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Tax Forms 2009

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Tax Forms 2009

Tax forms 2009 4. Tax forms 2009   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. Tax forms 2009 Loan secured by benefits. Tax forms 2009 Waiver of survivor benefits. Tax forms 2009 Waiver of 30-day waiting period before annuity starting date. Tax forms 2009 Involuntary cash-out of benefits not more than dollar limit. Tax forms 2009 Exception for certain loans. Tax forms 2009 Exception for QDRO. Tax forms 2009 SIMPLE and safe harbor 401(k) plan exception. Tax forms 2009 Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. Tax forms 2009 Installment percentage. Tax forms 2009 Extended period for making contributions. Tax forms 2009 ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. Tax forms 2009 Caution: Form 5500-EZ not required. Tax forms 2009 Form 5500. Tax forms 2009 Electronic filing of Forms 5500 and 5500-SF. Tax forms 2009 Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. Tax forms 2009 dol. Tax forms 2009 gov/ebsa/pdf/2013-5500. Tax forms 2009 pdf www. Tax forms 2009 dol. Tax forms 2009 gov/ebsa/pdf/2013-5500-SF. Tax forms 2009 pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Tax forms 2009 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Tax forms 2009 1040 U. Tax forms 2009 S. Tax forms 2009 Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. Tax forms 2009 For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. Tax forms 2009 For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. Tax forms 2009 R. Tax forms 2009 10 plans. Tax forms 2009 A sole proprietor or a partnership can set up one of these plans. Tax forms 2009 A common-law employee or a partner cannot set up one of these plans. Tax forms 2009 The plans described here can also be set up and maintained by employers that are corporations. Tax forms 2009 All the rules discussed here apply to corporations except where specifically limited to the self-employed. Tax forms 2009 The plan must be for the exclusive benefit of employees or their beneficiaries. Tax forms 2009 These qualified plans can include coverage for a self-employed individual. Tax forms 2009 As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Tax forms 2009 The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Tax forms 2009 Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. Tax forms 2009 You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. Tax forms 2009 Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. Tax forms 2009 It provides benefits to a participant largely based on the amount contributed to that participant's account. Tax forms 2009 Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. Tax forms 2009 A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. Tax forms 2009 Profit-sharing plan. Tax forms 2009   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). Tax forms 2009 A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. Tax forms 2009 An employer may even make no contribution to the plan for a given year. Tax forms 2009   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. Tax forms 2009   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). Tax forms 2009 Money purchase pension plan. Tax forms 2009   Contributions to a money purchase pension plan are fixed and are not based on your business profits. Tax forms 2009 For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. Tax forms 2009 This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. Tax forms 2009 Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. Tax forms 2009 Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Tax forms 2009 Actuarial assumptions and computations are required to figure these contributions. Tax forms 2009 Generally, you will need continuing professional help to have a defined benefit plan. Tax forms 2009 Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. Tax forms 2009 Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. Tax forms 2009 The following is a brief overview of important qualification rules that generally have not yet been discussed. Tax forms 2009 It is not intended to be all-inclusive. Tax forms 2009 See Setting Up a Qualified Plan , later. Tax forms 2009 Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. Tax forms 2009 A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. Tax forms 2009 Plan assets must not be diverted. Tax forms 2009   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. Tax forms 2009 As a general rule, the assets cannot be diverted to the employer. Tax forms 2009 Minimum coverage requirement must be met. Tax forms 2009   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. Tax forms 2009 50 employees, or The greater of: 40% of all employees, or Two employees. Tax forms 2009 If there is only one employee, the plan must benefit that employee. Tax forms 2009 Contributions or benefits must not discriminate. Tax forms 2009   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. Tax forms 2009 Contributions and benefits must not be more than certain limits. Tax forms 2009   Your plan must not provide for contributions or benefits that are more than certain limits. Tax forms 2009 The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. Tax forms 2009 These limits are discussed later in this chapter under Contributions. Tax forms 2009 Minimum vesting standard must be met. Tax forms 2009   Your plan must satisfy certain requirements regarding when benefits vest. Tax forms 2009 A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. Tax forms 2009 A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. Tax forms 2009 Special rules apply to forfeited benefit amounts. Tax forms 2009 In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. Tax forms 2009   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. Tax forms 2009 Forfeitures must be used instead to reduce employer contributions. Tax forms 2009 Participation. Tax forms 2009   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. Tax forms 2009 Has reached age 21. Tax forms 2009 Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). Tax forms 2009 A plan cannot exclude an employee because he or she has reached a specified age. Tax forms 2009 Leased employee. Tax forms 2009   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. Tax forms 2009 These rules include those in all the following areas. Tax forms 2009 Nondiscrimination in coverage, contributions, and benefits. Tax forms 2009 Minimum age and service requirements. Tax forms 2009 Vesting. Tax forms 2009 Limits on contributions and benefits. Tax forms 2009 Top-heavy plan requirements. Tax forms 2009 Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. Tax forms 2009 Benefit payment must begin when required. Tax forms 2009   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. Tax forms 2009 The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. Tax forms 2009 The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. Tax forms 2009 The plan year in which the participant separates from service. Tax forms 2009 Early retirement. Tax forms 2009   Your plan can provide for payment of retirement benefits before the normal retirement age. Tax forms 2009 If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. Tax forms 2009 Satisfies the service requirement for the early retirement benefit. Tax forms 2009 Separates from service with a nonforfeitable right to an accrued benefit. Tax forms 2009 The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. Tax forms 2009 Required minimum distributions. Tax forms 2009   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. Tax forms 2009 See Required Distributions , under Distributions, later. Tax forms 2009 Survivor benefits. Tax forms 2009   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. Tax forms 2009 A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. Tax forms 2009 A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. Tax forms 2009   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. Tax forms 2009 The participant does not choose benefits in the form of a life annuity. Tax forms 2009 The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. Tax forms 2009 The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. Tax forms 2009 Loan secured by benefits. Tax forms 2009   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. Tax forms 2009 Waiver of survivor benefits. Tax forms 2009   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. Tax forms 2009 The plan also must allow the participant to withdraw the waiver. Tax forms 2009 The spouse's consent must be witnessed by a plan representative or notary public. Tax forms 2009 Waiver of 30-day waiting period before annuity starting date. Tax forms 2009    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. Tax forms 2009   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. Tax forms 2009 Involuntary cash-out of benefits not more than dollar limit. Tax forms 2009   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. Tax forms 2009   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. Tax forms 2009 If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. Tax forms 2009   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. Tax forms 2009   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. Tax forms 2009 A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. Tax forms 2009 See Section 402(f) Notice under Distributions, later, for more details. Tax forms 2009 Consolidation, merger, or transfer of assets or liabilities. Tax forms 2009   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. Tax forms 2009 (if the plan had then terminated). Tax forms 2009 Benefits must not be assigned or alienated. Tax forms 2009   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. Tax forms 2009 Exception for certain loans. Tax forms 2009   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. Tax forms 2009 A disqualified person is defined later in this chapter under Prohibited Transactions. Tax forms 2009 Exception for QDRO. Tax forms 2009   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. Tax forms 2009   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. Tax forms 2009 Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. Tax forms 2009 No benefit reduction for social security increases. Tax forms 2009   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. Tax forms 2009 This rule also applies to plans supplementing the benefits provided by other federal or state laws. Tax forms 2009 Elective deferrals must be limited. Tax forms 2009   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. Tax forms 2009 See Limit on Elective Deferrals later in this chapter. Tax forms 2009 Top-heavy plan requirements. Tax forms 2009   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. Tax forms 2009   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. Tax forms 2009 Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. Tax forms 2009   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. Tax forms 2009 These qualification requirements for top-heavy plans are explained in section 416 and its