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Past Year Taxes

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Past Year Taxes

Past year taxes Index Symbols 403(b) account, What Is a 403(b) Plan? 403(b) plans Basics, 403(b) Plan Basics Benefits, What Are the Benefits of Contributing to a 403(b) Plan? Participation, Who Can Participate in a 403(b) Plan? Self-employed ministers, Who Can Set Up a 403(b) Account? What is a 403(b) plan?, What Is a 403(b) Plan? Who can set up a 403(b) account?, Who Can Set Up a 403(b) Account? A After-tax contributions, How Can Contributions Be Made to My 403(b) Account? Assistance (see Tax help) B Basics, 403(b) Plan Basics Benefits, What Are the Benefits of Contributing to a 403(b) Plan? C Catch-up contributions, Catch-Up Contributions Chaplain, Ministers. Past year taxes Church employees, Ministers and Church Employees Years of service, Changes to Years of Service Comments on publication, Comments and suggestions. Past year taxes Contributions, How Can Contributions Be Made to My 403(b) Account? After-tax, How Can Contributions Be Made to My 403(b) Account? Catch-up, Catch-Up Contributions Elective deferrals, How Can Contributions Be Made to My 403(b) Account?, Elective deferrals only. Past year taxes Nonelective, How Can Contributions Be Made to My 403(b) Account? Reporting, Do I Report Contributions on My Tax Return? Correcting excess contributions, What Happens If I Have Excess Contributions? Credit, for retirement savings contributions, Retirement Savings Contributions Credit (Saver's Credit) D Distributions, Distributions and Rollovers, Distributions 10-year tax option, No Special 10-Year Tax Option 90-24 transfer, Contract exchanges. Past year taxes Deceased employees, Spouses of deceased employees. Past year taxes Direct rollover, Direct rollovers of 403(b) plan distributions. Past year taxes Eligible retirement plans, Eligible retirement plans. Past year taxes Frozen deposit, Frozen deposits. Past year taxes Gift tax, Gift Tax Minimum required, Minimum Required Distributions Qualified domestic relations order, Qualified domestic relations order. Past year taxes Rollovers, Tax-Free Rollovers, Rollovers to and from 403(b) plans. Past year taxes Second rollover, Second rollover. Past year taxes Transfers, Transfer of Interest in 403(b) Contract E Elective deferrals, How Can Contributions Be Made to My 403(b) Account?, Elective deferrals only. Past year taxes Eligible employees, Eligible employees. Past year taxes , Church employee. Past year taxes Employer's annual work period, Employer's annual work period. Past year taxes Excess contributions, Excess Contributions Correcting, What Happens If I Have Excess Contributions? Determining, How Do I Know If I Have Excess Contributions? Excess amounts, Excess Annual Addition Excess deferrals, Excess Annual Addition Excess elective deferral, Excess Elective Deferral Excise tax, Excise Tax Excise tax Excess contributions, Excise Tax Reporting requirement, Reporting requirement. Past year taxes F Free tax services, How To Get Tax Help, Free help with your tax return. Past year taxes Full-time or part-time, Years of Service G Gift tax, Gift Tax H Help (see Tax help) I Incidental life insurance, Cost of Incidental Life Insurance Includible compensation, Includible Compensation 403(b) plan, Changes to Includible Compensation Figuring, Figuring Includible Compensation for Your Most Recent Year of Service Foreign missionaries, Changes to Includible Compensation Incidental life insurance, Cost of Incidental Life Insurance Self-employed ministers, Changes to Includible Compensation Includible compensation for your most recent year of service Definition, Definition. Past year taxes L Limit on annual additions, Limit on Annual Additions Limit on elective deferrals, Limit on Elective Deferrals 15-year rule, 15-Year Rule Figuring, Figuring the Limit on Elective Deferrals General limit, General Limit M MAC (see Maximum amount contributable) Maximum amount contributable, Maximum Amount Contributable (MAC) Components, Components of Your MAC How to figure MAC, How Do I Figure My MAC? When to figure MAC, When Should I Figure My MAC? Minimum required distributions, Minimum Required Distributions Ministers, Ministers. Past year taxes , Ministers and Church Employees Missing children, Reminder More information (see Tax help) Most recent year of service, Most Recent Year of Service Most recent year of service, figuring, Figuring Your Most Recent Year of Service N Nonelective contributions, How Can Contributions Be Made to My 403(b) Account?, Nonelective contributions only. Past year taxes P Pre-tax contributions, Includible Compensation, Table 3-4. Past year taxes Worksheet B. Past year taxes Includible Compensation for Your Most Recent Year of Service1 , Rollovers to and from 403(b) plans. Past year taxes , Worksheet B. Past year taxes Includible Compensation for Your Most Recent Year of Service1 Publications (see Tax help) Q Qualified domestic relations order, Qualified domestic relations order. Past year taxes R Reporting Contributions Self-employed ministers, Self-employed ministers. Past year taxes Reporting contributions Chaplains, Chaplains. Past year taxes Required distributions, Minimum Required Distributions Retirement savings contributions credit, What's New for 2013, What's New for 2014, Retirement Savings Contributions Credit (Saver's Credit) Rollovers, Distributions and Rollovers, Tax-Free Rollovers Roth contribution program, Roth contribution program. Past year taxes S Salary reduction agreement, Limit on Elective Deferrals Self-employed ministers, Ministers. Past year taxes , Who Can Set Up a 403(b) Account?, Self-employed minister. Past year taxes , Self-employed ministers. Past year taxes , Self-employed minister. Past year taxes Suggestions for publication, Comments and suggestions. Past year taxes T Tax help, How To Get Tax Help Transfers, Transfer of Interest in 403(b) Contract 90-24 transfer, Transfer of Interest in 403(b) Contract Conservatorship, Contract exchanges. Past year taxes Direct-trustee-to-trustee, Direct trustee-to-trustee transfer. Past year taxes Insolvency, Tax-free transfers for certain cash distributions. Past year taxes Permissive service credit, Permissive service credit. Past year taxes TTY/TDD information, How To Get Tax Help V Voluntary deductible contributions, Voluntary deductible contributions. Past year taxes W What is a 403(b) plan?, What Is a 403(b) Plan? Y Years of service, Years of Service Church employees, Church employee. Past year taxes , Changes to Years of Service Definition, Definition Employer's annual work period, Employer's annual work period. Past year taxes Full year of service, Full year of service. Past year taxes Full-time employee for the full year, Full-Time Employee for the Full Year Full-time for part of the year, Full-time for part of the year. Past year taxes Other than full-time for the full year, Other Than Full-Time for the Full Year Part-time for the full year, Part-time for the full year. Past year taxes Part-time for the part of the year, Part-time for part of the year. Past year taxes Self-employed minister, Changes to Years of Service Total years of service, Total years of service. Past year taxes Prev  Up     Home   More Online Publications
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Frequently Asked Questions on Gift Taxes

Below are some of the more common questions and answers about Gift Tax issues. You may also find additional information in Publication 950 or some of the other forms and publications offered on our Forms Page. Included in this area are the instructions to Forms 706 and 709. Within these instructions, you will find the tax rate schedules to the related returns. If the answers to your questions can not be found in these resources, we strongly recommend visiting with a tax practitioner.


