual discharge of indebtedness. How do i file my 2012 taxes now Code I — Other actual discharge before identifiable event. How do i file my 2012 taxes now Code I is used to identify an actual cancellation of debt that occurs before any of the identifiable events described in codes A through H. How do i file my 2012 taxes now Form 1099-C Reference Guide for Box 6 Identifiable Event Codes A Bankruptcy B Other judicial debt relief C Statute of limitations or expiration of deficiency period D Foreclosure election E Debt relief from probate or similar proceeding F By agreement G Decision or policy to discontinue collection H Expiration of nonpayment testing period I Other actual discharge before identifiable event Even if you did not receive a Form 1099-C, you must report canceled debt as gross income on your tax return unless one of the exceptions or exclusions described later applies. How do i file my 2012 taxes now Amount of canceled debt. How do i file my 2012 taxes now    The amount in box 2 of Form 1099-C may represent some or all of the debt that has been canceled or treated as canceled. How do i file my 2012 taxes now The amount in box 2 will include principal and may include interest and other nonprincipal amounts (such as fees or penalties). How do i file my 2012 taxes now Unless you meet one of the exceptions or exclusions discussed later, the amount of the debt that has been canceled is ordinary income and must be reported on the appropriate form as discussed earlier. How do i file my 2012 taxes now Interest included in canceled debt. How do i file my 2012 taxes now    If any interest is included in the amount of canceled debt in box 2, it will be shown in box 3. How do i file my 2012 taxes now Whether the interest portion of the canceled debt must be included in your income depends on whether the interest would be deductible if you paid it. How do i file my 2012 taxes now See Deductible Debt under Exceptions, later. How do i file my 2012 taxes now Persons who each receive a Form 1099-C showing the full amount of debt. How do i file my 2012 taxes now    If you and another person were jointly and severally liable for a canceled debt, each of you may get a Form 1099-C showing the entire amount of the canceled debt. How do i file my 2012 taxes now However, you may not have to report that entire amount as income. How do i file my 2012 taxes now The amount, if any, you must report depends on all the facts and circumstances, including: State law, The amount of debt proceeds each person received, How much of any interest deduction from the debt was claimed by each person, How much of the basis of any co-owned property bought with the debt proceeds was allocated to each co-owner, and Whether the canceled debt qualifies for any of the exceptions or exclusions described in this publication. How do i file my 2012 taxes now See Example 3 under Insolvency, later. How do i file my 2012 taxes now Discounts and loan modifications If a lender discounts (reduces) the principal balance of a loan because you pay it off early, or agrees to a loan modification (a “workout”) that includes a reduction in the principal balance of a loan, the amount of the discount or the amount of principal reduction is canceled debt. How do i file my 2012 taxes now However, if the debt is nonrecourse and you did not retain the collateral, you do not have cancellation of the debt income. How do i file my 2012 taxes now The amount of the canceled debt must be included in income unless one of the exceptions or exclusions described later applies. How do i file my 2012 taxes now For more details, see Exceptions and Exclusions, later. How do i file my 2012 taxes now Sales or other dispositions (such as foreclosures and repossessions) Recourse debt. How do i file my 2012 taxes now   If you owned property that was subject to a recourse debt in excess of the FMV of the property, the lender's foreclosure or repossession of the property is treated as a sale or disposition of the property by you and may result in your realization of gain or loss. How do i file my 2012 taxes now The gain or loss on the disposition of the property is measured by the difference between the FMV of the property at the time of the disposition and your adjusted basis (usually your cost) in the property. How do i file my 2012 taxes now The character of the gain or loss (such as ordinary or capital) is determined by the character of the property. How do i file my 2012 taxes now If the lender forgives all or part of the amount of the debt in excess of the FMV of the property, the cancellation of the excess debt may result in ordinary income. How do i file my 2012 taxes now The ordinary income from the cancellation of debt (the excess of the canceled debt over the FMV of the property) must be included in your gross income reported on your tax return unless one of the exceptions or exclusions described later applies. How do i file my 2012 taxes now For more details, see Exceptions and Exclusions, later. How do i file my 2012 taxes now Nonrecourse debt. How do i file my 2012 taxes now   If you owned property that was subject to a nonrecourse debt in excess of the FMV of the property, the lender's foreclosure on the property does not result in ordinary income from the cancellation of debt. How do i file my 2012 taxes now The entire amount of the nonrecourse debt is treated as an amount realized on the disposition of the property. How do i file my 2012 taxes now The gain or loss on the disposition of the property is measured by the difference between the total amount realized (the entire amount of the nonrecourse debt plus the amount of cash and the FMV of any property received) and your adjusted basis in the property. How do i file my 2012 taxes now The character of the gain or loss is determined by the character of the property. How do i file my 2012 taxes now More information. How do i file my 2012 taxes now    See Publications 523, 544, and 551, and chapter 2 of this publication for more details. How do i file my 2012 taxes now Abandonments Recourse debt. How do i file my 2012 taxes now   If you abandon property that secures a debt for which you are personally liable (recourse debt) and the debt is canceled, you will realize ordinary income equal to the canceled debt. How do i file my 2012 taxes now You must report this income on your tax return unless one of the exceptions or exclusions described later applies. How do i file my 2012 taxes now For more details, see Exceptions and Exclusions, later. How do i file my 2012 taxes now This income is separate from any amount realized from the abandonment of the property. How do i file my 2012 taxes now For more details, see chapter 3. How do i file my 2012 taxes now Nonrecourse debt. How do i file my 2012 taxes now   If you abandon property that secures a debt for which you are not personally liable (nonrecourse debt), you may realize gain or loss but will not have cancellation of indebtedness income. How do i file my 2012 taxes now Stockholder debt If you are a stockholder in a corporation and the corporation cancels or forgives your debt to it, the canceled debt is a constructive distribution. How do i file my 2012 taxes now For more information, see Publication 542, Corporations. How do i file my 2012 taxes now Prev  Up  Next   Home   More Online Publications
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The How Do I File My 2012 Taxes Now

How do i file my 2012 taxes now 13. How do i file my 2012 taxes now   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. How do i file my 2012 taxes now It is divided into the following sections. How do i file my 2012 taxes now Cost basis. How do i file my 2012 taxes now Adjusted basis. How do i file my 2012 taxes now Basis other than cost. How do i file my 2012 taxes now Your basis is the amount of your investment in property for tax purposes. How do i file my 2012 taxes now Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. How do i file my 2012 taxes now Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. How do i file my 2012 taxes now If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. How do i file my 2012 taxes now Only the basis allocated to the business or investment use of the property can be depreciated. How do i file my 2012 taxes now Your original basis in property is adjusted (increased or decreased) by certain events. How do i file my 2012 taxes now For example, if you make improvements to the property, increase your basis. How do i file my 2012 taxes now If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. How do i file my 2012 taxes now Keep accurate records of all items that affect the basis of your property. How do i file my 2012 taxes now For more information on keeping records, see chapter 1. How do i file my 2012 taxes now Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. How do i file my 2012 taxes now The cost is the amount you pay in cash, debt obligations, other property, or services. How do i file my 2012 taxes now Your cost also includes amounts you pay for the following items: 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 you assume liability for the seller). How do i file my 2012 taxes now In addition, the basis of real estate and business assets may include other items. How do i file my 2012 taxes now Loans with low or no interest. How do i file my 2012 taxes now    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 any amount considered to be unstated interest. How do i file my 2012 taxes now You generally have unstated interest if your interest rate is less than the applicable federal rate. How do i file my 2012 taxes now   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. How do i file my 2012 taxes now Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. How do i file my 2012 taxes now If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. How do i file my 2012 taxes now Lump sum purchase. How do i file my 2012 taxes now   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. How do i file my 2012 taxes now Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. How do i file my 2012 taxes now Figure the basis of each asset by multiplying the lump sum by a fraction. How do i file my 2012 taxes now The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. How do i file my 2012 taxes now    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. How do i file my 2012 taxes now Fair market value (FMV). How do i file my 2012 taxes now   FMV is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the necessary facts. How do i file my 2012 taxes now Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. How do i file my 2012 taxes now Assumption of mortgage. How do i file my 2012 taxes now   If you buy property and assume (or buy the property 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. How do i file my 2012 taxes now Settlement costs. How do i file my 2012 taxes now   Your basis includes the settlement fees and closing costs you paid for buying the property. How do i file my 2012 taxes now (A fee for buying property is a cost that must be paid even if you buy the property for cash. How do i file my 2012 taxes now ) Do not include fees and costs for getting a loan on the property in your basis. How do i file my 2012 taxes now   The following are some of the settlement fees or closing costs you can include in the basis of your property. How do i file my 2012 taxes now Abstract fees (abstract of title fees). How do i file my 2012 taxes now Charges for installing utility services. How do i file my 2012 taxes now Legal fees (including fees for the title search and preparation of the sales contract and deed). How do i file my 2012 taxes now Recording fees. How do i file my 2012 taxes now Survey fees. How do i file my 2012 taxes now Transfer taxes. How do i file my 2012 taxes now Owner's title insurance. How do i file my 2012 taxes now 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. How do i file my 2012 taxes now   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. How do i file my 2012 taxes now   The following are some of the settlement fees and closing costs you cannot include in the basis of property. How do i file my 2012 taxes now Casualty insurance premiums. How do i file my 2012 taxes now Rent for occupancy of the property before closing. How do i file my 2012 taxes now Charges for utilities or other services related to occupancy of the property before closing. How do i file my 2012 taxes now Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. How do i file my 2012 taxes now Fees for refinancing a mortgage. How do i file my 2012 taxes now Real estate taxes. How do i file my 2012 taxes now   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. How do i file my 2012 taxes now You cannot deduct them as an expense. How do i file my 2012 taxes now    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. How do i file my 2012 taxes now Do not include that amount in the basis of your property. How do i file my 2012 taxes now If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. How do i file my 2012 taxes now Points. How do i file my 2012 taxes now   If you pay points to get 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. How do i file my 2012 taxes now Generally, you deduct the points over the term of the loan. How do i file my 2012 taxes now For more information on how to deduct points, see chapter 23. How do i file my 2012 taxes now Points on home mortgage. How do i file my 2012 taxes now   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. How do i file my 2012 taxes now If certain requirements are met, you can deduct the points in full for the year in which they are paid. How do i file my 2012 taxes now Reduce the basis of your home by any seller-paid points. How do i file my 2012 taxes now 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 (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. How do i file my 2012 taxes now The result is the adjusted basis. How do i file my 2012 taxes now Increases to Basis Increase the basis of any property by all items properly added to a capital account. How do i file my 2012 taxes now Examples of items that increase basis are shown in Table 13-1. How do i file my 2012 taxes now These include the items discussed below. How do i file my 2012 taxes now Improvements. How do i file my 2012 taxes now   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. How do i file my 2012 taxes now For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. How do i file my 2012 taxes now Assessments for local improvements. How do i file my 2012 taxes now   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. How do i file my 2012 taxes now Do not deduct them as taxes. How do i file my 2012 taxes now However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. How do i file my 2012 taxes now Example. How do i file my 2012 taxes now Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. How do i file my 2012 taxes now Add the assessment to your property's basis. How do i file my 2012 taxes now In this example, the assessment is a depreciable asset. How do i file my 2012 taxes now Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. How do i file my 2012 taxes now Examples of items that decrease basis are shown in Table 13-1. How do i file my 2012 taxes now These include the items discussed below. How do i file my 2012 taxes now Table 13-1. How do i file my 2012 taxes now Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. How do i file my 2012 taxes now   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. How do i file my 2012 taxes now    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. How do i file my 2012 taxes now   For more information on casualty and theft losses, see chapter 25. How do i file my 2012 taxes now Depreciation and section 179 deduction. How do i file my 2012 taxes now   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. How do i file my 2012 taxes now   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. How do i file my 2012 taxes now Example. How do i file my 2012 taxes now You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. How do i file my 2012 taxes now You added an improvement to the duplex that cost $10,000. How do i file my 2012 taxes now In February last year, the duplex was damaged by fire. How do i file my 2012 taxes now Up to that time, you had been allowed depreciation of $23,000. How do i file my 2012 taxes now You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. How do i file my 2012 taxes now You deducted a casualty loss of $1,000 on your income tax return for last year. How do i file my 2012 taxes now You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. How do i file my 2012 taxes now You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. How do i file my 2012 taxes now Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. How do i file my 2012 taxes now Your basis in the land is its original cost of $5,000. How do i file my 2012 taxes now Easements. How do i file my 2012 taxes now   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. How do i file my 2012 taxes now It reduces the basis of the affected part of the property. How do i file my 2012 taxes now 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. How do i file my 2012 taxes now   If the gain is on a capital asset, see chapter 16 for information about how to report it. How do i file my 2012 taxes now If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. How do i file my 2012 taxes now Exclusion of subsidies for energy conservation measures. How do i file my 2012 taxes now   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. How do i file my 2012 taxes now Reduce the basis of the property for which you received the subsidy by the excluded amount. How do i file my 2012 taxes now For more information about this subsidy, see chapter 12. How do i file my 2012 taxes now Postponed gain from sale of home. How do i file my 2012 taxes now    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. How do i file my 2012 taxes now For more information on the rules for the sale of a home, see chapter 15. How do i file my 2012 taxes now Basis Other Than Cost There are many times when you cannot use cost as basis. How do i file my 2012 taxes now In these cases, the fair market value or the adjusted basis of the property can be used. How do i file my 2012 taxes now Fair market value (FMV) and adjusted basis were discussed earlier. How do i file my 2012 taxes now Property Received for Services If you receive property for your services, include the FMV of the property in income. How do i file my 2012 taxes now The amount you include in income becomes your basis. How do i file my 2012 taxes now 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. How do i file my 2012 taxes now Restricted property. How do i file my 2012 taxes now   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. How do i file my 2012 taxes now However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. How do i file my 2012 taxes now Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). How do i file my 2012 taxes now For more information, see Restricted Property in Publication 525. How do i file my 2012 taxes now Bargain purchases. How do i file my 2012 taxes now   A bargain purchase is a purchase of an item for less than its FMV. How do i file my 2012 taxes now If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. How do i file my 2012 taxes now Your basis in the property is its FMV (your purchase price plus the amount you include in income). How do i file my 2012 taxes now   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. How do i file my 2012 taxes now However, your basis in the property is still its FMV. How do i file my 2012 taxes now See Employee Discounts in Publication 15-B. How do i file my 2012 taxes now Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. How do i file my 2012 taxes now A taxable gain or deductible loss also is known as a recognized gain or loss. How do i file my 2012 taxes now If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. How do i file my 2012 taxes now Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. How do i file my 2012 taxes now Similar or related property. How do i file my 2012 taxes now   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. How do i file my 2012 taxes now Decrease the basis by the following. How do i file my 2012 taxes now Any loss you recognize on the involuntary conversion. How do i file my 2012 taxes now Any money you receive that you do not spend on similar property. How do i file my 2012 taxes now Increase the basis by the following. How do i file my 2012 taxes now Any gain you recognize on the involuntary conversion. How do i file my 2012 taxes now Any cost of acquiring the replacement property. How do i file my 2012 taxes now Money or property not similar or related. How do i file my 2012 taxes now    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 replacement property is its cost decreased by the gain not recognized on the conversion. How do i file my 2012 taxes now Example. How do i file my 2012 taxes now The state condemned your property. How do i file my 2012 taxes now The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. How do i file my 2012 taxes now You realized a gain of $5,000 ($31,000 − $26,000). How do i file my 2012 taxes now You bought replacement property similar in use to the converted property for $29,000. How do i file my 2012 taxes now You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. How do i file my 2012 taxes now Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. How do i file my 2012 taxes now The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. How do i file my 2012 taxes now   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. How do i file my 2012 taxes now Basis for depreciation. How do i file my 2012 taxes now   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. How do i file my 2012 taxes now For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. How do i file my 2012 taxes now Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. How do i file my 2012 taxes now If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. How do i file my 2012 taxes now See Nontaxable Trades in chapter 14. How do i file my 2012 taxes now Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. How do i file my 2012 taxes now To qualify as a like-kind exchange, the property traded and the property received must be both of the following. How do i file my 2012 taxes now Qualifying property. How do i file my 2012 taxes now Like-kind property. How do i file my 2012 taxes now The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. How do i file my 2012 taxes now If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. How do i file my 2012 taxes now Qualifying property. How do i file my 2012 taxes now   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. How do i file my 2012 taxes now Like-kind property. How do i file my 2012 taxes now   There must be an exchange of like-kind property. How do i file my 2012 taxes now Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. How do i file my 2012 taxes now The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. How do i file my 2012 taxes now Example. How do i file my 2012 taxes now You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. How do i file my 2012 taxes now The dealer allows you $2,000 on the old truck, and you pay $4,800. How do i file my 2012 taxes now This is a like-kind exchange. How do i file my 2012 taxes now The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). How do i file my 2012 taxes now If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). How do i file my 2012 taxes now The basis of the new truck is the price you pay the dealer. How do i file my 2012 taxes now Partially nontaxable exchanges. How do i file my 2012 taxes now   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. How do i file my 2012 taxes now The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. How do i file my 2012 taxes now Decrease the basis by the following amounts. How do i file my 2012 taxes now Any money you receive. How do i file my 2012 taxes now Any loss you recognize on the exchange. How do i file my 2012 taxes now Increase the basis by the following amounts. How do i file my 2012 taxes now Any additional costs you incur. How do i file my 2012 taxes now Any gain you recognize on the exchange. How do i file my 2012 taxes now If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. How do i file my 2012 taxes now Allocation of basis. How do i file my 2012 taxes now   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. How do i file my 2012 taxes now The rest is the basis of the like-kind property. How do i file my 2012 taxes now More information. How do i file my 2012 taxes now   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. How do i file my 2012 taxes now Basis for depreciation. How do i file my 2012 taxes now   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. How do i file my 2012 taxes now For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. How do i file my 2012 taxes now Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. How do i file my 2012 taxes now The same rule applies to a transfer by your former spouse that is incident to divorce. How do i file my 2012 taxes now However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. How do i file my 2012 taxes now If the property transferred to you is a series E, series EE, or series I U. How do i file my 2012 taxes now S. How do i file my 2012 taxes now savings bond, the transferor must include in income the interest accrued to the date of transfer. How do i file my 2012 taxes now 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. How do i file my 2012 taxes now For more information on these bonds, see chapter 7. How do i file my 2012 taxes now At the time of the transfer, the transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. How do i file my 2012 taxes now For more information about the transfer of property from a spouse, see chapter 14. How do i file my 2012 taxes now Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis 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. How do i file my 2012 taxes now FMV less than donor's adjusted basis. How do i file my 2012 taxes now   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. How do i file my 2012 taxes now Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. How do i file my 2012 taxes now Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. How do i file my 2012 taxes now See Adjusted Basis , earlier. How do i file my 2012 taxes now Example. How do i file my 2012 taxes now You received an acre of land as a gift. How do i file my 2012 taxes now At the time of the gift, the land had an FMV of $8,000. How do i file my 2012 taxes now The donor's adjusted basis was $10,000. How do i file my 2012 taxes now After you received the property, no events occurred to increase or decrease your basis. How do i file my 2012 taxes now If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. How do i file my 2012 taxes now If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. How do i file my 2012 taxes now If the sales price is between $8,000 and $10,000, you have neither gain nor loss. How do i file my 2012 taxes now Business property. How do i file my 2012 taxes now   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. How do i file my 2012 taxes now FMV equal to or greater than donor's adjusted basis. How do i file my 2012 taxes now   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. How do i file my 2012 taxes now Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. How do i file my 2012 taxes now   Also, for figuring gain or loss from a sale or other disposition or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. How do i file my 2012 taxes now See Adjusted Basis , earlier. How do i file my 2012 taxes now   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. How do i file my 2012 taxes now Figure the increase by multiplying the gift tax paid by a fraction. How do i file my 2012 taxes now The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. How do i file my 2012 taxes now   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. How do i file my 2012 taxes now 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. How do i file my 2012 taxes now Example. How do i file my 2012 taxes now In 2013, you received a gift of property from your mother that had an FMV of $50,000. How do i file my 2012 taxes now Her adjusted basis was $20,000. How do i file my 2012 taxes now The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). How do i file my 2012 taxes now She paid a gift tax of $7,320 on the property. How do i file my 2012 taxes now Your basis is $26,076, figured as follows: Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000     Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . How do i file my 2012 taxes now 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. How do i file my 2012 taxes now If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. How do i file my 2012 taxes now However, your basis cannot exceed the FMV of the gift at the time it was given to you. How do i file my 2012 taxes now Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. How do i file my 2012 taxes now The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. How do i file my 2012 taxes now The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. How do i file my 2012 taxes now 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. How do i file my 2012 taxes now 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. How do i file my 2012 taxes now For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. How do i file my 2012 taxes now Property inherited from a decedent who died in 2010. How do i file my 2012 taxes now   If you inherited property from a decedent who died in 2010, special rules may apply. How do i file my 2012 taxes now For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. How do i file my 2012 taxes now Community property. How do i file my 2012 taxes now   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. How do i file my 2012 taxes now 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. How do i file my 2012 taxes now For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. How do i file my 2012 taxes now Example. How do i file my 2012 taxes now You and your spouse owned community property that had a basis of $80,000. How do i file my 2012 taxes now When your spouse died, half the FMV of the community interest was includible in your spouse's estate. How do i file my 2012 taxes now The FMV of the community interest was $100,000. How do i file my 2012 taxes now The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). How do i file my 2012 taxes now The basis of the other half to your spouse's heirs is also $50,000. How do i file my 2012 taxes now For more information about community property, see Publication 555, Community Property. How do i file my 2012 taxes now Property Changed From Personal 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 can begin to depreciate the property at the time of the change. How do i file my 2012 taxes now To do so, you must figure its basis for depreciation at the time of the change. How do i file my 2012 taxes now An example of changing property held for personal use to business or rental use would be renting out your former personal residence. How do i file my 2012 taxes now Basis for depreciation. How do i file my 2012 taxes now   The basis for depreciation is the lesser of the following amounts. How do i file my 2012 taxes now The FMV of the property on the date of the change. How do i file my 2012 taxes now Your adjusted basis on the date of the change. How do i file my 2012 taxes now Example. How do i file my 2012 taxes now Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. How do i file my 2012 taxes now 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. How do i file my 2012 taxes now Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. How do i file my 2012 taxes now Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). How do i file my 2012 taxes now 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. How do i file my 2012 taxes now The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). How do i file my 2012 taxes now Sale of property. How do i file my 2012 taxes now   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. How do i file my 2012 taxes now Gain. How do i file my 2012 taxes now   The basis for figuring a gain is your adjusted basis in the property when you sell the property. How do i file my 2012 taxes now Example. How do i file my 2012 taxes now 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. How do i file my 2012 taxes now Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). How do i file my 2012 taxes now Loss. How do i file my 2012 taxes now   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. How do i file my 2012 taxes now Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . How do i file my 2012 taxes now Example. How do i file my 2012 taxes now 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. How do i file my 2012 taxes now 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 (land)) on that date. How do i file my 2012 taxes now Reduce that amount ($180,000) by the depreciation deductions ($37,500). How do i file my 2012 taxes now The basis for loss is $142,500 ($180,000 − $37,500). How do i file my 2012 taxes now Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. How do i file my 2012 taxes now If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. How do i file my 2012 taxes now You must adjust the basis of stocks for certain events that occur after purchase. How do i file my 2012 taxes now For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. How do i file my 2012 taxes now This rule applies only when the additional stock received is identical to the stock held. How do i file my 2012 taxes now Also reduce your basis when you receive nontaxable distributions. How do i file my 2012 taxes now They are a return of capital. How do i file my 2012 taxes now Example. How do i file my 2012 taxes now In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. How do i file my 2012 taxes now In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. How do i file my 2012 taxes now In 2013 XYZ declared a 2-for-1 stock split. How do i file my 2012 taxes now You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. How do i file my 2012 taxes now Other basis. How do i file my 2012 taxes now   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. How do i file my 2012 taxes now For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. How do i file my 2012 taxes now Identifying stocks or bonds sold. How do i file my 2012 taxes now   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 stocks or bonds. How do i file my 2012 taxes now 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. How do i file my 2012 taxes now For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. How do i file my 2012 taxes now Mutual fund shares. How do i file my 2012 taxes now   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. How do i file my 2012 taxes now For more information, see Publication 550. How do i file my 2012 taxes now Bond premium. How do i file my 2012 taxes now   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. How do i file my 2012 taxes now See Bond Premium Amortization in chapter 3 of Publication 550 for more information. How do i file my 2012 taxes now Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. How do i file my 2012 taxes now Original issue discount (OID) on debt instruments. How do i file my 2012 taxes now   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. How do i file my 2012 taxes now See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. How do i file my 2012 taxes now Tax-exempt obligations. How do i file my 2012 taxes now    OID on tax-exempt obligations is generally not taxable. How do i file my 2012 taxes now However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. How do i file my 2012 taxes now The accrued OID is added to the basis of the obligation to determine your gain or loss. How do i file my 2012 taxes now See chapter 4 of Publication 550. How do i file my 2012 taxes now Prev  Up  Next   Home   More Online Publications