regulations. Tax forms 2009 SIMPLE and safe harbor 401(k) plan exception. Tax forms 2009   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. Tax forms 2009 QACAs (discussed later) also are not subject to top-heavy requirements. Tax forms 2009 Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. Tax forms 2009 First you adopt a written plan. Tax forms 2009 Then you invest the plan assets. Tax forms 2009 You, the employer, are responsible for setting up and maintaining the plan. Tax forms 2009 If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. Tax forms 2009 If you have employees, see Participation, under Qualification Rules, earlier. Tax forms 2009 Set-up deadline. Tax forms 2009   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). Tax forms 2009 Credit for startup costs. Tax forms 2009   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. Tax forms 2009 For more information, see Credit for startup costs under Reminders, earlier. Tax forms 2009 Adopting a Written Plan You must adopt a written plan. Tax forms 2009 The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. Tax forms 2009 Or it can be an individually designed plan. Tax forms 2009 Written plan requirement. Tax forms 2009   To qualify, the plan you set up must be in writing and must be communicated to your employees. Tax forms 2009 The plan's provisions must be stated in the plan. Tax forms 2009 It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. Tax forms 2009 Master or prototype plans. Tax forms 2009   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. Tax forms 2009 Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). Tax forms 2009 Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. Tax forms 2009 Under a prototype plan, a separate trust or custodial account is established for each employer. Tax forms 2009 Plan providers. Tax forms 2009   The following organizations generally can provide IRS-approved master or prototype plans. Tax forms 2009 Banks (including some savings and loan associations and federally insured credit unions). Tax forms 2009 Trade or professional organizations. Tax forms 2009 Insurance companies. Tax forms 2009 Mutual funds. Tax forms 2009 Individually designed plan. Tax forms 2009   If you prefer, you can set up an individually designed plan to meet specific needs. Tax forms 2009 Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. Tax forms 2009 You may need professional help for this. Tax forms 2009 See Rev. Tax forms 2009 Proc. Tax forms 2009 2014-6, 2014-1 I. Tax forms 2009 R. Tax forms 2009 B. Tax forms 2009 198, available at www. Tax forms 2009 irs. Tax forms 2009 gov/irb/2014-1_IRB/ar10. Tax forms 2009 html, as annually updated, that may help you decide whether to apply for approval. Tax forms 2009 Internal Revenue Bulletins are available on the IRS website at IRS. Tax forms 2009 gov They are also available at most IRS offices and at certain libraries. Tax forms 2009 User fee. Tax forms 2009   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. Tax forms 2009 At least one of them must be a non-highly compensated employee participating in the plan. Tax forms 2009 The fee does not apply to requests made by the later of the following dates. Tax forms 2009 The end of the 5th plan year the plan is in effect. Tax forms 2009 The end of any remedial amendment period for the plan that begins within the first 5 plan years. Tax forms 2009 The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. Tax forms 2009   For more information about whether the user fee applies, see Rev. Tax forms 2009 Proc. Tax forms 2009 2014-8, 2014-1 I. Tax forms 2009 R. Tax forms 2009 B. Tax forms 2009 242, available at www. Tax forms 2009 irs. Tax forms 2009 gov/irb/2014-1_IRB/ar12. Tax forms 2009 html, as may be annually updated; Notice 2003-49, 2003-32 I. Tax forms 2009 R. Tax forms 2009 B. Tax forms 2009 294, available at www. Tax forms 2009 irs. Tax forms 2009 gov/irb/2003-32_IRB/ar13. Tax forms 2009 html; and Notice 2011-86, 2011-45 I. Tax forms 2009 R. Tax forms 2009 B. Tax forms 2009 698, available at www. Tax forms 2009 irs. Tax forms 2009 gov/irb/2011-45_IRB/ar11. Tax forms 2009 html. Tax forms 2009 Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. Tax forms 2009 You can establish a trust or custodial account to invest the funds. Tax forms 2009 You, the trust, or the custodial account can buy an annuity contract from an insurance company. Tax forms 2009 Life insurance can be included only if it is incidental to the retirement benefits. Tax forms 2009 You set up a trust by a legal instrument (written document). Tax forms 2009 You may need professional help to do this. Tax forms 2009 You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. Tax forms 2009 You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. Tax forms 2009 If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. Tax forms 2009 Other plan requirements. Tax forms 2009   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. Tax forms 2009 Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. Tax forms 2009 Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. Tax forms 2009 For information on this funding requirement, see section 412 and its regulations. Tax forms 2009 Quarterly installments of required contributions. Tax forms 2009   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. Tax forms 2009 If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. Tax forms 2009 Due dates. Tax forms 2009   The due dates for the installments are 15 days after the end of each quarter. Tax forms 2009 For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). Tax forms 2009 Installment percentage. Tax forms 2009   Each quarterly installment must be 25% of the required annual payment. Tax forms 2009 Extended period for making contributions. Tax forms 2009   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. Tax forms 2009 Contributions A qualified plan is generally funded by your contributions. Tax forms 2009 However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. Tax forms 2009 See Employee Contributions and Elective Deferrals later. Tax forms 2009 Contributions deadline. Tax forms 2009   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. Tax forms 2009 Self-employed individual. Tax forms 2009   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. Tax forms 2009 Your net earnings must be from your personal services, not from your investments. Tax forms 2009 If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. Tax forms 2009 Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. Tax forms 2009 There are also limits on the amount you can deduct. Tax forms 2009 See Deduction Limits , later. Tax forms 2009 Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. Tax forms 2009 The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. Tax forms 2009 Defined benefit plan. Tax forms 2009   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. Tax forms 2009 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. Tax forms 2009 $205,000 ($210,000 for 2014). Tax forms 2009 Defined contribution plan. Tax forms 2009   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. Tax forms 2009 100% of the participant's compensation. Tax forms 2009 $51,000 ($52,000 for 2014). Tax forms 2009   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. Tax forms 2009 Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. Tax forms 2009 Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. Tax forms 2009 Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. Tax forms 2009 See Regulations sections 1. Tax forms 2009 401(k)-2 and 1. Tax forms 2009 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Tax forms 2009 When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. Tax forms 2009 But you can apply them to the previous year if all the following requirements are met. Tax forms 2009 You make them by the due date of your tax return for the previous year (plus extensions). Tax forms 2009 The plan was established by the end of the previous year. Tax forms 2009 The plan treats the contributions as though it had received them on the last day of the previous year. Tax forms 2009 You do either of the following. Tax forms 2009 You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. Tax forms 2009 You deduct the contributions on your tax return for the previous year. Tax forms 2009 A partnership shows contributions for partners on Form 1065. Tax forms 2009 Employer's promissory note. Tax forms 2009   Your promissory note made out to the plan is not a payment that qualifies for the deduction. Tax forms 2009 Also, issuing this note is a prohibited transaction subject to tax. Tax forms 2009 See Prohibited Transactions , later. Tax forms 2009 Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Tax forms 2009 The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Tax forms 2009 Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. Tax forms 2009 Defined contribution plans. Tax forms 2009   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. Tax forms 2009 If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. Tax forms 2009 See Deduction Limit for Self-Employed Individuals , later. Tax forms 2009   When figuring the deduction limit, the following rules apply. Tax forms 2009 Elective deferrals (discussed later) are not subject to the limit. Tax forms 2009 Compensation includes elective deferrals. Tax forms 2009 The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). Tax forms 2009 Defined benefit plans. Tax forms 2009   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. Tax forms 2009 Consequently, an actuary must figure your deduction limit. Tax forms 2009    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. Tax forms 2009 Table 4–1. Tax forms 2009 Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. Tax forms 2009 Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. Tax forms 2009 Compensation is your net earnings from self-employment, defined in chapter 1. Tax forms 2009 This definition takes into account both the following items. Tax forms 2009 The deduction for the deductible part of your self-employment tax. Tax forms 2009 The deduction for contributions on your behalf to the plan. Tax forms 2009 The deduction for your own contributions and your net earnings depend on each other. Tax forms 2009 For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. Tax forms 2009 To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. Tax forms 2009 Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. Tax forms 2009 Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Tax forms 2009 For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S. Tax forms 2009 Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Tax forms 2009 (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. Tax forms 2009 ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. Tax forms 2009 Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. Tax forms 2009 For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. Tax forms 2009 However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. Tax forms 2009 See Deduction Limit for Self-Employed Individuals, earlier. Tax