Who pays the gift tax?
The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.

What is considered a gift?
Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return.

What can be excluded from gifts?
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

  1. Gifts that are not more than the annual exclusion for the calendar year.
  2. Tuition or medical expenses you pay for someone (the educational and medical exclusions).
  3. Gifts to your spouse.
  4. Gifts to a political organization for its use.

In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.

May I deduct gifts on my income tax return?
Making a gift or leaving your estate to your heirs does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than gifts that are deductible charitable contributions). If you are not sure whether the gift tax or the estate tax applies to your situation, refer to Publication 950, Introduction to Estate and Gift Taxes.

How many annual exclusions are available?
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift.

What if my spouse and I want to give away property that we own together?
You are each entitled to the annual exclusion amount on the gift. Together, you can give $22,000 to each donee (2002-2005) or $24,000 (2006-2008), $26,000 (2009-2012) and $28,000 on or after January 1, 2013.

What other information do I need to include with the return?
Refer to Form 709 (PDF), 709 Instructions and Publication 950. Among other items listed:

  1. Copies of appraisals.
  2. Copies of relevant documents regarding the transfer.
  3. Documentation of any unusual items shown on the return (partially-gifted assets, other items relevant to the transfer(s)).

What is "Fair Market Value?"
Fair Market Value is defined as: "The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate." Regulation §20.2031-1.

Who should I hire to represent me and prepare and file the return?
The Internal Revenue Service cannot make recommendations about specific individuals, but there are several factors to consider:

  1. How complex is the transfer?
  2. How large is the transfer?
  3. Do I need an attorney, CPA, Enrolled Agent (EA) or other professional(s)?

For most simple, small transfers (less than the annual exclusion amount) you may not need the services of a professional.

However, if the transfer is large or complicated or both, then these actions should be considered; It is a good idea to discuss the matter with several attorneys and CPAs or EAs. Ask about how much experience they have had and ask for referrals. This process should be similar to locating a good physician. Locate other individuals that have had similar experiences and ask for recommendations. Finally, after the individual(s) are employed and begin to work on transfer matters, make sure the lines of communication remain open so that there are no surprises.

Finally, people who make gifts as a part of their overall estate and financial plan often engage the services of both attorneys and CPAs, EAs and other professionals. The attorney usually handles wills, trusts and transfer documents that are involved and reviews the impact of documents on the gift tax return and overall plan. The CPA or EA often handles the actual return preparation and some representation of the donor in matters with the IRS. However, some attorneys handle all of the work. CPAs or EAs may also handle most of the work, but cannot take care of wills, trusts, deeds and other matters where a law license is required. In addition, other professionals (such as appraisers, surveyors, financial advisors and others) may need to be engaged during this time

Do I have to talk to the IRS during an examination?
You do not have to be present during an examination unless IRS representatives need to ask specific questions. Although you may represent yourself during an examination, most donors prefer that the professional(s) they have employed handle this phase of the examination. You may delegate authority for this by executing Form 2848 "Power of Attorney."

What if I disagree with the examination proposals?
You have many rights and avenues of appeal if you disagree with any proposals made by the IRS.  See Publications 1 and 5 (PDF) for an explanation of these options.

What if I sell property that has been given to me?
The general rule is that your basis in the property is the same as the basis of the donor. For example, if you were given stock that the donor had purchased for $10 per share (and that was his/her basis), and you later sold it for $100 per share, you would pay income tax on a gain of $90 per share. (Note: The rules are different for property acquired from an estate).

Most information for this page came from the Internal Revenue Code: Chapter 12--Gift Tax (generally Internal Revenue Code §2501 and following, related regulations and other sources)

Can a married same sex donor claim the gift tax marital deduction for a transfer to his or her spouse?
For federal tax purposes, the terms “spouse,” “husband,” and “wife” includes individuals of the same sex who were lawfully married under the laws of a state whose laws authorize the marriage of two individuals of the same sex and who remain married.  Also, the Service will recognize a marriage of individuals of the same sex that was validly created under the laws of the state of celebration even if the married couple resides in a state that does not recognize the validity of same-sex marriages.

However, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.

Gifts to your spouse are eligible for the marital deduction.

For further information, including the timeframes regarding filing claims or amended returns, see Revenue Ruling 2013-17.

Revenue Ruling 2013-17, along with updated Frequently Asked Questions for same-sex couples and updated FAQs for registered domestic partners and individuals in civil unions, are available today on IRS.gov. See also Publication 555, Community Property.


If you have suggestions or comments (or suggested FAQs) for the Estate and Gift Tax web site, please contact us: CONTACT ESTATE AND GIFT TAX.  We will not be able to respond to your email, but will consider it when making improvements or additions to this site.

