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Taxact 2008 Free Efile

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Taxact 2008 Free Efile

Taxact 2008 free efile 1. Taxact 2008 free efile   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. Taxact 2008 free efile Amount realized on a recourse debt. Taxact 2008 free efile 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. Taxact 2008 free efile S. Taxact 2008 free efile Individual Income Tax Return 1040X Amended U. Taxact 2008 free efile S. Taxact 2008 free efile 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. Taxact 2008 free efile However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Taxact 2008 free efile See chapter 5 for information about getting publications and forms. Taxact 2008 free efile Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Taxact 2008 free efile An exchange is a transfer of property for other property or services. Taxact 2008 free efile The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. Taxact 2008 free efile Sale or lease. Taxact 2008 free efile    Some agreements that seem to be leases may really be conditional sales contracts. Taxact 2008 free efile The intention of the parties to the agreement can help you distinguish between a sale and a lease. Taxact 2008 free efile   There is no test or group of tests to prove what the parties intended when they made the agreement. Taxact 2008 free efile You should consider each agreement based on its own facts and circumstances. Taxact 2008 free efile For more information, see chapter 3 in Publication 535, Business Expenses. Taxact 2008 free efile Cancellation of a lease. Taxact 2008 free efile    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. Taxact 2008 free efile 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. Taxact 2008 free efile Copyright. Taxact 2008 free efile    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. Taxact 2008 free efile 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. Taxact 2008 free efile Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. Taxact 2008 free efile   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. Taxact 2008 free efile For more information, see Section 1231 Gains and Losses in chapter 3. Taxact 2008 free efile Easement. Taxact 2008 free efile   The amount received for granting an easement is subtracted from the basis of the property. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile   Any amount received that is more than the basis to be reduced is a taxable gain. Taxact 2008 free efile The transaction is reported as a sale of property. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile See Gain or Loss From Condemnations, later. Taxact 2008 free efile Property transferred to satisfy debt. Taxact 2008 free efile   A transfer of property to satisfy a debt is an exchange. Taxact 2008 free efile Note's maturity date extended. Taxact 2008 free efile   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. Taxact 2008 free efile Also, it is not considered a closed and completed transaction that would result in a gain or loss. Taxact 2008 free efile 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. Taxact 2008 free efile Each case must be determined by its own facts. Taxact 2008 free efile For more information, see Regulations section 1. Taxact 2008 free efile 1001-3. Taxact 2008 free efile Transfer on death. Taxact 2008 free efile   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. Taxact 2008 free efile No taxable gain or deductible loss results from the transfer. Taxact 2008 free efile Bankruptcy. Taxact 2008 free efile   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. Taxact 2008 free efile Consequently, the transfer generally does not result in gain or loss. Taxact 2008 free efile For more information, see Publication 908, Bankruptcy Tax Guide. Taxact 2008 free efile Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. Taxact 2008 free efile A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. Taxact 2008 free efile A loss is the adjusted basis of the property that is more than the amount you realize. Taxact 2008 free efile   Table 1-1. Taxact 2008 free efile How To Figure Whether You Have a Gain or Loss IF your. Taxact 2008 free efile . Taxact 2008 free efile . Taxact 2008 free efile THEN you have a. Taxact 2008 free efile . Taxact 2008 free efile . Taxact 2008 free efile Adjusted basis is more than the amount realized, Loss. Taxact 2008 free efile Amount realized is more than the adjusted basis, Gain. Taxact 2008 free efile Basis. Taxact 2008 free efile   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. Taxact 2008 free efile The basis of property you buy is usually its cost. Taxact 2008 free efile 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. Taxact 2008 free efile See Basis Other Than Cost in Publication 551, Basis of Assets. Taxact 2008 free efile 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. Taxact 2008 free efile See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Taxact 2008 free efile Adjusted basis. Taxact 2008 free efile   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. Taxact 2008 free efile Increases include costs of any improvements having a useful life of more than 1 year. Taxact 2008 free efile Decreases include depreciation and casualty losses. Taxact 2008 free efile For more details and additional examples, see Adjusted Basis in Publication 551. Taxact 2008 free efile Amount realized. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile Fair market value. Taxact 2008 free efile   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. Taxact 2008 free efile If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. Taxact 2008 free efile If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. Taxact 2008 free efile Example. Taxact 2008 free efile You used a building in your business that cost you $70,000. Taxact 2008 free efile You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. Taxact 2008 free efile You sold the building for $100,000 plus property having an FMV of $20,000. Taxact 2008 free efile The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. Taxact 2008 free efile The selling expenses were $4,000. Taxact 2008 free efile Your gain on the sale is figured as follows. Taxact 2008 free efile 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. Taxact 2008 free efile   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. Taxact 2008 free efile Recognized gains must be included in gross income. Taxact 2008 free efile Recognized losses are deductible from gross income. Taxact 2008 free efile However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. Taxact 2008 free efile See Nontaxable Exchanges, later. Taxact 2008 free efile 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. Taxact 2008 free efile Interest in property. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile Your basis in the property is disregarded. Taxact 2008 free efile This rule does not apply if all interests in the property are disposed of at the same time. Taxact 2008 free efile Example 1. Taxact 2008 free efile Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. Taxact 2008 free efile You decide to sell your life interest in the farm. Taxact 2008 free efile The entire amount you receive is a recognized gain. Taxact 2008 free efile Your basis in the farm is disregarded. Taxact 2008 free efile Example 2. Taxact 2008 free efile The facts are the same as in Example 1, except that your brother joins you in selling the farm. Taxact 2008 free efile The entire interest in the property is sold, so your basis in the farm is not disregarded. Taxact 2008 free efile Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. Taxact 2008 free efile Canceling a sale of real property. Taxact 2008 free efile   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. Taxact 2008 free efile If the buyer returns the property in the year of sale, no gain or loss is recognized. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile When the property is returned in a later year, you acquire a new basis in the property. Taxact 2008 free efile That basis is equal to the amount you pay to the buyer. Taxact 2008 free efile 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. Taxact 2008 free efile You have a gain if the amount realized is more than your adjusted basis in the property. Taxact 2008 free efile However, you do not have a loss if the amount realized is less than the adjusted basis of the property. Taxact 2008 free efile Bargain sales to charity. Taxact 2008 free efile   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. Taxact 2008 free efile 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. Taxact 2008 free efile The adjusted basis of the part sold is figured as follows. Taxact 2008 free efile 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. Taxact 2008 free efile This allocation rule does not apply if a charitable contribution deduction is not allowable. Taxact 2008 free efile   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. Taxact 2008 free efile Example. Taxact 2008 free efile 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. Taxact 2008 free efile Your adjusted basis in the property is $4,000. Taxact 2008 free efile Your gain on the sale is $1,200, figured as follows. Taxact 2008 free efile 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. Taxact 2008 free efile You must subtract depreciation you took or could have taken from the basis of the business or rental part. Taxact 2008 free efile However, see the special rule below for a home used partly for business or rental. Taxact 2008 free efile You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. Taxact 2008 free efile 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. Taxact 2008 free efile Any gain on the personal part of the property is a capital gain. Taxact 2008 free efile You cannot deduct a loss on the personal part. Taxact 2008 free efile Home used partly for business or rental. Taxact 2008 free efile    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. Taxact 2008 free efile See Property Used Partly for Business or Rental, in Publication 523. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile Figure the loss you can deduct as follows. Taxact 2008 free efile Use the lesser of the property's adjusted basis or fair market value at the time of the change. Taxact 2008 free efile Add to (1) the cost of any improvements and other increases to basis since the change. Taxact 2008 free efile Subtract from (2) depreciation and any other decreases to basis since the change. Taxact 2008 free efile Subtract the amount you realized on the sale from the result in (3). Taxact 2008 free efile If the amount you realized is more than the result in (3), treat this result as zero. Taxact 2008 free efile The result in (4) is the loss you can deduct. Taxact 2008 free efile Example. Taxact 2008 free efile You changed your main home to rental property 5 years ago. Taxact 2008 free efile At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. Taxact 2008 free efile This year, you sold the property for $55,000. Taxact 2008 free efile You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile   If you have a gain on the sale, you generally must recognize the full amount of the gain. Taxact 2008 free efile You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. Taxact 2008 free efile   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. Taxact 2008 free efile However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. Taxact 2008 free efile   For more information, see Business Use or Rental of Home in Publication 523. Taxact 2008 free efile In addition, special rules apply if the home sold was acquired in a like-kind exchange. Taxact 2008 free efile See Special Situations in Publication 523. Taxact 2008 free efile Also see Like-Kind Exchanges, later. Taxact 2008 free efile Abandonments The abandonment of property is a disposition of property. Taxact 2008 free efile 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. Taxact 2008 free efile Generally, abandonment is not treated as a sale or exchange of the property. Taxact 2008 free efile If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Taxact 2008 free efile If your adjusted basis is more than the amount you realize (if any), then you have a loss. Taxact 2008 free efile Loss from abandonment of business or investment property is deductible as a loss. Taxact 2008 free efile A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Taxact 2008 free efile This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. Taxact 2008 free efile If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. Taxact 2008 free efile The abandonment loss is deducted in the tax year in which the loss is sustained. Taxact 2008 free efile If the abandoned property is secured by debt, special rules apply. Taxact 2008 free efile 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). Taxact 2008 free efile For more information, including examples, see chapter 3 of Publication 4681. Taxact 2008 free efile You cannot deduct any loss from abandonment of your home or other property held for personal use only. Taxact 2008 free efile Cancellation of debt. Taxact 2008 free efile   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. Taxact 2008 free efile This income is separate from any loss realized from abandonment of the property. Taxact 2008 free efile   You must report this income on your tax return unless one of the following applies. Taxact 2008 free efile The cancellation is intended as a gift. Taxact 2008 free efile The debt is qualified farm debt. Taxact 2008 free efile The debt is qualified real property business debt. Taxact 2008 free efile You are insolvent or bankrupt. Taxact 2008 free efile The debt is qualified principal residence indebtedness. Taxact 2008 free efile File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. Taxact 2008 free efile For more information, including other exceptions and exclusion, see Publication 4681. Taxact 2008 free efile Forms 1099-A and 1099-C. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Taxact 2008 free efile 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. Taxact 2008 free efile The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Taxact 2008 free efile This is true even if you voluntarily return the property to the lender. Taxact 2008 free efile You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. Taxact 2008 free efile Buyer's (borrower's) gain or loss. Taxact 2008 free efile   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. Taxact 2008 free efile The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Taxact 2008 free efile See Gain or Loss From Sales and Exchanges, earlier. Taxact 2008 free efile You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. Taxact 2008 free efile Amount realized on a nonrecourse debt. Taxact 2008 free efile   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. Taxact 2008 free efile The full canceled debt is included even if the fair market value of the property is less than the canceled debt. Taxact 2008 free efile Example 1. Taxact 2008 free efile Chris bought a new car for $15,000. Taxact 2008 free efile He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. Taxact 2008 free efile Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. Taxact 2008 free efile The credit company repossessed the car because he stopped making loan payments. Taxact 2008 free efile The balance due after taking into account the payments Chris made was $10,000. Taxact 2008 free efile The fair market value of the car when repossessed was $9,000. Taxact 2008 free efile The amount Chris realized on the repossession is $10,000. Taxact 2008 free efile 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. Taxact 2008 free efile Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). Taxact 2008 free efile He has a $5,000 nondeductible loss. Taxact 2008 free efile Example 2. Taxact 2008 free efile Abena paid $200,000 for her home. Taxact 2008 free efile She paid $15,000 down and borrowed the remaining $185,000 from a bank. Taxact 2008 free efile Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. Taxact 2008 free efile The bank foreclosed on the loan because Abena stopped making payments. Taxact 2008 free efile 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. Taxact 2008 free efile The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. Taxact 2008 free efile She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). Taxact 2008 free efile She has a $5,000 realized gain. Taxact 2008 free efile Amount realized on a recourse debt. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile The amount realized does not include the canceled debt that is your income from cancellation of debt. Taxact 2008 free efile See Cancellation of debt, below. Taxact 2008 free efile Seller's (lender's) gain or loss on repossession. Taxact 2008 free efile   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. Taxact 2008 free efile For more information, see Repossession in Publication 537. Taxact 2008 free efile    Table 1-2. Taxact 2008 free efile Worksheet for Foreclosures and Repossessions Part 1. Taxact 2008 free efile Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Taxact 2008 free efile Complete this part only  if you were personally liable for the debt. Taxact 2008 free efile Otherwise,  go to Part 2. Taxact 2008 free efile   1. Taxact 2008 free efile 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. Taxact 2008 free efile Enter the fair market value of the transferred property   3. Taxact 2008 free efile Ordinary income from cancellation of debt upon foreclosure or    repossession. Taxact 2008 free efile * Subtract line 2 from line 1. Taxact 2008 free efile   If less than zero, enter zero   Part 2. Taxact 2008 free efile Figure your gain or loss from foreclosure or repossession. Taxact 2008 free efile   4. Taxact 2008 free efile If you completed Part 1, enter the smaller of line 1 or line 2. Taxact 2008 free efile   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. Taxact 2008 free efile Enter any proceeds you received from the foreclosure sale   6. Taxact 2008 free efile Add lines 4 and 5   7. Taxact 2008 free efile Enter the adjusted basis of the transferred property   8. Taxact 2008 free efile Gain or loss from foreclosure or repossession. Taxact 2008 free efile Subtract line 7  from line 6   * The income may not be taxable. Taxact 2008 free efile See Cancellation of debt. Taxact 2008 free efile Cancellation of debt. Taxact 2008 free efile   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. Taxact 2008 free efile This income is separate from any gain or loss realized from the foreclosure or repossession. Taxact 2008 free efile Report the income from cancellation of a debt related to a business or rental activity as business or rental income. Taxact 2008 free efile    You can use Table 1-2 to figure your income from cancellation of debt. Taxact 2008 free efile   You must report this income on your tax return unless one of the following applies. Taxact 2008 free efile The cancellation is intended as a gift. Taxact 2008 free efile The debt is qualified farm debt. Taxact 2008 free efile The debt is qualified real property business debt. Taxact 2008 free efile You are insolvent or bankrupt. Taxact 2008 free efile The debt is qualified principal residence indebtedness. Taxact 2008 free efile File Form 982 to report the income exclusion. Taxact 2008 free efile Example 1. Taxact 2008 free efile 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). Taxact 2008 free efile In this case, the amount he realizes is $9,000. Taxact 2008 free efile This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). Taxact 2008 free efile Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). Taxact 2008 free efile He has a $6,000 nondeductible loss. Taxact 2008 free efile He also is treated as receiving ordinary income from cancellation of debt. Taxact 2008 free efile That income is $1,000 ($10,000 − $9,000). Taxact 2008 free efile This is the part of the canceled debt not included in the amount realized. Taxact 2008 free efile Example 2. Taxact 2008 free efile 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). Taxact 2008 free efile In this case, the amount she realizes is $170,000. Taxact 2008 free efile This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). Taxact 2008 free efile Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). Taxact 2008 free efile She has a $5,000 nondeductible loss. Taxact 2008 free efile She also is treated as receiving ordinary income from cancellation of debt. Taxact 2008 free efile (The debt is not exempt from tax as discussed under Cancellation of debt, above. Taxact 2008 free efile ) That income is $10,000 ($180,000 − $170,000). Taxact 2008 free efile This is the part of the canceled debt not included in the amount realized. Taxact 2008 free efile Forms 1099-A and 1099-C. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Taxact 2008 free efile 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. Taxact 2008 free efile Involuntary conversions are also called involuntary exchanges. Taxact 2008 free efile Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. Taxact 2008 free efile You report the gain or deduct the loss on your tax return for the year you realize it. Taxact 2008 free efile 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. Taxact 2008 free efile However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. Taxact 2008 free efile Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. Taxact 2008 free efile Your basis for the new property is the same as your basis for the converted property. Taxact 2008 free efile This means that the gain is deferred until a taxable sale or exchange occurs. Taxact 2008 free efile 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. Taxact 2008 free efile This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. Taxact 2008 free efile If you have a gain or loss from the destruction or theft of property, see Publication 547. Taxact 2008 free efile Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. Taxact 2008 free efile 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. Taxact 2008 free efile The owner receives a condemnation award (money or property) in exchange for the property taken. Taxact 2008 free efile A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. Taxact 2008 free efile Example. Taxact 2008 free efile A local government authorized to acquire land for public parks informed you that it wished to acquire your property. Taxact 2008 free efile After the local government took action to condemn your property, you went to court to keep it. Taxact 2008 free efile But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. Taxact 2008 free efile This is a condemnation of private property for public use. Taxact 2008 free efile Threat of condemnation. Taxact 2008 free efile   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. Taxact 2008 free efile You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile Reports of condemnation. Taxact 2008 free efile   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. Taxact 2008 free efile You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. Taxact 2008 free efile 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. Taxact 2008 free efile Example. Taxact 2008 free efile Your property lies along public utility lines. Taxact 2008 free efile The utility company has the authority to condemn your property. Taxact 2008 free efile The company informs you that it intends to acquire your property by negotiation or condemnation. Taxact 2008 free efile A threat of condemnation exists when you receive the notice. Taxact 2008 free efile Related property voluntarily sold. Taxact 2008 free efile   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. Taxact 2008 free efile A substantial economic relationship exists if together the properties were one economic unit. Taxact 2008 free efile You also must show that the condemned property could not reasonably or adequately be replaced. Taxact 2008 free efile You can elect to postpone reporting the gain by buying replacement property. Taxact 2008 free efile See Postponement of Gain, later. Taxact 2008 free efile 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. Taxact 2008 free efile If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. Taxact 2008 free efile You can postpone reporting gain from a condemnation if you buy replacement property. Taxact 2008 free efile 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. Taxact 2008 free efile See Postponement of Gain, later. Taxact 2008 free efile If your net condemnation award is less than your adjusted basis, you have a loss. Taxact 2008 free efile If your loss is from property you held for personal use, you cannot deduct it. Taxact 2008 free efile You must report any deductible loss in the tax year it happened. Taxact 2008 free efile You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. Taxact 2008 free efile Main home condemned. Taxact 2008 free efile   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. Taxact 2008 free efile You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). Taxact 2008 free efile For information on this exclusion, see Publication 523. Taxact 2008 free efile 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. Taxact 2008 free efile See Postponement of Gain, later. Taxact 2008 free efile Table 1-3. Taxact 2008 free efile Worksheet for Condemnations Part 1. Taxact 2008 free efile Gain from severance damages. Taxact 2008 free efile  If you did not receive severance damages, skip Part 1 and go to Part 2. Taxact 2008 free efile   1. Taxact 2008 free efile Enter gross severance damages received   2. Taxact 2008 free efile Enter your expenses in getting severance damages   3. Taxact 2008 free efile Subtract line 2 from line 1. Taxact 2008 free efile If less than zero, enter -0-   4. Taxact 2008 free efile Enter any special assessment on remaining property taken out of your award   5. Taxact 2008 free efile Net severance damages. Taxact 2008 free efile Subtract line 4 from line 3. Taxact 2008 free efile If less than zero, enter -0-   6. Taxact 2008 free efile Enter the adjusted basis of the remaining property   7. Taxact 2008 free efile Gain from severance damages. Taxact 2008 free efile Subtract line 6 from