forms 2009 The amount you carry over and deduct may be subject to the excise tax discussed next. Tax forms 2009 Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. Tax forms 2009 Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. Tax forms 2009 In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. Tax forms 2009 Special rule for self-employed individuals. Tax forms 2009   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. Tax forms 2009 Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. Tax forms 2009 See Minimum Funding Requirement , earlier. Tax forms 2009 Reporting the tax. Tax forms 2009   You must report the tax on your nondeductible contributions on Form 5330. Tax forms 2009 Form 5330 includes a computation of the tax. Tax forms 2009 See the separate instructions for completing the form. Tax forms 2009 Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. Tax forms 2009 A plan with this type of arrangement is popularly known as a “401(k) plan. Tax forms 2009 ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. Tax forms 2009 ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. Tax forms 2009 In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. Tax forms 2009 A profit-sharing plan. Tax forms 2009 A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. Tax forms 2009 Partnership. Tax forms 2009   A partnership can have a 401(k) plan. Tax forms 2009 Restriction on conditions of participation. Tax forms 2009   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. Tax forms 2009 Matching contributions. Tax forms 2009   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. Tax forms 2009 For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. Tax forms 2009 Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. Tax forms 2009 Nonelective contributions. Tax forms 2009   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. Tax forms 2009 These are called nonelective contributions. Tax forms 2009 Employee compensation limit. Tax forms 2009   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. Tax forms 2009 This limit is $260,000 in 2014. Tax forms 2009 SIMPLE 401(k) plan. Tax forms 2009   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. Tax forms 2009 A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. Tax forms 2009 For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. Tax forms 2009 Distributions. Tax forms 2009   Certain rules apply to distributions from 401(k) plans. Tax forms 2009 See Distributions From 401(k) Plans , later. Tax forms 2009 Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. Tax forms 2009 This limit applies without regard to community property laws. Tax forms 2009 Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. Tax forms 2009 For 2013 and 2014, the basic limit on elective deferrals is $17,500. Tax forms 2009 This limit applies to all salary reduction contributions and elective deferrals. Tax forms 2009 If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. Tax forms 2009 Catch-up contributions. Tax forms 2009   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Tax forms 2009 The catch-up contribution limit for 2013 and 2014 is $5,500. Tax forms 2009 Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). Tax forms 2009 However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Tax forms 2009 The catch-up contribution limit. Tax forms 2009 The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Tax forms 2009 Treatment of contributions. Tax forms 2009   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. Tax forms 2009 Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. Tax forms 2009 Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. Tax forms 2009 Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. Tax forms 2009 Forfeiture. Tax forms 2009   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. Tax forms 2009 Reporting on Form W-2. Tax forms 2009   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. Tax forms 2009 You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Tax forms 2009 You must also include them in box 12. Tax forms 2009 Mark the “Retirement plan” checkbox in box 13. Tax forms 2009 For more information, see the Form W-2 instructions. Tax forms 2009 Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. Tax forms 2009 Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. Tax forms 2009 These contributions are elective deferrals. Tax forms 2009 An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). Tax forms 2009 For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. Tax forms 2009 Eligible automatic contribution arrangement. Tax forms 2009   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. Tax forms 2009 This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). Tax forms 2009 There is no required deferral percentage. Tax forms 2009 Withdrawals. Tax forms 2009   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. Tax forms 2009 The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. Tax forms 2009 The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. Tax forms 2009   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. Tax forms 2009 The additional 10% tax on early distributions will not apply to the distribution. Tax forms 2009 Notice requirement. Tax forms 2009   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. Tax forms 2009 The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. Tax forms 2009 The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. Tax forms 2009 The notice also must explain how contributions will be invested in the absence of an investment election by the employee. Tax forms 2009 Qualified automatic contribution arrangement. Tax forms 2009    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. Tax forms 2009 It contains an automatic enrollment feature, and mandatory employer contributions are required. Tax forms 2009 If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). Tax forms 2009 Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. Tax forms 2009 Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. Tax forms 2009 In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). Tax forms 2009 If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. Tax forms 2009 It must be applied uniformly. Tax forms 2009 It must not exceed 10%. Tax forms 2009 It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. Tax forms 2009 It must increase to at least 4% in the following plan year. Tax forms 2009 It must increase to at least 5% in the following plan year. Tax forms 2009 It must increase to at least 6% in subsequent plan years. Tax forms 2009 Matching or nonelective contributions. Tax forms 2009   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. Tax forms 2009 Matching contributions. Tax forms 2009 You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. Tax forms 2009 An amount equal to 100% of elective deferrals, up to 1% of compensation. Tax forms 2009 An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. Tax forms 2009 Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. Tax forms 2009 The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Tax forms 2009 Nonelective contributions. Tax forms 2009 You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. Tax forms 2009 Vesting requirements. Tax forms 2009   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. Tax forms 2009 These contributions are subject to special withdrawal restrictions, discussed later. Tax forms 2009 Notice requirements. Tax forms 2009   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. Tax forms 2009 The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. Tax forms 2009 The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. Tax forms 2009 Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. Tax forms 2009 The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. Tax forms 2009 Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. Tax forms 2009 He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. Tax forms 2009 The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. Tax forms 2009 Excess withdrawn by April 15. Tax forms 2009   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. Tax forms 2009 However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. Tax forms 2009 The distribution is not subject to the additional 10% tax on early distributions. Tax forms 2009   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. Tax forms 2009   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. Tax forms 2009 Excess not withdrawn by April 15. Tax forms 2009   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. Tax forms 2009 In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. Tax forms 2009 Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. Tax forms 2009 Reporting corrective distributions on Form 1099-R. Tax forms 2009   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. Tax forms 2009 For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. Tax forms 2009 Tax on excess contributions of highly compensated employees. Tax forms 2009   The law provides tests to detect discrimination in a plan. Tax forms 2009 If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. Tax forms 2009 Report the tax on Form 5330. Tax forms 2009 The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. Tax forms 2009 Also, the ACP test does not apply to these plans if certain additional requirements are met. Tax forms 2009   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. Tax forms 2009 Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. Tax forms 2009   See Regulations sections 1. Tax forms 2009 401(k)-2 and 1. Tax forms 2009 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Tax forms 2009    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. Tax forms 2009 Safe harbor 401(k) plan. Tax forms 2009 If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. Tax forms 2009 For your plan to be a safe harbor plan, you must meet the following conditions. Tax forms 2009 Matching or nonelective contributions. Tax forms 2009 You must make matching or nonelective contributions according to one of the following formulas. Tax forms 2009 Matching contributions. Tax forms 2009 You must make matching contributions according to the following rules. Tax forms 2009 You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. Tax forms 2009 You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. Tax forms 2009 The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Tax forms 2009 Nonelective contributions. Tax forms 2009 You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. Tax forms 2009 These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. Tax forms 2009 Notice requirement. Tax forms 2009 You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. Tax forms 2009 The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. Tax forms 2009 Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. Tax forms 2009 Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. Tax forms 2009 However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. Tax forms 2009 Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. Tax forms 2009 Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. Tax forms 2009 Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. Tax forms 2009 An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. Tax forms 2009 The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. Tax forms 2009 Rollover. Tax forms 2009   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. Tax forms 2009 For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. Tax forms 2009 R. Tax forms 2009 B. Tax forms 2009 872, available at www. Tax forms 2009 irs. Tax forms 2009 gov/irb/2010-51_IRB/ar11. Tax forms 2009 html, and Notice 2013-74. Tax forms 2009 A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. Tax forms 2009 Rollover amounts do not apply toward the annual deferral limit. Tax forms 2009 Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. Tax forms 2009 See the Form W-2 and 1099-R instructions for detailed information. Tax forms 2009 Distributions Amounts paid to plan participants from a qualified plan are called distributions. Tax forms 2009 Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. Tax forms 2009 Also, certain loans may be treated as distributions. Tax forms 2009 See Loans Treated as Distributions in Publication 575. Tax forms 2009 Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). Tax forms 2009 These distribution rules apply individually to each qualified plan. Tax forms 2009 You cannot satisfy the requirement for one plan by taking a distribution from another. Tax forms 2009 The plan must provide that these rules override any inconsistent distribution options previously offered. Tax forms 2009 Minimum distribution. Tax forms 2009   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. Tax forms 2009 This minimum is figured by dividing the account balance by the applicable life expectancy. Tax forms 2009 The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. Tax forms 2009 For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. Tax forms 2009 Required beginning date. Tax forms 2009   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. Tax forms 2009   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. Tax forms 2009 Calendar year in which he or she reaches age 70½. Tax forms 2009 Calendar year in which he or she retires from employment with the employer maintaining the plan. Tax forms 2009 However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. Tax forms 2009   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. Tax forms 2009 For more information, see Tax on Excess Accumulation in Publication 575. Tax forms 2009 Distributions after the starting year. Tax forms 2009   The distribution required to be made by April 1 is treated as a distribution for the starting year. Tax forms 2009 (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. Tax forms 2009 ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. Tax forms 2009 If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). Tax forms 2009 Distributions after participant's death. Tax forms 2009   See Publication 575 for the special rules covering distributions made after the death of a participant. Tax forms 2009 Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. Tax forms 2009 The employee retires, dies, becomes disabled, or otherwise severs employment. Tax forms 2009 The plan ends and no other defined contribution plan is established or continued. Tax forms 2009 In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. Tax forms 2009 For the rules on hardship distributions, including the limits on them, see Regulations section 1. Tax forms 2009 401(k)-1(d). Tax forms 2009 The employee becomes eligible for a qualified reservist distribution (defined next). Tax forms 2009 Certain distributions listed above may be subject to the tax on early distributions discussed later. Tax forms 2009 Qualified reservist distributions. Tax forms 2009   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. Tax forms 2009 All or part of a qualified reservist distribution can be recontributed to an IRA. Tax forms 2009 The additional 10% tax on early distributions does not apply to a qualified reservist distribution. Tax forms 2009 Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. Tax forms 2009 Since most recipients have no cost basis, a distribution is generally fully taxable. Tax forms 2009 An exception is a distribution that is properly rolled over as discussed under Rollover, next. Tax forms 2009 The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. Tax forms 2009 See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. Tax forms 2009 Note. Tax forms 2009 A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. Tax forms 2009 Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. Tax forms 2009 See Qualified distributions under Qualified Roth Contribution Program, earlier. Tax forms 2009 Rollover. Tax forms 2009   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. Tax forms 2009 However, it may be subject to withholding as discussed under Withholding requirement, later. Tax forms 2009 A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. Tax forms 2009 Eligible rollover distribution. Tax forms 2009   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. Tax forms 2009 A required minimum distribution. Tax forms 2009 See Required Distributions , earlier. Tax forms 2009 Any of a series of substantially equal payments made at least once a year over any of the following periods. Tax forms 2009 The employee's life or life expectancy. Tax forms 2009 The joint lives or life expectancies of the employee and beneficiary. Tax forms 2009 A period of 10 years or longer. Tax forms 2009 A hardship distribution. Tax forms 2009 The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. Tax forms 2009 See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. Tax forms 2009 Loans treated as distributions. Tax forms 2009 Dividends on employer securities. Tax forms 2009 The cost of any life insurance coverage provided under a qualified retirement plan. Tax forms 2009 Similar items designated by the IRS in published guidance. Tax forms 2009 See, for example, the Instructions for Forms 1099-R and 5498. Tax forms 2009 Rollover of nontaxable amounts. Tax forms 2009   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. Tax forms 2009 If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. Tax forms 2009 If the rollover is to an IRA, the transfer can be made by any rollover method. Tax forms 2009 Note. Tax forms 2009 A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. Tax forms 2009 If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). Tax forms 2009 More information. Tax forms 2009   For more information about rollovers, see Rollovers in Pubs. Tax forms 2009 575 and 590. Tax forms 2009 Withholding requirement. Tax forms 2009   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. Tax forms 2009 Exceptions. Tax forms 2009   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. Tax forms 2009   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. Tax forms 2009 Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). Tax forms 2009 However, the participant can choose not to have tax withheld from these distributions. Tax forms 2009 If the participant does not make this choice, the following withholding rules apply. Tax forms 2009 For periodic distributions, withholding is based on their treatment as wages. Tax forms 2009 For nonperiodic distributions, 10% of the taxable part is withheld. Tax forms 2009 Estimated tax payments. Tax forms 2009   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. Tax forms 2009 For more information, see Withholding Tax and Estimated Tax in Publication 575. Tax forms 2009 Section 402(f) Notice. Tax forms 2009   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. Tax forms 2009 That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. Tax forms 2009 That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. Tax forms 2009 That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. Tax forms 2009 Certain other rules that may be applicable. Tax forms 2009   Notice 2009-68, 2009-39 I. Tax forms 2009 R. Tax forms 2009 B. Tax forms 2009 423, available at www. Tax forms 2009 irs. Tax forms 2009 gov/irb/2009-39_IRB/ar14. Tax forms 2009 html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. Tax forms 2009 If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. Tax forms 2009 Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. Tax forms 2009 Timing of notice. Tax forms 2009   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. Tax forms 2009 Method of notice. Tax forms 2009   The written notice must be provided individually to each distributee of an eligible rollover distribution. Tax forms 2009 Posting of the notice is not sufficient. Tax forms 2009 However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. Tax forms 2009 See Regulations section 1. Tax forms 2009 401(a)-21. Tax forms 2009 Tax on failure to give notice. Tax forms 2009   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. Tax forms 2009 The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. Tax forms 2009 Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. Tax forms 2009 This tax applies to the amount received that the employee must include in income. Tax forms 2009 Exceptions. Tax forms 2009   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. Tax forms 2009 Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. Tax forms 2009 Made due to the employee having a qualifying disability. Tax forms 2009 Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. Tax forms 2009 (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. Tax forms 2009 ) Made to an employee after separation from service if the separation occurred during o
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The Tax Forms 2009