Page Last Reviewed or Updated: 20-Feb-2014

The Past Year Taxes

Past year taxes 1. Past year taxes   Gain or Loss Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesGain or Loss From Sales and Exchanges Abandonments Foreclosures and RepossessionsAmount realized on a nonrecourse debt. Past year taxes Amount realized on a recourse debt. Past year taxes Involuntary ConversionsCondemnations Nontaxable ExchangesLike-Kind Exchanges Other Nontaxable Exchanges Transfers to Spouse Rollover of Gain From Publicly Traded Securities Gains on Sales of Qualified Small Business Stock Exclusion of Gain From Sale of DC Zone Assets Topics - This chapter discusses: Sales and exchanges Abandonments Foreclosures and repossessions Involuntary conversions Nontaxable exchanges Transfers to spouse Rollovers and exclusions for certain capital gains Useful Items - You may want to see: Publication 523 Selling Your Home 537 Installment Sales 547 Casualties, Disasters, and Thefts 550 Investment Income and Expenses 551 Basis of Assets 908 Bankruptcy Tax Guide 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1040 U. Past year taxes S. Past year taxes Individual Income Tax Return 1040X Amended U. Past year taxes S. Past year taxes Individual Income Tax Return 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets Although the discussions in this chapter may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. Past year taxes However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Past year taxes See chapter 5 for information about getting publications and forms. Past year taxes Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Past year taxes An exchange is a transfer of property for other property or services. Past year taxes The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. Past year taxes Sale or lease. Past year taxes    Some agreements that seem to be leases may really be conditional sales contracts. Past year taxes The intention of the parties to the agreement can help you distinguish between a sale and a lease. Past year taxes   There is no test or group of tests to prove what the parties intended when they made the agreement. Past year taxes You should consider each agreement based on its own facts and circumstances. Past year taxes For more information, see chapter 3 in Publication 535, Business Expenses. Past year taxes Cancellation of a lease. Past year taxes    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. Past year taxes Payments received by a landlord (lessor) for the cancellation of a lease are essentially a substitute for rental payments and are taxed as ordinary income in the year in which they are received. Past year taxes Copyright. Past year taxes    Payments you receive for granting the exclusive use of (or right to exploit) a copyright throughout its life in a particular medium are treated as received from the sale of property. Past year taxes It does not matter if the payments are a fixed amount or a percentage of receipts from the sale, performance, exhibition, or publication of the copyrighted work, or an amount based on the number of copies sold, performances given, or exhibitions made. Past year taxes Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. Past year taxes   If the copyright was used in your trade or business and you held it longer than a year, the gain or loss may be a section 1231 gain or loss. Past year taxes For more information, see Section 1231 Gains and Losses in chapter 3. Past year taxes Easement. Past year taxes   The amount received for granting an easement is subtracted from the basis of the property. Past year taxes If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. Past year taxes If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received. Past year taxes   Any amount received that is more than the basis to be reduced is a taxable gain. Past year taxes The transaction is reported as a sale of property. Past year taxes   If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property. Past year taxes However, if you make a qualified conservation contribution of a restriction or easement granted in perpetuity, it is treated as a charitable contribution and not a sale or exchange, even though you keep a beneficial interest in the property affected by the easement. Past year taxes   If you grant an easement on your property (for example, a right-of-way over it) under condemnation or threat of condemnation, you are considered to have made a forced sale, even though you keep the legal title. Past year taxes Although you figure gain or loss on the easement in the same way as a sale of property, the gain or loss is treated as a gain or loss from a condemnation. Past year taxes See Gain or Loss From Condemnations, later. Past year taxes Property transferred to satisfy debt. Past year taxes   A transfer of property to satisfy a debt is an exchange. Past year taxes Note's maturity date extended. Past year taxes   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. Past year taxes Also, it is not considered a closed and completed transaction that would result in a gain or loss. Past year taxes However, an extension will be treated as a taxable exchange of the outstanding note for a new and materially different note if the changes in the terms of the note are significant. Past year taxes Each case must be determined by its own facts. Past year taxes For more information, see Regulations section 1. Past year taxes 1001-3. Past year taxes Transfer on death. Past year taxes   The transfer of property of a decedent to an executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or exchange or other disposition. Past year taxes No taxable gain or deductible loss results from the transfer. Past year taxes Bankruptcy. Past year taxes   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. Past year taxes Consequently, the transfer generally does not result in gain or loss. Past year taxes For more information, see Publication 908, Bankruptcy Tax Guide. Past year taxes Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. Past year taxes A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. Past year taxes A loss is the adjusted basis of the property that is more than the amount you realize. Past year taxes   Table 1-1. Past year taxes How To Figure Whether You Have a Gain or Loss IF your. Past year taxes . Past year taxes . Past year taxes THEN you have a. Past year taxes . Past year taxes . Past year taxes Adjusted basis is more than the amount realized, Loss. Past year taxes Amount realized is more than the adjusted basis, Gain. Past year taxes Basis. Past year taxes   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. Past year taxes The basis of property you buy is usually its cost. Past year taxes However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. Past year taxes See Basis Other Than Cost in Publication 551, Basis of Assets. Past year taxes Special rules apply to property acquired from a decedent who died in 2010 and the executor made the election to file Form 8939, Allocation of Increase in Basis for Property Received From a Decedent. Past year taxes See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Past year taxes Adjusted basis. Past year taxes   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. Past year taxes Increases include costs of any improvements having a useful life of more than 1 year. Past year taxes Decreases include depreciation and casualty losses. Past year taxes For more details and additional examples, see Adjusted Basis in Publication 551. Past year taxes Amount realized. Past year taxes   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (defined below) of all property or services you receive. Past year taxes The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Past year taxes Fair market value. Past year taxes   Fair market value (FMV) is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. Past year taxes If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. Past year taxes If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. Past year taxes Example. Past year taxes You used a building in your business that cost you $70,000. Past year taxes You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. Past year taxes You sold the building for $100,000 plus property having an FMV of $20,000. Past year taxes The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. Past year taxes The selling expenses were $4,000. Past year taxes Your gain on the sale is figured as follows. Past year taxes Amount realized:     Cash $100,000   FMV of property received 20,000   Real estate taxes assumed by buyer 3,000   Mortgage assumed by  buyer 17,000   Total 140,000   Minus: Selling expenses 4,000 $136,000 Adjusted basis:     Cost of building $70,000   Improvements 20,000   Total $90,000   Minus: Depreciation 10,000   Adjusted basis   $80,000 Gain on sale $56,000 Amount recognized. Past year taxes   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. Past year taxes Recognized gains must be included in gross income. Past year taxes Recognized losses are deductible from gross income. Past year taxes However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. Past year taxes See Nontaxable Exchanges, later. Past year taxes Also, a loss from the sale or other disposition of property held for personal use is not deductible, except in the case of a casualty or theft. Past year taxes Interest in property. Past year taxes   The amount you realize from the disposition of a life interest in property, an interest in property for a set number of years, or an income interest in a trust is a recognized gain under certain circumstances. Past year taxes If you received the interest as a gift, inheritance, or in a transfer from a spouse or former spouse incident to a divorce, the amount realized is a recognized gain. Past year taxes Your basis in the property is disregarded. Past year taxes This rule does not apply if all interests in the property are disposed of at the same time. Past year taxes Example 1. Past year taxes Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. Past year taxes You decide to sell your life interest in the farm. Past year taxes The entire amount you receive is a recognized gain. Past year taxes Your basis in the farm is disregarded. Past year taxes Example 2. Past year taxes The facts are the same as in Example 1, except that your brother joins you in selling the farm. Past year taxes The entire interest in the property is sold, so your