line 5. Taxact 2008 free efile If less than zero, enter -0-   8. Taxact 2008 free efile Refigured adjusted basis of the remaining property. Taxact 2008 free efile Subtract line 5 from line 6. Taxact 2008 free efile If less than zero, enter -0-   Part 2. Taxact 2008 free efile Gain or loss from condemnation award. Taxact 2008 free efile   9. Taxact 2008 free efile Enter the gross condemnation award received   10. Taxact 2008 free efile Enter your expenses in getting the condemnation award   11. Taxact 2008 free efile If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. Taxact 2008 free efile If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. Taxact 2008 free efile Otherwise, enter -0-   12. Taxact 2008 free efile Add lines 10 and 11   13. Taxact 2008 free efile Net condemnation award. Taxact 2008 free efile Subtract line 12 from line 9   14. Taxact 2008 free efile Enter the adjusted basis of the condemned property   15. Taxact 2008 free efile Gain from condemnation award. Taxact 2008 free efile If line 14 is more than line 13, enter -0-. Taxact 2008 free efile Otherwise, subtract line 14 from  line 13 and skip line 16   16. Taxact 2008 free efile Loss from condemnation award. Taxact 2008 free efile Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. Taxact 2008 free efile )   Part 3. Taxact 2008 free efile Postponed gain from condemnation. Taxact 2008 free efile  (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. Taxact 2008 free efile )   17. Taxact 2008 free efile If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. Taxact 2008 free efile Otherwise, enter -0-   18. Taxact 2008 free efile If line 15 is more than zero, enter the amount from line 13. Taxact 2008 free efile Otherwise, enter -0-   19. Taxact 2008 free efile Add lines 17 and 18. Taxact 2008 free efile If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. Taxact 2008 free efile Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. Taxact 2008 free efile Subtract line 20 from line 19. Taxact 2008 free efile If less than zero, enter -0-   22. Taxact 2008 free efile If you completed Part 1, add lines 7 and 15. Taxact 2008 free efile Otherwise, enter the amount from line 15. Taxact 2008 free efile If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. Taxact 2008 free efile Recognized gain. Taxact 2008 free efile Enter the smaller of line 21 or line 22. Taxact 2008 free efile   24. Taxact 2008 free efile Postponed gain. Taxact 2008 free efile Subtract line 23 from line 22. Taxact 2008 free efile If less than zero, enter -0-   Condemnation award. Taxact 2008 free efile   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. Taxact 2008 free efile The award is also the amount you are paid for the sale of your property under threat of condemnation. Taxact 2008 free efile Payment of your debts. Taxact 2008 free efile   Amounts taken out of the award to pay your debts are considered paid to you. Taxact 2008 free efile 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. Taxact 2008 free efile Example. Taxact 2008 free efile The state condemned your property for public use. Taxact 2008 free efile The award was set at $200,000. Taxact 2008 free efile The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. Taxact 2008 free efile You are considered to have received the entire $200,000 as a condemnation award. Taxact 2008 free efile Interest on award. Taxact 2008 free efile   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. Taxact 2008 free efile You must report the interest separately as ordinary income. Taxact 2008 free efile Payments to relocate. Taxact 2008 free efile   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. Taxact 2008 free efile Do not include them in your income. Taxact 2008 free efile Replacement housing payments used to buy new property are included in the property's basis as part of your cost. Taxact 2008 free efile Net condemnation award. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile This is discussed later under Special assessment taken out of award. Taxact 2008 free efile Severance damages. Taxact 2008 free efile    Severance damages are not part of the award paid for the property condemned. Taxact 2008 free efile 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. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile   The contracting parties should agree on the specific amount of severance damages in writing. Taxact 2008 free efile If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. Taxact 2008 free efile   You cannot make a completely new allocation of the total award after the transaction is completed. Taxact 2008 free efile However, you can show how much of the award both parties intended for severance damages. Taxact 2008 free efile The severance damages part of the award is determined from all the facts and circumstances. Taxact 2008 free efile Example. Taxact 2008 free efile You sold part of your property to the state under threat of condemnation. Taxact 2008 free efile The contract you and the condemning authority signed showed only the total purchase price. Taxact 2008 free efile It did not specify a fixed sum for severance damages. Taxact 2008 free efile However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. Taxact 2008 free efile You may treat this part as severance damages. Taxact 2008 free efile Treatment of severance damages. Taxact 2008 free efile   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. Taxact 2008 free efile Use them to reduce the basis of the remaining property. Taxact 2008 free efile 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. Taxact 2008 free efile   If your net severance damages are more than the basis of your retained property, you have a gain. Taxact 2008 free efile You may be able to postpone reporting the gain. Taxact 2008 free efile See Postponement of Gain, later. Taxact 2008 free efile    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. Taxact 2008 free efile Net severance damages. Taxact 2008 free efile   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. Taxact 2008 free efile 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. Taxact 2008 free efile The balance is your net severance damages. Taxact 2008 free efile Expenses of obtaining a condemnation award and severance damages. Taxact 2008 free efile   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. Taxact 2008 free efile Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. Taxact 2008 free efile If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. Taxact 2008 free efile Example. Taxact 2008 free efile You receive a condemnation award and severance damages. Taxact 2008 free efile One-fourth of the total was designated as severance damages in your agreement with the condemning authority. Taxact 2008 free efile You had legal expenses for the entire condemnation proceeding. Taxact 2008 free efile You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. Taxact 2008 free efile You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. Taxact 2008 free efile Special assessment retained out of award. Taxact 2008 free efile   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. Taxact 2008 free efile An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. Taxact 2008 free efile Examples of improvements that may cause a special assessment are widening a street and installing a sewer. Taxact 2008 free efile   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. Taxact 2008 free efile Example. Taxact 2008 free efile To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. Taxact 2008 free efile You were awarded $5,000 for this and spent $300 to get the award. Taxact 2008 free efile Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. Taxact 2008 free efile The city then paid you only $4,300. Taxact 2008 free efile Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). Taxact 2008 free efile 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). Taxact 2008 free efile The net award would not change, even if you later paid the assessment from the amount you received. Taxact 2008 free efile Severance damages received. Taxact 2008 free efile   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. Taxact 2008 free efile Any balance of the special assessment is used to reduce the condemnation award. Taxact 2008 free efile Example. Taxact 2008 free efile You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. Taxact 2008 free efile You spent $300 to obtain the severance damages. Taxact 2008 free efile A special assessment of $800 was retained out of the award. Taxact 2008 free efile The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. Taxact 2008 free efile Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. Taxact 2008 free efile Part business or rental. Taxact 2008 free efile   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. Taxact 2008 free efile Figure your gain or loss separately because gain or loss on each part may be treated differently. Taxact 2008 free efile   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. Taxact 2008 free efile Example. Taxact 2008 free efile You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. Taxact 2008 free efile You rented half the building and lived in the other half. Taxact 2008 free efile You paid $25,000 for the building and spent an additional $1,000 for a new roof. Taxact 2008 free efile You claimed allowable depreciation of $4,600 on the rental half. Taxact 2008 free efile You spent $200 in legal expenses to obtain the condemnation award. Taxact 2008 free efile Figure your gain or loss as follows. Taxact 2008 free efile     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. Taxact 2008 free efile 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. Taxact 2008 free efile Your basis for the new property is the same as your basis for the old. Taxact 2008 free efile Money or unlike property received. Taxact 2008 free efile   You ordinarily must report the gain if you receive money or unlike property. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile See Controlling interest in a corporation, later. Taxact 2008 free efile   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. Taxact 2008 free efile 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. Taxact 2008 free efile   The basis of the replacement property is its cost, reduced by the postponed gain. Taxact 2008 free efile 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. Taxact 2008 free efile See Controlling interest in a corporation, later. Taxact 2008 free efile You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. Taxact 2008 free efile Postponing gain on severance damages. Taxact 2008 free efile   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. Taxact 2008 free efile See Treatment of severance damages, earlier. Taxact 2008 free efile 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). Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. Taxact 2008 free efile Postponing gain on the sale of related property. Taxact 2008 free efile   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. Taxact 2008 free efile You must meet the requirements explained earlier under Related property voluntarily sold. Taxact 2008 free efile 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). Taxact 2008 free efile Buying replacement property from a related person. Taxact 2008 free efile   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. Taxact 2008 free efile For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. Taxact 2008 free efile   This rule applies to the following taxpayers. Taxact 2008 free efile C corporations. Taxact 2008 free efile Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. Taxact 2008 free efile 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. Taxact 2008 free efile   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. Taxact 2008 free efile If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Taxact 2008 free efile If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Taxact 2008 free efile Exception. Taxact 2008 free efile   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. Taxact 2008 free efile Advance payment. Taxact 2008 free efile   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). Taxact 2008 free efile Replacement property. Taxact 2008 free efile   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. Taxact 2008 free efile You do not have to use the actual funds from the condemnation award to acquire the replacement property. Taxact 2008 free efile Property you acquire by gift or inheritance does not qualify as replacement property. Taxact 2008 free efile Similar or related in service or use. Taxact 2008 free efile   Your replacement property must be similar or related in service or use to the property it replaces. Taxact 2008 free efile   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. Taxact 2008 free efile For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. Taxact 2008 free efile Owner-user. Taxact 2008 free efile   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. Taxact 2008 free efile Example. Taxact 2008 free efile Your home was condemned and you invested the proceeds from the condemnation in a grocery store. Taxact 2008 free efile Your replacement property is not similar or related in service or use to the condemned property. Taxact 2008 free efile To be similar or related in service or use, your replacement property must also be used by you as your home. Taxact 2008 free efile Owner-investor. Taxact 2008 free efile   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. Taxact 2008 free efile You decide this by determining all the following information. Taxact 2008 free efile Whether the properties are of similar service to you. Taxact 2008 free efile The nature of the business risks connected with the properties. Taxact 2008 free efile What the properties demand of you in the way of management, service, and relations to your tenants. Taxact 2008 free efile Example. Taxact 2008 free efile You owned land and a building you rented to a manufacturing company. Taxact 2008 free efile The building was condemned. Taxact 2008 free efile During the replacement period, you had a new building built on other land you already owned. Taxact 2008 free efile You rented out the new building for use as a wholesale grocery warehouse. Taxact 2008 free efile 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. Taxact 2008 free efile Your management activities. Taxact 2008 free efile The amount and kind of services you provide to your tenants. Taxact 2008 free efile The nature of your business risks connected with the properties. Taxact 2008 free efile Leasehold replaced with fee simple property. Taxact 2008 free efile   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. Taxact 2008 free efile   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. Taxact 2008 free efile A leasehold is property held under a lease, usually for a term of years. Taxact 2008 free efile Outdoor advertising display replaced with real property. Taxact 2008 free efile   You can elect to treat an outdoor advertising display as real property. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile   You can make this election only if you did not claim a section 179 deduction for the display. Taxact 2008 free efile You cannot cancel this election unless you get the consent of the IRS. Taxact 2008 free efile   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. Taxact 2008 free efile Substituting replacement property. Taxact 2008 free efile   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. Taxact 2008 free efile But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. Taxact 2008 free efile Controlling interest in a corporation. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile Basis adjustment to corporation's property. Taxact 2008 free efile   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. Taxact 2008 free efile 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). Taxact 2008 free efile   Allocate this reduction to the following classes of property in the order shown below. Taxact 2008 free efile Property that is similar or related in service or use to the condemned property. Taxact 2008 free efile Depreciable property not reduced in (1). Taxact 2008 free efile All other property. Taxact 2008 free efile 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. Taxact 2008 free efile The reduced basis of any single property cannot be less than zero. Taxact 2008 free efile Main home replaced. Taxact 2008 free efile   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. Taxact 2008 free efile The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. Taxact 2008 free efile   You must reduce the basis of your replacement property by the postponed gain. Taxact 2008 free efile 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. Taxact 2008 free efile Example. Taxact 2008 free efile City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. Taxact 2008 free efile The city paid you a condemnation award of $400,000. Taxact 2008 free efile Your adjusted basis in the property was $80,000. Taxact 2008 free efile You realize a gain of $320,000 ($400,000 − $80,000). Taxact 2008 free efile You purchased a new home for $100,000. Taxact 2008 free efile You can exclude $250,000 of the realized gain from your gross income. Taxact 2008 free efile 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). Taxact 2008 free efile You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). Taxact 2008 free efile The remaining $20,000 of realized gain is postponed. Taxact 2008 free efile Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). Taxact 2008 free efile Replacement period. Taxact 2008 free efile   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. Taxact 2008 free efile This is the replacement period. Taxact 2008 free efile   The replacement period for a condemnation begins on the earlier of the following dates. Taxact 2008 free efile The date on which you disposed of the condemned property. Taxact 2008 free efile The date on which the threat of condemnation began. Taxact 2008 free efile   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. Taxact 2008 free efile However, see the exceptions below. Taxact 2008 free efile Three-year replacement period for certain property. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile Five-year replacement period for certain property. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile Extended replacement period for taxpayers affected by other federally declared disasters. Taxact 2008 free efile    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. Taxact 2008 free efile For more information visit www. Taxact 2008 free efile irs. Taxact 2008 free efile gov/uac/Tax-Relief-in-Disaster-Situations. Taxact 2008 free efile Weather-related sales of livestock in an area eligible for federal assistance. Taxact 2008 free efile   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. Taxact 2008 free efile    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. Taxact 2008 free efile See Notice 2006-82. Taxact 2008 free efile You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. Taxact 2008 free efile irs. Taxact 2008 free efile gov/irb/2006-39_IRB/ar13. Taxact 2008 free efile html. Taxact 2008 free efile    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. Taxact 2008 free efile 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. Taxact 2008 free efile You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. Taxact 2008 free efile irs. Taxact 2008 free efile gov/irb/2013-45_IRB/ar04. Taxact 2008 free efile html. Taxact 2008 free efile The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. Taxact 2008 free efile Determining when gain is realized. Taxact 2008 free efile   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. Taxact 2008 free efile 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. Taxact 2008 free efile   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. Taxact 2008 free efile 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. Taxact 2008 free efile   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. Taxact 2008 free efile All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. Taxact 2008 free efile All or part of the award is actually or constructively received. Taxact 2008 free efile 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. Taxact 2008 free efile Replacement property bought before the condemnation. Taxact 2008 free efile   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. Taxact 2008 free efile Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. Taxact 2008 free efile Example. Taxact 2008 free efile On April 3, 2012, city authorities notified you that your property would be condemned. Taxact 2008 free efile On June 5, 2012, you acquired property to replace the property to be condemned. Taxact 2008 free efile You still had the new property when the city took possession of your old property on September 4, 2013. Taxact 2008 free efile You have made a replacement within the replacement period. Taxact 2008 free efile Extension. Taxact 2008 free efile   You can request an extension of the replacement period from the IRS director for your area. Taxact 2008 free efile You should apply before the end of the replacement period. Taxact 2008 free efile Your request should explain in detail why you need an extension. Taxact 2008 free efile The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. Taxact 2008 free efile An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. Taxact 2008 free efile   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. Taxact 2008 free efile Extensions are usually limited to a period of 1 year or less. Taxact 2008 free efile The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. Taxact 2008 free efile If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri
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The Taxact 2008 Free Efile

Taxact 2008 free efile Publication 536 - Introductory Material Table of Contents Reminders IntroductionOrdering forms and publications. Taxact 2008 free efile Tax questions. Taxact 2008 free efile Useful Items - You may want to see: Reminders Future developments. Taxact 2008 free efile  For the latest developments related to Publication 536, such as legislation enacted after we release it, go to www. Taxact 2008 free efile irs. Taxact 2008 free efile gov/pub536. Taxact 2008 free efile Photographs of missing children. Taxact 2008 free efile  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Taxact 2008 free efile Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Taxact 2008 free efile You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Taxact 2008 free efile Introduction If your deductions for the year are more than your income for the year, you may have a net operating loss (NOL). Taxact 2008 free efile An NOL year is the year in which an NOL occurs. Taxact 2008 free efile You can use an NOL by deducting it from your income in another year or years. Taxact 2008 free efile What this publication covers. Taxact 2008 free efile   This publication discusses NOLs for individuals, estates, and trusts. Taxact 2008 free efile It covers: How to figure an NOL, When to use an NOL, How to claim an NOL deduction, and How to figure an NOL carryover. Taxact 2008 free efile To have an NOL, your loss must generally be caused by deductions from your: Trade or business, Work as an employee, Casualty and theft losses, Moving expenses, or Rental property. Taxact 2008 free efile A loss from operating a business is the most common reason for an NOL. Taxact 2008 free efile Partnerships and S corporations generally cannot use an NOL. Taxact 2008 free efile However, partners or shareholders can use their separate shares of the partnership's or S corporation's business income and business deductions to figure their individual NOLs. Taxact 2008 free efile Keeping records. Taxact 2008 free efile   You should keep records for any tax year that generates an NOL for 3 years after you have used the carryback/carryforward or 3 years after the carryforward expires. Taxact 2008 free efile    You should attach all required documents to the Form 1045 or Form 1040X. Taxact 2008 free efile For details, see the instructions for Form 1045 or Form 1040X. Taxact 2008 free efile What is not covered in this publication?   The following topics are not covered in this publication. Taxact 2008 free efile Bankruptcies. Taxact 2008 free efile See Publication 908, Bankruptcy Tax Guide. Taxact 2008 free efile NOLs of corporations. Taxact 2008 free efile See Publication 542, Corporations. Taxact 2008 free efile Section references. Taxact 2008 free efile   Section references are to the Internal Revenue Code unless otherwise noted. Taxact 2008 free efile Comments and suggestions. Taxact 2008 free efile   We welcome your comments about this publication and your suggestions for future editions. Taxact 2008 free efile   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Taxact 2008 free efile NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Taxact 2008 free efile Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Taxact 2008 free efile   You can send your comments from www. Taxact 2008 free efile irs. Taxact 2008 free efile gov/formspubs/. Taxact 2008 free efile Click on “More Information. Taxact 2008 free efile ” and then on “Comment on Tax Forms and Publications. Taxact 2008 free efile ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Taxact 2008 free efile Ordering forms and publications. Taxact 2008 free efile   Visit www. Taxact 2008 free efile irs. Taxact 2008 free efile gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Taxact 2008 free efile Internal Revenue Service 1201 N. Taxact 2008 free efile Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Taxact 2008 free efile   If you have a tax question, check the information available on IRS. Taxact 2008 free efile gov or call 1-800-829-1040. Taxact 2008 free efile We cannot answer tax questions sent to either of the above addresses. Taxact 2008 free efile Useful Items - You may want to see: Form (and Instructions) 1040X Amended U. Taxact 2008 free efile S. Taxact 2008 free efile Individual Income Tax Return 1045 Application for Tentative Refund   See How To Get Tax Help near the end of this publication for information about getting these forms. Taxact 2008 free efile Prev  Up  Next   Home   More Online Publications