Tax forms 2009 1. Tax forms 2009   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. Tax forms 2009 Amount realized on a recourse debt. Tax forms 2009 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. Tax forms 2009 S. Tax forms 2009 Individual Income Tax Return 1040X Amended U. Tax forms 2009 S. Tax forms 2009 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. Tax forms 2009 However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Tax forms 2009 See chapter 5 for information about getting publications and forms. Tax forms 2009 Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Tax forms 2009 An exchange is a transfer of property for other property or services. Tax forms 2009 The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. Tax forms 2009 Sale or lease. Tax forms 2009    Some agreements that seem to be leases may really be conditional sales contracts. Tax forms 2009 The intention of the parties to the agreement can help you distinguish between a sale and a lease. Tax forms 2009   There is no test or group of tests to prove what the parties intended when they made the agreement. Tax forms 2009 You should consider each agreement based on its own facts and circumstances. Tax forms 2009 For more information, see chapter 3 in Publication 535, Business Expenses. Tax forms 2009 Cancellation of a lease. Tax forms 2009    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. Tax forms 2009 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. Tax forms 2009 Copyright. Tax forms 2009    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. Tax forms 2009 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. Tax forms 2009 Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. Tax forms 2009   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. Tax forms 2009 For more information, see Section 1231 Gains and Losses in chapter 3. Tax forms 2009 Easement. Tax forms 2009   The amount received for granting an easement is subtracted from the basis of the property. Tax forms 2009 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. Tax forms 2009 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. Tax forms 2009   Any amount received that is more than the basis to be reduced is a taxable gain. Tax forms 2009 The transaction is reported as a sale of property. Tax forms 2009   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. Tax forms 2009 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. Tax forms 2009   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. Tax forms 2009 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. Tax forms 2009 See Gain or Loss From Condemnations, later. Tax forms 2009 Property transferred to satisfy debt. Tax forms 2009   A transfer of property to satisfy a debt is an exchange. Tax forms 2009 Note's maturity date extended. Tax forms 2009   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. Tax forms 2009 Also, it is not considered a closed and completed transaction that would result in a gain or loss. Tax forms 2009 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. Tax forms 2009 Each case must be determined by its own facts. Tax forms 2009 For more information, see Regulations section 1. Tax forms 2009 1001-3. Tax forms 2009 Transfer on death. Tax forms 2009   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. Tax forms 2009 No taxable gain or deductible loss results from the transfer. Tax forms 2009 Bankruptcy. Tax forms 2009   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. Tax forms 2009 Consequently, the transfer generally does not result in gain or loss. Tax forms 2009 For more information, see Publication 908, Bankruptcy Tax Guide. Tax forms 2009 Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. Tax forms 2009 A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. Tax forms 2009 A loss is the adjusted basis of the property that is more than the amount you realize. Tax forms 2009   Table 1-1. Tax forms 2009 How To Figure Whether You Have a Gain or Loss IF your. Tax forms 2009 . Tax forms 2009 . Tax forms 2009 THEN you have a. Tax forms 2009 . Tax forms 2009 . Tax forms 2009 Adjusted basis is more than the amount realized, Loss. Tax forms 2009 Amount realized is more than the adjusted basis, Gain. Tax forms 2009 Basis. Tax forms 2009   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. Tax forms 2009 The basis of property you buy is usually its cost. Tax forms 2009 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. Tax forms 2009 See Basis Other Than Cost in Publication 551, Basis of Assets. Tax forms 2009 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. Tax forms 2009 See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Tax forms 2009 Adjusted basis. Tax forms 2009   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. Tax forms 2009 Increases include costs of any improvements having a useful life of more than 1 year. Tax forms 2009 Decreases include depreciation and casualty losses. Tax forms 2009 For more details and additional examples, see Adjusted Basis in Publication 551. Tax forms 2009 Amount realized. Tax forms 2009   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. Tax forms 2009 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. Tax forms 2009 Fair market value. Tax forms 2009   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. Tax forms 2009 If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. Tax forms 2009 If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. Tax forms 2009 Example. Tax forms 2009 You used a building in your business that cost you $70,000. Tax forms 2009 You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. Tax forms 2009 You sold the building for $100,000 plus property having an FMV of $20,000. Tax forms 2009 The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. Tax forms 2009 The selling expenses were $4,000. Tax forms 2009 Your gain on the sale is figured as follows. Tax forms 2009 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. Tax forms 2009   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. Tax forms 2009 Recognized gains must be included in gross income. Tax forms 2009 Recognized losses are deductible from gross income. Tax forms 2009 However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. Tax forms 2009 See Nontaxable Exchanges, later. Tax forms 2009 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. Tax forms 2009 Interest in property. Tax forms 2009   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. Tax forms 2009 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. Tax forms 2009 Your basis in the property is disregarded. Tax forms 2009 This rule does not apply if all interests in the property are disposed of at the same time. Tax forms 2009 Example 1. Tax forms 2009 Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. Tax forms 2009 You decide to sell your life interest in the farm. Tax forms 2009 The entire amount you receive is a recognized gain. Tax forms 2009 Your basis in the farm is disregarded. Tax forms 2009 Example 2. Tax forms 2009 The facts are the same as in Example 1, except that your brother joins you in selling the farm. Tax forms 2009 The entire interest in the property is sold, so your basis in the farm is not disregarded. Tax forms 2009 Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. Tax forms 2009 Canceling a sale of real property. Tax forms 2009   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. Tax forms 2009 If the buyer returns the property in the year of sale, no gain or loss is recognized. Tax forms 2009 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. Tax forms 2009 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. Tax forms 2009 When the property is returned in a later year, you acquire a new basis in the property. Tax forms 2009 That basis is equal to the amount you pay to the buyer. Tax forms 2009 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. Tax forms 2009 You have a gain if the amount realized is more than your adjusted basis in the property. Tax forms 2009 However, you do not have a loss if the amount realized is less than the adjusted basis of the property. Tax forms 2009 Bargain sales to charity. Tax forms 2009   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. Tax forms 2009 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. Tax forms 2009 The adjusted basis of the part sold is figured as follows. Tax forms 2009 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. Tax forms 2009 This allocation rule does not apply if a charitable contribution deduction is not allowable. Tax forms 2009   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. Tax forms 2009 Example. Tax forms 2009 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. Tax forms 2009 Your adjusted basis in the property is $4,000. Tax forms 2009 Your gain on the sale is $1,200, figured as follows. Tax forms 2009 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. Tax forms 2009 You must subtract depreciation you took or could have taken from the basis of the business or rental part. Tax forms 2009 However, see the special rule below for a home used partly for business or rental. Tax forms 2009 You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. Tax forms 2009 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. Tax forms 2009 Any gain on the personal part of the property is a capital gain. Tax forms 2009 You cannot deduct a loss on the personal part. Tax forms 2009 Home used partly for business or rental. Tax forms 2009    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. Tax forms 2009 See Property Used Partly for Business or Rental, in Publication 523. Tax forms 2009 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. Tax forms 2009 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. Tax forms 2009 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. Tax forms 2009 Figure the loss you can deduct as follows. Tax forms 2009 Use the lesser of the property's adjusted basis or fair market value at the time of the change. Tax forms 2009 Add to (1) the cost of any improvements and other increases to basis since the change. Tax forms 2009 Subtract from (2) depreciation and any other decreases to basis since the change. Tax forms 2009 Subtract the amount you realized on the sale from the result in (3). Tax forms 2009 If the amount you realized is more than the result in (3), treat this result as zero. Tax forms 2009 The result in (4) is the loss you can deduct. Tax forms 2009 Example. Tax forms 2009 You changed your main home to rental property 5 years ago. Tax forms 2009 At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. Tax forms 2009 This year, you sold the property for $55,000. Tax forms 2009 You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. Tax forms 2009 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. Tax forms 2009 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. Tax forms 2009   If you have a gain on the sale, you generally must recognize the full amount of the gain. Tax forms 2009 You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. Tax forms 2009   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. Tax forms 2009 However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. Tax forms 2009   For more information, see Business Use or Rental of Home in Publication 523. Tax forms 2009 In addition, special rules apply if the home sold was acquired in a like-kind exchange. Tax forms 2009 See Special Situations in Publication 523. Tax forms 2009 Also see Like-Kind Exchanges, later. Tax forms 2009 Abandonments The abandonment of property is a disposition of property. Tax forms 2009 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. Tax forms 2009 Generally, abandonment is not treated as a sale or exchange of the property. Tax forms 2009 If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Tax forms 2009 If your adjusted basis is more than the amount you realize (if any), then you have a loss. Tax forms 2009 Loss from abandonment of business or investment property is deductible as a loss. Tax forms 2009 A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Tax forms 2009 This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. Tax forms 2009 If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. Tax forms 2009 The abandonment loss is deducted in the tax year in which the loss is sustained. Tax forms 2009 If the abandoned property is secured by debt, special rules apply. Tax forms 2009 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). Tax