basis in the farm is not disregarded. Past year taxes Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. Past year taxes Canceling a sale of real property. Past year taxes   If you sell real property under a sales contract that allows the buyer to return the property for a full refund and the buyer does so, you may not have to recognize gain or loss on the sale. Past year taxes If the buyer returns the property in the year of sale, no gain or loss is recognized. Past year taxes This cancellation of the sale in the same year it occurred places both you and the buyer in the same positions you were in before the sale. Past year taxes If the buyer returns the property in a later tax year, you must recognize gain (or loss, if allowed) in the year of the sale. Past year taxes When the property is returned in a later year, you acquire a new basis in the property. Past year taxes That basis is equal to the amount you pay to the buyer. Past year taxes Bargain Sale If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. Past year taxes You have a gain if the amount realized is more than your adjusted basis in the property. Past year taxes However, you do not have a loss if the amount realized is less than the adjusted basis of the property. Past year taxes Bargain sales to charity. Past year taxes   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. Past year taxes If a charitable deduction for the contribution is allowable, you must allocate your adjusted basis in the property between the part sold and the part contributed based on the fair market value of each. Past year taxes The adjusted basis of the part sold is figured as follows. Past year taxes Adjusted basis of entire property × Amount realized (fair market value of part sold)   Fair market value of entire property   Based on this allocation rule, you will have a gain even if the amount realized is not more than your adjusted basis in the property. Past year taxes This allocation rule does not apply if a charitable contribution deduction is not allowable. Past year taxes   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. Past year taxes Example. Past year taxes You sold property with a fair market value of $10,000 to a charitable organization for $2,000 and are allowed a deduction for your contribution. Past year taxes Your adjusted basis in the property is $4,000. Past year taxes Your gain on the sale is $1,200, figured as follows. Past year taxes Sales price $2,000 Minus: Adjusted basis of part sold ($4,000 × ($2,000 ÷ $10,000)) 800 Gain on the sale $1,200 Property Used Partly for Business or Rental Generally, if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property. Past year taxes You must subtract depreciation you took or could have taken from the basis of the business or rental part. Past year taxes However, see the special rule below for a home used partly for business or rental. Past year taxes You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. Past year taxes Gain or loss on the business or rental part of the property may be a capital gain or loss or an ordinary gain or loss, as discussed in chapter 3 under Section 1231 Gains and Losses. Past year taxes Any gain on the personal part of the property is a capital gain. Past year taxes You cannot deduct a loss on the personal part. Past year taxes Home used partly for business or rental. Past year taxes    If you use property partly as a home and partly for business or to produce rental income, the computation and treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. Past year taxes See Property Used Partly for Business or Rental, in Publication 523. Past year taxes Property Changed to Business or Rental Use You cannot deduct a loss on the sale of property you purchased or constructed for use as your home and used as your home until the time of sale. Past year taxes You can deduct a loss on the sale of property you acquired for use as your home but changed to business or rental property and used as business or rental property at the time of sale. Past year taxes However, if the adjusted basis of the property at the time of the change was more than its fair market value, the loss you can deduct is limited. Past year taxes Figure the loss you can deduct as follows. Past year taxes Use the lesser of the property's adjusted basis or fair market value at the time of the change. Past year taxes Add to (1) the cost of any improvements and other increases to basis since the change. Past year taxes Subtract from (2) depreciation and any other decreases to basis since the change. Past year taxes Subtract the amount you realized on the sale from the result in (3). Past year taxes If the amount you realized is more than the result in (3), treat this result as zero. Past year taxes The result in (4) is the loss you can deduct. Past year taxes Example. Past year taxes You changed your main home to rental property 5 years ago. Past year taxes At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. Past year taxes This year, you sold the property for $55,000. Past year taxes You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. Past year taxes Although your loss on the sale is $7,380 [($75,000 − $12,620) − $55,000], the amount you can deduct as a loss is limited to $2,380, figured as follows. Past year taxes Lesser of adjusted basis or fair market value at time of the change $70,000 Plus: Cost of any improvements and any other additions to basis after the change -0-   70,000 Minus: Depreciation and any other decreases to basis after the change 12,620   57,380 Minus: Amount you realized from the sale 55,000 Deductible loss $2,380 Gain. Past year taxes   If you have a gain on the sale, you generally must recognize the full amount of the gain. Past year taxes You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. Past year taxes   You may be able to exclude all or part of the gain if you owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Past year taxes However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. Past year taxes   For more information, see Business Use or Rental of Home in Publication 523. Past year taxes In addition, special rules apply if the home sold was acquired in a like-kind exchange. Past year taxes See Special Situations in Publication 523. Past year taxes Also see Like-Kind Exchanges, later. Past year taxes Abandonments The abandonment of property is a disposition of property. Past year taxes You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. Past year taxes Generally, abandonment is not treated as a sale or exchange of the property. Past year taxes If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Past year taxes If your adjusted basis is more than the amount you realize (if any), then you have a loss. Past year taxes Loss from abandonment of business or investment property is deductible as a loss. Past year taxes A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Past year taxes This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. Past year taxes If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. Past year taxes The abandonment loss is deducted in the tax year in which the loss is sustained. Past year taxes If the abandoned property is secured by debt, special rules apply. Past year taxes The tax consequences of abandonment of property that is secured by debt depend on whether you are personally liable for the debt (recourse debt) or you are not personally liable for the debt (nonrecourse debt). Past year taxes For more information, including examples, see chapter 3 of Publication 4681. Past year taxes You cannot deduct any loss from abandonment of your home or other property held for personal use only. Past year taxes Cancellation of debt. Past year taxes   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you may realize ordinary income equal to the canceled debt. Past year taxes This income is separate from any loss realized from abandonment of the property. Past year taxes   You must report this income on your tax return unless one of the following applies. Past year taxes The cancellation is intended as a gift. Past year taxes The debt is qualified farm debt. Past year taxes The debt is qualified real property business debt. Past year taxes You are insolvent or bankrupt. Past year taxes The debt is qualified principal residence indebtedness. Past year taxes File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. Past year taxes For more information, including other exceptions and exclusion, see Publication 4681. Past year taxes Forms 1099-A and 1099-C. Past year taxes   If you abandon property that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your loss from the abandonment. Past year taxes However, if your debt is canceled and the lender must file Form 1099-C, the lender may include the information about the abandonment on that form instead of on Form 1099-A, and send you Form 1099-C only. Past year taxes The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Past year taxes For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Past year taxes Foreclosures and Repossessions If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Past year taxes The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Past year taxes This is true even if you voluntarily return the property to the lender. Past year taxes You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. Past year taxes Buyer's (borrower's) gain or loss. Past year taxes   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Past year taxes The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Past year taxes See Gain or Loss From Sales and Exchanges, earlier. Past year taxes You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. Past year taxes Amount realized on a nonrecourse debt. Past year taxes   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full debt canceled by the transfer. Past year taxes The full canceled debt is included even if the fair market value of the property is less than the canceled debt. Past year taxes Example 1. Past year taxes Chris bought a new car for $15,000. Past year taxes He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. Past year taxes Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. Past year taxes The credit company repossessed the car because he stopped making loan payments. Past year taxes The balance due after taking into account the payments Chris made was $10,000. Past year taxes The fair market value of the car when repossessed