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Arizona 140 Tax Form

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Arizona 140 Tax Form

Arizona 140 tax form 13. Arizona 140 tax form   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. Arizona 140 tax form It is divided into the following sections. Arizona 140 tax form Cost basis. Arizona 140 tax form Adjusted basis. Arizona 140 tax form Basis other than cost. Arizona 140 tax form Your basis is the amount of your investment in property for tax purposes. Arizona 140 tax form Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. Arizona 140 tax form Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. Arizona 140 tax form If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Arizona 140 tax form Only the basis allocated to the business or investment use of the property can be depreciated. Arizona 140 tax form Your original basis in property is adjusted (increased or decreased) by certain events. Arizona 140 tax form For example, if you make improvements to the property, increase your basis. Arizona 140 tax form If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. Arizona 140 tax form Keep accurate records of all items that affect the basis of your property. Arizona 140 tax form For more information on keeping records, see chapter 1. Arizona 140 tax form Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. Arizona 140 tax form The cost is the amount you pay in cash, debt obligations, other property, or services. Arizona 140 tax form Your cost also includes amounts you pay for the following items: Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if you assume liability for the seller). Arizona 140 tax form In addition, the basis of real estate and business assets may include other items. Arizona 140 tax form Loans with low or no interest. Arizona 140 tax form    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 any amount considered to be unstated interest. Arizona 140 tax form You generally have unstated interest if your interest rate is less than the applicable federal rate. Arizona 140 tax form   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Arizona 140 tax form Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Arizona 140 tax form If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Arizona 140 tax form Lump sum purchase. Arizona 140 tax form   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. Arizona 140 tax form Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. Arizona 140 tax form Figure the basis of each asset by multiplying the lump sum by a fraction. Arizona 140 tax form The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Arizona 140 tax form    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. Arizona 140 tax form Fair market value (FMV). Arizona 140 tax form   FMV is the price at which the 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 the necessary facts. Arizona 140 tax form Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. Arizona 140 tax form Assumption of mortgage. Arizona 140 tax form   If you buy property and assume (or buy the property subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. Arizona 140 tax form Settlement costs. Arizona 140 tax form   Your basis includes the settlement fees and closing costs you paid for buying the property. Arizona 140 tax form (A fee for buying property is a cost that must be paid even if you buy the property for cash. Arizona 140 tax form ) Do not include fees and costs for getting a loan on the property in your basis. Arizona 140 tax form   The following are some of the settlement fees or closing costs you can include in the basis of your property. Arizona 140 tax form Abstract fees (abstract of title fees). Arizona 140 tax form Charges for installing utility services. Arizona 140 tax form Legal fees (including fees for the title search and preparation of the sales contract and deed). Arizona 140 tax form Recording fees. Arizona 140 tax form Survey fees. Arizona 140 tax form Transfer taxes. Arizona 140 tax form Owner's title insurance. Arizona 140 tax form Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Arizona 140 tax form   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Arizona 140 tax form   The following are some of the settlement fees and closing costs you cannot include in the basis of property. Arizona 140 tax form Casualty insurance premiums. Arizona 140 tax form Rent for occupancy of the property before closing. Arizona 140 tax form Charges for utilities or other services related to occupancy of the property before closing. Arizona 140 tax form Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. Arizona 140 tax form Fees for refinancing a mortgage. Arizona 140 tax form Real estate taxes. Arizona 140 tax form   If you pay 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. Arizona 140 tax form You cannot deduct them as an expense. Arizona 140 tax form    If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. Arizona 140 tax form Do not include that amount in the basis of your property. Arizona 140 tax form If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Arizona 140 tax form Points. Arizona 140 tax form   If you pay points to get a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. Arizona 140 tax form Generally, you deduct the points over the term of the loan. Arizona 140 tax form For more information on how to deduct points, see chapter 23. Arizona 140 tax form Points on home mortgage. Arizona 140 tax form   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. Arizona 140 tax form If certain requirements are met, you can deduct the points in full for the year in which they are paid. Arizona 140 tax form Reduce the basis of your home by any seller-paid points. Arizona 140 tax form 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 (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. Arizona 140 tax form The result is the adjusted basis. Arizona 140 tax form Increases to Basis Increase the basis of any property by all items properly added to a capital account. Arizona 140 tax form Examples of items that increase basis are shown in Table 13-1. Arizona 140 tax form These include the items discussed below. Arizona 140 tax form Improvements. Arizona 140 tax form   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. Arizona 140 tax form For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. Arizona 140 tax form Assessments for local improvements. Arizona 140 tax form   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. Arizona 140 tax form Do not deduct them as taxes. Arizona 140 tax form However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. Arizona 140 tax form Example. Arizona 140 tax form Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. Arizona 140 tax form Add the assessment to your property's basis. Arizona 140 tax form In this example, the assessment is a depreciable asset. Arizona 140 tax form Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. Arizona 140 tax form Examples of items that decrease basis are shown in Table 13-1. Arizona 140 tax form These include the items discussed below. Arizona 140 tax form Table 13-1. Arizona 140 tax form Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. Arizona 140 tax form   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. Arizona 140 tax form    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. Arizona 140 tax form   For more information on casualty and theft losses, see chapter 25. Arizona 140 tax form Depreciation and section 179 deduction. Arizona 140 tax form   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. Arizona 140 tax form   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. Arizona 140 tax form Example. Arizona 140 tax form You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. Arizona 140 tax form You added an improvement to the duplex that cost $10,000. Arizona 140 tax form In February last year, the duplex was damaged by fire. Arizona 140 tax form Up to that time, you had been allowed depreciation of $23,000. Arizona 140 tax form You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. Arizona 140 tax form You deducted a casualty loss of $1,000 on your income tax return for last year. Arizona 140 tax form You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. Arizona 140 tax form You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. Arizona 140 tax form Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. Arizona 140 tax form Your basis in the land is its original cost of $5,000. Arizona 140 tax form Easements. Arizona 140 tax form   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. Arizona 140 tax form It reduces the basis of the affected part of the property. Arizona 140 tax form 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. Arizona 140 tax form   If the gain is on a capital asset, see chapter 16 for information about how to report it. Arizona 140 tax form If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. Arizona 140 tax form Exclusion of subsidies for energy conservation measures. Arizona 140 tax form   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. Arizona 140 tax form Reduce the basis of the property for which you received the subsidy by the excluded amount. Arizona 140 tax form For more information about this subsidy, see chapter 12. Arizona 140 tax form Postponed gain from sale of home. Arizona 140 tax form    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. Arizona 140 tax form For more information on the rules for the sale of a home, see chapter 15. Arizona 140 tax form Basis Other Than Cost There are many times when you cannot use cost as basis. Arizona 140 tax form In these cases, the fair market value or the adjusted basis of the property can be used. Arizona 140 tax form Fair market value (FMV) and adjusted basis were discussed earlier. Arizona 140 tax form Property Received for Services If you receive property for your services, include the FMV of the property in income. Arizona 140 tax form The amount you include in income becomes your basis. Arizona 140 tax form 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. Arizona 140 tax form Restricted property. Arizona 140 tax form   If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested. Arizona 140 tax form However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. Arizona 140 tax form Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). Arizona 140 tax form For more information, see Restricted Property in Publication 525. Arizona 140 tax form Bargain purchases. Arizona 140 tax form   A bargain purchase is a purchase of an item for less than its FMV. Arizona 140 tax form If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. Arizona 140 tax form Your basis in the property is its FMV (your purchase price plus the amount you include in income). Arizona 140 tax form   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. Arizona 140 tax form However, your basis in the property is still its FMV. Arizona 140 tax form See Employee Discounts in Publication 15-B. Arizona 140 tax form Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Arizona 140 tax form A taxable gain or deductible loss also is known as a recognized gain or loss. Arizona 140 tax form 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. Arizona 140 tax form Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. Arizona 140 tax form Similar or related property. Arizona 140 tax form   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. Arizona 140 tax form Decrease the basis by the following. Arizona 140 tax form Any loss you recognize on the involuntary conversion. Arizona 140 tax form Any money you receive that you do not spend on similar property. Arizona 140 tax form Increase the basis by the following. Arizona 140 tax form Any gain you recognize on the involuntary conversion. Arizona 140 tax form Any cost of acquiring the replacement property. Arizona 140 tax form Money or property not similar or related. Arizona 140 tax form    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 conversion. Arizona 140 tax form Example. Arizona 140 tax form The state condemned your property. Arizona 140 tax form The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. Arizona 140 tax form You realized a gain of $5,000 ($31,000 − $26,000). Arizona 140 tax form You bought replacement property similar in use to the converted property for $29,000. Arizona 140 tax form You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Arizona 140 tax form Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Arizona 140 tax form The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. Arizona 140 tax form   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Arizona 140 tax form Basis for depreciation. Arizona 140 tax form   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Arizona 140 tax form For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Arizona 140 tax form Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Arizona 140 tax form If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. Arizona 140 tax form See Nontaxable Trades in chapter 14. Arizona 140 tax form Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Arizona 140 tax form To qualify as a like-kind exchange, the property traded and the property received must be both of the following. Arizona 140 tax form Qualifying property. Arizona 140 tax form Like-kind property. Arizona 140 tax form The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. Arizona 140 tax form If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. Arizona 140 tax form Qualifying property. Arizona 140 tax form   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. Arizona 140 tax form Like-kind property. Arizona 140 tax form   There must be an exchange of like-kind property. Arizona 140 tax form Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Arizona 140 tax form The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. Arizona 140 tax form Example. Arizona 140 tax form You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. Arizona 140 tax form The dealer allows you $2,000 on the old truck, and you pay $4,800. Arizona 140 tax form This is a like-kind exchange. Arizona 140 tax form The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). Arizona 140 tax form If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). Arizona 140 tax form The basis of the new truck is the price you pay the dealer. Arizona 140 tax form Partially nontaxable exchanges. Arizona 140 tax form   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Arizona 140 tax form The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. Arizona 140 tax form Decrease the basis by the following amounts. Arizona 140 tax form Any money you receive. Arizona 140 tax form Any loss you recognize on the exchange. Arizona 140 tax form Increase the basis by the following amounts. Arizona 140 tax form Any additional costs you incur. Arizona 140 tax form Any gain you recognize on the exchange. Arizona 140 tax form If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Arizona 140 tax form Allocation of basis. Arizona 140 tax form   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. Arizona 140 tax form The rest is the basis of the like-kind property. Arizona 140 tax form More information. Arizona 140 tax form   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. Arizona 140 tax form Basis for depreciation. Arizona 140 tax form   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. Arizona 140 tax form For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Arizona 140 tax form 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. Arizona 140 tax form The same rule applies to a transfer by your former spouse that is incident to divorce. Arizona 140 tax form 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. Arizona 140 tax form If the property transferred to you is a series E, series EE, or series I U. Arizona 140 tax form S. Arizona 140 tax form savings bond, the transferor must include in income the interest accrued to the date of transfer. Arizona 140 tax form Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. Arizona 140 tax form For more information on these bonds, see chapter 7. Arizona 140 tax form At the time of the transfer, 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. Arizona 140 tax form For more information about the transfer of property from a spouse, see chapter 14. Arizona 140 tax form Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. Arizona 140 tax form FMV less than donor's adjusted basis. Arizona 140 tax form   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. Arizona 140 tax form Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Arizona 140 tax form 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. Arizona 140 tax form See Adjusted Basis , earlier. Arizona 140 tax form Example. Arizona 140 tax form You received an acre of land as a gift. Arizona 140 tax form At the time of the gift, the land had an FMV of $8,000. Arizona 140 tax form The donor's adjusted basis was $10,000. Arizona 140 tax form After you received the property, no events occurred to increase or decrease your basis. Arizona 140 tax form If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. Arizona 140 tax form If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. Arizona 140 tax form If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Arizona 140 tax form Business property. Arizona 140 tax form   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. Arizona 140 tax form FMV equal to or greater than donor's adjusted basis. Arizona 140 tax form   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 at the time you received the gift. Arizona 140 tax form Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. Arizona 140 tax form   Also, for figuring gain or loss from a sale or other disposition 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. Arizona 140 tax form See Adjusted Basis , earlier. Arizona 140 tax form   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. Arizona 140 tax form Figure the increase by multiplying the gift tax paid by a fraction. Arizona 140 tax form The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Arizona 140 tax form   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Arizona 140 tax form 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. Arizona 140 tax form Example. Arizona 140 tax form In 2013, you received a gift of property from your mother that had an FMV of $50,000. Arizona 140 tax form Her adjusted basis was $20,000. Arizona 140 tax form The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Arizona 140 tax form She paid a gift tax of $7,320 on the property. Arizona 140 tax form Your basis is $26,076, figured as follows: 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) × . Arizona 140 tax form 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. Arizona 140 tax form If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Arizona 140 tax form However, your basis cannot exceed the FMV of the gift at the time it was given to you. Arizona 140 tax form 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. Arizona 140 tax form The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. Arizona 140 tax form The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. Arizona 140 tax form The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. Arizona 140 tax form 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. Arizona 140 tax form For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Arizona 140 tax form Property inherited from a decedent who died in 2010. Arizona 140 tax form   If you inherited property from a decedent who died in 2010, special rules may apply. Arizona 140 tax form For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Arizona 140 tax form Community property. Arizona 140 tax form   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. Arizona 140 tax form When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. Arizona 140 tax form For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. Arizona 140 tax form Example. Arizona 140 tax form You and your spouse owned community property that had a basis of $80,000. Arizona 140 tax form When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Arizona 140 tax form The FMV of the community interest was $100,000. Arizona 140 tax form The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Arizona 140 tax form The basis of the other half to your spouse's heirs is also $50,000. Arizona 140 tax form For more information about community property, see Publication 555, Community Property. Arizona 140 tax form Property Changed From Personal to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you can begin to depreciate the property at the time of the change. Arizona 140 tax form To do so, you must figure its basis for depreciation at the time of the change. Arizona 140 tax form An example of changing property held for personal use to business or rental use would be renting out your former personal residence. Arizona 140 tax form Basis for depreciation. Arizona 140 tax form   The basis for depreciation is the lesser of the following amounts. Arizona 140 tax form The FMV of the property on the date of the change. Arizona 140 tax form Your adjusted basis on the date of the change. Arizona 140 tax form Example. Arizona 140 tax form Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. Arizona 140 tax form You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. Arizona 140 tax form Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Arizona 140 tax form Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Arizona 140 tax form On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Arizona 140 tax form The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). Arizona 140 tax form Sale of property. Arizona 140 tax form   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. Arizona 140 tax form Gain. Arizona 140 tax form   The basis for figuring a gain is your adjusted basis in the property when you sell the property. Arizona 140 tax form Example. Arizona 140 tax form Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. Arizona 140 tax form Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Arizona 140 tax form Loss. Arizona 140 tax form   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. Arizona 140 tax form Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Arizona 140 tax form Example. Arizona 140 tax form Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. Arizona 140 tax form In this case, you would start with the FMV on the date of the change to rental use ($180,000), because it is less than the adjusted basis of $203,000 ($178,000 + $25,000 (land)) on that date. Arizona 140 tax form Reduce that amount ($180,000) by the depreciation deductions ($37,500). Arizona 140 tax form The basis for loss is $142,500 ($180,000 − $37,500). Arizona 140 tax form Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. Arizona 140 tax form If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. Arizona 140 tax form You must adjust the basis of stocks for certain events that occur after purchase. Arizona 140 tax form For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. Arizona 140 tax form This rule applies only when the additional stock received is identical to the stock held. Arizona 140 tax form Also reduce your basis when you receive nontaxable distributions. Arizona 140 tax form They are a return of capital. Arizona 140 tax form Example. Arizona 140 tax form In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. Arizona 140 tax form In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. Arizona 140 tax form In 2013 XYZ declared a 2-for-1 stock split. Arizona 140 tax form You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. Arizona 140 tax form Other basis. Arizona 140 tax form   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. Arizona 140 tax form For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Arizona 140 tax form Identifying stocks or bonds sold. Arizona 140 tax form   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stocks or bonds. Arizona 140 tax form If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Arizona 140 tax form For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Arizona 140 tax form Mutual fund shares. Arizona 140 tax form   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. Arizona 140 tax form For more information, see Publication 550. Arizona 140 tax form Bond premium. Arizona 140 tax form   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. Arizona 140 tax form See Bond Premium Amortization in chapter 3 of Publication 550 for more information. Arizona 140 tax form Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. Arizona 140 tax form Original issue discount (OID) on debt instruments. Arizona 140 tax form   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. Arizona 140 tax form See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. Arizona 140 tax form Tax-exempt obligations. Arizona 140 tax form    OID on tax-exempt obligations is generally not taxable. Arizona 140 tax form However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. Arizona 140 tax form The accrued OID is added to the basis of the obligation to determine your gain or loss. Arizona 140 tax form See chapter 4 of Publication 550. Arizona 140 tax form Prev  Up  Next   Home   More Online Publications
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The Arizona 140 Tax Form

Arizona 140 tax form 1. Arizona 140 tax form   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. Arizona 140 tax form Amount realized on a recourse debt. Arizona 140 tax form 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. Arizona 140 tax form S. Arizona 140 tax form Individual Income Tax Return 1040X Amended U. Arizona 140 tax form S. Arizona 140 tax form 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. Arizona 140 tax form However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Arizona 140 tax form See chapter 5 for information about getting publications and forms. Arizona 140 tax form Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Arizona 140 tax form An exchange is a transfer of property for other property or services. Arizona 140 tax form The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. Arizona 140 tax form Sale or lease. Arizona 140 tax form    Some agreements that seem to be leases may really be conditional sales contracts. Arizona 140 tax form The intention of the parties to the agreement can help you distinguish between a sale and a lease. Arizona 140 tax form   There is no test or group of tests to prove what the parties intended when they made the agreement. Arizona 140 tax form You should consider each agreement based on its own facts and circumstances. Arizona 140 tax form For more information, see chapter 3 in Publication 535, Business Expenses. Arizona 140 tax form Cancellation of a lease. Arizona 140 tax form    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. Arizona 140 tax form 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. Arizona 140 tax form Copyright. Arizona 140 tax form    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. Arizona 140 tax form 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. Arizona 140 tax form Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. Arizona 140 tax form   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. Arizona 140 tax form For more information, see Section 1231 Gains and Losses in chapter 3. Arizona 140 tax form Easement. Arizona 140 tax form   The amount received for granting an easement is subtracted from the basis of the property. Arizona 140 tax form 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. Arizona 140 tax form 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. Arizona 140 tax form   Any amount received that is more than the basis to be reduced is a taxable gain. Arizona 140 tax form The transaction is reported as a sale of property. Arizona 140 tax form   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. Arizona 140 tax form 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. Arizona 140 tax form   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. Arizona 140 tax form 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. Arizona 