forms 2009 For more information, including examples, see chapter 3 of Publication 4681. Tax forms 2009 You cannot deduct any loss from abandonment of your home or other property held for personal use only. Tax forms 2009 Cancellation of debt. Tax forms 2009   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. Tax forms 2009 This income is separate from any loss realized from abandonment of the property. Tax forms 2009   You must report this income on your tax return unless one of the following applies. Tax forms 2009 The cancellation is intended as a gift. Tax forms 2009 The debt is qualified farm debt. Tax forms 2009 The debt is qualified real property business debt. Tax forms 2009 You are insolvent or bankrupt. Tax forms 2009 The debt is qualified principal residence indebtedness. Tax forms 2009 File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. Tax forms 2009 For more information, including other exceptions and exclusion, see Publication 4681. Tax forms 2009 Forms 1099-A and 1099-C. Tax forms 2009   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. Tax forms 2009 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. Tax forms 2009 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. Tax forms 2009 For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Tax forms 2009 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. Tax forms 2009 The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Tax forms 2009 This is true even if you voluntarily return the property to the lender. Tax forms 2009 You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. Tax forms 2009 Buyer's (borrower's) gain or loss. Tax forms 2009   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. Tax forms 2009 The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Tax forms 2009 See Gain or Loss From Sales and Exchanges, earlier. Tax forms 2009 You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. Tax forms 2009 Amount realized on a nonrecourse debt. Tax forms 2009   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. Tax forms 2009 The full canceled debt is included even if the fair market value of the property is less than the canceled debt. Tax forms 2009 Example 1. Tax forms 2009 Chris bought a new car for $15,000. Tax forms 2009 He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. Tax forms 2009 Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. Tax forms 2009 The credit company repossessed the car because he stopped making loan payments. Tax forms 2009 The balance due after taking into account the payments Chris made was $10,000. Tax forms 2009 The fair market value of the car when repossessed was $9,000. Tax forms 2009 The amount Chris realized on the repossession is $10,000. Tax forms 2009 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. Tax forms 2009 Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). Tax forms 2009 He has a $5,000 nondeductible loss. Tax forms 2009 Example 2. Tax forms 2009 Abena paid $200,000 for her home. Tax forms 2009 She paid $15,000 down and borrowed the remaining $185,000 from a bank. Tax forms 2009 Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. Tax forms 2009 The bank foreclosed on the loan because Abena stopped making payments. Tax forms 2009 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. Tax forms 2009 The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. Tax forms 2009 She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). Tax forms 2009 She has a $5,000 realized gain. Tax forms 2009 Amount realized on a recourse debt. Tax forms 2009   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. Tax forms 2009 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. Tax forms 2009 The amount realized does not include the canceled debt that is your income from cancellation of debt. Tax forms 2009 See Cancellation of debt, below. Tax forms 2009 Seller's (lender's) gain or loss on repossession. Tax forms 2009   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. Tax forms 2009 For more information, see Repossession in Publication 537. Tax forms 2009    Table 1-2. Tax forms 2009 Worksheet for Foreclosures and Repossessions Part 1. Tax forms 2009 Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Tax forms 2009 Complete this part only  if you were personally liable for the debt. Tax forms 2009 Otherwise,  go to Part 2. Tax forms 2009   1. Tax forms 2009 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. Tax forms 2009 Enter the fair market value of the transferred property   3. Tax forms 2009 Ordinary income from cancellation of debt upon foreclosure or    repossession. Tax forms 2009 * Subtract line 2 from line 1. Tax forms 2009   If less than zero, enter zero   Part 2. Tax forms 2009 Figure your gain or loss from foreclosure or repossession. Tax forms 2009   4. Tax forms 2009 If you completed Part 1, enter the smaller of line 1 or line 2. Tax forms 2009   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. Tax forms 2009 Enter any proceeds you received from the foreclosure sale   6. Tax forms 2009 Add lines 4 and 5   7. Tax forms 2009 Enter the adjusted basis of the transferred property   8. Tax forms 2009 Gain or loss from foreclosure or repossession. Tax forms 2009 Subtract line 7  from line 6   * The income may not be taxable. Tax forms 2009 See Cancellation of debt. Tax forms 2009 Cancellation of debt. Tax forms 2009   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. Tax forms 2009 This income is separate from any gain or loss realized from the foreclosure or repossession. Tax forms 2009 Report the income from cancellation of a debt related to a business or rental activity as business or rental income. Tax forms 2009    You can use Table 1-2 to figure your income from cancellation of debt. Tax forms 2009   You must report this income on your tax return unless one of the following applies. Tax forms 2009 The cancellation is intended as a gift. Tax forms 2009 The debt is qualified farm debt. Tax forms 2009 The debt is qualified real property business debt. Tax forms 2009 You are insolvent or bankrupt. Tax forms 2009 The debt is qualified principal residence indebtedness. Tax forms 2009 File Form 982 to report the income exclusion. Tax forms 2009 Example 1. Tax forms 2009 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). Tax forms 2009 In this case, the amount he realizes is $9,000. Tax forms 2009 This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). Tax forms 2009 Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). Tax forms 2009 He has a $6,000 nondeductible loss. Tax forms 2009 He also is treated as receiving ordinary income from cancellation of debt. Tax forms 2009 That income is $1,000 ($10,000 − $9,000). Tax forms 2009 This is the part of the canceled debt not included in the amount realized. Tax forms 2009 Example 2. Tax forms 2009 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). Tax forms 2009 In this case, the amount she realizes is $170,000. Tax forms 2009 This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). Tax forms 2009 Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). Tax forms 2009 She has a $5,000 nondeductible loss. Tax forms 2009 She also is treated as receiving ordinary income from cancellation of debt. Tax forms 2009 (The debt is not exempt from tax as discussed under Cancellation of debt, above. Tax forms 2009 ) That income is $10,000 ($180,000 − $170,000). Tax forms 2009 This is the part of the canceled debt not included in the amount realized. Tax forms 2009 Forms 1099-A and 1099-C. Tax forms 2009   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. Tax forms 2009 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. Tax forms 2009 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. Tax forms 2009 For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Tax forms 2009 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. Tax forms 2009 Involuntary conversions are also called involuntary exchanges. Tax forms 2009 Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. Tax forms 2009 You report the gain or deduct the loss on your tax return for the year you realize it. Tax forms 2009 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. Tax forms 2009 However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. Tax forms 2009 Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. Tax forms 2009 Your basis for the new property is the same as your basis for the converted property. Tax forms 2009 This means that the gain is deferred until a taxable sale or exchange occurs. Tax forms 2009 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. Tax forms 2009 This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. Tax forms 2009 If you have a gain or loss from the destruction or theft of property, see Publication 547. Tax forms 2009 Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. Tax forms 2009 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. Tax forms 2009 The owner receives a condemnation award (money or property) in exchange for the property taken. Tax forms 2009 A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. Tax forms 2009 Example. Tax forms 2009 A local government authorized to acquire land for public parks informed you that it wished to acquire your property. Tax forms 2009 After the local government took action to condemn your property, you went to court to keep it. Tax forms 2009 But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. Tax forms 2009 This is a condemnation of private property for public use. Tax forms 2009 Threat of condemnation. Tax forms 2009   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. Tax forms 2009 You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. Tax forms 2009   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. Tax forms 2009 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. Tax forms 2009 Reports of condemnation. Tax forms 2009   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. Tax forms 2009 You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. Tax forms 2009 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. Tax forms 2009 Example. Tax forms 2009 Your property lies along public utility lines. Tax forms 2009 The utility company has the authority to condemn your property. Tax forms 2009 The company informs you that it intends to acquire your property by negotiation or condemnation. Tax forms 2009 A threat of condemnation exists when you receive the notice. Tax forms 2009 Related property voluntarily sold. Tax forms 2009   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. Tax forms 2009 A substantial economic relationship exists if together the properties were one economic unit. Tax forms 2009 You also must show that the condemned property could not reasonably or adequately be replaced. Tax forms 2009 You can elect to postpone reporting the gain by buying replacement property. Tax forms 2009 See Postponement of Gain, later. Tax forms 2009 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. Tax forms 2009 If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. Tax forms 2009 You can postpone reporting gain from a condemnation if you buy replacement property. Tax forms 2009 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. Tax forms 2009 See Postponement of Gain, later. Tax forms 2009 If your net condemnation award is less than your adjusted basis, you have a loss. Tax forms 2009 If your loss is from property you held for personal use, you cannot deduct it. Tax forms 2009 You must report any deductible loss in the tax year it happened. Tax forms 2009 You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. Tax forms 2009 Main home condemned. Tax forms 2009   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. Tax forms 2009 You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). Tax forms 2009 For information on this exclusion, see Publication 523. Tax forms 2009 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. Tax forms 2009 See Postponement of Gain, later. Tax forms 2009 Table 1-3. Tax forms 2009 Worksheet for Condemnations Part 1. Tax forms 2009 Gain from severance damages. Tax forms 2009  If you did not receive severance damages, skip Part 1 and go to Part 2. Tax forms 2009   1. Tax forms 2009 Enter gross severance damages received   2. Tax forms 2009 Enter your expenses in getting severance damages   3. Tax forms 2009 Subtract line 2 from line 1. Tax forms 2009 If less than zero, enter -0-   4. Tax forms 2009 Enter any special assessment on remaining property taken out of your award   5. Tax forms 2009 Net severance damages. Tax forms 2009 Subtract line 4 from line 3. Tax forms 2009 If less than zero, enter -0-   6. Tax forms 2009 Enter the adjusted basis of the remaining property   7. Tax forms 2009 Gain from severance damages. Tax forms 2009 Subtract line 6 from line 5. Tax forms 2009 If less than zero, enter -0-   8. Tax forms 2009 Refigured adjusted basis of the remaining property. Tax forms 2009 Subtract line 5 from line 6. Tax forms 2009 If less than zero, enter -0-   Part 2. Tax forms 2009 Gain or loss from condemnation award. Tax forms 2009   9. Tax forms 2009 Enter the gross condemnation award received   10. Tax forms 2009 Enter your expenses in getting the condemnation award   11. Tax forms 2009 If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. Tax forms 2009 If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. Tax forms 2009 Otherwise, enter -0-   12. Tax forms 2009 Add lines 10 and 11   13. Tax forms 2009 Net condemnation award. Tax forms 2009 Subtract line 12 from line 9   14. Tax forms 2009 Enter the adjusted basis of the condemned property   15. Tax forms 2009 Gain from condemnation award. Tax forms 2009 If line 14 is more than line 13, enter -0-. Tax forms 2009 Otherwise, subtract line 14 from  line 13 and skip line 16   16. Tax forms 2009 Loss from condemnation award. Tax forms 2009 Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. Tax forms 2009 )   Part 3. Tax forms 2009 Postponed gain from condemnation. Tax forms 2009  (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. Tax forms 2009 )   17. Tax forms 2009 If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. Tax forms 2009 Otherwise, enter -0-   18. Tax forms 2009 If line 15 is more than zero, enter the amount from line 13. Tax forms 2009 Otherwise, enter -0-   19. Tax forms 2009 Add lines 17 and 18. Tax forms 2009 If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. Tax forms 2009 Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. Tax forms 2009 Subtract line 20 from line 19. Tax forms 2009 If less than zero, enter -0-   22. Tax forms 2009 If you completed Part 1, add lines 7 and 15. Tax forms 2009 Otherwise, enter the amount from line 15. Tax forms 2009 If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. Tax forms 2009 Recognized gain. Tax forms 2009 Enter the smaller of line 21 or line 22. Tax forms 2009   24. Tax forms 2009 Postponed gain. Tax forms 2009 Subtract line 23 from line 22. Tax forms 2009 If less than zero, enter -0-   Condemnation award. Tax forms 2009   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. Tax forms 2009 The award is also the amount you are paid for the sale of your property under threat of condemnation. Tax forms 2009 Payment of your debts. Tax forms 2009   Amounts taken out of the award to pay your debts are considered paid to you. Tax forms 2009 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. Tax forms 2009 Example. Tax forms 2009 The state condemned your property for public use. Tax forms 2009 The award was set at $200,000. Tax forms 2009 The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. Tax forms 2009 You are considered to have received the entire $200,000 as a condemnation award. Tax forms 2009 Interest on award. Tax forms 2009   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. Tax forms 2009 You must report the interest separately as ordinary income. Tax forms 2009 Payments to relocate. Tax forms 2009   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. Tax forms 2009 Do not include them in your income. Tax forms 2009 Replacement housing payments used to buy new property are included in the property's basis as part of your cost. Tax forms 2009 Net condemnation award. Tax forms 2009   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. Tax forms 2009 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. Tax forms 2009 This is discussed later under Special assessment taken out of award. Tax forms 2009 Severance damages. Tax forms 2009    Severance damages are not part of the award paid for the property condemned. Tax forms 2009 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. Tax forms 2009   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. Tax forms 2009 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. Tax forms 2009   The contracting parties should agree on the specific amount of severance damages in writing. Tax forms 2009 If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. Tax forms 2009   You cannot make a completely new allocation of the total award after the transaction is completed. Tax forms 2009 However, you can show how much of the award both parties intended for severance damages. Tax forms 2009 The severance damages part of the award is determined from all the facts and circumstances. Tax forms 2009 Example. Tax forms 2009 You sold part of your property to the state under threat of condemnation. Tax forms 2009 The contract you and the condemning authority signed showed only the total purchase price. Tax forms 2009 It did not specify a fixed sum for severance damages. Tax forms 2009 However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. Tax forms 2009 You may treat this part as severance damages. Tax forms 2009 Treatment of severance damages. Tax forms 2009   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. Tax forms 2009 Use them to reduce the basis of the remaining property. Tax forms 2009 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. Tax forms 2009   If your net severance damages are more than the basis of your retained property, you have a gain. Tax forms 2009 You may be able to postpone reporting the gain. Tax forms 2009 See Postponement of Gain, later. Tax forms 2009    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. Tax forms 2009 Net severance damages. Tax forms 2009   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. Tax forms 2009 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. Tax forms 2009 The balance is your net severance damages. Tax forms 2009 Expenses of obtaining a condemnation award and severance damages. Tax forms 2009   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. Tax forms 2009 Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. Tax forms 2009 If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. Tax forms 2009 Example. Tax forms 2009 You receive a condemnation award and severance damages. Tax forms 2009 One-fourth of the total was designated as severance damages in your agreement with the condemning authority. Tax forms 2009 You had legal expenses for the entire condemnation proceeding. Tax forms 2009 You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. Tax forms 2009 You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. Tax forms 2009 Special assessment retained out of award. Tax forms 2009   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. Tax forms 2009 An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. Tax forms 2009 Examples of improvements that may cause a special assessment are widening a street and installing a sewer. Tax forms 2009   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. Tax forms 2009 Example. Tax forms 2009 To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. Tax forms 2009 You were awarded $5,000 for this and spent $300 to get the award. Tax forms 2009 Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. Tax forms 2009 The city then paid you only $4,300. Tax forms 2009 Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). Tax forms 2009 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). Tax forms 2009 The net award would not change, even if you later paid the assessment from the amount you received. Tax forms 2009 Severance damages received. Tax forms 2009   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. Tax forms 2009 Any balance of the special assessment is used to reduce the condemnation award. Tax forms 2009 Example. Tax forms 2009 You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. Tax forms 2009 You spent $300 to obtain the severance damages. Tax forms 2009 A special assessment of $800 was retained out of the award. Tax forms 2009 The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. Tax forms 2009 Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. Tax forms 2009 Part business or rental. Tax forms 2009   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. Tax forms 2009 Figure your gain or loss separately because gain or loss on each part may be treated differently. Tax forms 2009   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. Tax forms 2009 Example. Tax forms 2009 You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. Tax forms 2009 You rented half the building and lived in the other half. Tax forms 2009 You paid $25,000 for the building and spent an additional $1,000 for a new roof. Tax forms 2009 You claimed allowable depreciation of $4,600 on the rental half. Tax forms 2009 You spent $200 in legal expenses to obtain the condemnation award. Tax forms 2009 Figure your gain or loss as follows. Tax forms 2009     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. Tax forms 2009 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. Tax forms 2009 Your basis for the new property is the same as your basis for the old. Tax forms 2009 Money or unlike property received. Tax forms 2009   You ordinarily must report the gain if you receive money or unlike property. Tax forms 2009 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. Tax forms 2009 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. Tax forms 2009 See Controlling interest in a corporation, later. Tax forms 2009   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. Tax forms 2009 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. Tax forms 2009   The basis of the replacement property is its cost, reduced by the postponed gain. Tax forms 2009 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. Tax forms 2009 See Controlling interest in a corporation, later. Tax forms 2009 You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. Tax forms 2009 Postponing gain on severance damages. Tax forms 2009   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. Tax forms 2009 See Treatment of severance damages, earlier. Tax forms 2009 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). Tax forms 2009   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. Tax forms 2009 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. Tax forms 2009   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. Tax forms 2009 Postponing gain on the sale of related property. Tax forms 2009   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. Tax forms 2009 You must meet the requirements explained earlier under Related property voluntarily sold. Tax forms 2009 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). Tax forms 2009 Buying replacement property from a related person. Tax forms 2009   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. Tax forms 2009 For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. Tax forms 2009   This rule applies to the following taxpayers. Tax forms 2009 C corporations. Tax forms 2009 Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. Tax forms 2009 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. Tax forms 2009   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. Tax forms 2009 If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Tax forms 2009 If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Tax forms 2009 Exception. Tax forms 2009   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. Tax forms 2009 Advance payment. Tax forms 2009   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). Tax forms 2009 Replacement property. Tax forms 2009   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. Tax forms 2009 You do not have to use the actual funds from the condemnation award to acquire the replacement property. Tax forms 2009 Property you acquire by gift or inheritance does not qualify as replacement property. Tax forms 2009 Similar or related in service or use. Tax forms 2009   Your replacement property must be similar or related in service or use to the property it replaces. Tax forms 2009   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. Tax forms 2009 For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. Tax forms 2009 Owner-user. Tax forms 2009   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. Tax forms 2009 Example. Tax forms 2009 Your home was condemned and you invested the proceeds from the condemnation in a grocery store. Tax forms 2009 Your replacement property is not similar or related in service or use to the condemned property. Tax forms 2009 To be similar or related in service or use, your replacement property must also be used by you as your home. Tax forms 2009 Owner-investor. Tax forms 2009   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. Tax forms 2009 You decide this by determining all the following information. Tax forms 2009 Whether the properties are of similar service to you. Tax forms 2009 The nature of the business risks connected with the properties. Tax forms 2009 What the properties demand of you in the way of management, service, and relations to your tenants. Tax forms 2009 Example. Tax forms 2009 You owned land and a building you rented to a manufacturing company. Tax forms 2009 The building was condemned. Tax forms 2009 During the replacement period, you had a new building built on other land you already owned. Tax forms 2009 You rented out the new building for use as a wholesale grocery warehouse. Tax forms 2009 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. Tax forms 2009 Your management activities. Tax forms 2009 The amount and kind of services you provide to your tenants. Tax forms 2009 The nature of your business risks connected with the properties. Tax forms 2009 Leasehold replaced with fee simple property. Tax forms 2009   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. Tax forms 2009   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. Tax forms 2009 A leasehold is property held under a lease, usually for a term of years. Tax forms 2009 Outdoor advertising display replaced with real property. Tax forms 2009   You can elect to treat an outdoor advertising display as real property. Tax forms 2009 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. Tax forms 2009 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. Tax forms 2009   You can make this election only if you did not claim a section 179 deduction for the display. Tax forms 2009 You cannot cancel this election unless you get the consent of the IRS. Tax forms 2009   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. Tax forms 2009 Substituting replacement property. Tax forms 2009   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. Tax forms 2009 But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. Tax forms 2009 Controlling interest in a corporation. Tax forms 2009   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. Tax forms 2009 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. Tax forms 2009 Basis adjustment to corporation's property. Tax forms 2009   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. Tax forms 2009 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). Tax forms 2009   Allocate this reduction to the following classes of property in the order shown below. Tax forms 2009 Property that is similar or related in service or use to the condemned property. Tax forms 2009 Depreciable property not reduced in (1). Tax forms 2009 All other property. Tax forms 2009 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. Tax forms 2009 The reduced basis of any single property cannot be less than zero. Tax forms 2009 Main home replaced. Tax forms 2009   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. Tax forms 2009 The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. Tax forms 2009   You must reduce the basis of your replacement property by the postponed gain. Tax forms 2009 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. Tax forms 2009 Example. Tax forms 2009 City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. Tax forms 2009 The city paid you a condemnation award of $400,000. Tax forms 2009 Your adjusted basis in the property was $80,000. Tax forms 2009 You realize a gain of $320,000 ($400,000 − $80,000). Tax forms 2009 You purchased a new home for $100,000. Tax forms 2009 You can exclude $250,000 of the realized gain from your gross income. Tax forms 2009 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). Tax forms 2009 You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). Tax forms 2009 The remaining $20,000 of realized gain is postponed. Tax forms 2009 Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). Tax forms 2009 Replacement period. Tax forms 2009   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. Tax forms 2009 This is the replacement period. Tax forms 2009   The replacement period for a condemnation begins on the earlier of the following dates. Tax forms 2009 The date on which you disposed of the condemned property. Tax forms 2009 The date on which the threat of condemnation began. Tax forms 2009   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. Tax forms 2009 However, see the exceptions below. Tax forms 2009 Three-year replacement period for certain property. Tax forms 2009   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. Tax forms 2009 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. Tax forms 2009 Five-year replacement period for certain property. Tax forms 2009   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. Tax forms 2009 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. Tax forms 2009 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. Tax forms 2009 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. Tax forms 2009 Extended replacement period for taxpayers affected by other federally declared disasters. Tax forms 2009    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. Tax forms 2009 For more information visit www. Tax forms 2009 irs. Tax forms 2009 gov/uac/Tax-Relief-in-Disaster-Situations. Tax forms 2009 Weather-related sales of livestock in an area eligible for federal assistance. Tax forms 2009   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. Tax forms 2009    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. Tax forms 2009 See Notice 2006-82. Tax forms 2009 You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. Tax forms 2009 irs. Tax forms 2009 gov/irb/2006-39_IRB/ar13. Tax forms 2009 html. Tax forms 2009    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. Tax forms 2009 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. Tax forms 2009 You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. Tax forms 2009 irs. Tax forms 2009 gov/irb/2013-45_IRB/ar04. Tax forms 2009 html. Tax forms 2009 The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. Tax forms 2009 Determining when gain is realized. Tax forms 2009   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. Tax forms 2009 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. Tax forms 2009   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. Tax forms 2009 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. Tax forms 2009   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. Tax forms 2009 All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. Tax forms 2009 All or part of the award is actually or constructively received. Tax forms 2009 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. Tax forms 2009 Replacement property bought before the condemnation. Tax forms 2009   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. Tax forms 2009 Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. Tax forms 2009 Example. Tax forms 2009 On April 3, 2012, city authorities notified you that your property would be condemned. Tax forms 2009 On June 5, 2012, you acquired property to replace the property to be condemned. Tax forms 2009 You still had the new property when the city took possession of your old property on September 4, 2013. Tax forms 2009 You have made a replacement within the replacement period. Tax forms 2009 Extension. Tax forms 2009   You can request an extension of the replacement period from the IRS director for your area. Tax forms 2009 You should apply before the end of the replacement period. Tax forms 2009 Your request should explain in detail why you need an extension. Tax forms 2009 The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. Tax forms 2009 An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. Tax forms 2009   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. Tax forms 2009 Extensions are usually limited to a period of 1 year or less. Tax forms 2009 The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. Tax forms 2009 If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri