13-1. I sold my home last year. Do I have to report the sale?
Report the sale of your main home on your tax return only if you have a
gain and at least part of it is taxable. Report any taxable gain on
Form 1040, Schedule D,
Capital Gains and Losses. Form 2119, Sale of Your Home
is obsolete beginning in 1998. For more information, refer to
Publication 523,
Selling Your Home.
13-2. I have investment property. Can you explain the term basis of assets?
Basis is your investment in property for tax purposes. Before you can figure any gain or
loss on a sale, exchange, or other disposition of property, or figure allowable depreciation,
you must determine the adjusted basis. Adjusted basis is the result of increasing or
decreasing your original basis according to certain events. Your original basis is usually
your cost to acquire the asset. Additional information on basis and adjusted basis can be found in
Tax Topic 703, Basis of Assets, or
Publication 551, Basis of Assets.
13-3. What is the basis of property received as a gift?
To figure the basis of property you get as a gift, you must know its adjusted basis
to the donor just before it was given to you. You also must know its fair market value
(FMV) at the time it was given to you and any gift tax paid on it. Refer to
Publication 551,
Basis of Assets, for specific details.
13-4. May I deduct my home improvements and repairs to my home?
Home improvements add to the value of your home, prolong its useful life,
or adapt it to new uses. You add the cost of improvements to the basis of
your property.
Examples of 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, putting on a new roof, or paving your driveway.
For a list of some other examples of improvements, refer to
Publication 523,
Selling Your Home.
Repairs maintain your home in good condition. They do not add to its
value or prolong its life, and you do not add their cost to the basis of your property.
Some examples of repairs include repainting your house inside or outside,
fixing your gutters or floors, repairing leaks or plastering and replacing broken windowpanes.
Exception: The entire job is considered an improvement, however, if items that
would otherwise be considered repairs are done as part of an extensive remodeling or
restoration of your home.
13-5. What kinds of property can be depreciated for tax purposes?
Only property used in a trade or business or to produce income can be depreciated.
The kinds of property that can be depreciated include machinery, equipment, buildings,
vehicles, and furniture. Depreciation is a very complex subject. For more information, see
Tax Topic 704, Depreciation, or
Publication 946,
How to Depreciate Property, or
Publication 534,
Depreciating Property Placed in Service Before 1987.
13-6. How do I report interest received on an installment sale?
If you receive interest on an installment sale, report the entire amount on
Form 1040, Schedule B.
For additional information on installment sales see
Tax Topic 705 or
Publication 537,
Installment Sales.
13-7. Are incentive stock options subject to alternative minimum tax,
and if so, how do I determine the basis for the stock?
A taxpayer generally must include in alternative minimum taxable income the amount by
which the price (if any) he paid for an incentive stock option is exceeded by the option's
fair market value at the time his rights to the stock are freely transferable or are not
subject to a substantial risk of forfeiture.
Increase your alternative minimum tax basis by the amount of the adjustment.
Your basis for regular tax is not affected by the adjustment.
If a taxpayer acquires stock pursuant to the exercise of an ISO and disposes
of the stock in the same taxable year, the tax treatment for regular taxes and
the alternative minimum taxes are the same. See IRC 83;IRC 56(b)(3) and IRC 422(c)(2).
For more information, you may download
Form 6251,
Alternative Minimum Tax- Individual instructions.
13-8. I have capital losses of $4,000. How much may I deduct this year?
Your allowable capital loss deduction for any tax year, figured on
Form 1040, Schedule D,
is limited to the lesser of:
- $3,000 ($1,500 if you are married and file a separate return, or
- Your total net loss as shown on line 18 of Schedule D
If you have a total net loss on line 18 of Schedule D that is more than the
yearly limit on capital loss deductions, you can carry over the unused part to later
years until it is completely used up.
For more information about capital gains and losses, see
Publication 544,
Sales and Other Dispositions of Assets.
13-9. I received stock as a gift from my grandparents.
I am selling the stock this year. How can I figure the basis of the gifted stock?
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 fair market value (FMV) at
the time it was given to you, and any gift tax paid on it.
If the FMV of the property was less than the donor's adjusted basis, your basis for
gain on its sale or other disposition is the same as the donor's adjusted basis plus
or minus any required adjustment to basis during the period you held the property.
Your basis for loss on its sale or other disposition is its FMV at the time you
received the gift plus or minus any required adjustment to basis during the period
you held the property.
If the FMV of the property was equal to or greater than the donor's adjusted basis,
your basis for gain or loss on its sale or other disposition is the same as the donor's
adjusted basis at the time you received the gift. Increase your basis by all or part
of the gift tax paid, depending on the date of the gift.
For complete information, see Publication 17, chapter 14.
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