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Turbotax 2011 Deluxe

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Turbotax 2011 Deluxe

Turbotax 2011 deluxe 2. Turbotax 2011 deluxe   Accounting Periods and Methods Table of Contents Introduction Useful Items - You may want to see: Accounting Periods Accounting MethodsCash Method Accrual Method Combination Method Inventories Uniform Capitalization Rules Special Methods Change in Accounting Method Introduction You must figure your taxable income and file an income tax return for an annual accounting period called a tax year. Turbotax 2011 deluxe Also, you must consistently use an accounting method that clearly shows your income and expenses for the tax year. Turbotax 2011 deluxe Useful Items - You may want to see: Publication 538 Accounting Periods and Methods See chapter 12 for information about getting publications and forms. Turbotax 2011 deluxe Accounting Periods When preparing a statement of income and expenses (generally your income tax return), you must use your books and records for a specific interval of time called an accounting period. Turbotax 2011 deluxe The annual accounting period for your income tax return is called a tax year. Turbotax 2011 deluxe You can use one of the following tax years. Turbotax 2011 deluxe A calendar tax year. Turbotax 2011 deluxe A fiscal tax year. Turbotax 2011 deluxe Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. Turbotax 2011 deluxe A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. Turbotax 2011 deluxe Calendar tax year. Turbotax 2011 deluxe   A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. Turbotax 2011 deluxe   You must adopt the calendar tax year if any of the following apply. Turbotax 2011 deluxe You do not keep books. Turbotax 2011 deluxe You have no annual accounting period. Turbotax 2011 deluxe Your present tax year does not qualify as a fiscal year. Turbotax 2011 deluxe Your use of the calendar tax year is required under the Internal Revenue Code or the Income Tax Regulations. Turbotax 2011 deluxe   If you filed your first income tax return using the calendar tax year and you later begin business as a sole proprietor, you must continue to use the calendar tax year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. Turbotax 2011 deluxe For more information, see Change in tax year, later. Turbotax 2011 deluxe   If you adopt the calendar tax year, you must maintain your books and records and report your income and expenses for the period from January 1 through December 31 of each year. Turbotax 2011 deluxe Fiscal tax year. Turbotax 2011 deluxe   A fiscal tax year is 12 consecutive months ending on the last day of any month except December. Turbotax 2011 deluxe A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month. Turbotax 2011 deluxe   If you adopt a fiscal tax year, you must maintain your books and records and report your income and expenses using the same tax year. Turbotax 2011 deluxe   For more information on a fiscal tax year, including a 52-53-week tax year, see Publication 538. Turbotax 2011 deluxe Change in tax year. Turbotax 2011 deluxe   Generally, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year, to request IRS approval to change your tax year. Turbotax 2011 deluxe See the Instructions for Form 1128 for exceptions. Turbotax 2011 deluxe If you qualify for an automatic approval request, a user fee is not required. Turbotax 2011 deluxe If you do not qualify for automatic approval, a ruling must be requested. Turbotax 2011 deluxe See the instructions for Form 1128 for information about user fees if you are requesting a ruling. Turbotax 2011 deluxe Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. Turbotax 2011 deluxe Your accounting method includes not only the overall method of accounting you use, but also the accounting treatment you use for any material item. Turbotax 2011 deluxe You choose an accounting method for your business when you file your first income tax return that includes a Schedule C for the business. Turbotax 2011 deluxe After that, if you want to change your accounting method, you must generally get IRS approval. Turbotax 2011 deluxe See Change in Accounting Method, later. Turbotax 2011 deluxe Kinds of methods. Turbotax 2011 deluxe   Generally, you can use any of the following accounting methods. Turbotax 2011 deluxe Cash method. Turbotax 2011 deluxe An accrual method. Turbotax 2011 deluxe Special methods of accounting for certain items of income and expenses. Turbotax 2011 deluxe Combination method using elements of two or more of the above. Turbotax 2011 deluxe You must use the same accounting method to figure your taxable income and to keep your books. Turbotax 2011 deluxe Also, you must use an accounting method that clearly shows your income. Turbotax 2011 deluxe Business and personal items. Turbotax 2011 deluxe   You can account for business and personal items under different accounting methods. Turbotax 2011 deluxe For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. Turbotax 2011 deluxe Two or more businesses. Turbotax 2011 deluxe   If you have two or more separate and distinct businesses, you can use a different accounting method for each if the method clearly reflects the income of each business. Turbotax 2011 deluxe They are separate and distinct only if you maintain complete and separate books and records for each business. Turbotax 2011 deluxe Cash Method Most individuals and many sole proprietors with no inventory use the cash method because they find it easier to keep cash method records. Turbotax 2011 deluxe However, if an inventory is necessary to account for your income, you must generally use an accrual method of accounting for sales and purchases. Turbotax 2011 deluxe For more information, see Inventories, later. Turbotax 2011 deluxe Income Under the cash method, include in your gross income all items of income you actually or constructively receive during your tax year. Turbotax 2011 deluxe If you receive property or services, you must include their fair market value in income. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe On December 30, 2012, Mrs. Turbotax 2011 deluxe Sycamore sent you a check for interior decorating services you provided to her. Turbotax 2011 deluxe You received the check on January 2, 2013. Turbotax 2011 deluxe You must include the amount of the check in income for 2013. Turbotax 2011 deluxe Constructive receipt. Turbotax 2011 deluxe   You have constructive receipt of income when an amount is credited to your account or made available to you without restriction. Turbotax 2011 deluxe You do not need to have possession of it. Turbotax 2011 deluxe If you authorize someone to be your agent and receive income for you, you are treated as having received it when your agent received it. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe Interest is credited to your bank account in December 2013. Turbotax 2011 deluxe You do not withdraw it or enter it into your passbook until 2014. Turbotax 2011 deluxe You must include it in your gross income for 2013. Turbotax 2011 deluxe Delaying receipt of income. Turbotax 2011 deluxe   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. Turbotax 2011 deluxe You must report the income in the year the property is received or made available to you without restriction. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe Frances Jones, a service contractor, was entitled to receive a $10,000 payment on a contract in December 2013. Turbotax 2011 deluxe She was told in December that her payment was available. Turbotax 2011 deluxe At her request, she was not paid until January 2014. Turbotax 2011 deluxe She must include this payment in her 2013 income because it was constructively received in 2013. Turbotax 2011 deluxe Checks. Turbotax 2011 deluxe   Receipt of a valid check by the end of the tax year is constructive receipt of income in that year, even if you cannot cash or deposit the check until the following year. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe Dr. Turbotax 2011 deluxe Redd received a check for $500 on December 31, 2013, from a patient. Turbotax 2011 deluxe She could not deposit the check in her business account until January 2, 2014. Turbotax 2011 deluxe She must include this fee in her income for 2013. Turbotax 2011 deluxe Debts paid by another person or canceled. Turbotax 2011 deluxe   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. Turbotax 2011 deluxe If you receive income in this way, you constructively receive the income when the debt is canceled or paid. Turbotax 2011 deluxe For more information, see Canceled Debt under Kinds of Income in chapter 5. Turbotax 2011 deluxe Repayment of income. Turbotax 2011 deluxe   If you include an amount in income and in a later year you have to repay all or part of it, you can usually deduct the repayment in the year in which you make it. Turbotax 2011 deluxe If the amount you repay is over $3,000, a special rule applies. Turbotax 2011 deluxe For details about the special rule, see Repayments in chapter 11 of Publication 535, Business Expenses. Turbotax 2011 deluxe Expenses Under the cash method, you generally deduct expenses in the tax year in which you actually pay them. Turbotax 2011 deluxe This includes business expenses for which you contest liability. Turbotax 2011 deluxe However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. Turbotax 2011 deluxe Expenses paid in advance. Turbotax 2011 deluxe   You can deduct an expense you pay in advance only in the year to which it applies. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe You are a calendar year taxpayer and you pay $1,000 in 2013 for a business insurance policy effective for one year, beginning July 1. Turbotax 2011 deluxe You can deduct $500 in 2013 and $500 in 2014. Turbotax 2011 deluxe Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. Turbotax 2011 deluxe The purpose of an accrual method of accounting is to match income and expenses in the correct year. Turbotax 2011 deluxe Income—General Rule Under an accrual method, you generally include an amount in your gross income for the tax year in which all events that fix your right to receive the income have occurred and you can determine the amount with reasonable accuracy. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe You are a calendar year accrual method taxpayer. Turbotax 2011 deluxe You sold a computer on December 28, 2013. Turbotax 2011 deluxe You billed the customer in the first week of January 2014, but you did not receive payment until February 2014. Turbotax 2011 deluxe You must include the amount received for the computer in your 2013 income. Turbotax 2011 deluxe Income—Special Rules The following are special rules that apply to advance payments, estimating income, and changing a payment schedule for services. Turbotax 2011 deluxe Estimated income. Turbotax 2011 deluxe   If you include a reasonably estimated amount in gross income, and later determine the exact amount is different, take the difference into account in the tax year in which you make the determination. Turbotax 2011 deluxe Change in payment schedule for services. Turbotax 2011 deluxe   If you perform services for a basic rate specified in a contract, you must accrue the income at the basic rate, even if you agree to receive payments at a lower rate until you complete the services and then receive the difference. Turbotax 2011 deluxe Advance payments for services. Turbotax 2011 deluxe   Generally, you report an advance payment for services to be performed in a later tax year as income in the year you receive the payment. Turbotax 2011 deluxe However, if you receive an advance payment for services you agree to perform by the end of the next tax year, you can elect to postpone including the advance payment in income until the next tax year. Turbotax 2011 deluxe However, you cannot postpone including any payment beyond that tax year. Turbotax 2011 deluxe   For more information, see Advance Payment for Services under Accrual Method in Publication 538. Turbotax 2011 deluxe That publication also explains special rules for reporting the following types of income. Turbotax 2011 deluxe Advance payments for service agreements. Turbotax 2011 deluxe Prepaid rent. Turbotax 2011 deluxe Advance payments for sales. Turbotax 2011 deluxe   Special rules apply to including income from advance payments on agreements for future sales or other dispositions of goods you hold primarily for sale to your customers in the ordinary course of your business. Turbotax 2011 deluxe If the advance payments are for contracts involving both the sale and service of goods, it may be necessary to treat them as two agreements. Turbotax 2011 deluxe An agreement includes a gift certificate that can be redeemed for goods. Turbotax 2011 deluxe Treat amounts that are due and payable as amounts you received. Turbotax 2011 deluxe   You generally include an advance payment in income for the tax year in which you receive it. Turbotax 2011 deluxe However, you can use an alternative method. Turbotax 2011 deluxe For information about the alternative method, see Publication 538. Turbotax 2011 deluxe Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. Turbotax 2011 deluxe The all-events test has been met. Turbotax 2011 deluxe The test has been met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Turbotax 2011 deluxe Economic performance has occurred. Turbotax 2011 deluxe Economic performance. Turbotax 2011 deluxe   You generally cannot deduct or capitalize a business expense until economic performance occurs. Turbotax 2011 deluxe If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. Turbotax 2011 deluxe If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Turbotax 2011 deluxe An exception allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. Turbotax 2011 deluxe For more information on economic performance, see Economic Performance under Accrual Method in Publication 538. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe You are a calendar year taxpayer and use an accrual method of accounting. Turbotax 2011 deluxe You buy office supplies in December 2013. Turbotax 2011 deluxe You receive the supplies and the bill in December, but you pay the bill in January 2014. Turbotax 2011 deluxe You can deduct the expense in 2013 because all events that fix the fact of liability have occurred, the amount of the liability could be reasonably determined, and economic performance occurred in that year. Turbotax 2011 deluxe Your office supplies may qualify as a recurring expense. Turbotax 2011 deluxe In that case, you can deduct them in 2013 even if the supplies are not delivered until 2014 (when economic performance occurs). Turbotax 2011 deluxe Keeping inventories. Turbotax 2011 deluxe   When the production, purchase, or sale of merchandise is an income-producing factor in your business, you must generally take inventories into account at the beginning and the end of your tax year. Turbotax 2011 deluxe If you must account for an inventory, you must generally use an accrual method of accounting for your purchases and sales. Turbotax 2011 deluxe For more information, see Inventories , later. Turbotax 2011 deluxe Special rule for related persons. Turbotax 2011 deluxe   You cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until you make the payment and the corresponding amount is includible in the related person's gross income. Turbotax 2011 deluxe Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. Turbotax 2011 deluxe If a deduction is not allowed under this rule, the rule will continue to apply even if your relationship with the person ends before the expense or interest is includible in the gross income of that person. Turbotax 2011 deluxe   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. Turbotax 2011 deluxe For a list of other related persons, see section 267 of the Internal Revenue Code. Turbotax 2011 deluxe Combination Method You can generally use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. Turbotax 2011 deluxe However, the following restrictions apply. Turbotax 2011 deluxe If an inventory is necessary to account for your income, you must generally use an accrual method for purchases and sales. Turbotax 2011 deluxe (See, however, Inventories, later. Turbotax 2011 deluxe ) You can use the cash method for all other items of income and expenses. Turbotax 2011 deluxe If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. Turbotax 2011 deluxe If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Turbotax 2011 deluxe If you use a combination method that includes the cash method, treat that combination method as the cash method. Turbotax 2011 deluxe Inventories Generally, if you produce, purchase, or sell merchandise in your business, you must keep an inventory and use the accrual method for purchases and sales of merchandise. Turbotax 2011 deluxe However, the following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. Turbotax 2011 deluxe These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). Turbotax 2011 deluxe A qualifying taxpayer under Revenue Procedure 2001-10 in Internal Revenue Bulletin 2001-2. Turbotax 2011 deluxe A qualifying small business taxpayer under Revenue Procedure 2002-28 in Internal Revenue Bulletin 2002-18. Turbotax 2011 deluxe Qualifying taxpayer. Turbotax 2011 deluxe   You are a qualifying taxpayer if: Your average annual gross receipts for each prior tax year ending on or after December 17, 1998, is $1 million or less. Turbotax 2011 deluxe (Your average annual gross receipts for a tax year is figured by adding the gross receipts for that tax year and the 2 preceding tax years and dividing by 3. Turbotax 2011 deluxe ) Your business is not a tax shelter, as defined under section 448(d)(3) of the Internal Revenue Code. Turbotax 2011 deluxe Qualifying small business taxpayer. Turbotax 2011 deluxe   You are a qualifying small business taxpayer if: Your average annual gross receipts for each prior tax year ending on or after December 31, 2000, is more than $1 million but not more than $10 million. Turbotax 2011 deluxe (Your average annual gross receipts for a tax year is figured by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Turbotax 2011 deluxe ) You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. Turbotax 2011 deluxe Your principal business activity is an eligible business (described in Publication 538 and Revenue Procedure 2002-28). Turbotax 2011 deluxe Business not owned or not in existence for 3 years. Turbotax 2011 deluxe   If you did not own your business for all of the 3-tax-year period used in figuring your average annual gross receipts, include the period of any predecessor. Turbotax 2011 deluxe If your business has not been in existence for the 3-tax-year period, base your average on the period it has existed including any short tax years, annualizing the short tax year's gross receipts. Turbotax 2011 deluxe Materials and supplies that are not incidental. Turbotax 2011 deluxe   If you account for inventoriable items as materials and supplies that are not incidental, you will deduct the cost of the items you would otherwise include in inventory in the year you sell the items, or the year you pay for them, whichever is later. Turbotax 2011 deluxe If you are a producer, you can use any reasonable method to estimate the raw material in your work in process and finished goods on hand at the end of the year to determine the raw material used to produce finished goods that were sold during the year. Turbotax 2011 deluxe Changing accounting method. Turbotax 2011 deluxe   If you are a qualifying taxpayer or qualifying small business taxpayer and want to change to the cash method or to account for inventoriable items as non-incidental materials and supplies, you must file Form 3115, Application for Change in Accounting Method. Turbotax 2011 deluxe See Change in Accounting Method, later. Turbotax 2011 deluxe More information. Turbotax 2011 deluxe    For more information about the qualifying taxpayer exception, see Revenue Procedure 2001-10 in Internal Revenue Bulletin 2001-2. Turbotax 2011 deluxe For more information about the qualifying small business taxpayer exception, see Revenue Procedure 2002-28 in Internal Revenue Bulletin 2002-18. Turbotax 2011 deluxe Items included in inventory. Turbotax 2011 deluxe   If you are required to account for inventories, include the following items when accounting for your inventory. Turbotax 2011 deluxe Merchandise or stock in trade. Turbotax 2011 deluxe Raw materials. Turbotax 2011 deluxe Work in process. Turbotax 2011 deluxe Finished products. Turbotax 2011 deluxe Supplies that physically become a part of the item intended for sale. Turbotax 2011 deluxe Valuing inventory. Turbotax 2011 deluxe   You must value your inventory at the beginning and end of each tax year to determine your cost of goods sold (Schedule C, line 42). Turbotax 2011 deluxe To determine the value of your inventory, you need a method for identifying the items in your inventory and a method for valuing these items. Turbotax 2011 deluxe   Inventory valuation rules cannot be the same for all kinds of businesses. Turbotax 2011 deluxe The method you use to value your inventory must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Turbotax 2011 deluxe Your inventory practices must be consistent from year to year. Turbotax 2011 deluxe More information. Turbotax 2011 deluxe   For more information about inventories, see Publication 538. Turbotax 2011 deluxe Uniform Capitalization Rules Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for production or resale activities. Turbotax 2011 deluxe Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. Turbotax 2011 deluxe You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Turbotax 2011 deluxe Activities subject to the uniform capitalization rules. Turbotax 2011 deluxe   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. Turbotax 2011 deluxe Produce real or tangible personal property. Turbotax 2011 deluxe For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. Turbotax 2011 deluxe Acquire property for resale. Turbotax 2011 deluxe Exceptions. Turbotax 2011 deluxe   These rules do not apply to the following property. Turbotax 2011 deluxe Personal property you acquire for resale if your average annual gross receipts are $10 million or less. Turbotax 2011 deluxe Property you produce if you meet either of the following conditions. Turbotax 2011 deluxe Your indirect costs of producing the property are $200,000 or less. Turbotax 2011 deluxe You use the cash method of accounting and do not account for inventories. Turbotax 2011 deluxe For more information, see Inventories, earlier. Turbotax 2011 deluxe Special Methods There are special methods of accounting for certain items of income or expense. Turbotax 2011 deluxe These include the following. Turbotax 2011 deluxe Amortization, discussed in chapter 8 of Publication 535, Business Expenses. Turbotax 2011 deluxe Bad debts, discussed in chapter 10 of Publication 535. Turbotax 2011 deluxe Depletion, discussed in chapter 9 of Publication 535. Turbotax 2011 deluxe Depreciation, discussed in Publication 946, How To Depreciate Property. Turbotax 2011 deluxe Installment sales, discussed in Publication 537, Installment Sales. Turbotax 2011 deluxe Change in Accounting Method Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. Turbotax 2011 deluxe A change in your accounting method includes a change in: Your overall method, such as from cash to an accrual method, and Your treatment of any material item. Turbotax 2011 deluxe To get approval, you must file Form 3115, Application for Change in Accounting Method. Turbotax 2011 deluxe You can get IRS approval to change an accounting method under either the automatic change procedures or the advance consent request procedures. Turbotax 2011 deluxe You may have to pay a user fee. Turbotax 2011 deluxe For more information, see the form instructions. Turbotax 2011 deluxe Automatic change procedures. Turbotax 2011 deluxe   Certain taxpayers can presume to have IRS approval to change their method of accounting. Turbotax 2011 deluxe The approval is granted for the tax year for which the taxpayer requests a change (year of change), if the taxpayer complies with the provisions of the automatic change procedures. Turbotax 2011 deluxe No user fee is required for an application filed under an automatic change procedure generally covered in Revenue Procedure 2002-9. Turbotax 2011 deluxe   Generally, you must use Form 3115 to request an automatic change. Turbotax 2011 deluxe For more information, see the Instructions for Form 3115. 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American Holidays

Americans celebrate a variety of federal holidays and other national observances.


Federal Holidays

Find the dates for this year's federal holidays.

Federal law establishes the following public holidays for federal employees. If the holiday falls during the weekend, it may be observed on a different day.

Many government offices are closed on federal holidays and some private businesses may close as well. If you plan to visit a government office on or around a federal holiday, you should contact them to determine when they will be open. Find contact information for government departments and agencies.

New Year's Day

New Year's Day is January 1. The celebration of this holiday begins the night before, when Americans gather to wish each other a happy and prosperous coming year. Many Americans make New Year's resolutions. See the New Year's resolutions that are popular every year.

Birthday of Martin Luther King, Jr.

Martin Luther King, Jr. Day is celebrated on the third Monday in January. The Reverend Martin Luther King, Jr. was an African-American clergyman who is recognized for his tireless efforts to win civil rights for all people through nonviolent means.

Washington's Birthday

Washington's Birthday is observed the third Monday of February in honor George Washington, the first President of the United States. This date is commonly called Presidents' Day and many groups honor the legacy of past presidents on this date.

Memorial Day

Memorial Day is a observed the last Monday of May. It originally honored the people killed in the American Civil War, but has become a day on which the American dead of all wars are remembered.

Independence Day

Independence Day is July 4. This holiday honors the nation's birthday - the adoption of the Declaration of Independence on July 4, 1776. It is a day of picnics and patriotic parades, a night of concerts, and fireworks.

Labor Day

Labor Day is the first Monday of September. This holiday honors the nation's working people, typically with parades. For most Americans it marks the end of the summer vacation season and the start of the school year.

Columbus Day

Columbus Day is a celebrated on the second Monday in October. The day commemorates October 12, 1492, when Italian navigator Christopher Columbus landed in the New World. The holiday was first proclaimed in 1937 by President Franklin D. Roosevelt.

Veterans Day

Veterans Day is celebrated on November 11. This holiday was originally called Armistice Day and established to honor Americans who had served in World War I. It now honors veterans of all wars in which the U.S. has fought. Veterans' organizations hold parades, and the president places a wreath on the Tomb of the Unknowns at Arlington National Cemetery in Virginia.

Thanksgiving Day

Thanksgiving Day is celebrated on the fourth Thursday in November. In the fall of 1621, the Pilgrims held a three-day feast to celebrate a bountiful harvest. Many regard this event as the nation's first Thanksgiving. The Thanksgiving feast became a national tradition and almost always includes some of the foods served at the first feast: roast turkey, cranberry sauce, potatoes, and pumpkin pie.

Christmas Day

Christmas Day is a celebrated on December 25. Christmas is a Christian holiday marking the birth of the Christ Child. Decorating houses and yards with lights, putting up Christmas trees, giving gifts, and sending greeting cards have become holiday traditions even for many non-Christian Americans. Find tips to help celebrate.

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Other Celebrations and Observances

There are many commonly observed celebrations in the United States that are not federal holidays. Some of these observances honor groups of people, such as National African American History Month and Women's History Month, or causes, such as National Oceans Month and National Substance Abuse Prevention Month. Many of these holidays and observances are proclaimed by the President ever year. View recent Presidential proclamations.

These are some of the most popular American celebrations and observances that occur every year.

Groundhog Day

Groundhog Day is February 2 and has been celebrated since 1887. On Groundhog Day, crowds gather in Punxsutawney, Pennsylvania, to see if groundhog Punxsutawney Phil sees his shadow after emerging from his burrow, thus predicting six more weeks of winter weather.

Valentine's Day

Valentine's Day is celebrated on February 14. The day was named after an early Christian martyr, and on Valentine's Day, Americans give presents like candy or flowers to the ones they love. The first mass-produced valentine cards were sold in the 1840s.

Earth Day

Earth Day is observed on April 22. First celebrated in 1970 in the United States, it inspired national legislation such as the Clean Air and Clean Water Acts. Earth Day is designed to promote ecology, encourage respect for life on earth, and highlight concern over pollution of the soil, air, and water.

Arbor Day

National Arbor Day was proclaimed as the last Friday in April by President Richard Nixon in 1970. A number of state Arbor Days are observed at other times of the year to coincide with the best tree planting weather. The observance began in 1872, when Nebraska settlers and homesteaders were urged to plant trees on the largely treeless plains.

Mother's Day

Mother's Day is the second Sunday of May. President Woodrow Wilson issued a proclamation in 1914 that started the holiday. He asked Americans to give a public expression of reverence to mothers on this day. Carnations have come to represent Mother's Day, following President William McKinley's habit of always wearing a white carnation, his mother's favorite flower.

Flag Day

Flag Day, celebrated June 14, has been a presidentially proclaimed observance since 1916. Although Flag Day is not a federal holiday, Americans are encouraged to display the flag outside their homes and businesses on this day to honor the history and heritage the American flag represents.

Father's Day

Father's Day celebrates fathers every third Sunday of June. Father's Day began in 1909 in Spokane, Washington, when a daughter requested a special day to honor her father, a Civil War veteran who raised his children after his wife died. The first presidential proclamation honoring fathers was issued in 1966 by President Lyndon Johnson.

Patriot Day

September 11, 2001, was a defining moment in American history. On that day, terrorists hijacked four commercial airliners to strike targets in the United States. Nearly 3,000 people died as a consequence of the attacks. Patriot Day and National Day of Service and Remembrance is observed on September 11 in honor of the victims of these attacks.

Halloween

Halloween is celebrated on October 31. On Halloween, American children dress up in funny or scary costumes and go "trick or treating" by knocking on doors in their neighborhood. The neighbors are expected to respond by giving them small gifts of candy or money.

Pearl Harbor Day

Pearl Harbor Remembrance Day is December 7. In 1994, Congress designated this national observance to honor the more than 2,400 military service personnel who died on this date in 1941, during the surprise attack on Pearl Harbor, Hawaii, by Japanese forces. The attack on Pearl Harbor caused the United States to enter World War II.

Ethnic and Religious Holidays

Various ethnic and religious groups in America celebrate days with special meaning to them even though these are not national holidays. For example, Christians celebrate the resurrection of Jesus Christ on Easter, Jews observe their high holy days in September, Muslims celebrate Ramadan, and African Americans celebrate Kwanzaa. There are many other religious and ethnic celebrations in the United States.

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The Turbotax 2011 Deluxe

Turbotax 2011 deluxe 6. Turbotax 2011 deluxe   Basis of Assets Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Cost BasisReal Property Allocating the Basis Uniform Capitalization Rules Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostTaxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Received as a Gift Property Transferred From a Spouse Inherited Property Property Distributed From a Partnership or Corporation Introduction Your basis is the amount of your investment in property for tax purposes. Turbotax 2011 deluxe Use basis to figure the gain or loss on the sale, exchange, or other disposition of property. Turbotax 2011 deluxe Also use basis to figure depreciation, amortization, depletion, and casualty losses. Turbotax 2011 deluxe If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Turbotax 2011 deluxe Only the basis allocated to the business or investment use of the property can be depreciated. Turbotax 2011 deluxe Your original basis in property is adjusted (increased or decreased) by certain events. Turbotax 2011 deluxe For example, if you make improvements to the property, increase your basis. Turbotax 2011 deluxe If you take deductions for depreciation, or casualty losses, or claim certain credits, reduce your basis. Turbotax 2011 deluxe Keep accurate records of all items that affect the basis of your assets. Turbotax 2011 deluxe For information on keeping records, see chapter 1. Turbotax 2011 deluxe Topics - This chapter discusses: Cost basis Adjusted basis Basis other than cost Useful Items - You may want to see: Publication 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property See chapter 16 for information about getting publications and forms. Turbotax 2011 deluxe Cost Basis The basis of property you buy is usually its cost. Turbotax 2011 deluxe Cost is the amount you pay in cash, debt obligations, other property, or services. Turbotax 2011 deluxe Your cost includes amounts you pay for sales tax, freight, installation, and testing. Turbotax 2011 deluxe The basis of real estate and business assets will include other items, discussed later. Turbotax 2011 deluxe Basis generally does not include interest payments. Turbotax 2011 deluxe However, see Carrying charges and Capitalized interest in chapter 4 of Publication 535. Turbotax 2011 deluxe You also may have to capitalize (add to basis) certain other costs related to buying or producing property. Turbotax 2011 deluxe Under the uniform capitalization rules, discussed later, you may have to capitalize direct costs and certain indirect costs of producing property. Turbotax 2011 deluxe Loans with low or no interest. Turbotax 2011 deluxe   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus the amount considered to be unstated interest. Turbotax 2011 deluxe You generally have unstated interest if your interest rate is less than the applicable federal rate. Turbotax 2011 deluxe See the discussion of unstated interest in Publication 537, Installment Sales. Turbotax 2011 deluxe Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Turbotax 2011 deluxe If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Turbotax 2011 deluxe Some of these expenses are discussed next. Turbotax 2011 deluxe Lump sum purchase. Turbotax 2011 deluxe   If you buy improvements, such as buildings, and the land on which they stand for a lump sum, allocate your cost basis between the land and improvements. Turbotax 2011 deluxe Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. Turbotax 2011 deluxe Figure the basis of each asset by multiplying the lump sum by a fraction. Turbotax 2011 deluxe The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Turbotax 2011 deluxe Fair market value (FMV). Turbotax 2011 deluxe   FMV is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Turbotax 2011 deluxe Sales of similar property on or about the same date may help in figuring the FMV of the property. Turbotax 2011 deluxe If you are not certain of the FMV of the land and improvements, you can allocate the basis according to their assessed values for real estate tax purposes. Turbotax 2011 deluxe Real estate taxes. Turbotax 2011 deluxe   If you pay the real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Turbotax 2011 deluxe   If you reimburse the seller for taxes the seller paid for you, you generally can deduct that amount as a tax expense. Turbotax 2011 deluxe Whether or not you reimburse the seller, do not include that amount in the basis of your property. Turbotax 2011 deluxe Settlement costs. Turbotax 2011 deluxe   Your basis includes the settlement fees and closing costs for buying the property. Turbotax 2011 deluxe See Publication 551 for a detailed list of items you can and cannot include in basis. Turbotax 2011 deluxe   Do not include fees and costs for getting a loan on the property. Turbotax 2011 deluxe Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Turbotax 2011 deluxe Points. Turbotax 2011 deluxe   If you pay points to get a loan (including a mortgage, second mortgage, or line-of-credit), do not add the points to the basis of the related property. Turbotax 2011 deluxe You may be able to deduct the points currently or over the term of the loan. Turbotax 2011 deluxe For more information about deducting points, see Points in chapter 4 of Publication 535. Turbotax 2011 deluxe Assumption of a mortgage. Turbotax 2011 deluxe   If you buy property and assume (or buy the property subject to) an existing mortgage, your basis includes the amount you pay for the property plus the amount you owe on the mortgage. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe If you buy a farm for $100,000 cash and assume a mortgage of $400,000, your basis is $500,000. Turbotax 2011 deluxe Constructing assets. Turbotax 2011 deluxe   If you build property or have assets built for you, your expenses for this construction are part of your basis. Turbotax 2011 deluxe Some of these expenses include the following costs: Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. Turbotax 2011 deluxe   In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses. Turbotax 2011 deluxe You must capitalize them (include them in the asset's basis). Turbotax 2011 deluxe Employee wages paid for the construction work, reduced by any employment credits allowed. Turbotax 2011 deluxe Depreciation on equipment you own while it is used in the construction. Turbotax 2011 deluxe Operating and maintenance costs for equipment used in the construction. Turbotax 2011 deluxe The cost of business supplies and materials used in the construction. Turbotax 2011 deluxe    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. Turbotax 2011 deluxe Allocating the Basis In some instances, the rules for determining basis apply to a group of assets acquired in the same transaction or to property that consists of separate items. Turbotax 2011 deluxe To determine the basis of these assets or separate items, there must be an allocation of basis. Turbotax 2011 deluxe Group of assets acquired. Turbotax 2011 deluxe   If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. Turbotax 2011 deluxe Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. Turbotax 2011 deluxe You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. Turbotax 2011 deluxe If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. Turbotax 2011 deluxe Farming business acquired. Turbotax 2011 deluxe   If you buy a group of assets that makes up a farming business, there are special rules you must use to allocate the purchase price among the assets. Turbotax 2011 deluxe Generally, reduce the purchase price by any cash received. Turbotax 2011 deluxe Allocate the remaining purchase price to the other business assets received in proportion to (but not more than) their FMV and in a certain order. Turbotax 2011 deluxe See Trade or Business Acquired under Allocating the Basis in Publication 551 for more information. Turbotax 2011 deluxe Transplanted embryo. Turbotax 2011 deluxe   If you buy a cow that is pregnant with a transplanted embryo, allocate to the basis of the cow the part of the purchase price equal to the FMV of the cow without the implant. Turbotax 2011 deluxe Allocate the rest of the purchase price to the basis of the calf. Turbotax 2011 deluxe Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense. Turbotax 2011 deluxe Uniform Capitalization Rules Under the uniform capitalization rules, you must include certain direct and indirect costs in the basis of property you produce or in your inventory costs, rather than claim them as a current deduction. Turbotax 2011 deluxe You recover these costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Turbotax 2011 deluxe Generally, you are subject to the uniform capitalization rules if you do any of the following: Produce real or tangible personal property, or Acquire property for resale. Turbotax 2011 deluxe However, this rule does not apply to personal property if your average annual gross receipts for the 3-tax-year period ending with the year preceding the current tax year are $10 million or less. Turbotax 2011 deluxe You produce property if you construct, build, install, manufacture, develop, improve, or create the property. Turbotax 2011 deluxe You are not subject to the uniform capitalization rules if the property is produced for personal use. Turbotax 2011 deluxe In a farming business, you produce property if you raise or grow any agricultural or horticultural commodity, including plants and animals. Turbotax 2011 deluxe Plants. Turbotax 2011 deluxe   A plant produced in a farming business includes the following items: A fruit, nut, or other crop-bearing tree; An ornamental tree; A vine; A bush; Sod; and The crop or yield of a plant that will have more than one crop or yield. Turbotax 2011 deluxe Animals. Turbotax 2011 deluxe   An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life. Turbotax 2011 deluxe The direct and indirect costs of producing plants or animals include preparatory costs and preproductive period costs. Turbotax 2011 deluxe Preparatory costs include the acquisition costs of the seed, seedling, plant, or animal. Turbotax 2011 deluxe For plants, preproductive period costs include the costs of items such as irrigation, pruning, frost protection, spraying, and harvesting. Turbotax 2011 deluxe For animals, preproductive period costs include the costs of items such as feed, maintaining pasture or pen areas, breeding, veterinary services, and bedding. Turbotax 2011 deluxe Exceptions. Turbotax 2011 deluxe   In a farming business, the uniform capitalization rules do not apply to: Any animal, Any plant with a preproductive period of 2 years or less, or Any costs of replanting certain plants lost or damaged due to casualty. Turbotax 2011 deluxe   Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. Turbotax 2011 deluxe See Accrual Method Required under Accounting Methods in chapter 2. Turbotax 2011 deluxe   In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. Turbotax 2011 deluxe If you make this election, special rules apply. Turbotax 2011 deluxe This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. Turbotax 2011 deluxe This election also does not apply to any costs incurred for the planting, cultivation, maintenance, or development of any citrus or almond grove (or any part thereof) within the first 4 years the trees were planted. Turbotax 2011 deluxe    If you elect not to use the uniform capitalization rules, you must use the alternative depreciation system for all property used in any of your farming businesses and placed in service in any tax year during which the election is in effect. Turbotax 2011 deluxe See chapter 7, for additional information on depreciation. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe You grow trees that have a preproductive period of more than 2 years. Turbotax 2011 deluxe The trees produce an annual crop. Turbotax 2011 deluxe You are an individual and the uniform capitalization rules apply to your farming business. Turbotax 2011 deluxe You must capitalize the direct costs and an allocable part of indirect costs incurred due to the production of the trees. Turbotax 2011 deluxe You are not required to capitalize the costs of producing the annual crop because its preproductive period is 2 years or less. Turbotax 2011 deluxe Preproductive period of more than 2 years. Turbotax 2011 deluxe   The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. Turbotax 2011 deluxe Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. Turbotax 2011 deluxe Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years. Turbotax 2011 deluxe More information. Turbotax 2011 deluxe   For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1. Turbotax 2011 deluxe 263A-4. Turbotax 2011 deluxe Table 6-1. Turbotax 2011 deluxe Plants With a Preproductive Period of More Than 2 Years Plants producing the following crops or yields have a nationwide weighted average preproductive period of more than 2 years. Turbotax 2011 deluxe Almonds Apples Apricots Avocados Blueberries Cherries Chestnuts Coffee beans Currants Dates Figs Grapefruit Grapes Guavas Kiwifruit Kumquats Lemons Limes Macadamia nuts Mangoes Nectarines Olives Oranges Peaches Pears Pecans Persimmons Pistachio nuts Plums Pomegranates Prunes Tangelos Tangerines Tangors Walnuts Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the cost basis or basis other than cost (discussed later) of the property. Turbotax 2011 deluxe The adjustments to the original basis are increases or decreases to the cost basis or other basis which result in the adjusted basis of the property. Turbotax 2011 deluxe Increases to Basis Increase the basis of any property by all items properly added to a capital account. Turbotax 2011 deluxe These include the cost of any improvements having a useful life of more than 1 year. Turbotax 2011 deluxe The following costs increase the basis of property. Turbotax 2011 deluxe The cost of extending utility service lines to property. Turbotax 2011 deluxe Legal fees, such as the cost of defending and perfecting title. Turbotax 2011 deluxe Legal fees for seeking a decrease in an assessment levied against property to pay for local improvements. Turbotax 2011 deluxe Assessments for items such as paving roads and building ditches that increase the value of the property assessed. Turbotax 2011 deluxe Do not deduct these expenses as taxes. Turbotax 2011 deluxe However, you can deduct as taxes amounts assessed for maintenance or repairs, or for meeting interest charges related to the improvements. Turbotax 2011 deluxe If you make additions or improvements to business property, depreciate the basis of each addition or improvement as separate depreciable property using the rules that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. Turbotax 2011 deluxe See chapter 7. Turbotax 2011 deluxe Deducting vs. Turbotax 2011 deluxe capitalizing costs. Turbotax 2011 deluxe   Do not add to your basis costs you can deduct as current expenses. Turbotax 2011 deluxe For example, amounts paid for incidental repairs or maintenance are deductible as business expenses and are not added to basis. Turbotax 2011 deluxe However, you can elect either to deduct or to capitalize certain other costs. Turbotax 2011 deluxe See chapter 7 in Publication 535. Turbotax 2011 deluxe Decreases to Basis The following are some items that reduce the basis of property. Turbotax 2011 deluxe Section 179 deduction. Turbotax 2011 deluxe Deductions previously allowed or allowable for amortization, depreciation, and depletion. Turbotax 2011 deluxe Alternative motor vehicle credit. Turbotax 2011 deluxe See Form 8910. Turbotax 2011 deluxe Alternative fuel vehicle refueling property credit. Turbotax 2011 deluxe See Form 8911. Turbotax 2011 deluxe Residential energy efficient property credits. Turbotax 2011 deluxe See Form 5695. Turbotax 2011 deluxe Investment credit (part or all) taken. Turbotax 2011 deluxe Casualty and theft losses and insurance reimbursements. Turbotax 2011 deluxe Payments you receive for granting an easement. Turbotax 2011 deluxe Exclusion from income of subsidies for energy conservation measures. Turbotax 2011 deluxe Certain canceled debt excluded from income. Turbotax 2011 deluxe Rebates from a manufacturer or seller. Turbotax 2011 deluxe Patronage dividends received from a cooperative association as a result of a purchase of property. Turbotax 2011 deluxe See Patronage Dividends in chapter 3. Turbotax 2011 deluxe Gas-guzzler tax. Turbotax 2011 deluxe See Form 6197. Turbotax 2011 deluxe Some of these items are discussed next. Turbotax 2011 deluxe For a more detailed list of items that decrease basis, see section 1016 of the Internal Revenue Code and Publication 551. Turbotax 2011 deluxe Depreciation and section 179 deduction. Turbotax 2011 deluxe   The adjustments you must make to the basis of the property if you take the section 179 deduction or depreciate the property are explained next. Turbotax 2011 deluxe For more information on these deductions, see chapter 7. Turbotax 2011 deluxe Section 179 deduction. Turbotax 2011 deluxe   If you take the section 179 expense deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. Turbotax 2011 deluxe Depreciation. Turbotax 2011 deluxe   Decrease the basis of property by the depreciation you deducted or could have deducted on your tax returns under the method of depreciation you chose. Turbotax 2011 deluxe If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. Turbotax 2011 deluxe If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. Turbotax 2011 deluxe   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for any year. Turbotax 2011 deluxe   See chapter 7 for information on figuring the depreciation you should have claimed. Turbotax 2011 deluxe   In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation you must capitalize under the uniform capitalization rules. Turbotax 2011 deluxe Casualty and theft losses. Turbotax 2011 deluxe   If you have a casualty or theft loss, decrease the basis of the property by any insurance or other reimbursement. Turbotax 2011 deluxe Also, decrease it by any deductible loss not covered by insurance. Turbotax 2011 deluxe See chapter 11 for information about figuring your casualty or theft loss. Turbotax 2011 deluxe   You must increase your basis in the property by the amount you spend on clean-up costs (such as debris removal) and repairs that restore the property to its pre-casualty condition. Turbotax 2011 deluxe To make this determination, compare the repaired property to the property before the casualty. Turbotax 2011 deluxe Easements. Turbotax 2011 deluxe   The amount you receive for granting an easement is usually considered to be proceeds from the sale of an interest in the real property. Turbotax 2011 deluxe It reduces the basis of the affected part of the property. Turbotax 2011 deluxe If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Turbotax 2011 deluxe See Easements and rights-of-way in chapter 3. Turbotax 2011 deluxe Exclusion from income of subsidies for energy conservation measures. Turbotax 2011 deluxe   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. Turbotax 2011 deluxe Reduce the basis of the property by the excluded amount. Turbotax 2011 deluxe Canceled debt excluded from income. Turbotax 2011 deluxe   If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. Turbotax 2011 deluxe A debt includes any indebtedness for which you are liable or which attaches to property you hold. Turbotax 2011 deluxe   You can exclude your canceled debt from income if the debt is any of the following. Turbotax 2011 deluxe Debt canceled in a bankruptcy case or when you are insolvent. Turbotax 2011 deluxe Qualified farm debt. Turbotax 2011 deluxe Qualified real property business debt (provided you are not a C corporation). Turbotax 2011 deluxe Qualified principal residence indebtedness. Turbotax 2011 deluxe Discharge of certain indebtedness of a qualified individual because of Midwestern disasters. Turbotax 2011 deluxe If you exclude canceled debt described in (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. Turbotax 2011 deluxe If you exclude canceled debt described in (3), you must only reduce the basis of your depreciable property by the excluded amount. Turbotax 2011 deluxe   For more information about canceled debt in a bankruptcy case, see Publication 908, Bankruptcy Tax Guide. Turbotax 2011 deluxe For more information about insolvency and canceled debt that is qualified farm debt or qualified principal residence indebtedness, see chapter 3. Turbotax 2011 deluxe For more information about qualified real property business debt, see Publication 334, Tax Guide for Small Business. Turbotax 2011 deluxe For more information about canceled debt in Midwestern disaster areas, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Turbotax 2011 deluxe Basis Other Than Cost There are times when you cannot use cost as basis. Turbotax 2011 deluxe In these situations, the fair market value or the adjusted basis of property may be used. Turbotax 2011 deluxe Examples are discussed next. Turbotax 2011 deluxe Property changed from personal to business or rental use. Turbotax 2011 deluxe   When you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. Turbotax 2011 deluxe An example of changing property from personal to business use would be changing the use of your pickup truck that you originally purchased for your personal use to use in your farming business. Turbotax 2011 deluxe   The basis for depreciation is the lesser of: The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. Turbotax 2011 deluxe   If you later sell or dispose of this property, the basis you use will depend on whether you are figuring a gain or loss. Turbotax 2011 deluxe The basis for figuring a gain is your adjusted basis in the property when you sell the property. Turbotax 2011 deluxe Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Turbotax 2011 deluxe Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Turbotax 2011 deluxe Property received for services. Turbotax 2011 deluxe   If you receive property for services, include the property's FMV in income. Turbotax 2011 deluxe The amount you include in income becomes your basis. Turbotax 2011 deluxe If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe George Smith is an accountant and also operates a farming business. Turbotax 2011 deluxe George agreed to do some accounting work for his neighbor in exchange for a dairy cow. Turbotax 2011 deluxe The accounting work and the cow are each worth $1,500. Turbotax 2011 deluxe George must include $1,500 in income for his accounting services. Turbotax 2011 deluxe George's basis in the cow is $1,500. Turbotax 2011 deluxe Taxable Exchanges A taxable exchange is one in which the gain is taxable, or the loss is deductible. Turbotax 2011 deluxe A taxable gain or deductible loss also is known as a recognized gain or loss. Turbotax 2011 deluxe A taxable exchange occurs when you receive cash or get property that is not similar or related in use to the property exchanged. Turbotax 2011 deluxe If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe You trade a tract of farmland with an adjusted basis of $2,000 for a tractor that has an FMV of $6,000. Turbotax 2011 deluxe You must report a taxable gain of $4,000 for the land. Turbotax 2011 deluxe The tractor has a basis of $6,000. Turbotax 2011 deluxe Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property you receive using the basis of the converted property. Turbotax 2011 deluxe Similar or related property. Turbotax 2011 deluxe   If the replacement property is similar or related in service or use to the converted property, the replacement property's basis is the same as the old property's basis on the date of the conversion. Turbotax 2011 deluxe However, make the following adjustments. Turbotax 2011 deluxe Decrease the basis by the following amounts. Turbotax 2011 deluxe Any loss you recognize on the involuntary conversion. Turbotax 2011 deluxe Any money you receive that you do not spend on similar property. Turbotax 2011 deluxe Increase the basis by the following amounts. Turbotax 2011 deluxe Any gain you recognize on the involuntary conversion. Turbotax 2011 deluxe Any cost of acquiring the replacement property. Turbotax 2011 deluxe Money or property not similar or related. Turbotax 2011 deluxe   If you receive money or property not similar or related in service or use to the converted property and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the involuntary conversion. Turbotax 2011 deluxe Allocating the basis. Turbotax 2011 deluxe   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Turbotax 2011 deluxe Basis for depreciation. Turbotax 2011 deluxe   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Turbotax 2011 deluxe For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Turbotax 2011 deluxe For more information about involuntary conversions, see chapter 11. Turbotax 2011 deluxe Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Turbotax 2011 deluxe A nontaxable gain or loss also is known as an unrecognized gain or loss. Turbotax 2011 deluxe If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. Turbotax 2011 deluxe Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Turbotax 2011 deluxe For an exchange to qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. Turbotax 2011 deluxe There must also be an exchange of like-kind property. Turbotax 2011 deluxe For more information, see Like-Kind Exchanges in  chapter 8. Turbotax 2011 deluxe The basis of the property you receive generally is the same as the adjusted basis of the property you gave up. Turbotax 2011 deluxe Example 1. Turbotax 2011 deluxe You traded a truck you used in your farming business for a new smaller truck to use in farming. Turbotax 2011 deluxe The adjusted basis of the old truck was $10,000. Turbotax 2011 deluxe The FMV of the new truck is $30,000. Turbotax 2011 deluxe Because this is a nontaxable exchange, you do not recognize any gain, and your basis in the new truck is $10,000, the same as the adjusted basis of the truck you traded. Turbotax 2011 deluxe Example 2. Turbotax 2011 deluxe You trade a field cultivator (adjusted basis of $8,000) for a planter (FMV of $9,000). Turbotax 2011 deluxe You use both the field cultivator and the planter in your farming business. Turbotax 2011 deluxe The basis of the planter you receive is $8,000, the same as the field cultivator traded Exchange expenses. Turbotax 2011 deluxe   Exchange expenses generally are the closing costs that you pay. Turbotax 2011 deluxe They include such items as brokerage commissions, attorney fees, and deed preparation fees. Turbotax 2011 deluxe Add them to the basis of the like-kind property you receive. Turbotax 2011 deluxe Property plus cash. Turbotax 2011 deluxe   If you trade property in a like-kind exchange and also pay money, the basis of the property you receive is the adjusted basis of the property you gave up plus the money you paid. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe You trade in a truck (adjusted basis of $3,000) for another truck (FMV of $7,500) and pay $4,000. Turbotax 2011 deluxe Your basis in the new truck is $7,000 (the $3,000 adjusted basis of the old truck plus the $4,000 cash). Turbotax 2011 deluxe Special rules for related persons. Turbotax 2011 deluxe   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. Turbotax 2011 deluxe Each person must report any gain or loss not recognized on the original exchange unless the loss is not deductible under the related party rules. Turbotax 2011 deluxe Each person reports it on the tax return filed for the year in which the later disposition occurred. Turbotax 2011 deluxe If this rule applies, the basis of the property received in the original exchange will be its FMV. Turbotax 2011 deluxe For more information, see chapter 8. Turbotax 2011 deluxe Exchange of business property. Turbotax 2011 deluxe   Exchanging the property of one business for the property of another business generally is a multiple property exchange. Turbotax 2011 deluxe For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. Turbotax 2011 deluxe Basis for depreciation. Turbotax 2011 deluxe   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind transaction. Turbotax 2011 deluxe For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Turbotax 2011 deluxe Partially Nontaxable Exchanges A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Turbotax 2011 deluxe The basis of the property you receive is the same as the adjusted basis of the property you gave up with the following adjustments. Turbotax 2011 deluxe Decrease the basis by the following amounts. Turbotax 2011 deluxe Any money you receive. Turbotax 2011 deluxe Any loss you recognize on the exchange. Turbotax 2011 deluxe Increase the basis by the following amounts. Turbotax 2011 deluxe Any additional costs you incur. Turbotax 2011 deluxe Any gain you recognize on the exchange. Turbotax 2011 deluxe If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Turbotax 2011 deluxe Example 1. Turbotax 2011 deluxe You trade farmland (basis of $100,000) for another tract of farmland (FMV of $110,000) and $30,000 cash. Turbotax 2011 deluxe You realize a gain of $40,000. Turbotax 2011 deluxe This is the FMV of the land received plus the cash minus the basis of the land you traded ($110,000 + $30,000 − $100,000). Turbotax 2011 deluxe Include your gain in income (recognize gain) only to the extent of the cash received. Turbotax 2011 deluxe Your basis in the land you received is figured as follows. Turbotax 2011 deluxe Basis of land traded $100,000 Minus: Cash received (adjustment 1(a)) − 30,000   $70,000 Plus: Gain recognized (adjustment 2(b)) + 30,000 Basis of land received $100,000 Example 2. Turbotax 2011 deluxe You trade a truck (adjusted basis of $22,750) for another truck (FMV of $20,000) and $10,000 cash. Turbotax 2011 deluxe You realize a gain of $7,250. Turbotax 2011 deluxe This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($20,000 + $10,000 − $22,750). Turbotax 2011 deluxe You include all the gain in your income (recognize gain) because the gain is less than the cash you received. Turbotax 2011 deluxe Your basis in the truck you received is figured as follows. Turbotax 2011 deluxe Adjusted basis of truck traded $22,750 Minus: Cash received (adjustment 1(a)) −10,000   $12,750 Plus: Gain recognized (adjustment 2(b)) + 7,250 Basis of truck received $20,000 Allocation of basis. Turbotax 2011 deluxe   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Turbotax 2011 deluxe The rest is the basis of the like-kind property. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe You traded a tractor with an adjusted basis of $15,000 for another tractor that had an FMV of $12,500. Turbotax 2011 deluxe You also received $1,000 cash and a truck that had an FMV of $3,000. Turbotax 2011 deluxe The truck is unlike property. Turbotax 2011 deluxe You realized a gain of $1,500. Turbotax 2011 deluxe This is the FMV of the tractor received plus the FMV of the truck received plus the cash minus the adjusted basis of the tractor you traded ($12,500 + $3,000 + $1,000 − $15,000). Turbotax 2011 deluxe You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. Turbotax 2011 deluxe Your basis in the properties you received is figured as follows. Turbotax 2011 deluxe Adjusted basis of old tractor $15,000 Minus: Cash received (adjustment 1(a)) − 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) + 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property—the truck ($3,000). Turbotax 2011 deluxe This is the truck's FMV. Turbotax 2011 deluxe The rest ($12,500) is the basis of the tractor. Turbotax 2011 deluxe Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe You used a tractor on your farm for 3 years. Turbotax 2011 deluxe Its adjusted basis is $22,000 and its FMV is $40,000. Turbotax 2011 deluxe You are interested in a new tractor, which sells for $60,000. Turbotax 2011 deluxe Ordinarily, you would trade your old tractor for the new one and pay the dealer $20,000. Turbotax 2011 deluxe Your basis for depreciating the new tractor would then be $42,000 ($20,000 + $22,000, the adjusted basis of your old tractor). Turbotax 2011 deluxe However, you want a higher basis for depreciating the new tractor, so you agree to pay the dealer $60,000 for the new tractor if he will pay you $40,000 for your old tractor. Turbotax 2011 deluxe Because the two transactions are dependent on each other, you are treated as having exchanged your old tractor for the new one and paid $20,000 ($60,000 − $40,000). Turbotax 2011 deluxe Your basis for depreciating the new tractor is $42,000, the same as if you traded the old tractor. Turbotax 2011 deluxe Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you. Turbotax 2011 deluxe You also must know its FMV at the time it was given to you and any gift tax paid on it. Turbotax 2011 deluxe FMV equal to or greater than donor's adjusted basis. Turbotax 2011 deluxe   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis when you received the gift. Turbotax 2011 deluxe Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Turbotax 2011 deluxe   Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. Turbotax 2011 deluxe See Adjusted Basis , earlier. Turbotax 2011 deluxe   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. Turbotax 2011 deluxe Figure the increase by multiplying the gift tax paid by the following fraction. Turbotax 2011 deluxe Net increase in value of the gift Amount of the gift   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Turbotax 2011 deluxe The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe In 2013, you received a gift of property from your mother that had an FMV of $50,000. Turbotax 2011 deluxe Her adjusted basis was $20,000. Turbotax 2011 deluxe The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Turbotax 2011 deluxe She paid a gift tax of $7,320. Turbotax 2011 deluxe Your basis, $26,076, is figured as follows. Turbotax 2011 deluxe Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000 Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . Turbotax 2011 deluxe 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. Turbotax 2011 deluxe If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Turbotax 2011 deluxe However, your basis cannot exceed the FMV of the gift when it was given to you. Turbotax 2011 deluxe FMV less than donor's adjusted basis. Turbotax 2011 deluxe   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Turbotax 2011 deluxe Your basis for figuring gain is the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Turbotax 2011 deluxe Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. Turbotax 2011 deluxe (See Adjusted Basis , earlier. Turbotax 2011 deluxe )   If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither gain nor loss on the sale or other disposition of the property. Turbotax 2011 deluxe Example. Turbotax 2011 deluxe You received farmland as a gift from your parents when they retired from farming. Turbotax 2011 deluxe At the time of the gift, the land had an FMV of $80,000. Turbotax 2011 deluxe Your parents' adjusted basis was $100,000. Turbotax 2011 deluxe After you received the land, no events occurred that would increase or decrease your basis. Turbotax 2011 deluxe If you sell the land for $120,000, you will have a $20,000 gain because you must use the donor's adjusted basis at the time of the gift ($100,000) as your basis to figure a gain. Turbotax 2011 deluxe If you sell the land for $70,000, you will have a $10,000 loss because you must use the FMV at the time of the gift ($80,000) as your basis to figure a loss. Turbotax 2011 deluxe If the sales price is between $80,000 and $100,000, you have neither gain nor loss. Turbotax 2011 deluxe For instance, if the sales price was $90,000 and you tried to figure a gain using the donor's adjusted basis ($100,000), you would get a $10,000 loss. Turbotax 2011 deluxe If you then tried to figure a loss using the FMV ($80,000), you would get a $10,000 gain. Turbotax 2011 deluxe Business property. Turbotax 2011 deluxe   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Turbotax 2011 deluxe Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. Turbotax 2011 deluxe The same rule applies to a transfer by your former spouse if the transfer is incident to divorce. Turbotax 2011 deluxe However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed plus the liabilities to which the property is subject are more than the adjusted basis of the property transferred. Turbotax 2011 deluxe The transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. Turbotax 2011 deluxe For more information, see Property Settlements in Publication 504, Divorced or Separated Individuals. Turbotax 2011 deluxe Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. Turbotax 2011 deluxe If a federal estate return is filed, you can use its appraised value. Turbotax 2011 deluxe The FMV on the alternate valuation date, if the personal representative for the estate elects to use alternate valuation. Turbotax 2011 deluxe For information on the alternate valuation, see the Instructions for Form 706. Turbotax 2011 deluxe The decedent's adjusted basis in land to the extent of the value that is excluded from the decedent's taxable estate as a qualified conservation easement. Turbotax 2011 deluxe If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Turbotax 2011 deluxe Special-use valuation method. Turbotax 2011 deluxe   Under certain conditions, when a person dies, the executor or personal representative of that person's estate may elect to value qualified real property at other than its FMV. Turbotax 2011 deluxe If so, the executor or personal representative values the qualified real property based on its use as a farm or other closely held business. Turbotax 2011 deluxe If the executor or personal representative elects this method of valuation for estate tax purposes, this value is the basis of the property for the qualified heirs. Turbotax 2011 deluxe The qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. Turbotax 2011 deluxe   If you are a qualified heir who received special-use valuation property, increase your basis by any gain recognized by the estate or trust because of post-death appreciation. Turbotax 2011 deluxe Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or on the alternate valuation date. Turbotax 2011 deluxe Figure all FMVs without regard to the special-use valuation. Turbotax 2011 deluxe   You may be liable for an additional estate tax if, within 10 years after the death of the decedent, you transfer the property or the property stops being used as a farm. Turbotax 2011 deluxe This tax does not apply if you dispose of the property in a like-kind exchange or in an involuntary conversion in which all of the proceeds are reinvested in qualified replacement property. Turbotax 2011 deluxe The tax also does not apply if you transfer the property to a member of your family and certain requirements are met. Turbotax 2011 deluxe   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. Turbotax 2011 deluxe To increase your basis, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of payment of the additional estate tax. Turbotax 2011 deluxe If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. Turbotax 2011 deluxe The increase in your basis is considered to have occurred immediately before the event that resulted in the additional estate tax. Turbotax 2011 deluxe   You make the election by filing, with Form 706-A, United States Additional Estate Tax Return, a statement that: Contains your (and the estate's) name, address, and taxpayer identification number; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which you are making the election; and Provides any additional information required by the Form 706-A instructions. Turbotax 2011 deluxe   For more information, see Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706-A, and the related instructions. Turbotax 2011 deluxe Property inherited from a decedent who died in 2010. Turbotax 2011 deluxe   If you inherited property from a decedent who died in 2010, different rules may apply. Turbotax 2011 deluxe See Publication 4895, Tax Treatment of Property Acquired From a Decendent Dying in 2010, for details. Turbotax 2011 deluxe Property Distributed From a Partnership or Corporation The following rules apply to determine a partner's basis and a shareholder's basis in property distributed respectively from a partnership to the partner with respect to the partner's interest in the partnership and from a corporation to the shareholder with respect to the shareholder's ownership of stock in the corporation. Turbotax 2011 deluxe Partner's basis. Turbotax 2011 deluxe   Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed by a partnership to the partner is its adjusted basis to the partnership immediately before the distribution. Turbotax 2011 deluxe However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. Turbotax 2011 deluxe For more information, see Partner's Basis for Distributed Property in Publication 541, Partnerships. Turbotax 2011 deluxe Shareholder's basis. Turbotax 2011 deluxe   The basis of property distributed by a corporation to a shareholder is its fair market value. Turbotax 2011 deluxe For more information about corporate distributions, see Distributions to Shareholders in Publication 542, Corporations. Turbotax 2011 deluxe Prev  Up  Next   Home   More Online Publications