was $9,000. Past year taxes The amount Chris realized on the repossession is $10,000. Past year taxes That is the outstanding amount of the debt canceled by the repossession, even though the car's fair market value is less than $10,000. Past year taxes Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). Past year taxes He has a $5,000 nondeductible loss. Past year taxes Example 2. Past year taxes Abena paid $200,000 for her home. Past year taxes She paid $15,000 down and borrowed the remaining $185,000 from a bank. Past year taxes Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. Past year taxes The bank foreclosed on the loan because Abena stopped making payments. Past year taxes When the bank foreclosed on the loan, the balance due was $180,000, the fair market value of the house was $170,000, and Abena's adjusted basis was $175,000 due to a casualty loss she had deducted. Past year taxes The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. Past year taxes She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). Past year taxes She has a $5,000 realized gain. Past year taxes Amount realized on a recourse debt. Past year taxes   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Past year taxes You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Past year taxes The amount realized does not include the canceled debt that is your income from cancellation of debt. Past year taxes See Cancellation of debt, below. Past year taxes Seller's (lender's) gain or loss on repossession. Past year taxes   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Past year taxes For more information, see Repossession in Publication 537. Past year taxes    Table 1-2. Past year taxes Worksheet for Foreclosures and Repossessions Part 1. Past year taxes Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Past year taxes Complete this part only  if you were personally liable for the debt. Past year taxes Otherwise,  go to Part 2. Past year taxes   1. Past year taxes Enter the amount of outstanding debt immediately before the transfer of   property reduced by any amount for which you remain personally liable after   the transfer of property   2. Past year taxes Enter the fair market value of the transferred property   3. Past year taxes Ordinary income from cancellation of debt upon foreclosure or    repossession. Past year taxes * Subtract line 2 from line 1. Past year taxes   If less than zero, enter zero   Part 2. Past year taxes Figure your gain or loss from foreclosure or repossession. Past year taxes   4. Past year taxes If you completed Part 1, enter the smaller of line 1 or line 2. Past year taxes   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. Past year taxes Enter any proceeds you received from the foreclosure sale   6. Past year taxes Add lines 4 and 5   7. Past year taxes Enter the adjusted basis of the transferred property   8. Past year taxes Gain or loss from foreclosure or repossession. Past year taxes Subtract line 7  from line 6   * The income may not be taxable. Past year taxes See Cancellation of debt. Past year taxes Cancellation of debt. Past year taxes   If property that is repossessed or foreclosed on secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the fair market value of the property. Past year taxes This income is separate from any gain or loss realized from the foreclosure or repossession. Past year taxes Report the income from cancellation of a debt related to a business or rental activity as business or rental income. Past year taxes    You can use Table 1-2 to figure your income from cancellation of debt. Past year taxes   You must report this income on your tax return unless one of the following applies. Past year taxes The cancellation is intended as a gift. Past year taxes The debt is qualified farm debt. Past year taxes The debt is qualified real property business debt. Past year taxes You are insolvent or bankrupt. Past year taxes The debt is qualified principal residence indebtedness. Past year taxes File Form 982 to report the income exclusion. Past year taxes Example 1. Past year taxes Assume the same facts as in Example 1 under Amount realized on a nonrecourse debt, earlier, except Chris is personally liable for the car loan (recourse debt). Past year taxes In this case, the amount he realizes is $9,000. Past year taxes This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). Past year taxes Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). Past year taxes He has a $6,000 nondeductible loss. Past year taxes He also is treated as receiving ordinary income from cancellation of debt. Past year taxes That income is $1,000 ($10,000 − $9,000). Past year taxes This is the part of the canceled debt not included in the amount realized. Past year taxes Example 2. Past year taxes Assume the same facts as in Example 2 under Amount realized on a nonrecourse debt, earlier, except Abena is personally liable for the loan (recourse debt). Past year taxes In this case, the amount she realizes is $170,000. Past year taxes This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). Past year taxes Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). Past year taxes She has a $5,000 nondeductible loss. Past year taxes She also is treated as receiving ordinary income from cancellation of debt. Past year taxes (The debt is not exempt from tax as discussed under Cancellation of debt, above. Past year taxes ) That income is $10,000 ($180,000 − $170,000). Past year taxes This is the part of the canceled debt not included in the amount realized. Past year taxes Forms 1099-A and 1099-C. Past year taxes   A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A showing the information you need to figure your gain or loss. Past year taxes However, if the lender also cancels part of your debt and must file Form 1099-C, the lender may include the information about the foreclosure or repossession on that form instead of on Form 1099-A and send you Form 1099-C only. Past year taxes The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Past year taxes For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Past year taxes Involuntary Conversions An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. Past year taxes Involuntary conversions are also called involuntary exchanges. Past year taxes Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. Past year taxes You report the gain or deduct the loss on your tax return for the year you realize it. Past year taxes You cannot deduct a loss from an involuntary conversion of property you held for personal use unless the loss resulted from a casualty or theft. Past year taxes However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. Past year taxes Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. Past year taxes Your basis for the new property is the same as your basis for the converted property. Past year taxes This means that the gain is deferred until a taxable sale or exchange occurs. Past year taxes If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can elect to postpone reporting the gain on the property purchased. Past year taxes This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. Past year taxes If you have a gain or loss from the destruction or theft of property, see Publication 547. Past year taxes Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. Past year taxes The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. Past year taxes The owner receives a condemnation award (money or property) in exchange for the property taken. Past year taxes A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. Past year taxes Example. Past year taxes A local government authorized to acquire land for public parks informed you that it wished to acquire your property. Past year taxes After the local government took action to condemn your property, you went to court to keep it. Past year taxes But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. Past year taxes This is a condemnation of private property for public use. Past year taxes Threat of condemnation. Past year taxes   A threat of condemnation exists if a representative of a government body or a public official authorized to acquire property for public use informs you that the government body or official has decided to acquire your property. Past year taxes You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. Past year taxes   The sale of your property to someone other than the condemning authority will also qualify as an involuntary conversion, provided you have reasonable grounds to believe that your property will be condemned. Past year taxes If the buyer of this property knows at the time of purchase that it will be condemned and sells it to the condemning authority, this sale also qualifies as an involuntary conversion. Past year taxes Reports of condemnation. Past year taxes   A threat of condemnation exists if you learn of a decision to acquire your property for public use through a report in a newspaper or other news medium, and this report is confirmed by a representative of the government body or public official involved. Past year taxes You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. Past year taxes If you relied on oral statements made by a government representative or public official, the Internal Revenue Service (IRS) may ask you to get written confirmation of the statements. Past year taxes Example. Past year taxes Your property lies along public utility lines. Past year taxes The utility company has the authority to condemn your property. Past year taxes The company informs you that it intends to acquire your property by negotiation or condemnation. Past year taxes A threat of condemnation exists when you receive the notice. Past year taxes Related property voluntarily sold. Past year taxes   A voluntary sale of your property may be treated as a forced sale that qualifies as an involuntary conversion if the property had a substantial economic relationship to property of yours that was condemned. Past year taxes A substantial economic relationship exists if together the properties were one economic unit. Past year taxes You also must show that the condemned property could not reasonably or adequately be replaced. Past year taxes You can elect to postpone reporting the gain by buying replacement property. Past year taxes See Postponement of Gain, later. Past year taxes Gain or Loss From Condemnations If your property was condemned or disposed of under the threat of condemnation, figure your gain or loss by comparing the adjusted basis of your condemned property with your net condemnation award. Past year taxes If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. Past year taxes You can postpone reporting gain from a condemnation if you buy replacement property. Past year taxes If only part of your property is condemned, you can treat the cost of restoring the remaining part to its former usefulness as the cost of replacement property. Past year taxes See Postponement of Gain, later. Past year taxes If your net condemnation award is less than your adjusted basis, you have a loss. Past year taxes If your loss is from property you held for personal use, you cannot deduct it. Past year taxes You must report any deductible loss in the tax year it happened. Past year taxes You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. Past year taxes Main home condemned. Past year taxes   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. Past year taxes You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). Past year taxes For information on this exclusion, see Publication 523. Past year taxes If your gain is more than you can exclude but you buy replacement property, you may be able to postpone reporting the rest of the gain. Past year taxes See Postponement of Gain, later. Past year taxes Table 1-3. Past year taxes Worksheet for Condemnations Part 1. Past year taxes Gain from severance damages. Past year taxes  If you did not receive severance damages, skip Part 1 and go to Part 2. Past year taxes   1. Past year taxes Enter gross severance damages received   2. Past year taxes Enter your expenses in getting severance damages   3. Past year taxes Subtract line 2 from line 1. Past year taxes If less than zero, enter -0-   4. Past year taxes Enter any special assessment on remaining property taken out of your award   5. Past year taxes Net severance damages. Past year taxes Subtract line 4 from line 3. Past year taxes If less than zero, enter -0-   6. Past year taxes Enter the adjusted basis of the remaining property   7. Past year taxes Gain from severance damages. Past year taxes Subtract line 6 from line 5. Past year taxes If less than zero, enter -0-   8. Past year taxes Refigured adjusted basis of the remaining property. Past year taxes Subtract line 5 from line 6. Past year taxes If less than zero, enter -0-   Part 2. Past year taxes Gain or loss from condemnation award. Past year taxes   9. Past year taxes Enter the gross condemnation award received   10. Past year taxes Enter your expenses in getting the condemnation award   11. Past year taxes If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. Past year taxes If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. Past year taxes Otherwise, enter -0-   12. Past year taxes Add lines 10 and 11   13. Past year taxes Net condemnation award. Past year taxes Subtract line 12 from line 9   14. Past year taxes Enter the adjusted basis of the condemned property   15. Past year taxes Gain from condemnation award. Past year taxes If line 14 is more than line 13, enter -0-. Past year taxes Otherwise, subtract line 14 from  line 13 and skip line 16   16. Past year taxes Loss from condemnation award. Past year taxes Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. Past year taxes )   Part 3. Past year taxes Postponed gain from condemnation. Past year taxes  (Complete only if line 7 or line 15 is more than zero and you bought qualifying replacement property or made expenditures to restore the usefulness of your remaining property. Past year taxes )   17. Past year taxes If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. Past year taxes Otherwise, enter -0-   18. Past year taxes If line 15 is more than zero, enter the amount from line 13. Past year taxes Otherwise, enter -0-   19. Past year taxes Add lines 17 and 18. Past year taxes If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. Past year taxes Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. Past year taxes Subtract line 20 from line 19. Past year taxes If less than zero, enter -0-   22. Past year taxes If you completed Part 1, add lines 7 and 15. Past year taxes Otherwise, enter the amount from line 15. Past year taxes If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. Past year taxes Recognized gain. Past year taxes Enter the smaller of line 21 or line 22. Past year taxes   24. Past year taxes Postponed gain. Past year taxes Subtract line 23 from line 22. Past year taxes If less than zero, enter -0-   Condemnation award. Past year taxes   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. Past year taxes The award is also the amount you are paid for the sale of your property under threat of condemnation. Past year taxes Payment of your debts. Past year taxes   Amounts taken out of the award to pay your debts are considered paid to you. Past year taxes Amounts the government pays directly to the holder of a mortgage or lien against your property are part of your award, even if the debt attaches to the property and is not your personal liability. Past year taxes Example. Past year taxes The state condemned your property for public use. Past year taxes The award was set at $200,000. Past year taxes The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. Past year taxes You are considered to have received the entire $200,000 as a condemnation award. Past year taxes Interest on award. Past year taxes   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. Past year taxes You must report the interest separately as ordinary income. Past year taxes Payments to relocate. Past year taxes   Payments you receive to relocate and replace housing because you have been displaced from your home, business, or farm as a result of federal or federally assisted programs are not part of the condemnation award. Past year taxes Do not include them in your income. Past year taxes Replacement housing payments used to buy new property are included in the property's basis as part of your cost. Past year taxes Net condemnation award. Past year taxes   A net condemnation award is the total award you received, or are considered to have received, for the condemned property minus your expenses of obtaining the award. Past year taxes If only a part of your property was condemned, you also must reduce the award by any special assessment levied against the part of the property you retain. Past year taxes This is discussed later under Special assessment taken out of award. Past year taxes Severance damages. Past year taxes    Severance damages are not part of the award paid for the property condemned. Past year taxes They are paid to you if part of your property is condemned and the value of the part you keep is decreased because of the condemnation. Past year taxes   For example, you may receive severance damages if your property is subject to flooding because you sell flowage easement rights (the condemned property) under threat of condemnation. Past year taxes Severance damages also may be given to you if, because part of your property is condemned for a highway, you must replace fences, dig new wells or ditches, or plant trees to restore your remaining property to the same usefulness it had before the condemnation. Past year taxes   The contracting parties should agree on the specific amount of severance damages in writing. Past year taxes If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. Past year taxes   You cannot make a completely new allocation of the total award after the transaction is completed. Past year taxes However, you can show how much of the award both parties intended for severance damages. Past year taxes The severance damages part of the award is determined from all the facts and circumstances. Past year taxes Example. Past year taxes You sold part of your property to the state under threat of condemnation. Past year taxes The contract you and the condemning authority signed showed only the total purchase price. Past year taxes It did not specify a fixed sum for severance damages. Past year taxes However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. Past year taxes You may treat this part as severance damages. Past year taxes Treatment of severance damages. Past year taxes   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. Past year taxes Use them to reduce the basis of the remaining property. Past year taxes If the amount of severance damages is based on damage to a specific part of the property you kept, reduce the basis of only that part by the net severance damages. Past year taxes   If your net severance damages are more than the basis of your retained property, you have a gain. Past year taxes You may be able to postpone reporting the gain. Past year taxes See Postponement of Gain, later. Past year taxes    You can use Part 1 of Table 1-3 to figure any gain from severance damages and to refigure the adjusted basis of the remaining part of your property. Past year taxes Net severance damages. Past year taxes   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. Past year taxes You then reduce them by any special assessment (described later) levied against the remaining part of the property and retained out of the award by the condemning authority. Past year taxes The balance is your net severance damages. Past year taxes Expenses of obtaining a condemnation award and severance damages. Past year taxes   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. Past year taxes Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. Past year taxes If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. Past year taxes Example. Past year taxes You receive a condemnation award and severance damages. Past year taxes One-fourth of the total was designated as severance damages in your agreement with the condemning authority. Past year taxes You had legal expenses for the entire condemnation proceeding. Past year taxes You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. Past year taxes You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. Past year taxes Special assessment retained out of award. Past year taxes   When only part of your property is condemned, a special assessment levied against the remaining property may be retained by the governing body out of your condemnation award. Past year taxes An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. Past year taxes Examples of improvements that may cause a special assessment are widening a street and installing a sewer. Past year taxes   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. Past year taxes Example. Past year taxes To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. Past year taxes You were awarded $5,000 for this and spent $300 to get the award. Past year taxes Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. Past year taxes The city then paid you only $4,300. Past year taxes Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). Past year taxes If the $700 special assessment was not retained out of the award and you were paid $5,000, your net award would be $4,700 ($5,000 − $300). Past year taxes The net award would not change, even if you later paid the assessment from the amount you received. Past year taxes Severance damages received. Past year taxes   If severance damages are included in the condemnation proceeds, the special assessment retained out of the severance damages is first used to reduce the severance damages. Past year taxes Any balance of the special assessment is used to reduce the condemnation award. Past year taxes Example. Past year taxes You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. Past year taxes You spent $300 to obtain the severance damages. Past year taxes A special assessment of $800 was retained out of the award. Past year taxes The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. Past year taxes Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. Past year taxes Part business or rental. Past year taxes   If you used part of your condemned property as your home and part as business or rental property, treat each part as a separate property. Past year taxes Figure your gain or loss separately because gain or loss on each part may be treated differently. Past year taxes   Some examples of this type of property are a building in which you live and operate a grocery, and a building in which you live on the first floor and rent out the second floor. Past year taxes Example. Past year taxes You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. Past year taxes You rented half the building and lived in the other half. Past year taxes You paid $25,000 for the building and spent an additional $1,000 for a new roof. Past year taxes You claimed allowable depreciation of $4,600 on the rental half. Past year taxes You spent $200 in legal expenses to obtain the condemnation award. Past year taxes Figure your gain or loss as follows. Past year taxes     Resi- dential Part Busi- ness Part 1) Condemnation award received $12,000 $12,000 2) Minus: Legal expenses, $200 100 100 3) Net condemnation award $11,900 $11,900 4) Adjusted basis:       ½ of original cost, $25,000 $12,500 $12,500   Plus: ½ of cost of roof, $1,000 500 500   Total $13,000 $13,000 5) Minus: Depreciation   4,600 6) Adjusted basis, business part   $8,400 7) (Loss) on residential property ($1,100)   8) Gain on business property $3,500 The loss on the residential part of the property is not deductible. Past year taxes Postponement of Gain Do not report the gain on condemned property if you receive only property that is similar or related in service or use to the condemned property. Past year taxes Your basis for the new property is the same as your basis for the old. Past year taxes Money or unlike property received. Past year taxes   You ordinarily must report the gain if you receive money or unlike property. Past year taxes You can elect to postpone reporting the gain if you buy property that is similar or related in service or use to the condemned property within the replacement period, discussed later. Past year taxes You also can elect to postpone reporting the gain if you buy a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the condemned property. Past year taxes See Controlling interest in a corporation, later. Past year taxes   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. Past year taxes If the cost of the replacement property is less than the amount realized, you must report the gain up to the unspent part of the amount realized. Past year taxes   The basis of the replacement property is its cost, reduced by the postponed gain. Past year taxes Also, if your replacement property is stock in a corporation that owns property similar or related in service or use, the corporation generally will reduce its basis in its assets by the amount by which you reduce your basis in the stock. Past year taxes See Controlling interest in a corporation, later. Past year taxes You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. Past year taxes Postponing gain on severance damages. Past year taxes   If you received severance damages for part of your property because another part was condemned and you buy replacement property, you can elect to postpone reporting gain. Past year taxes See Treatment of severance damages, earlier. Past year taxes You can postpone reporting all your gain if the replacement property costs at least as much as your net severance damages plus your net condemnation award (if resulting in gain). Past year taxes   You also can make this election if you spend the severance damages, together with other money you received for the condemned property (if resulting in gain), to acquire nearby property that will allow you to continue your business. Past year taxes If suitable nearby property is not available and you are forced to sell the remaining property and relocate in order to continue your business, see Postponing gain on the sale of related property, next. Past year taxes   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. Past year taxes Postponing gain on the sale of related property. Past year taxes   If you sell property that is related to the condemned property and then buy replacement property, you can elect to postpone reporting gain on the sale. Past year taxes You must meet the requirements explained earlier under Related property voluntarily sold. Past year taxes You can postpone reporting all your gain if the replacement property costs at least as much as the amount realized from the sale plus your net condemnation award (if resulting in gain) plus your net severance damages, if any (if resulting in gain). Past year taxes Buying replacement property from a related person. Past year taxes   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. Past year taxes For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. Past year taxes   This rule applies to the following taxpayers. Past year taxes C corporations. Past year taxes Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. Past year taxes All others (including individuals, partnerships (other than those in (2)), and S corporations) if the total realized gain for the tax year on all involuntarily converted properties on which there is realized gain of more than $100,000. Past year taxes   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. Past year taxes If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Past year taxes If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Past year taxes Exception. Past year taxes   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. Past year taxes Advance payment. Past year taxes   If you pay a contractor in advance to build your replacement property, you have not bought replacement property unless it is finished before the end of the replacement period (discussed later). Past year taxes Replacement property. Past year taxes   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. Past year taxes You do not have to use the actual funds from the condemnation award to acquire the replacement property. Past year taxes Property you acquire by gift or inheritance does not qualify as replacement property. Past year taxes Similar or related in service or use. Past year taxes   Your replacement property must be similar or related in service or use to the property it replaces. Past year taxes   If the condemned property is real property you held for productive use in your trade or business or for investment (other than property held mainly for sale), like-kind property to be held either for productive use in trade or business or for investment will be treated as property similar or related in service or use. Past year taxes For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. Past year taxes Owner-user. Past year taxes   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. Past year taxes Example. Past year taxes Your home was condemned and you invested the proceeds from the condemnation in a grocery store. Past year taxes Your replacement property is not similar or related in service or use to the condemned property. Past year taxes To be similar or related in service or use, your replacement property must also be used by you as your home. Past year taxes Owner-investor. Past year taxes   If you are an owner-investor, similar or related in service or use means that any replacement property must have the same relationship of services or uses to you as the property it replaces. Past year taxes You decide this by determining all the following information. Past year taxes Whether the properties are of similar service to you. Past year taxes The nature of the business risks connected with the properties. Past year taxes What the properties demand of you in the way of management, service, and relations to your tenants. Past year taxes Example. Past year taxes You owned land and a building you rented to a manufacturing company. Past year taxes The building was condemned. Past year taxes During the replacement period, you had a new building built on other land you already owned. Past year taxes You rented out the new building for use as a wholesale grocery warehouse. Past year taxes The replacement property is also rental property, so the two properties are considered similar or related in service or use if there is a similarity in all the following areas. Past year taxes Your management activities. Past year taxes The amount and kind of services you provide to your tenants. Past year taxes The nature of your business risks connected with the properties. Past year taxes Leasehold replaced with fee simple property. Past year taxes   Fee simple property you will use in your trade or business or for investment can qualify as replacement property that is similar or related in service or use to a condemned leasehold if you use it in the same business and for the identical purpose as the condemned leasehold. Past year taxes   A fee simple property interest generally is a property interest that