File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Www Irs Gov Eitc

2011 Income Tax Returns2012 1040a FormE File 2011 Taxes OnlineFiling A 1040xIrs 1040 Ez Form Instructions 2013Where Can I File My State Taxes OnlyHow Much Does It Cost To Do State Taxes On TurbotaxHow Do I File Taxes For 20112012 Federal Tax Return FormsHow To Do Your TaxesState Free Tax Return2011 Irs Tax FormsFederal Income Tax Rates 2012Students Filing Taxes 2013Tax Calculator 2012W2 Ez1040ez Form InstructionsHow To File State Taxes Only2013 State Income Tax FormsInstructions For Filing An Amended Tax ReturnEfile TaxesHow To Do State TaxesEzformFree Taxes 20122009 Tax FormHow To File 1040xDo I Amend Tax Return1040 Amendment 2011File 1040ez Online IrsFreetaxusa20101040ez Tax TablesWhere Can I File Just My State Taxes For FreeIncome Tax PreparationH&r Block Tax Forms1040x Form For 20131040ez Form 20132011 E File TaxesHow To File 2012 Taxes Late OnlineFree Taxes H And R BlockHow Do I Amend My Tax Return Online

Www Irs Gov Eitc

Www irs gov eitc Publication 3402 - Additional Material Prev  Up  Next   Home   More Online Publications
Español

The requirements for auto insurance vary from state to state. Check with your state insurance regulator to learn more about individual requirements, as well as insurers you may be considering for your policy.

To get the best coverage at the best price, get several quotes from insurance companies. It may save you hundreds of dollars a year. Other ways to reduce your insurance premiums are:

  • Raise your deductibles on collision and comprehensive coverages. If you have an old car, you might want to drop these coverages altogether.
  • Take advantage of discounts. You may be eligible for a discount based on the number of miles you drive; your age (turning 25 or 50); your good grades if you are a student, your driving record (no moving vehicle violations or accidents in three years); or if you've taken a safe-driving course. You might also be able to get discounts if you insure more than one vehicle, insure your vehicle and your home with the same company, have anti-theft devices or have safety features such as air bags or anti-lock brake system.

Insurance Tips

  • When shopping for insurance on the Internet, check that the website is secure. Look for the lock icon, a URL that begins "https:" and never provide personal data if you don't trust the site.
  • Be wary of people selling insurance door-to-door and over the telephone.
  • Be suspicious if, after an accident, a stranger contacts you to offer "quick cash" or recommends a particular attorney, mechanic, or healthcare provider. Report the incident to your police department.
  • Don't give your insurance identification numbers to companies you don't know.
  • Carry a disposable camera in your glove compartment. If you are in an accident, take pictures of the damage and the people involved. Ask for names, telephone numbers and driver's license information for all those involved. Getting contact information for any witnesses is also a good idea.

The Www Irs Gov Eitc

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