140 tax form See Gain or Loss From Condemnations, later. Arizona 140 tax form Property transferred to satisfy debt. Arizona 140 tax form   A transfer of property to satisfy a debt is an exchange. Arizona 140 tax form Note's maturity date extended. Arizona 140 tax form   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. Arizona 140 tax form Also, it is not considered a closed and completed transaction that would result in a gain or loss. Arizona 140 tax form 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. Arizona 140 tax form Each case must be determined by its own facts. Arizona 140 tax form For more information, see Regulations section 1. Arizona 140 tax form 1001-3. Arizona 140 tax form Transfer on death. Arizona 140 tax form   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. Arizona 140 tax form No taxable gain or deductible loss results from the transfer. Arizona 140 tax form Bankruptcy. Arizona 140 tax form   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. Arizona 140 tax form Consequently, the transfer generally does not result in gain or loss. Arizona 140 tax form For more information, see Publication 908, Bankruptcy Tax Guide. Arizona 140 tax form Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. Arizona 140 tax form A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. Arizona 140 tax form A loss is the adjusted basis of the property that is more than the amount you realize. Arizona 140 tax form   Table 1-1. Arizona 140 tax form How To Figure Whether You Have a Gain or Loss IF your. Arizona 140 tax form . Arizona 140 tax form . Arizona 140 tax form THEN you have a. Arizona 140 tax form . Arizona 140 tax form . Arizona 140 tax form Adjusted basis is more than the amount realized, Loss. Arizona 140 tax form Amount realized is more than the adjusted basis, Gain. Arizona 140 tax form Basis. Arizona 140 tax form   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. Arizona 140 tax form The basis of property you buy is usually its cost. Arizona 140 tax form 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. Arizona 140 tax form See Basis Other Than Cost in Publication 551, Basis of Assets. Arizona 140 tax form 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. Arizona 140 tax form See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Arizona 140 tax form Adjusted basis. Arizona 140 tax form   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. Arizona 140 tax form Increases include costs of any improvements having a useful life of more than 1 year. Arizona 140 tax form Decreases include depreciation and casualty losses. Arizona 140 tax form For more details and additional examples, see Adjusted Basis in Publication 551. Arizona 140 tax form Amount realized. Arizona 140 tax form   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. Arizona 140 tax form 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. Arizona 140 tax form Fair market value. Arizona 140 tax form   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. Arizona 140 tax form If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. Arizona 140 tax form If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. Arizona 140 tax form Example. Arizona 140 tax form You used a building in your business that cost you $70,000. Arizona 140 tax form You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. Arizona 140 tax form You sold the building for $100,000 plus property having an FMV of $20,000. Arizona 140 tax form The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. Arizona 140 tax form The selling expenses were $4,000. Arizona 140 tax form Your gain on the sale is figured as follows. Arizona 140 tax form 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. Arizona 140 tax form   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. Arizona 140 tax form Recognized gains must be included in gross income. Arizona 140 tax form Recognized losses are deductible from gross income. Arizona 140 tax form However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. Arizona 140 tax form See Nontaxable Exchanges, later. Arizona 140 tax form 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. Arizona 140 tax form Interest in property. Arizona 140 tax form   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. Arizona 140 tax form 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. Arizona 140 tax form Your basis in the property is disregarded. Arizona 140 tax form This rule does not apply if all interests in the property are disposed of at the same time. Arizona 140 tax form Example 1. Arizona 140 tax form Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. Arizona 140 tax form You decide to sell your life interest in the farm. Arizona 140 tax form The entire amount you receive is a recognized gain. Arizona 140 tax form Your basis in the farm is disregarded. Arizona 140 tax form Example 2. Arizona 140 tax form The facts are the same as in Example 1, except that your brother joins you in selling the farm. Arizona 140 tax form The entire interest in the property is sold, so your basis in the farm is not disregarded. Arizona 140 tax form Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. Arizona 140 tax form Canceling a sale of real property. Arizona 140 tax form   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. Arizona 140 tax form If the buyer returns the property in the year of sale, no gain or loss is recognized. Arizona 140 tax form 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. Arizona 140 tax form 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. Arizona 140 tax form When the property is returned in a later year, you acquire a new basis in the property. Arizona 140 tax form That basis is equal to the amount you pay to the buyer. Arizona 140 tax form 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. Arizona 140 tax form You have a gain if the amount realized is more than your adjusted basis in the property. Arizona 140 tax form However, you do not have a loss if the amount realized is less than the adjusted basis of the property. Arizona 140 tax form Bargain sales to charity. Arizona 140 tax form   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. Arizona 140 tax form 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. Arizona 140 tax form The adjusted basis of the part sold is figured as follows. Arizona 140 tax form 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. Arizona 140 tax form This allocation rule does not apply if a charitable contribution deduction is not allowable. Arizona 140 tax form   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. Arizona 140 tax form Example. Arizona 140 tax form 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. Arizona 140 tax form Your adjusted basis in the property is $4,000. Arizona 140 tax form Your gain on the sale is $1,200, figured as follows. Arizona 140 tax form 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. Arizona 140 tax form You must subtract depreciation you took or could have taken from the basis of the business or rental part. Arizona 140 tax form However, see the special rule below for a home used partly for business or rental. Arizona 140 tax form You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. Arizona 140 tax form 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. Arizona 140 tax form Any gain on the personal part of the property is a capital gain. Arizona 140 tax form You cannot deduct a loss on the personal part. Arizona 140 tax form Home used partly for business or rental. Arizona 140 tax form    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. Arizona 140 tax form See Property Used Partly for Business or Rental, in Publication 523. Arizona 140 tax form 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. Arizona 140 tax form 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. Arizona 140 tax form 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. Arizona 140 tax form Figure the loss you can deduct as follows. Arizona 140 tax form Use the lesser of the property's adjusted basis or fair market value at the time of the change. Arizona 140 tax form Add to (1) the cost of any improvements and other increases to basis since the change. Arizona 140 tax form Subtract from (2) depreciation and any other decreases to basis since the change. Arizona 140 tax form Subtract the amount you realized on the sale from the result in (3). Arizona 140 tax form If the amount you realized is more than the result in (3), treat this result as zero. Arizona 140 tax form The result in (4) is the loss you can deduct. Arizona 140 tax form Example. Arizona 140 tax form You changed your main home to rental property 5 years ago. Arizona 140 tax form At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. Arizona 140 tax form This year, you sold the property for $55,000. Arizona 140 tax form You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. Arizona 140 tax form 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. Arizona 140 tax form 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. Arizona 140 tax form   If you have a gain on the sale, you generally must recognize the full amount of the gain. Arizona 140 tax form You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. Arizona 140 tax form   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. Arizona 140 tax form However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. Arizona 140 tax form   For more information, see Business Use or Rental of Home in Publication 523. Arizona 140 tax form In addition, special rules apply if the home sold was acquired in a like-kind exchange. Arizona 140 tax form See Special Situations in Publication 523. Arizona 140 tax form Also see Like-Kind Exchanges, later. Arizona 140 tax form Abandonments The abandonment of property is a disposition of property. Arizona 140 tax form 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. Arizona 140 tax form Generally, abandonment is not treated as a sale or exchange of the property. Arizona 140 tax form If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Arizona 140 tax form If your adjusted basis is more than the amount you realize (if any), then you have a loss. Arizona 140 tax form Loss from abandonment of business or investment property is deductible as a loss. Arizona 140 tax form A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Arizona 140 tax form This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. Arizona 140 tax form If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. Arizona 140 tax form The abandonment loss is deducted in the tax year in which the loss is sustained. Arizona 140 tax form If the abandoned property is secured by debt, special rules apply. Arizona 140 tax form 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). Arizona 140 tax form For more information, including examples, see chapter 3 of Publication 4681. Arizona 140 tax form You cannot deduct any loss from abandonment of your home or other property held for personal use only. Arizona 140 tax form Cancellation of debt. Arizona 140 tax form   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. Arizona 140 tax form This income is separate from any loss realized from abandonment of the property. Arizona 140 tax form   You must report this income on your tax return unless one of the following applies. Arizona 140 tax form The cancellation is intended as a gift. Arizona 140 tax form The debt is qualified farm debt. Arizona 140 tax form The debt is qualified real property business debt. Arizona 140 tax form You are insolvent or bankrupt. Arizona 140 tax form The debt is qualified principal residence indebtedness. Arizona 140 tax form File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. Arizona 140 tax form For more information, including other exceptions and exclusion, see Publication 4681. Arizona 140 tax form Forms 1099-A and 1099-C. Arizona 140 tax form   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. Arizona 140 tax form 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. Arizona 140 tax form 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. Arizona 140 tax form For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Arizona 140 tax form 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. Arizona 140 tax form The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Arizona 140 tax form This is true even if you voluntarily return the property to the lender. Arizona 140 tax form You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. Arizona 140 tax form Buyer's (borrower's) gain or loss. Arizona 140 tax form   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. Arizona 140 tax form The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Arizona 140 tax form See Gain or Loss From Sales and Exchanges, earlier. Arizona 140 tax form You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. Arizona 140 tax form Amount realized on a nonrecourse debt. Arizona 140 tax form   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. Arizona 140 tax form The full canceled debt is included even if the fair market value of the property is less than the canceled debt. Arizona 140 tax form Example 1. Arizona 140 tax form Chris bought a new car for $15,000. Arizona 140 tax form He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. Arizona 140 tax form Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. Arizona 140 tax form The credit company repossessed the car because he stopped making loan payments. Arizona 140 tax form The balance due after taking into account the payments Chris made was $10,000. Arizona 140 tax form The fair market value of the car when repossessed was $9,000. Arizona 140 tax form The amount Chris realized on the repossession is $10,000. Arizona 140 tax form 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. Arizona 140 tax form Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). Arizona 140 tax form He has a $5,000 nondeductible loss. Arizona 140 tax form Example 2. Arizona 140 tax form Abena paid $200,000 for her home. Arizona 140 tax form She paid $15,000 down and borrowed the remaining $185,000 from a bank. Arizona 140 tax form Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. Arizona 140 tax form The bank foreclosed on the loan because Abena stopped making payments. Arizona 140 tax form 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. Arizona 140 tax form The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. Arizona 140 tax form She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). Arizona 140 tax form She has a $5,000 realized gain. Arizona 140 tax form Amount realized on a recourse debt. Arizona 140 tax form   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. Arizona 140 tax form 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. Arizona 140 tax form The amount realized does not include the canceled debt that is your income from cancellation of debt. Arizona 140 tax form See Cancellation of debt, below. Arizona 140 tax form Seller's (lender's) gain or loss on repossession. Arizona 140 tax form   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. Arizona 140 tax form For more information, see Repossession in Publication 537. Arizona 140 tax form    Table 1-2. Arizona 140 tax form Worksheet for Foreclosures and Repossessions Part 1. Arizona 140 tax form Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Arizona 140 tax form Complete this part only  if you were personally liable for the debt. Arizona 140 tax form Otherwise,  go to Part 2. Arizona 140 tax form   1. Arizona 140 tax form 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. Arizona 140 tax form Enter the fair market value of the transferred property   3. Arizona 140 tax form Ordinary income from cancellation of debt upon foreclosure or    repossession. Arizona 140 tax form * Subtract line 2 from line 1. Arizona 140 tax form   If less than zero, enter zero   Part 2. Arizona 140 tax form Figure your gain or loss from foreclosure or repossession. Arizona 140 tax form   4. Arizona 140 tax form If you completed Part 1, enter the smaller of line 1 or line 2. Arizona 140 tax form   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. Arizona 140 tax form Enter any proceeds you received from the foreclosure sale   6. Arizona 140 tax form Add lines 4 and 5   7. Arizona 140 tax form Enter the adjusted basis of the transferred property   8. Arizona 140 tax form Gain or loss from foreclosure or repossession. Arizona 140 tax form Subtract line 7  from line 6   * The income may not be taxable. Arizona 140 tax form See Cancellation of debt. Arizona 140 tax form Cancellation of debt. Arizona 140 tax form   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. Arizona 140 tax form This income is separate from any gain or loss realized from the foreclosure or repossession. Arizona 140 tax form Report the income from cancellation of a debt related to a business or rental activity as business or rental income. Arizona 140 tax form    You can use Table 1-2 to figure your income from cancellation of debt. Arizona 140 tax form   You must report this income on your tax return unless one of the following applies. Arizona 140 tax form The cancellation is intended as a gift. Arizona 140 tax form The debt is qualified farm debt. Arizona 140 tax form The debt is qualified real property business debt. Arizona 140 tax form You are insolvent or bankrupt. Arizona 140 tax form The debt is qualified principal residence indebtedness. Arizona 140 tax form File Form 982 to report the income exclusion. Arizona 140 tax form Example 1. Arizona 140 tax form 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). Arizona 140 tax form In this case, the amount he realizes is $9,000. Arizona 140 tax form This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). Arizona 140 tax form Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). Arizona 140 tax form He has a $6,000 nondeductible loss. Arizona 140 tax form He also is treated as receiving ordinary income from cancellation of debt. Arizona 140 tax form That income is $1,000 ($10,000 − $9,000). Arizona 140 tax form This is the part of the canceled debt not included in the amount realized. Arizona 140 tax form Example 2. Arizona 140 tax form 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). Arizona 140 tax form In this case, the amount she realizes is $170,000. Arizona 140 tax form This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). Arizona 140 tax form Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). Arizona 140 tax form She has a $5,000 nondeductible loss. Arizona 140 tax form She also is treated as receiving ordinary income from cancellation of debt. Arizona 140 tax form (The debt is not exempt from tax as discussed under Cancellation of debt, above. Arizona 140 tax form ) That income is $10,000 ($180,000 − $170,000). Arizona 140 tax form This is the part of the canceled debt not included in the amount realized. Arizona 140 tax form Forms 1099-A and 1099-C. Arizona 140 tax form   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. Arizona 140 tax form 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. Arizona 140 tax form 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. Arizona 140 tax form For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Arizona 140 tax form 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. Arizona 140 tax form Involuntary conversions are also called involuntary exchanges. Arizona 140 tax form Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. Arizona 140 tax form You report the gain or deduct the loss on your tax return for the year you realize it. Arizona 140 tax form 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. Arizona 140 tax form However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. Arizona 140 tax form Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. Arizona 140 tax form Your basis for the new property is the same as your basis for the converted property. Arizona 140 tax form This means that the gain is deferred until a taxable sale or exchange occurs. Arizona 140 tax form 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. Arizona 140 tax form This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. Arizona 140 tax form If you have a gain or loss from the destruction or theft of property, see Publication 547. Arizona 140 tax form Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. Arizona 140 tax form 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. Arizona 140 tax form The owner receives a condemnation award (money or property) in exchange for the property taken. Arizona 140 tax form A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. Arizona 140 tax form Example. Arizona 140 tax form A local government authorized to acquire land for public parks informed you that it wished to acquire your property. Arizona 140 tax form After the local government took action to condemn your property, you went to court to keep it. Arizona 140 tax form But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. Arizona 140 tax form This is a condemnation of private property for public use. Arizona 140 tax form Threat of condemnation. Arizona 140 tax form   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. Arizona 140 tax form You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. Arizona 140 tax form   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. Arizona 140 tax form 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. Arizona 140 tax form Reports of condemnation. Arizona 140 tax form   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. Arizona 140 tax form You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. Arizona 140 tax form 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. Arizona 140 tax form Example. Arizona 140 tax form Your property lies along public utility lines. Arizona 140 tax form The utility company has the authority to condemn your property. Arizona 140 tax form The company informs you that it intends to acquire your property by negotiation or condemnation. Arizona 140 tax form A threat of condemnation exists when you receive the notice. Arizona 140 tax form Related property voluntarily sold. Arizona 140 tax form   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. Arizona 140 tax form A substantial economic relationship exists if together the properties were one economic unit. Arizona 140 tax form You also must show that the condemned property could not reasonably or adequately be replaced. Arizona 140 tax form You can elect to postpone reporting the gain by buying replacement property. Arizona 140 tax form See Postponement of Gain, later. Arizona 140 tax form 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. Arizona 140 tax form If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. Arizona 140 tax form You can postpone reporting gain from a condemnation if you buy replacement property. Arizona 140 tax form 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. Arizona 140 tax form See Postponement of Gain, later. Arizona 140 tax form If your net condemnation award is less than your adjusted basis, you have a loss. Arizona 140 tax form If your loss is from property you held for personal use, you cannot deduct it. Arizona 140 tax form You must report any deductible loss in the tax year it happened. Arizona 140 tax form You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. Arizona 140 tax form Main home condemned. Arizona 140 tax form   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. Arizona 140 tax form You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). Arizona 140 tax form For information on this exclusion, see Publication 523. Arizona 140 tax form 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. Arizona 140 tax form See Postponement of Gain, later. Arizona 140 tax form Table 1-3. Arizona 140 tax form Worksheet for Condemnations Part 1. Arizona 140 tax form Gain from severance damages. Arizona 140 tax form  If you did not receive severance damages, skip Part 1 and go to Part 2. Arizona 140 tax form   1. Arizona 140 tax form Enter gross severance damages received   2. Arizona 140 tax form Enter your expenses in getting severance damages   3. Arizona 140 tax form Subtract line 2 from line 1. Arizona 140 tax form If less than zero, enter -0-   4. Arizona 140 tax form Enter any special assessment on remaining property taken out of your award   5. Arizona 140 tax form Net severance damages. Arizona 140 tax form Subtract line 4 from line 3. Arizona 140 tax form If less than zero, enter -0-   6. Arizona 140 tax form Enter the adjusted basis of the remaining property   7. Arizona 140 tax form Gain from severance damages. Arizona 140 tax form Subtract line 6 from line 5. Arizona 140 tax form If less than zero, enter -0-   8. Arizona 140 tax form Refigured adjusted basis of the remaining property. Arizona 140 tax form Subtract line 5 from line 6. Arizona 140 tax form If less than zero, enter -0-   Part 2. Arizona 140 tax form Gain or loss from condemnation award. Arizona 140 tax form   9. Arizona 140 tax form Enter the gross condemnation award received   10. Arizona 140 tax form Enter your expenses in getting the condemnation award   11. Arizona 140 tax form If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. Arizona 140 tax form If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. Arizona 140 tax form Otherwise, enter -0-   12. Arizona 140 tax form Add lines 10 and 11   13. Arizona 140 tax form Net condemnation award. Arizona 140 tax form Subtract line 12 from line 9   14. Arizona 140 tax form Enter the adjusted basis of the condemned property   15. Arizona 140 tax form Gain from condemnation award. Arizona 140 tax form If line 14 is more than line 13, enter -0-. Arizona 140 tax form Otherwise, subtract line 14 from  line 13 and skip line 16   16. Arizona 140 tax form Loss from condemnation award. Arizona 140 tax form Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. Arizona 140 tax form )   Part 3. Arizona 140 tax form Postponed gain from condemnation. Arizona 140 tax form  (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. Arizona 140 tax form )   17. Arizona 140 tax form If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. Arizona 140 tax form Otherwise, enter -0-   18. Arizona 140 tax form If line 15 is more than zero, enter the amount from line 13. Arizona 140 tax form Otherwise, enter -0-   19. Arizona 140 tax form Add lines 17 and 18. Arizona 140 tax form If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. Arizona 140 tax form Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. Arizona 140 tax form Subtract line 20 from line 19. Arizona 140 tax form If less than zero, enter -0-   22. Arizona 140 tax form If you completed Part 1, add lines 7 and 15. Arizona 140 tax form Otherwise, enter the amount from line 15. Arizona 140 tax form If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. Arizona 140 tax form Recognized gain. Arizona 140 tax form Enter the smaller of line 21 or line 22. Arizona 140 tax form   24. Arizona 140 tax form Postponed gain. Arizona 140 tax form Subtract line 23 from line 22. Arizona 140 tax form If less than zero, enter -0-   Condemnation award. Arizona 140 tax form   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. Arizona 140 tax form The award is also the amount you are paid for the sale of your property under threat of condemnation. Arizona 140 tax form Payment of your debts. Arizona 140 tax form   Amounts taken out of the award to pay your debts are considered paid to you. Arizona 140 tax form 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. Arizona 140 tax form Example. Arizona 140 tax form The state condemned your property for public use. Arizona 140 tax form The award was set at $200,000. Arizona 140 tax form The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. Arizona 140 tax form You are considered to have received the entire $200,000 as a condemnation award. Arizona 140 tax form Interest on award. Arizona 140 tax form   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. Arizona 140 tax form You must report the interest separately as ordinary income. Arizona 140 tax form Payments to relocate. Arizona 140 tax form   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. Arizona 140 tax form Do not include them in your income. Arizona 140 tax form Replacement housing payments used to buy new property are included in the property's basis as part of your cost. Arizona 140 tax form Net condemnation award. Arizona 140 tax form   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. Arizona 140 tax form 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. Arizona 140 tax form This is discussed later under Special assessment taken out of award. Arizona 140 tax form Severance damages. Arizona 140 tax form    Severance damages are not part of the award paid for the property condemned. Arizona 140 tax form 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. Arizona 140 tax form   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. Arizona 140 tax form 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. Arizona 140 tax form   The contracting parties should agree on the specific amount of severance damages in writing. Arizona 140 tax form If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. Arizona 140 tax form   You cannot make a completely new allocation of the total award after the transaction is completed. Arizona 140 tax form However, you can show how much of the award both parties intended for severance damages. Arizona 140 tax form The severance damages part of the award is determined from all the facts and circumstances. Arizona 140 tax form Example. Arizona 140 tax form You sold part of your property to the state under threat of condemnation. Arizona 140 tax form The contract you and the condemning authority signed showed only the total purchase price. Arizona 140 tax form It did not specify a fixed sum for severance damages. Arizona 140 tax form However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. Arizona 140 tax form You may treat this part as severance damages. Arizona 140 tax form Treatment of severance damages. Arizona 140 tax form   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. Arizona 140 tax form Use them to reduce the basis of the remaining property. Arizona 140 tax form 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. Arizona 140 tax form   If your net severance damages are more than the basis of your retained property, you have a gain. Arizona 140 tax form You may be able to postpone reporting the gain. Arizona 140 tax form See Postponement of Gain, later. Arizona 140 tax form    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. Arizona 140 tax form Net severance damages. Arizona 140 tax form   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. Arizona 140 tax form 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. Arizona 140 tax form The balance is your net severance damages. Arizona 140 tax form Expenses of obtaining a condemnation award and severance damages. Arizona 140 tax form   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. Arizona 140 tax form Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. Arizona 140 tax form If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. Arizona 140 tax form Example. Arizona 140 tax form You receive a condemnation award and severance damages. Arizona 140 tax form One-fourth of the total was designated as severance damages in your agreement with the condemning authority. Arizona 140 tax form You had legal expenses for the entire condemnation proceeding. Arizona 140 tax form You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. Arizona 140 tax form You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. Arizona 140 tax form Special assessment retained out of award. Arizona 140 tax form   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. Arizona 140 tax form An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. Arizona 140 tax form Examples of improvements that may cause a special assessment are widening a street and installing a sewer. Arizona 140 tax form   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. Arizona 140 tax form Example. Arizona 140 tax form To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. Arizona 140 tax form You were awarded $5,000 for this and spent $300 to get the award. Arizona 140 tax form Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. Arizona 140 tax form The city then paid you only $4,300. Arizona 140 tax form Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). Arizona 140 tax form 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). Arizona 140 tax form The net award would not change, even if you later paid the assessment from the amount you received. Arizona 140 tax form Severance damages received. Arizona 140 tax form   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. Arizona 140 tax form Any balance of the special assessment is used to reduce the condemnation award. Arizona 140 tax form Example. Arizona 140 tax form You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. Arizona 140 tax form You spent $300 to obtain the severance damages. Arizona 140 tax form A special assessment of $800 was retained out of the award. Arizona 140 tax form The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. Arizona 140 tax form Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. Arizona 140 tax form Part business or rental. Arizona 140 tax form   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. Arizona 140 tax form Figure your gain or loss separately because gain or loss on each part may be treated differently. Arizona 140 tax form   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. Arizona 140 tax form Example. Arizona 140 tax form You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. Arizona 140 tax form You rented half the building and lived in the other half. Arizona 140 tax form You paid $25,000 for the building and spent an additional $1,000 for a new roof. Arizona 140 tax form You claimed allowable depreciation of $4,600 on the rental half. Arizona 140 tax form You spent $200 in legal expenses to obtain the condemnation award. Arizona 140 tax form Figure your gain or loss as follows. Arizona 140 tax form     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. Arizona 140 tax form 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. Arizona 140 tax form Your basis for the new property is the same as your basis for the old. Arizona 140 tax form Money or unlike property received. Arizona 140 tax form   You ordinarily must report the gain if you receive money or unlike property. Arizona 140 tax form 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. Arizona 140 tax form 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. Arizona 140 tax form See Controlling interest in a corporation, later. Arizona 140 tax form   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. Arizona 140 tax form 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. Arizona 140 tax form   The basis of the replacement property is its cost, reduced by the postponed gain. Arizona 140 tax form 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. Arizona 140 tax form See Controlling interest in a corporation, later. Arizona 140 tax form You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. Arizona 140 tax form Postponing gain on severance damages. Arizona 140 tax form   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. Arizona 140 tax form See Treatment of severance damages, earlier. Arizona 140 tax form 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). Arizona 140 tax form   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. Arizona 140 tax form 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. Arizona 140 tax form   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. Arizona 140 tax form Postponing gain on the sale of related property. Arizona 140 tax form   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. Arizona 140 tax form You must meet the requirements explained earlier under Related property voluntarily sold. Arizona 140 tax form 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). Arizona 140 tax form Buying replacement property from a related person. Arizona 140 tax form   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. Arizona 140 tax form For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. Arizona 140 tax form   This rule applies to the following taxpayers. Arizona 140 tax form C corporations. Arizona 140 tax form Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. Arizona 140 tax form 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. Arizona 140 tax form   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. Arizona 140 tax form If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Arizona 140 tax form If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Arizona 140 tax form Exception. Arizona 140 tax form   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. Arizona 140 tax form Advance payment. Arizona 140 tax form   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). Arizona 140 tax form Replacement property. Arizona 140 tax form   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. Arizona 140 tax form You do not have to use the actual funds from the condemnation award to acquire the replacement property. Arizona 140 tax form Property you acquire by gift or inheritance does not qualify as replacement property. Arizona 140 tax form Similar or related in service or use. Arizona 140 tax form   Your replacement property must be similar or related in service or use to the property it replaces. Arizona 140 tax form   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. Arizona 140 tax form For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. Arizona 140 tax form Owner-user. Arizona 140 tax form   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. Arizona 140 tax form Example. Arizona 140 tax form Your home was condemned and you invested the proceeds from the condemnation in a grocery store. Arizona 140 tax form Your replacement property is not similar or related in service or use to the condemned property. Arizona 140 tax form To be similar or related in service or use, your replacement property must also be used by you as your home. Arizona 140 tax form Owner-investor. Arizona 140 tax form   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. Arizona 140 tax form You decide this by determining all the following information. Arizona 140 tax form Whether the properties are of similar service to you. Arizona 140 tax form The nature of the business risks connected with the properties. Arizona 140 tax form What the properties demand of you in the way of management, service, and relations to your tenants. Arizona 140 tax form Example. Arizona 140 tax form You owned land and a building you rented to a manufacturing company. Arizona 140 tax form The building was condemned. Arizona 140 tax form During the replacement period, you had a new building built on other land you already owned. Arizona 140 tax form You rented out the new building for use as a wholesale grocery warehouse. Arizona 140 tax form 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. Arizona 140 tax form Your management activities. Arizona 140 tax form The amount and kind of services you provide to your tenants. Arizona 140 tax form The nature of your business risks connected with the properties. Arizona 140 tax form Leasehold replaced with fee simple property. Arizona 140 tax form   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. Arizona 140 tax form   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. Arizona 140 tax form A leasehold is property held under a lease, usually for a term of years. Arizona 140 tax form Outdoor advertising display replaced with real property. Arizona 140 tax form   You can elect to treat an outdoor advertising display as real property. Arizona 140 tax form 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. Arizona 140 tax form 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. Arizona 140 tax form   You can make this election only if you did not claim a section 179 deduction for the display. Arizona 140 tax form You cannot cancel this election unless you get the consent of the IRS. Arizona 140 tax form   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. Arizona 140 tax form Substituting replacement property. Arizona 140 tax form   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. Arizona 140 tax form But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. Arizona 140 tax form Controlling interest in a corporation. Arizona 140 tax form   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. Arizona 140 tax form 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. Arizona 140 tax form Basis adjustment to corporation's property. Arizona 140 tax form   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. Arizona 140 tax form 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). Arizona 140 tax form   Allocate this reduction to the following classes of property in the order shown below. Arizona 140 tax form Property that is similar or related in service or use to the condemned property. Arizona 140 tax form Depreciable property not reduced in (1). Arizona 140 tax form All other property. Arizona 140 tax form 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. Arizona 140 tax form The reduced basis of any single property cannot be less than zero. Arizona 140 tax form Main home replaced. Arizona 140 tax form   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. Arizona 140 tax form The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. Arizona 140 tax form   You must reduce the basis of your replacement property by the postponed gain. Arizona 140 tax form 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. Arizona 140 tax form Example. Arizona 140 tax form City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. Arizona 140 tax form The city paid you a condemnation award of $400,000. Arizona 140 tax form Your adjusted basis in the property was $80,000. Arizona 140 tax form You realize a gain of $320,000 ($400,000 − $80,000). Arizona 140 tax form You purchased a new home for $100,000. Arizona 140 tax form You can exclude $250,000 of the realized gain from your gross income. Arizona 140 tax form 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). Arizona 140 tax form You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). Arizona 140 tax form The remaining $20,000 of realized gain is postponed. Arizona 140 tax form Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). Arizona 140 tax form Replacement period. Arizona 140 tax form   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. Arizona 140 tax form This is the replacement period. Arizona 140 tax form   The replacement period for a condemnation begins on the earlier of the following dates. Arizona 140 tax form The date on which you disposed of the condemned property. Arizona 140 tax form The date on which the threat of condemnation began. Arizona 140 tax form   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. Arizona 140 tax form However, see the exceptions below. Arizona 140 tax form Three-year replacement period for certain property. Arizona 140 tax form   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. Arizona 140 tax form 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. Arizona 140 tax form Five-year replacement period for certain property. Arizona 140 tax form   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. Arizona 140 tax form 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. Arizona 140 tax form 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. Arizona 140 tax form 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. Arizona 140 tax form Extended replacement period for taxpayers affected by other federally declared disasters. Arizona 140 tax form    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. Arizona 140 tax form For more information visit www. Arizona 140 tax form irs. Arizona 140 tax form gov/uac/Tax-Relief-in-Disaster-Situations. Arizona 140 tax form Weather-related sales of livestock in an area eligible for federal assistance. Arizona 140 tax form   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. Arizona 140 tax form    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. Arizona 140 tax form See Notice 2006-82. Arizona 140 tax form You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. Arizona 140 tax form irs. Arizona 140 tax form gov/irb/2006-39_IRB/ar13. Arizona 140 tax form html. Arizona 140 tax form    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. Arizona 140 tax form 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. Arizona 140 tax form You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. Arizona 140 tax form irs. Arizona 140 tax form gov/irb/2013-45_IRB/ar04. Arizona 140 tax form html. Arizona 140 tax form The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. Arizona 140 tax form Determining when gain is realized. Arizona 140 tax form   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. Arizona 140 tax form 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. Arizona 140 tax form   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. Arizona 140 tax form 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. Arizona 140 tax form   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. Arizona 140 tax form All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. Arizona 140 tax form All or part of the award is actually or constructively received. Arizona 140 tax form 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. Arizona 140 tax form Replacement property bought before the condemnation. Arizona 140 tax form   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. Arizona 140 tax form Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. Arizona 140 tax form Example. Arizona 140 tax form On April 3, 2012, city authorities notified you that your property would be condemned. Arizona 140 tax form On June 5, 2012, you acquired property to replace the property to be condemned. Arizona 140 tax form You still had the new property when the city took possession of your old property on September 4, 2013. Arizona 140 tax form You have made a replacement within the replacement period. Arizona 140 tax form Extension. Arizona 140 tax form   You can request an extension of the replacement period from the IRS director for your area. Arizona 140 tax form You should apply before the end of the replacement period. Arizona 140 tax form Your request should explain in detail why you need an extension. Arizona 140 tax form The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. Arizona 140 tax form An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. Arizona 140 tax form   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. Arizona 140 tax form Extensions are usually limited to a period of 1 year or less. Arizona 140 tax form The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. Arizona 140 tax form If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri