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Myfreetaxes. Myfreetaxes.com/everett com/everett 6. Myfreetaxes.com/everett Catch-Up Contributions Table of Contents The most that can be contributed to your 403(b) account is the lesser of your limit on annual additions or your limit on elective deferrals. Myfreetaxes.com/everett If you will be age 50 or older by the end of the year, you may also be able to make additional catch-up contributions. Myfreetaxes.com/everett These additional contributions cannot be made with after-tax employee contributions. Myfreetaxes.com/everett You are eligible to make catch-up contributions if: You will have reached age 50 by the end of the year, and The maximum amount of elective deferrals that can be made to your 403(b) account have been made for the plan year. Myfreetaxes.com/everett The maximum amount of catch-up contributions is the lesser of: $5,500 for 2013 and unchanged for 2014, or The excess of your compensation for the year, over the elective deferrals that are not catch-up contributions. Myfreetaxes.com/everett Figuring catch-up contributions. Myfreetaxes.com/everett When figuring allowable catch-up contributions, combine all catch-up contributions made by your employer on your behalf to the following plans. Myfreetaxes.com/everett Qualified retirement plans. Myfreetaxes.com/everett (To determine if your plan is a qualified plan, ask your plan administrator. Myfreetaxes.com/everett ) 403(b) plans. Myfreetaxes.com/everett Simplified employee pension (SEP) plans. Myfreetaxes.com/everett SIMPLE plans. Myfreetaxes.com/everett The total amount of the catch-up contributions on your behalf to all plans maintained by your employer cannot be more than the annual limit. Myfreetaxes.com/everett For 2013 the limit is $5,500, unchanged for 2014. Myfreetaxes.com/everett If you are eligible for both the 15-year rule increase in elective deferrals and the age 50 catch-up, allocate amounts first under the 15-year rule and next as an age 50 catch-up. Myfreetaxes.com/everett Catch-up contributions do not affect your MAC. Myfreetaxes.com/everett Therefore, the maximum amount that you are allowed to have contributed to your 403(b) account is your MAC plus your allowable catch-up contribution. Myfreetaxes.com/everett You can use Worksheet C in chapter 9 to figure your limit on catch-up contributions. Myfreetaxes.com/everett Prev Up Next Home More Online Publications
IRS Warns of Pervasive Telephone Scam
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Tax Scams: English | Spanish | ASL
IR-2013-84, Oct. 31, 2013
WASHINGTON — The Internal Revenue Service today warned consumers about a sophisticated phone scam targeting taxpayers, including recent immigrants, throughout the country.
Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.
“This scam has hit taxpayers in nearly every state in the country. We want to educate taxpayers so they can help protect themselves. Rest assured, we do not and will not ask for credit card numbers over the phone, nor request a pre-paid debit card or wire transfer,” says IRS Acting Commissioner Danny Werfel. “If someone unexpectedly calls claiming to be from the IRS and threatens police arrest, deportation or license revocation if you don’t pay immediately, that is a sign that it really isn’t the IRS calling.” Werfel noted that the first IRS contact with taxpayers on a tax issue is likely to occur via mail
Other characteristics of this scam include:
- Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
- Scammers may be able to recite the last four digits of a victim’s Social Security Number.
- Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
- Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
- Victims hear background noise of other calls being conducted to mimic a call site.
- After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.
If you get a phone call from someone claiming to be from the IRS, here’s what you should do:
- If you know you owe taxes or you think you might owe taxes, call the IRS at 1.800.829.1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.
- If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 1.800.366.4484.
- If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add "IRS Telephone Scam" to the comments of your complaint.
Taxpayers should be aware that there are other unrelated scams (such as a lottery sweepstakes) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.
The IRS encourages taxpayers to be vigilant against phone and email scams that use the IRS as a lure. The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the e-mail to firstname.lastname@example.org.
More information on how to report phishing scams involving the IRS is available on the genuine IRS website, IRS.gov.
You can reblog the IRS tax scam alert via Tumblr.
Follow the IRS on New Media
Subscribe to IRS Newswire
Page Last Reviewed or Updated: 01-Nov-2013
Myfreetaxes. Myfreetaxes.com/everett com/everett 13. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett It is divided into the following sections. Myfreetaxes.com/everett Cost basis. Myfreetaxes.com/everett Adjusted basis. Myfreetaxes.com/everett Basis other than cost. Myfreetaxes.com/everett Your basis is the amount of your investment in property for tax purposes. Myfreetaxes.com/everett Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. Myfreetaxes.com/everett Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. Myfreetaxes.com/everett If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Myfreetaxes.com/everett Only the basis allocated to the business or investment use of the property can be depreciated. Myfreetaxes.com/everett Your original basis in property is adjusted (increased or decreased) by certain events. Myfreetaxes.com/everett For example, if you make improvements to the property, increase your basis. Myfreetaxes.com/everett If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. Myfreetaxes.com/everett Keep accurate records of all items that affect the basis of your property. Myfreetaxes.com/everett For more information on keeping records, see chapter 1. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett The cost is the amount you pay in cash, debt obligations, other property, or services. Myfreetaxes.com/everett 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). Myfreetaxes.com/everett In addition, the basis of real estate and business assets may include other items. Myfreetaxes.com/everett Loans with low or no interest. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett You generally have unstated interest if your interest rate is less than the applicable federal rate. Myfreetaxes.com/everett For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Myfreetaxes.com/everett Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Myfreetaxes.com/everett If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Myfreetaxes.com/everett Lump sum purchase. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. Myfreetaxes.com/everett Figure the basis of each asset by multiplying the lump sum by a fraction. Myfreetaxes.com/everett The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Fair market value (FMV). Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. Myfreetaxes.com/everett Assumption of mortgage. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Settlement costs. Myfreetaxes.com/everett Your basis includes the settlement fees and closing costs you paid for buying the property. Myfreetaxes.com/everett (A fee for buying property is a cost that must be paid even if you buy the property for cash. Myfreetaxes.com/everett ) Do not include fees and costs for getting a loan on the property in your basis. Myfreetaxes.com/everett The following are some of the settlement fees or closing costs you can include in the basis of your property. Myfreetaxes.com/everett Abstract fees (abstract of title fees). Myfreetaxes.com/everett Charges for installing utility services. Myfreetaxes.com/everett Legal fees (including fees for the title search and preparation of the sales contract and deed). Myfreetaxes.com/everett Recording fees. Myfreetaxes.com/everett Survey fees. Myfreetaxes.com/everett Transfer taxes. Myfreetaxes.com/everett Owner's title insurance. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Myfreetaxes.com/everett The following are some of the settlement fees and closing costs you cannot include in the basis of property. Myfreetaxes.com/everett Casualty insurance premiums. Myfreetaxes.com/everett Rent for occupancy of the property before closing. Myfreetaxes.com/everett Charges for utilities or other services related to occupancy of the property before closing. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Fees for refinancing a mortgage. Myfreetaxes.com/everett Real estate taxes. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett You cannot deduct them as an expense. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Do not include that amount in the basis of your property. Myfreetaxes.com/everett If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Myfreetaxes.com/everett Points. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Generally, you deduct the points over the term of the loan. Myfreetaxes.com/everett For more information on how to deduct points, see chapter 23. Myfreetaxes.com/everett Points on home mortgage. Myfreetaxes.com/everett Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. Myfreetaxes.com/everett If certain requirements are met, you can deduct the points in full for the year in which they are paid. Myfreetaxes.com/everett Reduce the basis of your home by any seller-paid points. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett The result is the adjusted basis. Myfreetaxes.com/everett Increases to Basis Increase the basis of any property by all items properly added to a capital account. Myfreetaxes.com/everett Examples of items that increase basis are shown in Table 13-1. Myfreetaxes.com/everett These include the items discussed below. Myfreetaxes.com/everett Improvements. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Assessments for local improvements. Myfreetaxes.com/everett Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. Myfreetaxes.com/everett Do not deduct them as taxes. Myfreetaxes.com/everett However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Add the assessment to your property's basis. Myfreetaxes.com/everett In this example, the assessment is a depreciable asset. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Examples of items that decrease basis are shown in Table 13-1. Myfreetaxes.com/everett These include the items discussed below. Myfreetaxes.com/everett Table 13-1. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. Myfreetaxes.com/everett For more information on casualty and theft losses, see chapter 25. Myfreetaxes.com/everett Depreciation and section 179 deduction. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett You added an improvement to the duplex that cost $10,000. Myfreetaxes.com/everett In February last year, the duplex was damaged by fire. Myfreetaxes.com/everett Up to that time, you had been allowed depreciation of $23,000. Myfreetaxes.com/everett You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. Myfreetaxes.com/everett You deducted a casualty loss of $1,000 on your income tax return for last year. Myfreetaxes.com/everett You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. Myfreetaxes.com/everett You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Your basis in the land is its original cost of $5,000. Myfreetaxes.com/everett Easements. Myfreetaxes.com/everett The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. Myfreetaxes.com/everett It reduces the basis of the affected part of the property. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett If the gain is on a capital asset, see chapter 16 for information about how to report it. Myfreetaxes.com/everett If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. Myfreetaxes.com/everett Exclusion of subsidies for energy conservation measures. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Reduce the basis of the property for which you received the subsidy by the excluded amount. Myfreetaxes.com/everett For more information about this subsidy, see chapter 12. Myfreetaxes.com/everett Postponed gain from sale of home. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett For more information on the rules for the sale of a home, see chapter 15. Myfreetaxes.com/everett Basis Other Than Cost There are many times when you cannot use cost as basis. Myfreetaxes.com/everett In these cases, the fair market value or the adjusted basis of the property can be used. Myfreetaxes.com/everett Fair market value (FMV) and adjusted basis were discussed earlier. Myfreetaxes.com/everett Property Received for Services If you receive property for your services, include the FMV of the property in income. Myfreetaxes.com/everett The amount you include in income becomes your basis. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Restricted property. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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). Myfreetaxes.com/everett For more information, see Restricted Property in Publication 525. Myfreetaxes.com/everett Bargain purchases. Myfreetaxes.com/everett A bargain purchase is a purchase of an item for less than its FMV. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Your basis in the property is its FMV (your purchase price plus the amount you include in income). Myfreetaxes.com/everett If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. Myfreetaxes.com/everett However, your basis in the property is still its FMV. Myfreetaxes.com/everett See Employee Discounts in Publication 15-B. Myfreetaxes.com/everett Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Myfreetaxes.com/everett A taxable gain or deductible loss also is known as a recognized gain or loss. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Similar or related property. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Decrease the basis by the following. Myfreetaxes.com/everett Any loss you recognize on the involuntary conversion. Myfreetaxes.com/everett Any money you receive that you do not spend on similar property. Myfreetaxes.com/everett Increase the basis by the following. Myfreetaxes.com/everett Any gain you recognize on the involuntary conversion. Myfreetaxes.com/everett Any cost of acquiring the replacement property. Myfreetaxes.com/everett Money or property not similar or related. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett The state condemned your property. Myfreetaxes.com/everett The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. Myfreetaxes.com/everett You realized a gain of $5,000 ($31,000 − $26,000). Myfreetaxes.com/everett You bought replacement property similar in use to the converted property for $29,000. Myfreetaxes.com/everett You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Myfreetaxes.com/everett Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Myfreetaxes.com/everett Basis for depreciation. Myfreetaxes.com/everett Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Myfreetaxes.com/everett For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Myfreetaxes.com/everett Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Myfreetaxes.com/everett If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. Myfreetaxes.com/everett See Nontaxable Trades in chapter 14. Myfreetaxes.com/everett Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Myfreetaxes.com/everett To qualify as a like-kind exchange, the property traded and the property received must be both of the following. Myfreetaxes.com/everett Qualifying property. Myfreetaxes.com/everett Like-kind property. Myfreetaxes.com/everett The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Qualifying property. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Like-kind property. Myfreetaxes.com/everett There must be an exchange of like-kind property. Myfreetaxes.com/everett Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Myfreetaxes.com/everett The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. Myfreetaxes.com/everett The dealer allows you $2,000 on the old truck, and you pay $4,800. Myfreetaxes.com/everett This is a like-kind exchange. Myfreetaxes.com/everett 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). Myfreetaxes.com/everett 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). Myfreetaxes.com/everett The basis of the new truck is the price you pay the dealer. Myfreetaxes.com/everett Partially nontaxable exchanges. Myfreetaxes.com/everett A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Myfreetaxes.com/everett The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. Myfreetaxes.com/everett Decrease the basis by the following amounts. Myfreetaxes.com/everett Any money you receive. Myfreetaxes.com/everett Any loss you recognize on the exchange. Myfreetaxes.com/everett Increase the basis by the following amounts. Myfreetaxes.com/everett Any additional costs you incur. Myfreetaxes.com/everett Any gain you recognize on the exchange. Myfreetaxes.com/everett If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Myfreetaxes.com/everett Allocation of basis. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett The rest is the basis of the like-kind property. Myfreetaxes.com/everett More information. Myfreetaxes.com/everett See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. Myfreetaxes.com/everett Basis for depreciation. Myfreetaxes.com/everett Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. Myfreetaxes.com/everett For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett The same rule applies to a transfer by your former spouse that is incident to divorce. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett If the property transferred to you is a series E, series EE, or series I U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett savings bond, the transferor must include in income the interest accrued to the date of transfer. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett For more information on these bonds, see chapter 7. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett For more information about the transfer of property from a spouse, see chapter 14. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett FMV less than donor's adjusted basis. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett See Adjusted Basis , earlier. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett You received an acre of land as a gift. Myfreetaxes.com/everett At the time of the gift, the land had an FMV of $8,000. Myfreetaxes.com/everett The donor's adjusted basis was $10,000. Myfreetaxes.com/everett After you received the property, no events occurred to increase or decrease your basis. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Myfreetaxes.com/everett Business property. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett FMV equal to or greater than donor's adjusted basis. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett See Adjusted Basis , earlier. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Figure the increase by multiplying the gift tax paid by a fraction. Myfreetaxes.com/everett The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Myfreetaxes.com/everett The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett In 2013, you received a gift of property from your mother that had an FMV of $50,000. Myfreetaxes.com/everett Her adjusted basis was $20,000. Myfreetaxes.com/everett The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Myfreetaxes.com/everett She paid a gift tax of $7,320 on the property. Myfreetaxes.com/everett 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) × . Myfreetaxes.com/everett 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. Myfreetaxes.com/everett If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Myfreetaxes.com/everett However, your basis cannot exceed the FMV of the gift at the time it was given to you. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Myfreetaxes.com/everett Property inherited from a decedent who died in 2010. Myfreetaxes.com/everett If you inherited property from a decedent who died in 2010, special rules may apply. Myfreetaxes.com/everett For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Myfreetaxes.com/everett Community property. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett You and your spouse owned community property that had a basis of $80,000. Myfreetaxes.com/everett When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Myfreetaxes.com/everett The FMV of the community interest was $100,000. Myfreetaxes.com/everett The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Myfreetaxes.com/everett The basis of the other half to your spouse's heirs is also $50,000. Myfreetaxes.com/everett For more information about community property, see Publication 555, Community Property. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett To do so, you must figure its basis for depreciation at the time of the change. Myfreetaxes.com/everett An example of changing property held for personal use to business or rental use would be renting out your former personal residence. Myfreetaxes.com/everett Basis for depreciation. Myfreetaxes.com/everett The basis for depreciation is the lesser of the following amounts. Myfreetaxes.com/everett The FMV of the property on the date of the change. Myfreetaxes.com/everett Your adjusted basis on the date of the change. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Myfreetaxes.com/everett Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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). Myfreetaxes.com/everett Sale of property. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Gain. Myfreetaxes.com/everett The basis for figuring a gain is your adjusted basis in the property when you sell the property. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Myfreetaxes.com/everett Loss. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Myfreetaxes.com/everett Example. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Reduce that amount ($180,000) by the depreciation deductions ($37,500). Myfreetaxes.com/everett The basis for loss is $142,500 ($180,000 − $37,500). Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett You must adjust the basis of stocks for certain events that occur after purchase. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett This rule applies only when the additional stock received is identical to the stock held. Myfreetaxes.com/everett Also reduce your basis when you receive nontaxable distributions. Myfreetaxes.com/everett They are a return of capital. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. Myfreetaxes.com/everett In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. Myfreetaxes.com/everett In 2013 XYZ declared a 2-for-1 stock split. Myfreetaxes.com/everett You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. Myfreetaxes.com/everett Other basis. Myfreetaxes.com/everett There are other ways to figure the basis of stocks or bonds depending on how you acquired them. Myfreetaxes.com/everett For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Myfreetaxes.com/everett Identifying stocks or bonds sold. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Myfreetaxes.com/everett Mutual fund shares. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett For more information, see Publication 550. Myfreetaxes.com/everett Bond premium. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett See Bond Premium Amortization in chapter 3 of Publication 550 for more information. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Original issue discount (OID) on debt instruments. Myfreetaxes.com/everett You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. Myfreetaxes.com/everett See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. Myfreetaxes.com/everett Tax-exempt obligations. Myfreetaxes.com/everett OID on tax-exempt obligations is generally not taxable. Myfreetaxes.com/everett 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. Myfreetaxes.com/everett The accrued OID is added to the basis of the obligation to determine your gain or loss. Myfreetaxes.com/everett See chapter 4 of Publication 550. Myfreetaxes.com/everett Prev Up Next Home More Online Publications