entitles the owner to the entire property with unconditional power to dispose of it during his or her lifetime. Past year taxes A leasehold is property held under a lease, usually for a term of years. Past year taxes Outdoor advertising display replaced with real property. Past year taxes   You can elect to treat an outdoor advertising display as real property. Past year taxes If you make this election and you replace the display with real property in which you hold a different kind of interest, your replacement property can qualify as like-kind property. Past year taxes For example, real property bought to replace a destroyed billboard and leased property on which the billboard was located qualify as property of a like-kind. Past year taxes   You can make this election only if you did not claim a section 179 deduction for the display. Past year taxes You cannot cancel this election unless you get the consent of the IRS. Past year taxes   An outdoor advertising display is a sign or device rigidly assembled and permanently attached to the ground, a building, or any other permanent structure used to display a commercial or other advertisement to the public. Past year taxes Substituting replacement property. Past year taxes   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. Past year taxes But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. Past year taxes Controlling interest in a corporation. Past year taxes   You can replace property by acquiring a controlling interest in a corporation that owns property similar or related in service or use to your condemned property. Past year taxes You have controlling interest if you own stock having at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation. Past year taxes Basis adjustment to corporation's property. Past year taxes   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. Past year taxes You are not required to reduce the adjusted basis of the corporation's properties below your adjusted basis in the corporation's stock (determined after reduction by your postponed gain). Past year taxes   Allocate this reduction to the following classes of property in the order shown below. Past year taxes Property that is similar or related in service or use to the condemned property. Past year taxes Depreciable property not reduced in (1). Past year taxes All other property. Past year taxes If two or more properties fall in the same class, allocate the reduction to each property in proportion to the adjusted basis of all the properties in that class. Past year taxes The reduced basis of any single property cannot be less than zero. Past year taxes Main home replaced. Past year taxes   If your gain from a condemnation of your main home is more than you can exclude from your income (see Main home condemned under Gain or Loss From Condemnations, earlier), you can postpone reporting the rest of the gain by buying replacement property that is similar or related in service or use. Past year taxes The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. Past year taxes   You must reduce the basis of your replacement property by the postponed gain. Past year taxes Also, if you postpone reporting any part of your gain under these rules, you are treated as having owned and used the replacement property as your main home for the period you owned and used the condemned property as your main home. Past year taxes Example. Past year taxes City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. Past year taxes The city paid you a condemnation award of $400,000. Past year taxes Your adjusted basis in the property was $80,000. Past year taxes You realize a gain of $320,000 ($400,000 − $80,000). Past year taxes You purchased a new home for $100,000. Past year taxes You can exclude $250,000 of the realized gain from your gross income. Past year taxes The amount realized is then treated as being $150,000 ($400,000 − $250,000) and the gain realized is $70,000 ($150,000 amount realized − $80,000 adjusted basis). Past year taxes You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). Past year taxes The remaining $20,000 of realized gain is postponed. Past year taxes Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). Past year taxes Replacement period. Past year taxes   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. Past year taxes This is the replacement period. Past year taxes   The replacement period for a condemnation begins on the earlier of the following dates. Past year taxes The date on which you disposed of the condemned property. Past year taxes The date on which the threat of condemnation began. Past year taxes   The replacement period generally ends 2 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Past year taxes However, see the exceptions below. Past year taxes Three-year replacement period for certain property. Past year taxes   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Past year taxes However, this 3-year replacement period cannot be used if you replace the condemned property by acquiring control of a corporation owning property that is similar or related in service or use. Past year taxes Five-year replacement period for certain property. Past year taxes   The replacement period ends 5 years after the end of the first tax year in which any part of the gain is realized on the compulsory or involuntary conversion of the following qualified property. Past year taxes Property in any Midwestern disaster area compulsorily or involuntarily converted on or after the applicable disaster date as a result of severe storms, tornadoes, or flooding, but only if substantially all of the use of the replacement property is in a Midwestern disaster area. Past year taxes Property in the Kansas disaster area compulsorily or involuntarily converted after May 3, 2007, but only if substantially all of the use of the replacement property is in the Kansas disaster area. Past year taxes Property in the Hurricane Katrina disaster area compulsorily or involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, but only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Past year taxes Extended replacement period for taxpayers affected by other federally declared disasters. Past year taxes    If you are affected by a federally declared disaster, the IRS may grant disaster relief by extending the periods to perform certain tax-related acts for 2013, including the replacement period, by up to one year. Past year taxes For more information visit www. Past year taxes irs. Past year taxes gov/uac/Tax-Relief-in-Disaster-Situations. Past year taxes Weather-related sales of livestock in an area eligible for federal assistance. Past year taxes   Generally, if the sale or exchange of livestock is due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. Past year taxes    If the weather-related conditions continue for longer than 3 years, the replacement period may be extended on a regional basis until the end of your first drought-free year for the applicable region. Past year taxes See Notice 2006-82. Past year taxes You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. Past year taxes irs. Past year taxes gov/irb/2006-39_IRB/ar13. Past year taxes html. Past year taxes    Each year, the IRS publishes a list of counties, districts, cities, or parishes for which exceptional, extreme, or severe drought was reported during the preceding 12 months. Past year taxes If you qualified for a 4-year replacement period for livestock sold or exchanged on account of drought and your replacement period is scheduled to expire at the end of 2013 (or at the end of the tax year that includes August 31, 2013), see Notice 2013-62. Past year taxes You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. Past year taxes irs. Past year taxes gov/irb/2013-45_IRB/ar04. Past year taxes html. Past year taxes The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. Past year taxes Determining when gain is realized. Past year taxes   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. Past year taxes If the condemning authority makes deposits with the court, you realize gain when you withdraw (or have the right to withdraw) amounts that are more than your basis. Past year taxes   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. Past year taxes A replacement will be too late if you wait for a final determination that does not take place in the applicable replacement period after you first realize gain. Past year taxes   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. Past year taxes All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. Past year taxes All or part of the award is actually or constructively received. Past year taxes For example, if you have an absolute right to a part of a condemnation award when it is deposited with the court, the amount deposited accrues in the year the deposit is made even though the full amount of the award is still contested. Past year taxes Replacement property bought before the condemnation. Past year taxes   If you buy your replacement property after there is a threat of condemnation but before the actual condemnation and you still hold the replacement property at the time of the condemnation, you have bought your replacement property within the replacement period. Past year taxes Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. Past year taxes Example. Past year taxes On April 3, 2012, city authorities notified you that your property would be condemned. Past year taxes On June 5, 2012, you acquired property to replace the property to be condemned. Past year taxes You still had the new property when the city took possession of your old property on September 4, 2013. Past year taxes You have made a replacement within the replacement period. Past year taxes Extension. Past year taxes   You can request an extension of the replacement period from the IRS director for your area. Past year taxes You should apply before the end of the replacement period. Past year taxes Your request should explain in detail why you need an extension. Past year taxes The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. Past year taxes An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. Past year taxes   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. Past year taxes Extensions are usually limited to a period of 1 year or less. Past year taxes The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. Past year taxes If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri