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2010 Turbotax

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2010 Turbotax

2010 turbotax Publication 541 - Main Content Table of Contents Forming a PartnershipOrganizations Classified as Partnerships Family Partnership Partnership Agreement Terminating a PartnershipIRS e-file (Electronic Filing) Exclusion From Partnership Rules Partnership Return (Form 1065) Partnership DistributionsSubstantially appreciated inventory items. 2010 turbotax Partner's Gain or Loss Partner's Basis for Distributed Property Transactions Between Partnership and PartnersGuaranteed Payments Sale or Exchange of Property Contribution of Property Contribution of Services Basis of Partner's InterestAdjusted Basis Effect of Partnership Liabilities Disposition of Partner's InterestSale, Exchange, or Other Transfer Payments for Unrealized Receivables and Inventory Items Liquidation at Partner's Retirement or Death Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)Partnership Item. 2010 turbotax Small Partnerships and the Small Partnership Exception Small Partnership TEFRA Election Role of Tax Matters Partner (TMP) in TEFRA Proceedings Statute of Limitations and TEFRA Amended Returns and Administrative Adjustment Requests (AARs) How To Get Tax Help Forming a Partnership The following sections contain general information about partnerships. 2010 turbotax Organizations Classified as Partnerships An unincorporated organization with two or more members is generally classified as a partnership for federal tax purposes if its members carry on a trade, business, financial operation, or venture and divide its profits. 2010 turbotax However, a joint undertaking merely to share expenses is not a partnership. 2010 turbotax For example, co-ownership of property maintained and rented or leased is not a partnership unless the co-owners provide services to the tenants. 2010 turbotax The rules you must use to determine whether an organization is classified as a partnership changed for organizations formed after 1996. 2010 turbotax Organizations formed after 1996. 2010 turbotax   An organization formed after 1996 is classified as a partnership for federal tax purposes if it has two or more members and it is none of the following. 2010 turbotax An organization formed under a federal or state law that refers to it as incorporated or as a corporation, body corporate, or body politic. 2010 turbotax An organization formed under a state law that refers to it as a joint-stock company or joint-stock association. 2010 turbotax An insurance company. 2010 turbotax Certain banks. 2010 turbotax An organization wholly owned by a state, local, or foreign government. 2010 turbotax An organization specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). 2010 turbotax Certain foreign organizations identified in section 301. 2010 turbotax 7701-2(b)(8) of the regulations. 2010 turbotax A tax-exempt organization. 2010 turbotax A real estate investment trust. 2010 turbotax An organization classified as a trust under section 301. 2010 turbotax 7701-4 of the regulations or otherwise subject to special treatment under the Internal Revenue Code. 2010 turbotax Any other organization that elects to be classified as a corporation by filing Form 8832. 2010 turbotax For more information, see the instructions for Form 8832. 2010 turbotax Limited liability company. 2010 turbotax   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. 2010 turbotax Unlike a partnership, none of the members of an LLC are personally liable for its debts. 2010 turbotax An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301. 2010 turbotax 7701-3. 2010 turbotax See Form 8832 and section 301. 2010 turbotax 7701-3 of the regulations for more details. 2010 turbotax A domestic LLC with at least two members that does not file Form 8832 is classified as a partnership for federal income tax purposes. 2010 turbotax Organizations formed before 1997. 2010 turbotax   An organization formed before 1997 and classified as a partnership under the old rules will generally continue to be classified as a partnership as long as the organization has at least two members and does not elect to be classified as a corporation by filing Form 8832. 2010 turbotax Community property. 2010 turbotax    Spouses who own a qualified entity (defined later) can choose to classify the entity as a partnership for federal tax purposes by filing the appropriate partnership tax returns. 2010 turbotax They can choose to classify the entity as a sole proprietorship by filing a Schedule C (Form 1040) listing one spouse as the sole proprietor. 2010 turbotax A change in reporting position will be treated for federal tax purposes as a conversion of the entity. 2010 turbotax   A qualified entity is a business entity that meets all the following requirements. 2010 turbotax The business entity is wholly owned by spouses as community property under the laws of a state, a foreign country, or a possession of the United States. 2010 turbotax No person other than one or both spouses would be considered an owner for federal tax purposes. 2010 turbotax The business entity is not treated as a corporation. 2010 turbotax   For more information about community property, see Publication 555, Community Property. 2010 turbotax Publication 555 discusses the community property laws of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 2010 turbotax Family Partnership Members of a family can be partners. 2010 turbotax However, family members (or any other person) will be recognized as partners only if one of the following requirements is met. 2010 turbotax If capital is a material income-producing factor, they acquired their capital interest in a bona fide transaction (even if by gift or purchase from another family member), actually own the partnership interest, and actually control the interest. 2010 turbotax If capital is not a material income-producing factor, they joined together in good faith to conduct a business. 2010 turbotax They agreed that contributions of each entitle them to a share in the profits, and some capital or service has been (or is) provided by each partner. 2010 turbotax Capital is material. 2010 turbotax   Capital is a material income-producing factor if a substantial part of the gross income of the business comes from the use of capital. 2010 turbotax Capital is ordinarily an income-producing factor if the operation of the business requires substantial inventories or investments in plants, machinery, or equipment. 2010 turbotax Capital is not material. 2010 turbotax   In general, capital is not a material income-producing factor if the income of the business consists principally of fees, commissions, or other compensation for personal services performed by members or employees of the partnership. 2010 turbotax Capital interest. 2010 turbotax   A capital interest in a partnership is an interest in its assets that is distributable to the owner of the interest in either of the following situations. 2010 turbotax The owner withdraws from the partnership. 2010 turbotax The partnership liquidates. 2010 turbotax   The mere right to share in earnings and profits is not a capital interest in the partnership. 2010 turbotax Gift of capital interest. 2010 turbotax   If a family member (or any other person) receives a gift of a capital interest in a partnership in which capital is a material income-producing factor, the donee's distributive share of partnership income is subject to both of the following restrictions. 2010 turbotax It must be figured by reducing the partnership income by reasonable compensation for services the donor renders to the partnership. 2010 turbotax The donee's distributive share of partnership income attributable to donated capital must not be proportionately greater than the donor's distributive share attributable to the donor's capital. 2010 turbotax Purchase. 2010 turbotax   For purposes of determining a partner's distributive share, an interest purchased by one family member from another family member is considered a gift from the seller. 2010 turbotax The fair market value of the purchased interest is considered donated capital. 2010 turbotax For this purpose, members of a family include only spouses, ancestors, and lineal descendants (or a trust for the primary benefit of those persons). 2010 turbotax Example. 2010 turbotax A father sold 50% of his business to his son. 2010 turbotax The resulting partnership had a profit of $60,000. 2010 turbotax Capital is a material income-producing factor. 2010 turbotax The father performed services worth $24,000, which is reasonable compensation, and the son performed no services. 2010 turbotax The $24,000 must be allocated to the father as compensation. 2010 turbotax Of the remaining $36,000 of profit due to capital, at least 50%, or $18,000, must be allocated to the father since he owns a 50% capital interest. 2010 turbotax The son's share of partnership profit cannot be more than $18,000. 2010 turbotax Business owned and operated by spouses. 2010 turbotax   If spouses carry on a business together and share in the profits and losses, they may be partners whether or not they have a formal partnership agreement. 2010 turbotax If so, they should report income or loss from the business on Form 1065. 2010 turbotax They should not report the income on a Schedule C (Form 1040) in the name of one spouse as a sole proprietor. 2010 turbotax However, the spouses can elect not to treat the joint venture as a partnership by making a Qualified Joint Venture Election. 2010 turbotax Qualified Joint Venture Election. 2010 turbotax   A "qualified joint venture," whose only members are spouses filing a joint return, can elect not to be treated as a partnership for federal tax purposes. 2010 turbotax A qualified joint venture conducts a trade or business where: the only members of the joint venture are spouses filing jointly; both spouses elect not to be treated as a partnership; both spouses materially participate in the trade or business (see Passive Activity Limitations in the Instructions for Form 1065 for a definition of material participation); and the business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or LLC. 2010 turbotax   Under this election, a qualified joint venture conducted by spouses who file a joint return is not treated as a partnership for federal tax purposes and therefore does not have a Form 1065 filing requirement. 2010 turbotax All items of income, gain, deduction, loss, and credit are divided between the spouses based on their respective interests in the venture. 2010 turbotax Each spouse takes into account his or her respective share of these items as a sole proprietor. 2010 turbotax Each spouse would account for his or her respective share on the appropriate form, such as Schedule C (Form 1040). 2010 turbotax For purposes of determining net earnings from self-employment, each spouse's share of income or loss from a qualified joint venture is taken into account just as it is for federal income tax purposes (i. 2010 turbotax e. 2010 turbotax , based on their respective interests in the venture). 2010 turbotax   If the spouses do not make the election to treat their respective interests in the joint venture as sole proprietorships, each spouse should carry his or her share of the partnership income or loss from Schedule K-1 (Form 1065) to their joint or separate Form(s) 1040. 2010 turbotax Each spouse should include his or her respective share of self-employment income on a separate Schedule SE (Form 1040), Self-Employment Tax. 2010 turbotax   This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based. 2010 turbotax However, this may not be true if either spouse exceeds the social security tax limitation. 2010 turbotax   For more information on qualified joint ventures, go to IRS. 2010 turbotax gov, enter “Election for Qualified Joint Ventures” in the search box and select the link reading “Election for Husband and Wife Unincorporated Businesses. 2010 turbotax ” Partnership Agreement The partnership agreement includes the original agreement and any modifications. 2010 turbotax The modifications must be agreed to by all partners or adopted in any other manner provided by the partnership agreement. 2010 turbotax The agreement or modifications can be oral or written. 2010 turbotax Partners can modify the partnership agreement for a particular tax year after the close of the year but not later than the date for filing the partnership return for that year. 2010 turbotax This filing date does not include any extension of time. 2010 turbotax If the partnership agreement or any modification is silent on any matter, the provisions of local law are treated as part of the agreement. 2010 turbotax Terminating a Partnership A partnership terminates when one of the following events takes place. 2010 turbotax All its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership. 2010 turbotax At least 50% of the total interest in partnership capital and profits is sold or exchanged within a 12-month period, including a sale or exchange to another partner. 2010 turbotax Unlike other partnerships, an electing large partnership does not terminate on the sale or exchange of 50% or more of the partnership interests within a 12-month period. 2010 turbotax See section 1. 2010 turbotax 708-1(b) of the regulations for more information on the termination of a partnership. 2010 turbotax For special rules that apply to a merger, consolidation, or division of a partnership, see sections 1. 2010 turbotax 708-1(c) and 1. 2010 turbotax 708-1(d) of the regulations. 2010 turbotax Date of termination. 2010 turbotax   The partnership's tax year ends on the date of termination. 2010 turbotax For the event described in (1), above, the date of termination is the date the partnership completes the winding up of its affairs. 2010 turbotax For the event described in (2), above, the date of termination is the date of the sale or exchange of a partnership interest that, by itself or together with other sales or exchanges in the preceding 12 months, transfers an interest of 50% or more in both capital and profits. 2010 turbotax Short period return. 2010 turbotax   If a partnership is terminated before the end of what would otherwise be its tax year, Form 1065 must be filed for the short period, which is the period from the beginning of the tax year through the date of termination. 2010 turbotax The return is due the 15th day of the fourth month following the date of termination. 2010 turbotax See Partnership Return (Form 1065), later, for information about filing Form 1065. 2010 turbotax Conversion of partnership into limited liability company (LLC). 2010 turbotax   The conversion of a partnership into an LLC classified as a partnership for federal tax purposes does not terminate the partnership. 2010 turbotax The conversion is not a sale, exchange, or liquidation of any partnership interest; the partnership's tax year does not close; and the LLC can continue to use the partnership's taxpayer identification number. 2010 turbotax   However, the conversion may change some of the partners' bases in their partnership interests if the partnership has recourse liabilities that become nonrecourse liabilities. 2010 turbotax Because the partners share recourse and nonrecourse liabilities differently, their bases must be adjusted to reflect the new sharing ratios. 2010 turbotax If a decrease in a partner's share of liabilities exceeds the partner's basis, he or she must recognize gain on the excess. 2010 turbotax For more information, see Effect of Partnership Liabilities under Basis of Partner's Interest, later. 2010 turbotax   The same rules apply if an LLC classified as a partnership is converted into a partnership. 2010 turbotax IRS e-file (Electronic Filing) Please click here for the text description of the image. 2010 turbotax e-file Certain partnerships with more than 100 partners are required to file Form 1065, Schedules K-1, and related forms and schedules electronically (e-file). 2010 turbotax Other partnerships generally have the option to file electronically. 2010 turbotax For details about IRS e-file, see the Form 1065 instructions. 2010 turbotax Exclusion From Partnership Rules Certain partnerships that do not actively conduct a business can choose to be completely or partially excluded from being treated as partnerships for federal income tax purposes. 2010 turbotax All the partners must agree to make the choice, and the partners must be able to compute their own taxable income without computing the partnership's income. 2010 turbotax However, the partners are not exempt from the rule that limits a partner's distributive share of partnership loss to the adjusted basis of the partner's partnership interest. 2010 turbotax Nor are they exempt from the requirement of a business purpose for adopting a tax year for the partnership that differs from its required tax year. 2010 turbotax Investing partnership. 2010 turbotax   An investing partnership can be excluded if the participants in the joint purchase, retention, sale, or exchange of investment property meet all the following requirements. 2010 turbotax They own the property as co-owners. 2010 turbotax They reserve the right separately to take or dispose of their shares of any property acquired or retained. 2010 turbotax They do not actively conduct business or irrevocably authorize some person acting in a representative capacity to purchase, sell, or exchange the investment property. 2010 turbotax Each separate participant can delegate authority to purchase, sell, or exchange his or her share of the investment property for the time being for his or her account, but not for a period of more than a year. 2010 turbotax Operating agreement partnership. 2010 turbotax   An operating agreement partnership group can be excluded if the participants in the joint production, extraction, or use of property meet all the following requirements. 2010 turbotax They own the property as co-owners, either in fee or under lease or other form of contract granting exclusive operating rights. 2010 turbotax They reserve the right separately to take in kind or dispose of their shares of any property produced, extracted, or used. 2010 turbotax They do not jointly sell services or the property produced or extracted. 2010 turbotax Each separate participant can delegate authority to sell his or her share of the property produced or extracted for the time being for his or her account, but not for a period of time in excess of the minimum needs of the industry, and in no event for more than one year. 2010 turbotax However, this exclusion does not apply to an unincorporated organization one of whose principal purposes is cycling, manufacturing, or processing for persons who are not members of the organization. 2010 turbotax Electing the exclusion. 2010 turbotax   An eligible organization that wishes to be excluded from the partnership rules must make the election not later than the time for filing the partnership return for the first tax year for which exclusion is desired. 2010 turbotax This filing date includes any extension of time. 2010 turbotax See Regulations section 1. 2010 turbotax 761-2(b) for the procedures to follow. 2010 turbotax Partnership Return (Form 1065) Every partnership that engages in a trade or business or has gross income must file an information return on Form 1065 showing its income, deductions, and other required information. 2010 turbotax The partnership return must show the names and addresses of each partner and each partner's distributive share of taxable income. 2010 turbotax The return must be signed by a general partner. 2010 turbotax If a limited liability company is treated as a partnership, it must file Form 1065 and one of its members must sign the return. 2010 turbotax A partnership is not considered to engage in a trade or business, and is not required to file a Form 1065, for any tax year in which it neither receives income nor pays or incurs any expenses treated as deductions or credits for federal income tax purposes. 2010 turbotax See the Instructions for Form 1065 for more information about who must file Form 1065. 2010 turbotax Partnership Distributions Partnership distributions include the following. 2010 turbotax A withdrawal by a partner in anticipation of the current year's earnings. 2010 turbotax A distribution of the current year's or prior years' earnings not needed for working capital. 2010 turbotax A complete or partial liquidation of a partner's interest. 2010 turbotax A distribution to all partners in a complete liquidation of the partnership. 2010 turbotax A partnership distribution is not taken into account in determining the partner's distributive share of partnership income or loss. 2010 turbotax If any gain or loss from the distribution is recognized by the partner, it must be reported on his or her return for the tax year in which the distribution is received. 2010 turbotax Money or property withdrawn by a partner in anticipation of the current year's earnings is treated as a distribution received on the last day of the partnership's tax year. 2010 turbotax Effect on partner's basis. 2010 turbotax   A partner's adjusted basis in his or her partnership interest is decreased (but not below zero) by the money and adjusted basis of property distributed to the partner. 2010 turbotax See Adjusted Basis under Basis of Partner's Interest, later. 2010 turbotax Effect on partnership. 2010 turbotax   A partnership generally does not recognize any gain or loss because of distributions it makes to partners. 2010 turbotax The partnership may be able to elect to adjust the basis of its undistributed property. 2010 turbotax Certain distributions treated as a sale or exchange. 2010 turbotax   When a partnership distributes the following items, the distribution may be treated as a sale or exchange of property rather than a distribution. 2010 turbotax Unrealized receivables or substantially appreciated inventory items distributed in exchange for any part of the partner's interest in other partnership property, including money. 2010 turbotax Other property (including money) distributed in exchange for any part of a partner's interest in unrealized receivables or substantially appreciated inventory items. 2010 turbotax   See Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. 2010 turbotax   This treatment does not apply to the following distributions. 2010 turbotax A distribution of property to the partner who contributed the property to the partnership. 2010 turbotax Payments made to a retiring partner or successor in interest of a deceased partner that are the partner's distributive share of partnership income or guaranteed payments. 2010 turbotax Substantially appreciated inventory items. 2010 turbotax   Inventory items of the partnership are considered to have appreciated substantially in value if, at the time of the distribution, their total fair market value is more than 120% of the partnership's adjusted basis for the property. 2010 turbotax However, if a principal purpose for acquiring inventory property is to avoid ordinary income treatment by reducing the appreciation to less than 120%, that property is excluded. 2010 turbotax Partner's Gain or Loss A partner generally recognizes gain on a partnership distribution only to the extent any money (and marketable securities treated as money) included in the distribution exceeds the adjusted basis of the partner's interest in the partnership. 2010 turbotax Any gain recognized is generally treated as capital gain from the sale of the partnership interest on the date of the distribution. 2010 turbotax If partnership property (other than marketable securities treated as money) is distributed to a partner, he or she generally does not recognize any gain until the sale or other disposition of the property. 2010 turbotax For exceptions to these rules, see Distribution of partner's debt and Net precontribution gain, later. 2010 turbotax Also, see Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. 2010 turbotax Example. 2010 turbotax The adjusted basis of Jo's partnership interest is $14,000. 2010 turbotax She receives a distribution of $8,000 cash and land that has an adjusted basis of $2,000 and a fair market value of $3,000. 2010 turbotax Because the cash received does not exceed the basis of her partnership interest, Jo does not recognize any gain on the distribution. 2010 turbotax Any gain on the land will be recognized when she sells or otherwise disposes of it. 2010 turbotax The distribution decreases the adjusted basis of Jo's partnership interest to $4,000 [$14,000 − ($8,000 + $2,000)]. 2010 turbotax Marketable securities treated as money. 2010 turbotax   Generally, a marketable security distributed to a partner is treated as money in determining whether gain is recognized on the distribution. 2010 turbotax This treatment, however, does not generally apply if that partner contributed the security to the partnership or an investment partnership made the distribution to an eligible partner. 2010 turbotax   The amount treated as money is the security's fair market value when distributed, reduced (but not below zero) by the excess (if any) of: The partner's distributive share of the gain that would be recognized had the partnership sold all its marketable securities at their fair market value immediately before the transaction resulting in the distribution, over The partner's distributive share of the gain that would be recognized had the partnership sold all such securities it still held after the distribution at the fair market value in (1). 2010 turbotax   For more information, including the definition of marketable securities, see section 731(c) of the Internal Revenue Code. 2010 turbotax Loss on distribution. 2010 turbotax   A partner does not recognize loss on a partnership distribution unless all the following requirements are met. 2010 turbotax The adjusted basis of the partner's interest in the partnership exceeds the distribution. 2010 turbotax The partner's entire interest in the partnership is liquidated. 2010 turbotax The distribution is in money, unrealized receivables, or inventory items. 2010 turbotax   There are exceptions to these general rules. 2010 turbotax See the following discussions. 2010 turbotax Also, see Liquidation at Partner's Retirement or Death under Disposition of Partner's Interest, later. 2010 turbotax Distribution of partner's debt. 2010 turbotax   If a partnership acquires a partner's debt and extinguishes the debt by distributing it to the partner, the partner will recognize capital gain or loss to the extent the fair market value of the debt differs from the basis of the debt (determined under the rules discussed in Partner's Basis for Distributed Property, later). 2010 turbotax   The partner is treated as having satisfied the debt for its fair market value. 2010 turbotax If the issue price (adjusted for any premium or discount) of the debt exceeds its fair market value when distributed, the partner may have to include the excess amount in income as canceled debt. 2010 turbotax   Similarly, a deduction may be available to a corporate partner if the fair market value of the debt at the time of distribution exceeds its adjusted issue price. 2010 turbotax Net precontribution gain. 2010 turbotax   A partner generally must recognize gain on the distribution of property (other than money) if the partner contributed appreciated property to the partnership during the 7-year period before the distribution. 2010 turbotax   The gain recognized is the lesser of the following amounts. 2010 turbotax The excess of: The fair market value of the property received in the distribution, over The adjusted basis of the partner's interest in the partnership immediately before the distribution, reduced (but not below zero) by any money received in the distribution. 2010 turbotax The “net precontribution gain” of the partner. 2010 turbotax This is the net gain the partner would recognize if all the property contributed by the partner within 7 years of the distribution, and held by the partnership immediately before the distribution, were distributed to another partner, other than a partner who owns more than 50% of the partnership. 2010 turbotax For information about the distribution of contributed property to another partner, see Contribution of Property , under Transactions Between Partnership and Partners, later. 2010 turbotax   The character of the gain is determined by reference to the character of the net precontribution gain. 2010 turbotax This gain is in addition to any gain the partner must recognize if the money distributed is more than his or her basis in the partnership. 2010 turbotax For these rules, the term “money” includes marketable securities treated as money, as discussed earlier. 2010 turbotax Effect on basis. 2010 turbotax   The adjusted basis of the partner's interest in the partnership is increased by any net precontribution gain recognized by the partner. 2010 turbotax Other than for purposes of determining the gain, the increase is treated as occurring immediately before the distribution. 2010 turbotax See Basis of Partner's Interest , later. 2010 turbotax   The partnership must adjust its basis in any property the partner contributed within 7 years of the distribution to reflect any gain that partner recognizes under this rule. 2010 turbotax Exceptions. 2010 turbotax   Any part of a distribution that is property the partner previously contributed to the partnership is not taken into account in determining the amount of the excess distribution or the partner's net precontribution gain. 2010 turbotax For this purpose, the partner's previously contributed property does not include a contributed interest in an entity to the extent its value is due to property contributed to the entity after the interest was contributed to the partnership. 2010 turbotax   Recognition of gain under this rule also does not apply to a distribution of unrealized receivables or substantially appreciated inventory items if the distribution is treated as a sale or exchange, as discussed earlier. 2010 turbotax Partner's Basis for Distributed Property Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed to the partner by a partnership is its adjusted basis to the partnership immediately before the distribution. 2010 turbotax However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. 2010 turbotax Example 1. 2010 turbotax The adjusted basis of Emily's partnership interest is $30,000. 2010 turbotax She receives a distribution of property that has an adjusted basis of $20,000 to the partnership and $4,000 in cash. 2010 turbotax Her basis for the property is $20,000. 2010 turbotax Example 2. 2010 turbotax The adjusted basis of Steve's partnership interest is $10,000. 2010 turbotax He receives a distribution of $4,000 cash and property that has an adjusted basis to the partnership of $8,000. 2010 turbotax His basis for the distributed property is limited to $6,000 ($10,000 − $4,000, the cash he receives). 2010 turbotax Complete liquidation of partner's interest. 2010 turbotax   The basis of property received in complete liquidation of a partner's interest is the adjusted basis of the partner's interest in the partnership reduced by any money distributed to the partner in the same transaction. 2010 turbotax Partner's holding period. 2010 turbotax   A partner's holding period for property distributed to the partner includes the period the property was held by the partnership. 2010 turbotax If the property was contributed to the partnership by a partner, then the period it was held by that partner is also included. 2010 turbotax Basis divided among properties. 2010 turbotax   If the basis of property received is the adjusted basis of the partner's interest in the partnership (reduced by money received in the same transaction), it must be divided among the properties distributed to the partner. 2010 turbotax For property distributed after August 5, 1997, allocate the basis using the following rules. 2010 turbotax Allocate the basis first to unrealized receivables and inventory items included in the distribution by assigning a basis to each item equal to the partnership's adjusted basis in the item immediately before the distribution. 2010 turbotax If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. 2010 turbotax Allocate any remaining basis to properties other than unrealized receivables and inventory items by assigning a basis to each property equal to the partnership's adjusted basis in the property immediately before the distribution. 2010 turbotax If the allocable basis exceeds the total of these assigned bases, increase the assigned bases by the amount of the excess. 2010 turbotax If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. 2010 turbotax Allocating a basis increase. 2010 turbotax   Allocate any basis increase required in rule (2), above, first to properties with unrealized appreciation to the extent of the unrealized appreciation. 2010 turbotax If the basis increase is less than the total unrealized appreciation, allocate it among those properties in proportion to their respective amounts of unrealized appreciation. 2010 turbotax Allocate any remaining basis increase among all the properties in proportion to their respective fair market values. 2010 turbotax Example. 2010 turbotax Eun's basis in her partnership interest is $55,000. 2010 turbotax In a distribution in liquidation of her entire interest, she receives properties A and B, neither of which is inventory or unrealized receivables. 2010 turbotax Property A has an adjusted basis to the partnership of $5,000 and a fair market value of $40,000. 2010 turbotax Property B has an adjusted basis to the partnership of $10,000 and a fair market value of $10,000. 2010 turbotax To figure her basis in each property, Eun first assigns bases of $5,000 to property A and $10,000 to property B (their adjusted bases to the partnership). 2010 turbotax This leaves a $40,000 basis increase (the $55,000 allocable basis minus the $15,000 total of the assigned bases). 2010 turbotax She first allocates $35,000 to property A (its unrealized appreciation). 2010 turbotax The remaining $5,000 is allocated between the properties based on their fair market values. 2010 turbotax $4,000 ($40,000/$50,000) is allocated to property A and $1,000 ($10,000/$50,000) is allocated to property B. 2010 turbotax Eun's basis in property A is $44,000 ($5,000 + $35,000 + $4,000) and her basis in property B is $11,000 ($10,000 + $1,000). 2010 turbotax Allocating a basis decrease. 2010 turbotax   Use the following rules to allocate any basis decrease required in rule (1) or rule (2), earlier. 2010 turbotax Allocate the basis decrease first to items with unrealized depreciation to the extent of the unrealized depreciation. 2010 turbotax If the basis decrease is less than the total unrealized depreciation, allocate it among those items in proportion to their respective amounts of unrealized depreciation. 2010 turbotax Allocate any remaining basis decrease among all the items in proportion to their respective assigned basis amounts (as decreased in (1)). 2010 turbotax Example. 2010 turbotax Armando's basis in his partnership interest is $20,000. 2010 turbotax In a distribution in liquidation of his entire interest, he receives properties C and D, neither of which is inventory or unrealized receivables. 2010 turbotax Property C has an adjusted basis to the partnership of $15,000 and a fair market value of $15,000. 2010 turbotax Property D has an adjusted basis to the partnership of $15,000 and a fair market value of $5,000. 2010 turbotax To figure his basis in each property, Armando first assigns bases of $15,000 to property C and $15,000 to property D (their adjusted bases to the partnership). 2010 turbotax This leaves a $10,000 basis decrease (the $30,000 total of the assigned bases minus the $20,000 allocable basis). 2010 turbotax He allocates the entire $10,000 to property D (its unrealized depreciation). 2010 turbotax Armando's basis in property C is $15,000 and his basis in property D is $5,000 ($15,000 − $10,000). 2010 turbotax Distributions before August 6, 1997. 2010 turbotax   For property distributed before August 6, 1997, allocate the basis using the following rules. 2010 turbotax Allocate the basis first to unrealized receivables and inventory items included in the distribution to the extent of the partnership's adjusted basis in those items. 2010 turbotax If the partnership's adjusted basis in those items exceeded the allocable basis, allocate the basis among the items in proportion to their adjusted bases to the partnership. 2010 turbotax Allocate any remaining basis to other distributed properties in proportion to their adjusted bases to the partnership. 2010 turbotax Partner's interest more than partnership basis. 2010 turbotax   If the basis of a partner's interest to be divided in a complete liquidation of the partner's interest is more than the partnership's adjusted basis for the unrealized receivables and inventory items distributed, and if no other property is distributed to which the partner can apply the remaining basis, the partner has a capital loss to the extent of the remaining basis of the partnership interest. 2010 turbotax Special adjustment to basis. 2010 turbotax   A partner who acquired any part of his or her partnership interest in a sale or exchange or upon the death of another partner may be able to choose a special basis adjustment for property distributed by the partnership. 2010 turbotax To choose the special adjustment, the partner must have received the distribution within 2 years after acquiring the partnership interest. 2010 turbotax Also, the partnership must not have chosen the optional adjustment to basis when the partner acquired the partnership interest. 2010 turbotax   If a partner chooses this special basis adjustment, the partner's basis for the property distributed is the same as it would have been if the partnership had chosen the optional adjustment to basis. 2010 turbotax However, this assigned basis is not reduced by any depletion or depreciation that would have been allowed or allowable if the partnership had previously chosen the optional adjustment. 2010 turbotax   The choice must be made with the partner's tax return for the year of the distribution if the distribution includes any property subject to depreciation, depletion, or amortization. 2010 turbotax If the choice does not have to be made for the distribution year, it must be made with the return for the first year in which the basis of the distributed property is pertinent in determining the partner's income tax. 2010 turbotax   A partner choosing this special basis adjustment must attach a statement to his or her tax return that the partner chooses under section 732(d) of the Internal Revenue Code to adjust the basis of property received in a distribution. 2010 turbotax The statement must show the computation of the special basis adjustment for the property distributed and list the properties to which the adjustment has been allocated. 2010 turbotax Example. 2010 turbotax Chin Ho purchased a 25% interest in X partnership for $17,000 cash. 2010 turbotax At the time of the purchase, the partnership owned inventory having a basis to the partnership of $14,000 and a fair market value of $16,000. 2010 turbotax Thus, $4,000 of the $17,000 he paid was attributable to his share of inventory with a basis to the partnership of $3,500. 2010 turbotax Within 2 years after acquiring his interest, Chin Ho withdrew from the partnership and for his entire interest received cash of $1,500, inventory with a basis to the partnership of $3,500, and other property with a basis of $6,000. 2010 turbotax The value of the inventory received was 25% of the value of all partnership inventory. 2010 turbotax (It is immaterial whether the inventory he received was on hand when he acquired his interest. 2010 turbotax ) Since the partnership from which Chin Ho withdrew did not make the optional adjustment to basis, he chose to adjust the basis of the inventory received. 2010 turbotax His share of the partnership's basis for the inventory is increased by $500 (25% of the $2,000 difference between the $16,000 fair market value of the inventory and its $14,000 basis to the partnership at the time he acquired his interest). 2010 turbotax The adjustment applies only for purposes of determining his new basis in the inventory, and not for purposes of partnership gain or loss on disposition. 2010 turbotax The total to be allocated among the properties Chin Ho received in the distribution is $15,500 ($17,000 basis of his interest − $1,500 cash received). 2010 turbotax His basis in the inventory items is $4,000 ($3,500 partnership basis + $500 special adjustment). 2010 turbotax The remaining $11,500 is allocated to his new basis for the other property he received. 2010 turbotax Mandatory adjustment. 2010 turbotax   A partner does not always have a choice of making this special adjustment to basis. 2010 turbotax The special adjustment to basis must be made for a distribution of property (whether or not within 2 years after the partnership interest was acquired) if all the following conditions existed when the partner received the partnership interest. 2010 turbotax The fair market value of all partnership property (other than money) was more than 110% of its adjusted basis to the partnership. 2010 turbotax If there had been a liquidation of the partner's interest immediately after it was acquired, an allocation of the basis of that interest under the general rules (discussed earlier under Basis divided among properties) would have decreased the basis of property that could not be depreciated, depleted, or amortized and increased the basis of property that could be. 2010 turbotax The optional basis adjustment, if it had been chosen by the partnership, would have changed the partner's basis for the property actually distributed. 2010 turbotax Required statement. 2010 turbotax   Generally, if a partner chooses a special basis adjustment and notifies the partnership, or if the partnership makes a distribution for which the special basis adjustment is mandatory, the partnership must provide a statement to the partner. 2010 turbotax The statement must provide information necessary for the partner to compute the special basis adjustment. 2010 turbotax Marketable securities. 2010 turbotax   A partner's basis in marketable securities received in a partnership distribution, as determined in the preceding discussions, is increased by any gain recognized by treating the securities as money. 2010 turbotax See Marketable securities treated as money under Partner's Gain or Loss, earlier. 2010 turbotax The basis increase is allocated among the securities in proportion to their respective amounts of unrealized appreciation before the basis increase. 2010 turbotax Transactions Between Partnership and Partners For certain transactions between a partner and his or her partnership, the partner is treated as not being a member of the partnership. 2010 turbotax These transactions include the following. 2010 turbotax Performing services for, or transferring property to, a partnership if: There is a related allocation and distribution to a partner, and The entire transaction, when viewed together, is properly characterized as occurring between the partnership and a partner not acting in the capacity of a partner. 2010 turbotax Transferring money or other property to a partnership if: There is a related transfer of money or other property by the partnership to the contributing partner or another partner, and The transfers together are properly characterized as a sale or exchange of property. 2010 turbotax Payments by accrual basis partnership to cash basis partner. 2010 turbotax   A partnership that uses an accrual method of accounting cannot deduct any business expense owed to a cash basis partner until the amount is paid. 2010 turbotax However, this rule does not apply to guaranteed payments made to a partner, which are generally deductible when accrued. 2010 turbotax Guaranteed Payments Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. 2010 turbotax A partnership treats guaranteed payments for services, or for the use of capital, as if they were made to a person who is not a partner. 2010 turbotax This treatment is for purposes of determining gross income and deductible business expenses only. 2010 turbotax For other tax purposes, guaranteed payments are treated as a partner's distributive share of ordinary income. 2010 turbotax Guaranteed payments are not subject to income tax withholding. 2010 turbotax The partnership generally deducts guaranteed payments on line 10 of Form 1065 as a business expense. 2010 turbotax They are also listed on Schedules K and K-1 of the partnership return. 2010 turbotax The individual partner reports guaranteed payments on Schedule E (Form 1040) as ordinary income, along with his or her distributive share of the partnership's other ordinary income. 2010 turbotax Guaranteed payments made to partners for organizing the partnership or syndicating interests in the partnership are capital expenses. 2010 turbotax Generally, organizational and syndication expenses are not deductible by the partnership. 2010 turbotax However, a partnership can elect to deduct a portion of its organizational expenses and amortize the remaining expenses (see Business start-up and organizational costs in the Instructions for Form 1065). 2010 turbotax Organizational expenses (if the election is not made) and syndication expenses paid to partners must be reported on the partners' Schedule K-1 as guaranteed payments. 2010 turbotax Minimum payment. 2010 turbotax   If a partner is to receive a minimum payment from the partnership, the guaranteed payment is the amount by which the minimum payment is more than the partner's distributive share of the partnership income before taking into account the guaranteed payment. 2010 turbotax Example. 2010 turbotax Under a partnership agreement, Divya is to receive 30% of the partnership income, but not less than $8,000. 2010 turbotax The partnership has net income of $20,000. 2010 turbotax Divya's share, without regard to the minimum guarantee, is $6,000 (30% × $20,000). 2010 turbotax The guaranteed payment that can be deducted by the partnership is $2,000 ($8,000 − $6,000). 2010 turbotax Divya's income from the partnership is $8,000, and the remaining $12,000 of partnership income will be reported by the other partners in proportion to their shares under the partnership agreement. 2010 turbotax If the partnership net income had been $30,000, there would have been no guaranteed payment since her share, without regard to the guarantee, would have been greater than the guarantee. 2010 turbotax Self-employed health insurance premiums. 2010 turbotax   Premiums for health insurance paid by a partnership on behalf of a partner, for services as a partner, are treated as guaranteed payments. 2010 turbotax The partnership can deduct the payments as a business expense, and the partner must include them in gross income. 2010 turbotax However, if the partnership accounts for insurance paid for a partner as a reduction in distributions to the partner, the partnership cannot deduct the premiums. 2010 turbotax   A partner who qualifies can deduct 100% of the health insurance premiums paid by the partnership on his or her behalf as an adjustment to income. 2010 turbotax The partner cannot deduct the premiums for any calendar month, or part of a month, in which the partner is eligible to participate in any subsidized health plan maintained by any employer of the partner, the partner's spouse, the partner's dependents, or any children under age 27 who are not dependents. 2010 turbotax For more information on the self-employed health insurance deduction, see chapter 6 in Publication 535. 2010 turbotax Including payments in partner's income. 2010 turbotax   Guaranteed payments are included in income in the partner's tax year in which the partnership's tax year ends. 2010 turbotax Example 1. 2010 turbotax Under the terms of a partnership agreement, Erica is entitled to a fixed annual payment of $10,000 without regard to the income of the partnership. 2010 turbotax Her distributive share of the partnership income is 10%. 2010 turbotax The partnership has $50,000 of ordinary income after deducting the guaranteed payment. 2010 turbotax She must include ordinary income of $15,000 ($10,000 guaranteed payment + $5,000 ($50,000 × 10%) distributive share) on her individual income tax return for her tax year in which the partnership's tax year ends. 2010 turbotax Example 2. 2010 turbotax Lamont is a calendar year taxpayer who is a partner in a partnership. 2010 turbotax The partnership uses a fiscal year that ended January 31, 2013. 2010 turbotax Lamont received guaranteed payments from the partnership from February 1, 2012, until December 31, 2012. 2010 turbotax He must include these guaranteed payments in income for 2013 and report them on his 2013 income tax return. 2010 turbotax Payments resulting in loss. 2010 turbotax   If guaranteed payments to a partner result in a partnership loss in which the partner shares, the partner must report the full amount of the guaranteed payments as ordinary income. 2010 turbotax The partner separately takes into account his or her distributive share of the partnership loss, to the extent of the adjusted basis of the partner's partnership interest. 2010 turbotax Sale or Exchange of Property Special rules apply to a sale or exchange of property between a partnership and certain persons. 2010 turbotax Losses. 2010 turbotax   Losses will not be allowed from a sale or exchange of property (other than an interest in the partnership) directly or indirectly between a partnership and a person whose direct or indirect interest in the capital or profits of the partnership is more than 50%. 2010 turbotax   If the sale or exchange is between two partnerships in which the same persons directly or indirectly own more than 50% of the capital or profits interests in each partnership, no deduction of a loss is allowed. 2010 turbotax   The basis of each partner's interest in the partnership is decreased (but not below zero) by the partner's share of the disallowed loss. 2010 turbotax   If the purchaser later sells the property, only the gain realized that is greater than the loss not allowed will be taxable. 2010 turbotax If any gain from the sale of the property is not recognized because of this rule, the basis of each partner's interest in the partnership is increased by the partner's share of that gain. 2010 turbotax Gains. 2010 turbotax   Gains are treated as ordinary income in a sale or exchange of property directly or indirectly between a person and a partnership, or between two partnerships, if both of the following tests are met. 2010 turbotax More than 50% of the capital or profits interest in the partnership(s) is directly or indirectly owned by the same person(s). 2010 turbotax The property in the hands of the transferee immediately after the transfer is not a capital asset. 2010 turbotax Property that is not a capital asset includes accounts receivable, inventory, stock-in-trade, and depreciable or real property used in a trade or business. 2010 turbotax More than 50% ownership. 2010 turbotax   To determine if there is more than 50% ownership in partnership capital or profits, the following rules apply. 2010 turbotax An interest directly or indirectly owned by, or for, a corporation, partnership, estate, or trust is considered to be owned proportionately by, or for, its shareholders, partners, or beneficiaries. 2010 turbotax An individual is considered to own the interest directly or indirectly owned by, or for, the individual's family. 2010 turbotax For this rule, “family” includes only brothers, sisters, half-brothers, half-sisters, spouses, ancestors, and lineal descendants. 2010 turbotax If a person is considered to own an interest using rule (1), that person (the “constructive owner”) is treated as if actually owning that interest when rules (1) and (2) are applied. 2010 turbotax However, if a person is considered to own an interest using rule (2), that person is not treated as actually owning that interest in reapplying rule (2) to make another person the constructive owner. 2010 turbotax Example. 2010 turbotax Individuals A and B and Trust T are equal partners in Partnership ABT. 2010 turbotax A's husband, AH, is the sole beneficiary of Trust T. 2010 turbotax Trust T's partnership interest will be attributed to AH only for the purpose of further attributing the interest to A. 2010 turbotax As a result, A is a more-than-50% partner. 2010 turbotax This means that any deduction for losses on transactions between her and ABT will not be allowed, and gain from property that in the hands of the transferee is not a capital asset is treated as ordinary, rather than capital, gain. 2010 turbotax More information. 2010 turbotax   For more information on these special rules, see Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. 2010 turbotax Contribution of Property Usually, neither the partner nor the partnership recognizes a gain or loss when property is contributed to the partnership in exchange for a partnership interest. 2010 turbotax This applies whether a partnership is being formed or is already operating. 2010 turbotax The partnership's holding period for the property includes the partner's holding period. 2010 turbotax The contribution of limited partnership interests in one partnership for limited partnership interests in another partnership qualifies as a tax-free contribution of property to the second partnership if the transaction is made for business purposes. 2010 turbotax The exchange is not subject to the rules explained later under Disposition of Partner's Interest. 2010 turbotax Disguised sales. 2010 turbotax   A contribution of money or other property to the partnership followed by a distribution of different property from the partnership to the partner is treated not as a contribution and distribution, but as a sale of property, if both of the following tests are met. 2010 turbotax The distribution would not have been made but for the contribution. 2010 turbotax The partner's right to the distribution does not depend on the success of partnership operations. 2010 turbotax   All facts and circumstances are considered in determining if the contribution and distribution are more properly characterized as a sale. 2010 turbotax However, if the contribution and distribution occur within 2 years of each other, the transfers are presumed to be a sale unless the facts clearly indicate that the transfers are not a sale. 2010 turbotax If the contribution and distribution occur more than 2 years apart, the transfers are presumed not to be a sale unless the facts clearly indicate that the transfers are a sale. 2010 turbotax Form 8275 required. 2010 turbotax   A partner must attach Form 8275, Disclosure Statement, (or other statement) to his or her return if the partner contributes property to a partnership and, within 2 years (before or after the contribution), the partnership transfers money or other consideration to the partner. 2010 turbotax For exceptions to this requirement, see section 1. 2010 turbotax 707-3(c)(2) of the regulations. 2010 turbotax   A partnership must attach Form 8275 (or other statement) to its return if it distributes property to a partner, and, within 2 years (before or after the distribution), the partner transfers money or other consideration to the partnership. 2010 turbotax   Form 8275 must include the following information. 2010 turbotax A caption identifying the statement as a disclosure under section 707 of the Internal Revenue Code. 2010 turbotax A description of the transferred property or money, including its value. 2010 turbotax A description of any relevant facts in determining if the transfers are properly viewed as a disguised sale. 2010 turbotax See section 1. 2010 turbotax 707-3(b)(2) of the regulations for a description of the facts and circumstances considered in determining if the transfers are a disguised sale. 2010 turbotax Contribution to partnership treated as investment company. 2010 turbotax   Gain is recognized when property is contributed (in exchange for an interest in the partnership) to a partnership that would be treated as an investment company if it were incorporated. 2010 turbotax   A partnership is generally treated as an investment company if over 80% of the value of its assets is held for investment and consists of certain readily marketable items. 2010 turbotax These items include money, stocks and other equity interests in a corporation, and interests in regulated investment companies and real estate investment trusts. 2010 turbotax For more information, see section 351(e)(1) of the Internal Revenue Code and the related regulations. 2010 turbotax Whether a partnership is treated as an investment company under this test is ordinarily determined immediately after the transfer of property. 2010 turbotax   This rule applies to limited partnerships and general partnerships, regardless of whether they are privately formed or publicly syndicated. 2010 turbotax Contribution to foreign partnership. 2010 turbotax   A domestic partnership that contributed property after August 5, 1997, to a foreign partnership in exchange for a partnership interest may have to file Form 8865 if either of the following apply. 2010 turbotax Immediately after the contribution, the partnership owned, directly or indirectly, at least a 10% interest in the foreign partnership. 2010 turbotax The fair market value of the property contributed to the foreign partnership, when added to other contributions of property made to the partnership during the preceding 12-month period, is greater than $100,000. 2010 turbotax   The partnership may also have to file Form 8865, even if no contributions are made during the tax year, if it owns a 10% or more interest in a foreign partnership at any time during the year. 2010 turbotax See the form instructions for more information. 2010 turbotax Basis of contributed property. 2010 turbotax   If a partner contributes property to a partnership, the partnership's basis for determining depreciation, depletion, gain, or loss for the property is the same as the partner's adjusted basis for the property when it was contributed, increased by any gain recognized by the partner at the time of contribution. 2010 turbotax Allocations to account for built-in gain or loss. 2010 turbotax   The fair market value of property at the time it is contributed may be different from the partner's adjusted basis. 2010 turbotax The partnership must allocate among the partners any income, deduction, gain, or loss on the property in a manner that will account for the difference. 2010 turbotax This rule also applies to contributions of accounts payable and other accrued but unpaid items of a cash basis partner. 2010 turbotax   The partnership can use different allocation methods for different items of contributed property. 2010 turbotax A single reasonable method must be consistently applied to each item, and the overall method or combination of methods must be reasonable. 2010 turbotax See section 1. 2010 turbotax 704-3 of the regulations for allocation methods generally considered reasonable. 2010 turbotax   If the partnership sells contributed property and recognizes gain or loss, built-in gain or loss is allocated to the contributing partner. 2010 turbotax If contributed property is subject to depreciation or other cost recovery, the allocation of deductions for these items takes into account built-in gain or loss on the property. 2010 turbotax However, the total depreciation, depletion, gain, or loss allocated to partners cannot be more than the depreciation or depletion allowable to the partnership or the gain or loss realized by the partnership. 2010 turbotax Example. 2010 turbotax Areta and Sofia formed an equal partnership. 2010 turbotax Areta contributed $10,000 in cash to the partnership and Sofia contributed depreciable property with a fair market value of $10,000 and an adjusted basis of $4,000. 2010 turbotax The partnership's basis for depreciation is limited to the adjusted basis of the property in Sofia's hands, $4,000. 2010 turbotax In effect, Areta purchased an undivided one-half interest in the depreciable property with her contribution of $10,000. 2010 turbotax Assuming that the depreciation rate is 10% a year under the General Depreciation System (GDS), she would have been entitled to a depreciation deduction of $500 per year, based on her interest in the partnership, if the adjusted basis of the property equaled its fair market value when contributed. 2010 turbotax To simplify this example, the depreciation deductions are determined without regard to any first-year depreciation conventions. 2010 turbotax However, since the partnership is allowed only $400 per year of depreciation (10% of $4,000), no more than $400 can be allocated between the partners. 2010 turbotax The entire $400 must be allocated to Areta. 2010 turbotax Distribution of contributed property to another partner. 2010 turbotax   If a partner contributes property to a partnership and the partnership distributes the property to another partner within 7 years of the contribution, the contributing partner must recognize gain or loss on the distribution. 2010 turbotax   The recognized gain or loss is the amount the contributing partner would have recognized if the property had been sold for its fair market value when it was distributed. 2010 turbotax This amount is the difference between the property's basis and its fair market value at the time of contribution. 2010 turbotax The character of the gain or loss will be the same as the character of the gain or loss that would have resulted if the partnership had sold the property to the distributee partner. 2010 turbotax Appropriate adjustments must be made to the adjusted basis of the contributing partner's partnership interest and to the adjusted basis of the property distributed to reflect the recognized gain or loss. 2010 turbotax Disposition of certain contributed property. 2010 turbotax   The following rules determine the character of the partnership's gain or loss on a disposition of certain types of contributed property. 2010 turbotax Unrealized receivables. 2010 turbotax If the property was an unrealized receivable in the hands of the contributing partner, any gain or loss on its disposition by the partnership is ordinary income or loss. 2010 turbotax Unrealized receivables are defined later under Payments for Unrealized Receivables and Inventory Items. 2010 turbotax When reading the definition, substitute “partner” for “partnership. 2010 turbotax ” Inventory items. 2010 turbotax If the property was an inventory item in the hands of the contributing partner, any gain or loss on its disposition by the partnership within 5 years after the contribution is ordinary income or loss. 2010 turbotax Inventory items are defined later in Payments for Unrealized Receivables and Inventory Items. 2010 turbotax Capital loss property. 2010 turbotax If the property was a capital asset in the contributing partner's hands, any loss on its disposition by the partnership within 5 years after the contribution is a capital loss. 2010 turbotax The capital loss is limited to the amount by which the partner's adjusted basis for the property exceeded the property's fair market value immediately before the contribution. 2010 turbotax Substituted basis property. 2010 turbotax If the disposition of any of the property listed in (1), (2), or (3) is a nonrecognition transaction, these rules apply when the recipient of the property disposes of any substituted basis property (other than certain corporate stock) resulting from the transaction. 2010 turbotax Contribution of Services A partner can acquire an interest in partnership capital or profits as compensation for services performed or to be performed. 2010 turbotax Capital interest. 2010 turbotax   A capital interest is an interest that would give the holder a share of the proceeds if the partnership's assets were sold at fair market value and the proceeds were distributed in a complete liquidation of the partnership. 2010 turbotax This determination generally is made at the time of receipt of the partnership interest. 2010 turbotax The fair market value of such an interest received by a partner as compensation for services must generally be included in the partner's gross income in the first tax year in which the partner can transfer the interest or the interest is not subject to a substantial risk of forfeiture. 2010 turbotax The capital interest transferred as compensation for services is subject to the rules for restricted property discussed in Publication 525 under Employee Compensation. 2010 turbotax   The fair market value of an interest in partnership capital transferred to a partner as payment for services to the partnership is a guaranteed payment, discussed earlier. 2010 turbotax Profits interest. 2010 turbotax   A profits interest is a partnership interest other than a capital interest. 2010 turbotax If a person receives a profits interest for providing services to, or for the benefit of, a partnership in a partner capacity or in anticipation of being a partner, the receipt of such an interest is not a taxable event for the partner or the partnership. 2010 turbotax However, this does not apply in the following situations. 2010 turbotax The profits interest relates to a substantially certain and predictable stream of income from partnership assets, such as income from high-quality debt securities or a high-quality net lease. 2010 turbotax Within 2 years of receipt, the partner disposes of the profits interest. 2010 turbotax The profits interest is a limited partnership interest in a publicly traded partnership. 2010 turbotax   A profits interest transferred as compensation for services is not subject to the rules for restricted property that apply to capital interests. 2010 turbotax Basis of Partner's Interest The basis of a partnership interest is the money plus the adjusted basis of any property the partner contributed. 2010 turbotax If the partner must recognize gain as a result of the contribution, this gain is included in the basis of his or her interest. 2010 turbotax Any increase in a partner's individual liabilities because of an assumption of partnership liabilities is considered a contribution of money to the partnership by the partner. 2010 turbotax Interest acquired by gift, etc. 2010 turbotax   If a partner acquires an interest in a partnership by gift, inheritance, or under any circumstance other than by a contribution of money or property to the partnership, the partner's basis must be determined using the basis rules described in Publication 551. 2010 turbotax Adjusted Basis There is a worksheet for adjusting the basis of a partner's interest in the partnership in the Partner's Instructions for Schedule K-1 (Form 1065). 2010 turbotax The basis of an interest in a partnership is increased or decreased by certain items. 2010 turbotax Increases. 2010 turbotax   A partner's basis is increased by the following items. 2010 turbotax The partner's additional contributions to the partnership, including an increased share of, or assumption of, partnership liabilities. 2010 turbotax The partner's distributive share of taxable and nontaxable partnership income. 2010 turbotax The partner's distributive share of the excess of the deductions for depletion over the basis of the depletable property, unless the property is oil or gas wells whose basis has been allocated to partners. 2010 turbotax Decreases. 2010 turbotax   The partner's basis is decreased (but never below zero) by the following items. 2010 turbotax The money (including a decreased share of partnership liabilities or an assumption of the partner's individual liabilities by the partnership) and adjusted basis of property distributed to the partner by the partnership. 2010 turbotax The partner's distributive share of the partnership losses (including capital losses). 2010 turbotax The partner's distributive share of nondeductible partnership expenses that are not capital expenditures. 2010 turbotax This includes the partner's share of any section 179 expenses, even if the partner cannot deduct the entire amount on his or her individual income tax return. 2010 turbotax The partner's deduction for depletion for any partnership oil and gas wells, up to the proportionate share of the adjusted basis of the wells allocated to the partner. 2010 turbotax Partner's liabilities assumed by partnership. 2010 turbotax   If contributed property is subject to a debt or if a partner's liabilities are assumed by the partnership, the basis of that partner's interest is reduced (but not below zero) by the liability assumed by the other partners. 2010 turbotax This partner must reduce his or her basis because the assumption of the liability is treated as a distribution of money to that partner. 2010 turbotax The other partners' assumption of the liability is treated as a contribution by them of money to the partnership. 2010 turbotax See Effect of Partnership Liabilities , later. 2010 turbotax Example 1. 2010 turbotax Ivan acquired a 20% interest in a partnership by contributing property that had an adjusted basis to him of $8,000 and a $4,000 mortgage. 2010 turbotax The partnership assumed payment of the mortgage. 2010 turbotax The basis of Ivan's interest is: Adjusted basis of contributed property $8,000 Minus: Part of mortgage assumed by other partners (80% × $4,000) 3,200 Basis of Ivan's partnership interest $4,800 Example 2. 2010 turbotax If, in Example 1, the contributed property had a $12,000 mortgage, the basis of Ivan's partnership interest would be zero. 2010 turbotax The $1,600 difference between the mortgage assumed by the other partners, $9,600 (80% × $12,000), and his basis of $8,000 would be treated as capital gain from the sale or exchange of a partnership interest. 2010 turbotax However, this gain would not increase the basis of his partnership interest. 2010 turbotax Book value of partner's interest. 2010 turbotax   The adjusted basis of a partner's interest is determined without considering any amount shown in the partnership books as a capital, equity, or similar account. 2010 turbotax Example. 2010 turbotax Enzo contributes to his partnership property that has an adjusted basis of $400 and a fair market value of $1,000. 2010 turbotax His partner contributes $1,000 cash. 2010 turbotax While each partner has increased his capital account by $1,000, which will be re
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The 2010 Turbotax

2010 turbotax Publication 536 - Main Content Table of Contents NOL Steps How To Figure an NOLNonbusiness deductions (line 6). 2010 turbotax Nonbusiness income (line 7). 2010 turbotax Nonbusiness capital losses. 2010 turbotax Business capital losses. 2010 turbotax Illustrated Form 1045, Schedule A When To Use an NOLExceptions to 2-Year Carryback Rule Waiving the Carryback Period How To Carry an NOL Back or Forward How To Claim an NOL DeductionDeducting a Carryback Deducting a Carryforward Change in Marital Status Change in Filing Status Illustrated Form 1045 How To Figure an NOL CarryoverIllustrated Form 1045, Schedule B NOL Carryover From 2013 to 2014Worksheet Instructions How To Get Tax HelpLow Income Taxpayer Clinics NOL Steps Follow Steps 1 through 5 to figure and use your NOL. 2010 turbotax Step 1. 2010 turbotax   Complete your tax return for the year. 2010 turbotax You may have an NOL if a negative figure appears on the line below: Individuals — Form 1040, line 41, or Form 1040NR, line 39. 2010 turbotax Estates and trusts — Form 1041, line 22. 2010 turbotax   If the amount on that line is not negative, stop here — you do not have an NOL. 2010 turbotax Step 2. 2010 turbotax   Determine whether you have an NOL and its amount. 2010 turbotax See How To Figure an NOL , later. 2010 turbotax If you do not have an NOL, stop here. 2010 turbotax Step 3. 2010 turbotax   Decide whether to carry the NOL back to a past year or to waive the carryback period and instead carry the NOL forward to a future year. 2010 turbotax See When To Use an NOL , later. 2010 turbotax Step 4. 2010 turbotax   Deduct the NOL in the carryback or carryforward year. 2010 turbotax See How To Claim an NOL Deduction , later. 2010 turbotax If your NOL deduction is equal to or less than your taxable income without the deduction, stop here — you have used up your NOL. 2010 turbotax Step 5. 2010 turbotax   Determine the amount of your unused NOL. 2010 turbotax See How To Figure an NOL Carryover , later. 2010 turbotax Carry over the unused NOL to the next carryback or carryforward year and begin again at Step 4. 2010 turbotax Note. 2010 turbotax   If your NOL deduction includes more than one NOL amount, apply Step 5 separately to each NOL amount, starting with the amount from the earliest year. 2010 turbotax How To Figure an NOL If your deductions for the year are more than your income for the year, you may have an NOL. 2010 turbotax There are rules that limit what you can deduct when figuring an NOL. 2010 turbotax In general, the following items are not allowed when figuring an NOL. 2010 turbotax Any deduction for personal exemptions. 2010 turbotax Capital losses in excess of capital gains. 2010 turbotax The section 1202 exclusion of the gain from the sale or exchange of qualified small business stock. 2010 turbotax Nonbusiness deductions in excess of nonbusiness income. 2010 turbotax The net operating loss deduction. 2010 turbotax The domestic production activities deduction. 2010 turbotax Form 1045, Schedule A. 2010 turbotax   Use Form 1045, Schedule A, to figure an NOL. 2010 turbotax The following discussion explains Schedule A and includes an illustrated example. 2010 turbotax   First, complete Form 1045, Schedule A, line 1, using amounts from your return. 2010 turbotax If line 1 is a negative amount, you may have an NOL. 2010 turbotax   Next, complete the rest of Form 1045, Schedule A, to figure your NOL. 2010 turbotax Nonbusiness deductions (line 6). 2010 turbotax   Enter on line 6 deductions that are not connected to your trade or business or your employment. 2010 turbotax Examples of deductions not related to your trade or business are: Alimony paid, Deductions for contributions to an IRA or a self-employed retirement plan, Health savings account deduction, Archer medical savings account deduction, Most itemized deductions (except for casualty and theft losses, state income tax on trade and business income, and any employee business expenses), and The standard deduction. 2010 turbotax   Do not include on line 6 the deduction for personal exemptions for you, your spouse, or your dependents. 2010 turbotax   Do not enter business deductions on line 6. 2010 turbotax These are deductions that are connected to your trade or business. 2010 turbotax They include the following. 2010 turbotax State income tax on income attributable to trade or business (including wages, salary, and unemployment compensation). 2010 turbotax Moving expenses. 2010 turbotax Educator expenses. 2010 turbotax The deduction for the deductible part of self-employed health insurance. 2010 turbotax Domestic production activities deduction. 2010 turbotax Rental losses. 2010 turbotax Loss on the sale or exchange of business real estate or depreciable property. 2010 turbotax Your share of a business loss from a partnership or an S corporation. 2010 turbotax Ordinary loss on the sale or exchange of stock in a small business corporation or a small business investment company. 2010 turbotax If you itemize your deductions, casualty and theft losses (even if they involve nonbusiness property) and employee business expenses (such as union dues, uniforms, tools, education expenses, and travel and transportation expenses). 2010 turbotax Loss on the sale of accounts receivable (if you use an accrual method of accounting). 2010 turbotax Interest and litigation expenses on state and federal income taxes related to your business. 2010 turbotax Unrecovered investment in a pension or annuity claimed on a decedent's final return. 2010 turbotax Payment by a federal employee to buy back sick leave used in an earlier year. 2010 turbotax Nonbusiness income (line 7). 2010 turbotax   Enter on line 7 only income that is not related to your trade or business or your employment. 2010 turbotax For example, enter your annuity income, dividends, and interest on investments. 2010 turbotax Also, include your share of nonbusiness income from partnerships and S corporations. 2010 turbotax   Do not include on line 7 the income you receive from your trade or business or your employment. 2010 turbotax This includes salaries and wages, self-employment income, unemployment compensation included in your gross income, and your share of business income from partnerships and S corporations. 2010 turbotax Also, do not include rental income or ordinary gain from the sale or other disposition of business real estate or depreciable business property. 2010 turbotax Adjustment for section 1202 exclusion (line 17). 2010 turbotax   Enter on line 17 any gain you excluded under section 1202 on the sale or exchange of qualified small business stock. 2010 turbotax Adjustments for capital losses (lines 19–22). 2010 turbotax   The amount deductible for capital losses is limited based on whether the losses are business capital losses or nonbusiness capital losses. 2010 turbotax Nonbusiness capital losses. 2010 turbotax   You can deduct your nonbusiness capital losses (line 2) only up to the amount of your nonbusiness capital gains without regard to any section 1202 exclusion (line 3). 2010 turbotax If your nonbusiness capital losses are more than your nonbusiness capital gains without regard to any section 1202 exclusion, you cannot deduct the excess. 2010 turbotax Business capital losses. 2010 turbotax   You can deduct your business capital losses (line 11) only up to the total of: Your nonbusiness capital gains that are more than the total of your nonbusiness capital losses and excess nonbusiness deductions (line 10), and Your total business capital gains without regard to any section 1202 exclusion (line 12). 2010 turbotax Domestic production activities deduction (line 23). 2010 turbotax   You cannot take the domestic production activities deduction when figuring your NOL. 2010 turbotax Enter on line 23 any domestic production activities deduction claimed on your return. 2010 turbotax NOLs from other years (line 24). 2010 turbotax   You cannot deduct any NOL carryovers or carrybacks from other years. 2010 turbotax Enter the total amount of your NOL deduction for losses from other years. 2010 turbotax Illustrated Form 1045, Schedule A The following example illustrates how to figure an NOL. 2010 turbotax It includes filled-in pages 1 and 2 of Form 1040 and Form 1045, Schedule A. 2010 turbotax Example. 2010 turbotax Glenn Johnson is in the retail record business. 2010 turbotax He is single and has the following income and deductions on his Form 1040 for 2013. 2010 turbotax See the illustrated Form 1040 , later. 2010 turbotax INCOME   Wages from part-time job $1,225 Interest on savings 425 Net long-term capital gain on sale of real estate used in business 2,000 Glenn's total income $3,650 DEDUCTIONS   Net loss from business (gross income of $67,000 minus expenses of $72,000) $5,000 Net short-term capital loss on sale of stock 1,000 Standard deduction 6,100 Personal exemption 3,900 Glenn's total deductions $16,000 Glenn's deductions exceed his income by $12,350 ($16,000 − $3,650). 2010 turbotax However, to figure whether he has an NOL, certain deductions are not allowed. 2010 turbotax He uses Form 1045, Schedule A, to figure his NOL. 2010 turbotax See the Illustrated Form 1045, Schedule A , later. 2010 turbotax The following items are not allowed on Form 1045, Schedule A. 2010 turbotax Nonbusiness net short-term capital loss $1,000 Nonbusiness deductions (standard deduction, $6,100) minus nonbusiness income (interest, $425) 5,675 Deduction for personal exemption 3,900 Total adjustments to net loss $10,575     Therefore, Glenn's NOL for 2013 is figured as follows: Glenn's total 2013 income $3,650 Less:     Glenn's original 2013 total deductions $16,000   Reduced by the disallowed items − 10,575 − 5,425 Glenn's NOL for 2013 $1,775 This image is too large to be displayed in the current screen. 2010 turbotax Please click the link to view the image. 2010 turbotax Form 1040, page 1 This image is too large to be displayed in the current screen. 2010 turbotax Please click the link to view the image. 2010 turbotax Form 1040, page 2 This image is too large to be displayed in the current screen. 2010 turbotax Please click the link to view the image. 2010 turbotax Form 1045, page 2 When To Use an NOL Generally, if you have an NOL for a tax year ending in 2013, you must carry back the entire amount of the NOL to the 2 tax years before the NOL year (the carryback period), and then carry forward any remaining NOL for up to 20 years after the NOL year (the carryforward period). 2010 turbotax You can, however, choose not to carry back an NOL and only carry it forward. 2010 turbotax See Waiving the Carryback Period , later. 2010 turbotax You cannot deduct any part of the NOL remaining after the 20-year carryforward period. 2010 turbotax NOL year. 2010 turbotax   This is the year in which the NOL occurred. 2010 turbotax Exceptions to 2-Year Carryback Rule Eligible losses, farming losses, qualified disaster losses, and specified liability losses, all defined next, qualify for longer carryback periods. 2010 turbotax Eligible loss. 2010 turbotax   The carryback period for eligible losses is 3 years. 2010 turbotax Only the eligible loss portion of the NOL can be carried back 3 years. 2010 turbotax An eligible loss is any part of an NOL that: Is from a casualty or theft, or Is attributable to a federally declared disaster for a qualified small business or certain qualified farming businesses. 2010 turbotax Qualified small business. 2010 turbotax   A qualified small business is a sole proprietorship or a partnership that has average annual gross receipts (reduced by returns and allowances) of $5 million or less during the 3-year period ending with the tax year of the NOL. 2010 turbotax If the business did not exist for this entire 3-year period, use the period the business was in existence. 2010 turbotax   An eligible loss does not include a farming loss or a qualified disaster loss. 2010 turbotax Farming loss. 2010 turbotax   The carryback period for a farming loss is 5 years. 2010 turbotax Only the farming loss portion of the NOL can be carried back 5 years. 2010 turbotax A farming loss is the smaller of: The amount that would be the NOL for the tax year if only income and deductions attributable to farming businesses were taken into account, or The NOL for the tax year. 2010 turbotax Farming business. 2010 turbotax   A farming business is a trade or business involving cultivation of land or the raising or harvesting of any agricultural or horticultural commodity. 2010 turbotax A farming business can include operating a nursery or sod farm or raising or harvesting most ornamental trees or trees bearing fruit, nuts, or other crops. 2010 turbotax The raising, shearing, feeding, caring for, training, and management of animals is also considered a farming business. 2010 turbotax   A farming business does not include contract harvesting of an agricultural or horticultural commodity grown or raised by someone else. 2010 turbotax It also does not include a business in which you merely buy or sell plants or animals grown or raised entirely by someone else. 2010 turbotax Waiving the 5-year carryback. 2010 turbotax   You can choose to figure the carryback period for a farming loss without regard to the special 5-year carryback rule. 2010 turbotax To make this choice for 2013, attach to your 2013 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2013 farming losses without regard to the special 5-year carryback rule. 2010 turbotax If you filed your original return on time but did not file the statement with it, you can make this choice on an amended return filed within 6 months after the due date of the return (excluding extensions). 2010 turbotax Attach an election statement to your amended return, and write “Filed pursuant to section 301. 2010 turbotax 9100-2” at the top of the statement. 2010 turbotax Once made, this choice is irrevocable. 2010 turbotax Qualified disaster loss. 2010 turbotax   The carryback period for a qualified disaster loss is 5 years. 2010 turbotax Only the qualified disaster loss portion of the NOL can be carried back 5 years. 2010 turbotax A qualified disaster loss is the smaller of: The sum of: Any losses attributable to a federally declared disaster and occurring before January 1, 2010, in the disaster area, plus Any allowable qualified disaster expenses (even if you did not choose to treat those expenses as deductions in the current year), or The NOL for the tax year. 2010 turbotax Qualified disaster expenses. 2010 turbotax   A qualified disaster expense is any capital expense paid or incurred in connection with a trade or business or with business-related property which is: For the abatement or control of hazardous substances that were released as a result of a federally declared disaster occurring before January 1, 2010, For the removal of debris from, or the demolition of structures on, real property which is business-related property damaged or destroyed as a result of a federally declared disaster occurring before January 1, 2010, or For the repair of business-related property damaged as a result of a federally declared disaster occurring before January 1, 2010. 2010 turbotax Business-related property is property held for use in a trade or business, property held for the production of income, or inventory property. 2010 turbotax Note. 2010 turbotax Section 198A allows taxpayers to treat certain capital expenses (qualified disaster expenses) as deductions in the year the expenses were paid or incurred. 2010 turbotax Excluded losses. 2010 turbotax   A qualified disaster loss does not include any losses from property used in connection with any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store for which the principal business is the sale of alcoholic beverages for consumption off premises. 2010 turbotax   A qualified disaster loss also does not include any losses from any gambling or animal racing property. 2010 turbotax Gambling or animal racing property is any equipment, furniture, software, or other property used directly in connection with gambling, the racing of animals, or the on-site viewing of such racing, and the portion of any real property (determined by square footage) that is dedicated to gambling, the racing of animals, or the on-site viewing of such racing, unless this portion is less than 100 square feet. 2010 turbotax Specified liability loss. 2010 turbotax   The carryback period for a specified liability loss is 10 years. 2010 turbotax Only the specified liability loss portion of the NOL can be carried back 10 years. 2010 turbotax Generally, a specified liability loss is a loss arising from: Product liability and expenses incurred in the investigation or settlement of, or opposition to, product liability claims, or An act (or failure to act) that occurred at least 3 years before the beginning of the loss year and resulted in a liability under a federal or state law requiring: Reclamation of land, Dismantling of a drilling platform, Remediation of environmental contamination, or Payment under any workers compensation act. 2010 turbotax   Any loss from a liability arising from (1) through (4) above can be taken into account as a specified liability loss only if you used an accrual method of accounting throughout the period in which the act (or failure to act) occurred. 2010 turbotax For details, see section 172(f). 2010 turbotax Waiving the 10-year carryback. 2010 turbotax   You can choose to figure the carryback period for a specified liability loss without regard to the special 10-year carryback rule. 2010 turbotax To make this choice for 2013 attach to your 2013 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2013 specified liability losses without regard to the special 10-year carryback rule. 2010 turbotax If you filed your original return on time but did not file the statement with it, you can make this choice on an amended return filed within 6 months after the due date of the return (excluding extensions). 2010 turbotax Attach a statement to your amended return and write “Filed pursuant to section 301. 2010 turbotax 9100-2” at the top of the statement. 2010 turbotax Once made, this choice is irrevocable. 2010 turbotax Waiving the Carryback Period You can choose not to carry back your NOL. 2010 turbotax If you make this choice, then you can use your NOL only in the 20-year carryforward period. 2010 turbotax (This choice means you also choose not to carry back any alternative tax NOL. 2010 turbotax ) To make this choice, attach a statement to your original return filed by the due date (including extensions) for the NOL year. 2010 turbotax This statement must show that you are choosing to waive the carryback period under section 172(b)(3). 2010 turbotax If you filed your original return on time but did not file the statement with it, you can make this choice on an amended return filed within 6 months of the due date of the return (excluding extensions). 2010 turbotax Attach a statement to your amended return, and write “Filed pursuant to section 301. 2010 turbotax 9100-2” at the top of the statement. 2010 turbotax Once you choose to waive the carryback period, it generally is irrevocable. 2010 turbotax If you choose to waive the carryback period for more than one NOL, you must make a separate choice and attach a separate statement for each NOL year. 2010 turbotax If you do not file this statement on time, you cannot waive the carryback period. 2010 turbotax How To Carry an NOL Back or Forward If you choose to carry back the NOL, you must first carry the entire NOL to the earliest carryback year. 2010 turbotax If your NOL is not used up, you can carry the rest to the next earliest carryback year, and so on. 2010 turbotax If you waive the carryback period or do not use up the NOL in the carryback period, carry forward what remains of the NOL to the 20 tax years following the NOL year. 2010 turbotax Start by carrying it to the first tax year after the NOL year. 2010 turbotax If you do not use it up, carry the unused part to the next year. 2010 turbotax Continue to carry any unused part of the NOL forward until the NOL is used up or you complete the 20-year carryforward period. 2010 turbotax Example 1. 2010 turbotax You started your business as a sole proprietor in 2013 and had a $42,000 NOL for the year. 2010 turbotax No part of the NOL qualifies for the 3-year, 5-year, or 10-year carryback. 2010 turbotax You begin using your NOL in 2011, the second year before the NOL year, as shown in the following chart. 2010 turbotax Year   Carryback/  Carryover Unused  Loss 2011 $42,000 $40,000 2012 40,000 37,000 2013 (NOL year)     2014 37,000 31,500 2015 31,500 22,500 2016 22,500 12,700 2017 12,700 4,000 2018 4,000 -0- If your loss were larger, you could carry it forward until the year 2033. 2010 turbotax If you still had an unused 2013 carryforward after the year 2033, you would not be allowed to deduct it. 2010 turbotax Example 2. 2010 turbotax Assume the same facts as in Example 1 , except that $4,000 of the NOL is attributable to a casualty loss and this loss qualifies for a 3-year carryback period. 2010 turbotax You begin using the $4,000 in 2010. 2010 turbotax As shown in the following chart, $3,000 of this NOL is used in 2010. 2010 turbotax The remaining $1,000 is carried to 2011 with the $38,000 NOL that you must begin using in 2011. 2010 turbotax Year   Carryback/  Carryover Unused  Loss 2010 $4,000 $1,000 2011 39,000 37,000 2012 37,000 34,000 2013 (NOL year)     2014 34,000 28,500 2015 28,500 19,500 2016 19,500 9,700 2017 9,700 1,000 2018 1,000 -0- How To Claim an NOL Deduction If you have not already carried the NOL to an earlier year, your NOL deduction is the total NOL. 2010 turbotax If you carried the NOL to an earlier year, your NOL deduction is the carried over NOL minus the NOL amount you used in the earlier year or years. 2010 turbotax If you carry more than one NOL to the same year, your NOL deduction is the total of these carrybacks and carryovers. 2010 turbotax NOL resulting in no taxable income. 2010 turbotax   If your NOL is more than the taxable income of the year you carry it to (figured before deducting the NOL), you generally will have an NOL carryover to the next year. 2010 turbotax See How To Figure an NOL Carryover , later, to determine how much NOL you have used and how much you carry to the next year. 2010 turbotax Deducting a Carryback If you carry back your NOL, you can use either Form 1045 or Form 1040X. 2010 turbotax You can get your refund faster by using Form 1045, but you have a shorter time to file it. 2010 turbotax You can use Form 1045 to apply an NOL to all carryback years. 2010 turbotax If you use Form 1040X, you must use a separate Form 1040X for each carryback year to which you apply the NOL. 2010 turbotax Estates and trusts that do not file Form 1045 must file an amended Form 1041 (instead of Form 1040X) for each carryback year to which NOLs are applied. 2010 turbotax Use a copy of the appropriate year's Form 1041, check the “Amended return” box, and follow the Form 1041 instructions for amended returns. 2010 turbotax Include the NOL deduction with other deductions not subject to the 2% limit (line 15a). 2010 turbotax Also, see the special procedures for filing an amended return due to an NOL carryback, explained under Form 1040X , later. 2010 turbotax Form 1045. 2010 turbotax   You can apply for a quick refund by filing Form 1045. 2010 turbotax This form results in a tentative adjustment of tax in the carryback year. 2010 turbotax See the Illustrated Form 1045 . 2010 turbotax at the end of this discussion. 2010 turbotax   If the IRS refunds or credits an amount to you from Form 1045 and later determines that the refund or credit is too much, the IRS may assess and collect the excess immediately. 2010 turbotax   Generally, you must file Form 1045 on or after the date you file your tax return for the NOL year, but not later than one year after the end of the NOL year. 2010 turbotax If the last day of the NOL year falls on a Saturday, Sunday, or holiday, the form will be considered timely if postmarked on the next business day. 2010 turbotax For example, if you are a calendar year taxpayer with a carryback from 2013 to 2011, you must file Form 1045 on or after the date you file your tax return for 2013, but no later than December 31, 2014. 2010 turbotax Form 1040X. 2010 turbotax   If you do not file Form 1045, you can file Form 1040X to get a refund of tax because of an NOL carryback. 2010 turbotax File Form 1040X within 3 years after the due date, including extensions, for filing the return for the NOL year. 2010 turbotax For example, if you are a calendar year taxpayer and filed your 2011 return by the April 15, 2012, due date, you must file a claim for refund of 2008 tax because of an NOL carryback from 2011 by April 15, 2015. 2010 turbotax   Attach a computation of your NOL using Form 1045, Schedule A, and, if it applies, your NOL carryover using Form 1045, Schedule B, discussed later . 2010 turbotax Refiguring your tax. 2010 turbotax   To refigure your total tax liability for a carryback year, first refigure your adjusted gross income for that year. 2010 turbotax (On Form 1045, use lines 10 and 11 and the “After carryback” column for the applicable carryback year. 2010 turbotax ) Use your adjusted gross income after applying the NOL deduction to refigure income or deduction items that are based on, or limited to, a percentage of your adjusted gross income. 2010 turbotax Refigure the following items. 2010 turbotax The special allowance for passive activity losses from rental real estate activities. 2010 turbotax Taxable social security and tier 1 railroad retirement benefits. 2010 turbotax IRA deductions. 2010 turbotax Excludable savings bond interest. 2010 turbotax Excludable employer-provided adoption benefits. 2010 turbotax The student loan interest deduction. 2010 turbotax The tuition and fees deduction. 2010 turbotax   If more than one of these items apply, refigure them in the order listed above, using your adjusted gross income after applying the NOL deduction and any previous item. 2010 turbotax (Enter your NOL deduction on Form 1045, line 10. 2010 turbotax On line 11, using the “After carryback” column, enter your adjusted gross income refigured after applying the NOL deduction and after refiguring any above items. 2010 turbotax )   Next, refigure your taxable income. 2010 turbotax (On Form 1045, use lines 12 through 15 and the “After carryback” column. 2010 turbotax ) Use your refigured adjusted gross income (Form 1045, line 11, using the “After carryback” column) to refigure certain deductions and other items that are based on or limited to a percentage of your adjusted gross income. 2010 turbotax Refigure the following items. 2010 turbotax The itemized deduction for medical expenses. 2010 turbotax The itemized deduction for qualified mortgage insurance premiums. 2010 turbotax The itemized deduction for casualty losses. 2010 turbotax Miscellaneous itemized deductions subject to the 2% limit. 2010 turbotax The overall limit on itemized deductions (do not apply to carryback years beginning after December 31, 2009). 2010 turbotax The phaseout of the deduction for exemptions (do not apply to carryback years beginning after December 31, 2009). 2010 turbotax Qualified motor vehicle tax (do not apply to carryback years beginning after December 31, 2009). 2010 turbotax    Do not refigure the itemized deduction for charitable contributions. 2010 turbotax   Finally, use your refigured taxable income (Form 1045, line 15, using the “After carryback” column) to refigure your total tax liability. 2010 turbotax Refigure your income tax, your alternative minimum tax, and any credits that are based on or limited by your adjusted gross income (AGI), modified adjusted gross income (MAGI), or tax liability. 2010 turbotax (On Form 1045, use lines 16 through 25, and the “After carryback” column. 2010 turbotax ) The earned income credit, for example, may be affected by changes to adjusted gross income or the amount of tax (or both) and, therefore, must be recomputed. 2010 turbotax If you become eligible for a credit because of the carryback, complete the form for that specific credit (such as the EIC Worksheet) for that year. 2010 turbotax   While it is necessary to refigure your income tax, alternative minimum tax, and credits, do not refigure your self-employment tax. 2010 turbotax Deducting a Carryforward If you carry forward your NOL to a tax year after the NOL year, list your NOL deduction as a negative figure on the “Other income” line of Form 1040 or Form 1040NR (line 21 for 2013). 2010 turbotax Estates and trusts include an NOL deduction on Form 1041 with other deductions not subject to the 2% limit (line 15a for 2013). 2010 turbotax You must attach a statement that shows all the important facts about the NOL. 2010 turbotax Your statement should include a computation showing how you figured the NOL deduction. 2010 turbotax If you deduct more than one NOL in the same year, your statement must cover each of them. 2010 turbotax Change in Marital Status If you and your spouse were not married to each other in all years involved in figuring NOL carrybacks and carryovers, only the spouse who had the loss can take the NOL deduction. 2010 turbotax If you file a joint return, the NOL deduction is limited to the income of that spouse. 2010 turbotax For example, if your marital status changes because of death or divorce, and in a later year you have an NOL, you can carry back that loss only to the part of the income reported on the joint return (filed with your former spouse) that was related to your taxable income. 2010 turbotax After you deduct the NOL in the carryback year, the joint rates apply to the resulting taxable income. 2010 turbotax Refund limit. 2010 turbotax   If you are not married in the NOL year (or are married to a different spouse), and in the carryback year you were married and filed a joint return, your refund for the overpaid joint tax may be limited. 2010 turbotax You can claim a refund for the difference between your share of the refigured tax and your contribution toward the tax paid on the joint return. 2010 turbotax The refund cannot be more than the joint overpayment. 2010 turbotax Attach a statement showing how you figured your refund. 2010 turbotax Figuring your share of a joint tax liability. 2010 turbotax   There are five steps for figuring your share of the refigured joint tax liability. 2010 turbotax Figure your total tax as though you had filed as married filing separately. 2010 turbotax Figure your spouse's total tax as though your spouse had also filed as married filing separately. 2010 turbotax Add the amounts in (1) and (2). 2010 turbotax Divide the amount in (1) by the amount in (3). 2010 turbotax Multiply the refigured tax on your joint return by the amount figured in (4). 2010 turbotax This is your share of the joint tax liability. 2010 turbotax Figuring your contribution toward tax paid. 2010 turbotax   Unless you have an agreement or clear evidence of each spouse's contributions toward the payment of the joint tax liability, figure your contribution by adding the tax withheld on your wages and your share of joint estimated tax payments or tax paid with the return. 2010 turbotax If the original return for the carryback year resulted in an overpayment, reduce your contribution by your share of the tax refund. 2010 turbotax Figure your share of a joint payment or refund by the same method used in figuring your share of the joint tax liability. 2010 turbotax Use your taxable income as originally reported on the joint return in steps (1) and (2) above, and substitute the joint payment or refund for the refigured joint tax in step (5). 2010 turbotax Change in Filing Status If you and your spouse were married and filed a joint return for each year involved in figuring NOL carrybacks and carryovers, figure the NOL deduction on a joint return as you would for an individual. 2010 turbotax However, treat the NOL deduction as a joint NOL. 2010 turbotax If you and your spouse were married and filed separate returns for each year involved in figuring NOL carrybacks and carryovers, the spouse who sustained the loss may take the NOL deduction on a separate return. 2010 turbotax Special rules apply for figuring the NOL carrybacks and carryovers of married people whose filing status changes for any tax year involved in figuring an NOL carryback or carryover. 2010 turbotax Separate to joint return. 2010 turbotax   If you and your spouse file a joint return for a carryback or carryforward year, and were married but filed separate returns for any of the tax years involved in figuring the NOL carryback or carryover, treat the separate carryback or carryover as a joint carryback or carryover. 2010 turbotax Joint to separate returns. 2010 turbotax   If you and your spouse file separate returns for a carryback or carryforward year, but filed a joint return for any or all of the tax years involved in figuring the NOL carryover, figure each of your carryovers separately. 2010 turbotax Joint return in NOL year. 2010 turbotax   Figure each spouse's share of the joint NOL through the following steps. 2010 turbotax Figure each spouse's NOL as if he or she filed a separate return. 2010 turbotax See How To Figure an NOL , earlier. 2010 turbotax If only one spouse has an NOL, stop here. 2010 turbotax All of the joint NOL is that spouse's NOL. 2010 turbotax If both spouses have an NOL, multiply the joint NOL by a fraction, the numerator of which is spouse A's NOL figured in (1) and the denominator of which is the total of the spouses' NOLs figured in (1). 2010 turbotax The result is spouse A's share of the joint NOL. 2010 turbotax The rest of the joint NOL is spouse B's share. 2010 turbotax Example 1. 2010 turbotax Mark and Nancy are married and file a joint return for 2013. 2010 turbotax They have an NOL of $5,000. 2010 turbotax They carry the NOL back to 2011, a year in which Mark and Nancy filed separate returns. 2010 turbotax Figured separately, Nancy's 2013 deductions were more than her income, and Mark's income was more than his deductions. 2010 turbotax Mark does not have any NOL to carry back. 2010 turbotax Nancy can carry back the entire $5,000 NOL to her 2011 separate return. 2010 turbotax Example 2. 2010 turbotax Assume the same facts as in Example 1 , except that both Mark and Nancy had deductions in 2013 that were more than their income. 2010 turbotax Figured separately, his NOL is $1,800 and her NOL is $3,000. 2010 turbotax The sum of their separate NOLs ($4,800) is less than their $5,000 joint NOL because his deductions included a $200 net capital loss that is not allowed in figuring his separate NOL. 2010 turbotax The loss is allowed in figuring their joint NOL because it was offset by Nancy's capital gains. 2010 turbotax Mark's share of their $5,000 joint NOL is $1,875 ($5,000 × $1,800/$4,800) and Nancy's is $3,125 ($5,000 − $1,875). 2010 turbotax Joint return in previous carryback or carryforward year. 2010 turbotax   If only one spouse had an NOL deduction on the previous year's joint return, all of the joint carryover is that spouse's carryover. 2010 turbotax If both spouses had an NOL deduction (including separate carryovers of a joint NOL, figured as explained in the previous discussion ), figure each spouse's share of the joint carryover through the following steps. 2010 turbotax Figure each spouse's modified taxable income as if he or she filed a separate return. 2010 turbotax See Modified taxable income under How To Figure an NOL Carryover , later. 2010 turbotax Multiply the joint modified taxable income you used to figure the joint carryover by a fraction, the numerator of which is spouse A's modified taxable income figured in (1) and the denominator of which is the total of the spouses' modified taxable incomes figured in (1). 2010 turbotax This is spouse A's share of the joint modified taxable income. 2010 turbotax Subtract the amount figured in (2) from the joint modified taxable income. 2010 turbotax This is spouse B's share of the joint modified taxable income. 2010 turbotax Reduce the amount figured in (3), but not below zero, by spouse B's NOL deduction. 2010 turbotax Add the amounts figured in (2) and (4). 2010 turbotax Subtract the amount figured in (5) from spouse A's NOL deduction. 2010 turbotax This is spouse A's share of the joint carryover. 2010 turbotax The rest of the joint carryover is spouse B's share. 2010 turbotax Example. 2010 turbotax Sam and Wanda filed a joint return for 2011 and separate returns for 2012 and 2013. 2010 turbotax In 2013, Sam had an NOL of $18,000 and Wanda had an NOL of $2,000. 2010 turbotax They choose to carry back both NOLs 2 years to their 2011 joint return and claim a $20,000 NOL deduction. 2010 turbotax Their joint modified taxable income (MTI) for 2011 is $15,000, and their joint NOL carryover to 2012 is $5,000 ($20,000 – $15,000). 2010 turbotax Sam and Wanda each figure their separate MTI for 2011 as if they had filed separate returns. 2010 turbotax Then they figure their shares of the $5,000 carryover as follows. 2010 turbotax Step 1. 2010 turbotax   Sam's separate MTI $9,000 Wanda's separate MTI + 3,000 Total MTI $12,000 Step 2. 2010 turbotax   Joint MTI $15,000 Sam's MTI ÷ total MTI ($9,000 ÷ $12,000) × . 2010 turbotax 75 Sam's share of joint MTI $11,250 Step 3. 2010 turbotax   Joint MTI $15,000 Sam's share of joint MTI − 11,250 Wanda's share of joint MTI $3,750 Step 4. 2010 turbotax   Wanda's share of joint MTI $3,750 Wanda's NOL deduction − 2,000 Wanda's remaining share $1,750 Step 5. 2010 turbotax   Sam's share of joint MTI $11,250 Wanda's remaining share + 1,750 Joint MTI to be offset $13,000 Step 6. 2010 turbotax   Sam's NOL deduction $18,000 Joint MTI to be offset − 13,000 Sam's carryover to 2012 $5,000 Joint carryover to 2012 $5,000 Sam's carryover − 5,000 Wanda's carryover to 2012 $-0- Wanda's $2,000 NOL deduction offsets $2,000 of her $3,750 share of the joint modified taxable income and is completely used up. 2010 turbotax She has no carryover to 2012. 2010 turbotax Sam's $18,000 NOL deduction offsets all of his $11,250 share of joint modified taxable income and the remaining $1,750 of Wanda's share. 2010 turbotax His carryover to 2012 is $5,000. 2010 turbotax Illustrated Form 1045 The following example illustrates how to use Form 1045 to claim an NOL deduction in a carryback year. 2010 turbotax It includes a filled-in page 1 of Form 1045. 2010 turbotax Example. 2010 turbotax Martha Sanders is a self-employed contractor. 2010 turbotax Martha's 2013 deductions are more than her 2013 income because of a business loss. 2010 turbotax She uses Form 1045 to carry back her NOL 2 years and claim an NOL deduction in 2011. 2010 turbotax Her filing status in both years was single. 2010 turbotax See the filled-in Form 1045 later. 2010 turbotax Martha figures her 2013 NOL on Form 1045, Schedule A (not shown). 2010 turbotax (For an example using Form 1045, Schedule A, see Illustrated Form 1045, Schedule A under How To Figure an NOL , earlier. 2010 turbotax ) She enters the $10,000 NOL from Form 1045, Schedule A, line 25, on Form 1045, line 1a. 2010 turbotax Martha completes lines 10 through 25, using the “Before carryback” column under the column for the second preceding tax year ended 12/31/11 on page 1 of Form 1045 using the following amounts from her 2011 return. 2010 turbotax 2011 Adjusted gross income $50,000 Itemized deductions:     Medical expenses [$6,000 − ($50,000 × 7. 2010 turbotax 5%)] $2,250   State income tax + 2,000   Real estate tax + 4,000   Home mortgage interest + 5,000   Total itemized deductions $13,250 Exemption $3,700 Income tax $4,550 Self-employment tax $6,120   Martha refigures her taxable income for 2011 after carrying back her 2013 NOL as follows: 2011 Adjusted gross income $50,000 Less:     NOL from 2013 −10,000 2011 Adjusted gross income after carryback $40,000 Less:     Itemized deductions:     Medical expenses [$6,000 − ($40,000 × 7. 2010 turbotax 5%)] $3,000   State income tax + 2,000   Real estate tax + 4,000   Home mortgage interest + 5,000   Total itemized deductions −14,000 Less:     Exemption − 3,700 2011 Taxable income after carryback $22,300 Martha then completes lines 10 through 25, using the “After carryback” column under the column for the second preceding tax year ended 12/31/11. 2010 turbotax On line 10, Martha enters her $10,000 NOL deduction. 2010 turbotax Her new adjusted gross income on line 11 is $40,000 ($50,000 − $10,000). 2010 turbotax To complete line 12, she must refigure her medical expense deduction using her new adjusted gross income. 2010 turbotax Her refigured medical expense deduction is $3,000 [$6,000 − ($40,000 × 7. 2010 turbotax 5%)]. 2010 turbotax This increases her total itemized deductions to $14,000 [$13,250 + ($3,000 − $2,250)]. 2010 turbotax Martha uses her refigured taxable income ($22,300) from line 15, and the tax tables in her 2011 Form 1040 instructions to find her income tax. 2010 turbotax She enters the new amount, $2,924, on line 16, and her new total tax liability, $9,044, on line 25. 2010 turbotax Martha used up her $10,000 NOL in 2011 so she does not complete a column for the first preceding tax year ended 12/31/2012. 2010 turbotax The decrease in tax because of her NOL deduction (line 27) is $1,612. 2010 turbotax Martha files Form 1045 after filing her 2013 return, but no later than December 31, 2014. 2010 turbotax She mails it to the Internal Revenue Service Center for the place where she lives as shown in the 2013 instructions for Form 1040 and attaches a copy of her 2013 return (including the applicable forms and schedules). 2010 turbotax This image is too large to be displayed in the current screen. 2010 turbotax Please click the link to view the image. 2010 turbotax Form 1045, page 1 How To Figure an NOL Carryover If your NOL is more than your taxable income for the year to which you carry it (figured before deducting the NOL), you may have an NOL carryover. 2010 turbotax You must make certain modifications to your taxable income to determine how much NOL you will use up in that year and how much you can carry over to the next tax year. 2010 turbotax Your carryover is the excess of your NOL deduction over your modified taxable income for the carryback or carryforward year. 2010 turbotax If your NOL deduction includes more than one NOL, apply the NOLs against your modified taxable income in the same order in which you incurred them, starting with the earliest. 2010 turbotax Modified taxable income. 2010 turbotax   Your modified taxable income is your taxable income figured with the following changes. 2010 turbotax You cannot claim an NOL deduction for the NOL carryover you are figuring or for any later NOL. 2010 turbotax You cannot claim a deduction for capital losses in excess of your capital gains. 2010 turbotax Also, you must increase your taxable income by the amount of any section 1202 exclusion. 2010 turbotax You cannot claim the domestic production activities deduction. 2010 turbotax You cannot claim a deduction for your exemptions for yourself, your spouse, or dependents. 2010 turbotax You must figure any item affected by the amount of your adjusted gross income after making the changes in (1), (2), and (3), above, and certain other changes to your adjusted gross income that result from (1), (2), and (3). 2010 turbotax This includes income and deduction items used to figure adjusted gross income (for example, IRA deductions), as well as certain itemized deductions. 2010 turbotax To figure a charitable contribution deduction, do not include deductions for NOL carrybacks in the change in (1) but do include deductions for NOL carryforwards from tax years before the NOL year. 2010 turbotax   Your taxable income as modified cannot be less than zero. 2010 turbotax Form 1045, Schedule B. 2010 turbotax   You can use Form 1045, Schedule B, to figure your modified taxable income for carryback years and your carryover from each of those years. 2010 turbotax Do not use Form 1045, Schedule B, for a carryforward year. 2010 turbotax If your 2013 return includes an NOL deduction from an NOL year before 2013 that reduced your taxable income to zero (to less than zero, if an estate or trust), see NOL Carryover From 2013 to 2014 , later. 2010 turbotax Illustrated Form 1045, Schedule B The following example illustrates how to figure an NOL carryover from a carryback year. 2010 turbotax It includes a filled-in Form 1045, Schedule B. 2010 turbotax Example. 2010 turbotax Ida Brown runs a small clothing shop. 2010 turbotax In 2013, she has an NOL of $36,000 that she carries back to 2011. 2010 turbotax She has no other carrybacks or carryforwards to 2011. 2010 turbotax Ida's adjusted gross income in 2011 was $35,000, consisting of her salary of $36,000 minus a $1,000 capital loss deduction. 2010 turbotax She is single and claimed only one personal exemption of $3,700. 2010 turbotax During that year, she gave $1,450 in charitable contributions. 2010 turbotax Her medical expenses were $3,000. 2010 turbotax She also deducted $1,650 in taxes and $3,125 in home mortgage interest. 2010 turbotax Her deduction for charitable contributions was not limited because her contributions, $1,450, were less than 50% of her adjusted gross income. 2010 turbotax The deduction for medical expenses was limited to expenses over 7. 2010 turbotax 5% of adjusted gross income (. 2010 turbotax 075 × $35,000 = $2,625; $3,000 − $2,625 = $375). 2010 turbotax The deductions for taxes and home mortgage interest were not subject to any limits. 2010 turbotax She was able to claim $6,600 ($1,450 + $375 + $1,650 + $3,125) in itemized deductions and a personal exemption deduction of $3,700 for 2011. 2010 turbotax She had no other deductions in 2011 (except the NOL deduction). 2010 turbotax Her taxable income (figured without the NOL deduction) for the year was $24,700. 2010 turbotax Ida's adjusted gross income in 2012 was $9,325, consisting of net business income from the clothing shop of $12,325 and a net capital loss of $3,000. 2010 turbotax She did not itemize her deductions in 2012. 2010 turbotax She deducted the standard deduction of $5,950 and the personal exemption deduction of $3,800. 2010 turbotax She had no other deductions in 2012 (other than the NOL deduction). 2010 turbotax Her taxable income, therefore, was ($425). 2010 turbotax Ida's $36,000 carryback will result in her having 2011 taxable income of zero. 2010 turbotax She then completes the column for the second preceding tax year ended 12/31/11 on Form 1045, Schedule B, to figure how much of her NOL she uses up in 2011 and how much she can carry over to 2012. 2010 turbotax She completes the column for the first preceding tax year ended 12/31/12. 2010 turbotax See the illustrated Form 1045, Schedule B , shown later. 2010 turbotax Column 1, line 1. 2010 turbotax Ida enters $36,000, her 2013 net operating loss, on line 1. 2010 turbotax Column 1, line 2. 2010 turbotax She enters $24,700, her 2011 taxable income (figured without the NOL deduction), on line 2. 2010 turbotax Column 1, line 3. 2010 turbotax Ida enters her net capital loss deduction of $1,000 on line 3. 2010 turbotax Column 1, lines 4 and 5. 2010 turbotax Ida had no section 1202 exclusion or domestic production activities deduction in 2011. 2010 turbotax She enters zero on lines 4 and 5. 2010 turbotax Column 1, line 6. 2010 turbotax Although Ida's entry on line 3 modifies her adjusted gross income, that does not affect any other items included in her adjusted gross income. 2010 turbotax Ida enters zero on line 6. 2010 turbotax Column 1, line 7. 2010 turbotax Ida had itemized deductions and entered $1,000 on line 3, so she completes lines 11 through 38 to figure her adjustment to itemized deductions. 2010 turbotax On line 7, she enters the total adjustment from line 38. 2010 turbotax Column 1, line 8. 2010 turbotax Ida enters the deduction for her personal exemption of $3,700 for 2011. 2010 turbotax Column 1, line 9. 2010 turbotax After combining lines 2 through 8, Ida's modified taxable income is $29,475. 2010 turbotax Column 1, line 10. 2010 turbotax Ida figures her carryover to 2012 by subtracting her modified taxable income (line 9) from her NOL deduction (line 1). 2010 turbotax She enters the $6,525 carryover on line 10. 2010 turbotax She also enters the $6,525 as her NOL deduction for 2012 on Form 1045, page 1, line 10, in the “After carryback” column under the column for the first preceding tax year ended 12/31/12. 2010 turbotax (For an illustrated example of page 1 of Form 1045, see Illustrated Form 1045 under How To Claim an NOL Deduction , earlier. 2010 turbotax ) Next, Ida completes column 2 for the first preceding tax year ended 12/31/12. 2010 turbotax Column 1, line 11. 2010 turbotax Ida's adjusted gross income for 2011 was $35,000. 2010 turbotax Column 1, line 12. 2010 turbotax She adds lines 3 through 6 and enters $1,000 on line 12. 2010 turbotax (This is her net capital loss deduction added back, which modifies her adjusted gross income. 2010 turbotax ) Column 1, line 13. 2010 turbotax Her modified adjusted gross income for 2011 is now $36,000. 2010 turbotax Column 1, line 14. 2010 turbotax On her 2011 tax return, she deducted $375 as medical expenses. 2010 turbotax Column 1, line 15. 2010 turbotax Her actual medical expenses were $3,000. 2010 turbotax Column 1, line 16. 2010 turbotax She multiplies her modified adjusted gross income, $36,000, by . 2010 turbotax 075. 2010 turbotax She enters $2,700 on line 16. 2010 turbotax Column 1, line 17. 2010 turbotax She substracts $2,700 from her actual medical expenses, $3,000. 2010 turbotax She enters $300 on line 17. 2010 turbotax This is her modified medical deduction. 2010 turbotax Column 1, line 18. 2010 turbotax The difference between her medical deduction and her modified medical deduction is $75. 2010 turbotax She enters this on line 18. 2010 turbotax Column 1, lines 19 through 21. 2010 turbotax Ida had no deduction for qualified mortgage insurance premiums in 2011. 2010 turbotax She skips lines 19 and 20 and enters zero on line 21. 2010 turbotax Column 1, line 22. 2010 turbotax She enters her modified adjusted gross income of $36,000 on line 22. 2010 turbotax Column 1, line 23. 2010 turbotax She had no other carrybacks to 2011 and enters zero on line 23. 2010 turbotax Column 1, line 24. 2010 turbotax Her modified adjusted gross income remains $36,000. 2010 turbotax Column 1, line 25. 2010 turbotax Her actual contributions for 2011 were $1,450, which she enters on line 25. 2010 turbotax Column 1, line 26. 2010 turbotax She now refigures her charitable contributions based on her modified adjusted gross income. 2010 turbotax Her contributions are well below the 50% limit, so she enters $1,450 on line 26. 2010 turbotax Column 1, line 27. 2010 turbotax The difference is zero. 2010 turbotax Column 1, lines 28 through 37. 2010 turbotax Ida had no casualty losses or deductions for miscellaneous items in 2011. 2010 turbotax She skips lines 28 through 31 and lines 33 through 36. 2010 turbotax Ida enters zero on lines 32 and 37. 2010 turbotax Column 1, line 38. 2010 turbotax She combines lines 18, 21, 27, 32, and 37 and enters $75 on line 38. 2010 turbotax She carries this figure to line 7. 2010 turbotax Column 2, line 1. 2010 turbotax Ida enters $6,525, the carryback of her 2013 NOL to 2012, from column 1, line 10, on line 1. 2010 turbotax Column 2, line 2. 2010 turbotax She enters ($425), her 2012 taxable income, on line 2. 2010 turbotax Column 2, line 3. 2010 turbotax Ida enters her net capital loss deduction of $3,000 on line 3. 2010 turbotax Column 2, lines 4 and 5. 2010 turbotax Ida had no section 1202 exclusion or domestic production activities deduction in 2012. 2010 turbotax She enters zero on lines 4 and 5. 2010 turbotax Column 2, line 6. 2010 turbotax Although Ida's entry on line 3 modifies her adjusted gross income, that does not affect any other items included in her adjusted gross income. 2010 turbotax Ida enters zero on line 6. 2010 turbotax Column 2, line 7. 2010 turbotax Because Ida did not itemize deductions on her 2012 tax return, she enters zero on line 7. 2010 turbotax Column 2, line 8. 2010 turbotax Ida enters the deduction for her personal exemption of $3,800 for 2012. 2010 turbotax Column 2, line 9. 2010 turbotax After combining lines 2 through 8, Ida's modified taxable income is $6,375. 2010 turbotax Column 2, line 10. 2010 turbotax Ida figures her carryforward to 2014 by subtracting her modified taxable income (line 9) from her NOL deduction (line 1). 2010 turbotax She enters the $150 carryover on line 10. 2010 turbotax This image is too large to be displayed in the current screen. 2010 turbotax Please click the link to view the image. 2010 turbotax Form 1045, page 3 This image is too large to be displayed in the current screen. 2010 turbotax Please click the link to view the image. 2010 turbotax Form 1045, page 4 NOL Carryover From 2013 to 2014 If you had an NOL deduction carried forward from a year prior to 2013 that resulted in your having taxable income on your 2013 return of zero (of less than zero, if an estate or trust), complete Table 1 , Worksheet for NOL Carryover From 2013 to 2014, on the following pages. 2010 turbotax It will help you figure your NOL to carry to 2014. 2010 turbotax Keep the worksheet for your records. 2010 turbotax Worksheet Instructions At the top of the worksheet, enter the NOL year for which you are figuring the carryover. 2010 turbotax More than one NOL. 2010 turbotax   If your 2013 NOL deduction includes amounts for more than one loss year, complete this worksheet only for one loss year. 2010 turbotax To determine which year, start with your earliest NOL and subtract each NOL separately from your taxable income figured without the NOL deduction. 2010 turbotax Complete this worksheet for the earliest NOL that results in your having taxable income below zero. 2010 turbotax Your NOL carryover to 2014 is the total of the amount on line 10 of the worksheet and all later NOL amounts. 2010 turbotax Example. 2010 turbotax Your taxable income for 2013 is $5,000 without your $9,000 NOL deduction. 2010 turbotax Your NOL deduction includes a $2,000 carryover from 2011 and a $7,000 carryover from 2012. 2010 turbotax Subtract your 2011 NOL of $2,000 from $5,000. 2010 turbotax This gives you taxable income of $3,000. 2010 turbotax Your 2011 NOL is now completely used up. 2010 turbotax Subtract your $7,000 2012 NOL from $3,000. 2010 turbotax This gives you taxable income of ($4,000). 2010 turbotax You now complete the worksheet for your 2012 NOL. 2010 turbotax Your NOL carryover to 2014 is the unused part of your 2012 NOL from line 10 of the worksheet. 2010 turbotax Line 2. 2010 turbotax   Treat your NOL deduction for the NOL year entered at the top of the worksheet and later years as a positive amount. 2010 turbotax Add it to your negative taxable income (figured without the NOL deduction). 2010 turbotax Enter the result on line 2. 2010 turbotax Line 6. 2010 turbotax   You must refigure the following income and deductions based on adjusted gross income. 2010 turbotax The special allowance for passive activity losses from rental real estate activities. 2010 turbotax Taxable social security and tier 1 railroad retirement benefits. 2010 turbotax IRA deductions. 2010 turbotax Excludable savings bond interest. 2010 turbotax Excludable employer-provided adoption benefits. 2010 turbotax The student loan interest deduction. 2010 turbotax The tuition and fees deduction. 2010 turbotax   If none of these items apply to you, enter zero on line 6. 2010 turbotax Otherwise, increase your adjusted gross income by the total of lines 3 through 5 and your NOL deduction for the NOL year entered at the top of the worksheet and later years. 2010 turbotax Using this increased adjusted gross income, refigure the items that apply, in the order listed above. 2010 turbotax Your adjustment for each item is the difference between the refigured amount and the amount included on your return. 2010 turbotax Combine the adjustments for previous items with your adjusted gross income before refiguring the next item. 2010 turbotax Keep a record of your computations. 2010 turbotax   Enter your total adjustments for the above items on line 6. 2010 turbotax Line 7. 2010 turbotax   Enter zero if you claimed the standard deduction or the amounts on lines 3 through 5 are zero. 2010 turbotax Otherwise, use lines 11 through 33 of the worksheet to figure the amount to enter on this line. 2010 turbotax Complete only those sections that apply to you. 2010 turbotax Estates and trusts. 2010 turbotax   Enter zero on line 7 if you did not claim any miscellaneous deductions on Form 1041, line 15c, or a casualty or theft loss. 2010 turbotax Otherwise, refigure these deductions by substituting modified adjusted gross income (see below ) for adjusted gross income. 2010 turbotax Subtract the recomputed deductions from those claimed on the return. 2010 turbotax Enter the result on line 7. 2010 turbotax Modified adjusted gross income. 2010 turbotax   To refigure miscellaneous itemized deductions of an estate or trust (Form 1041, line 15c), modified adjusted gross income is the total of the following amounts. 2010 turbotax The adjusted gross income on the return. 2010 turbotax The amounts from lines 3 through 5 of the worksheet. 2010 turbotax The exemption amount from Form 1041, line 20. 2010 turbotax The NOL deduction for the NOL year entered at the top of the worksheet and for later years. 2010 turbotax   To refigure the casualty and theft loss deduction of an estate or trust, modified adjusted gross income is the total of the following amounts. 2010 turbotax The adjusted gross income amount you used to figure the deduction claimed on the return. 2010 turbotax The amounts from lines 3 through 5 of the worksheet. 2010 turbotax The NOL deduction for the NOL year entered at the top of the worksheet and for later years. 2010 turbotax Line 11. 2010 turbotax   Treat your NOL deduction for the NOL year entered at the top of the worksheet and for later years as a positive amount. 2010 turbotax Add it to your adjusted gross income. 2010 turbotax Enter the result on line 11. 2010 turbotax Line 20. 2010 turbotax   Is your modified adjusted gross income from line 13 of this worksheet more than $100,000 ($50,000 if married filing separately)?   □ Yes. 2010 turbotax Your deduction is limited. 2010 turbotax Refigure your deduction using the Mortgage Insurance Premiums Deduction Worksheet in the 2013 Instructions for Form 1045. 2010 turbotax On line 2 of the Mortgage Insurance Premiums Deduction Worksheet, enter the amount from line 13 of this worksheet. 2010 turbotax   □ No. 2010 turbotax Your deduction is not limited. 2010 turbotax Enter the amount from line 19 on line 20 and enter -0- on line 21. 2010 turbotax Line 23. 2010 turbotax   If you had a contributions carryover from 2012 to 2013 and your NOL deduction includes an amount from an NOL year before 2012, you may have to reduce your contributions carryover. 2010 turbotax Reduce the contributions carryover by the amount of any adjustment you made to your 2012 charitable contributions deduction when figuring your NOL carryover to 2013. 2010 turbotax Use the reduced contributions carryover to figure the amount to enter on line 23. 2010 turbotax Please click here for the text description of the image. 2010 turbotax Worksheet for NOL Carryover Worksheet for NOL Carryover (Continued) How To Get Tax Help Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. 2010 turbotax Free help with your tax return. 2010 turbotax   You can get free help preparing your return nationwide from IRS-certified volunteers. 2010 turbotax The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. 2010 turbotax The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. 2010 turbotax Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. 2010 turbotax In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. 2010 turbotax To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. 2010 turbotax gov, download the IRS2Go app, or call 1-800-906-9887. 2010 turbotax   As part of the TCE program, AARP offers the Tax-Aide counseling program. 2010 turbotax To find the nearest AARP Tax-Aide site, visit AARP's website at www. 2010 turbotax aarp. 2010 turbotax org/money/taxaide or call 1-888-227-7669. 2010 turbotax For more information on these programs, go to IRS. 2010 turbotax gov and enter “VITA” in the search box. 2010 turbotax Internet. 2010 turbotax    IRS. 2010 turbotax gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. 2010 turbotax Download the free IRS2Go app from the iTunes app store or from Google Play. 2010 turbotax Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. 2010 turbotax Check the status of your 2013 refund with the Where's My Refund? application on IRS. 2010 turbotax gov or download the IRS2Go app and select the Refund Status option. 2010 turbotax The IRS issues more than 9 out of 10 refunds in less than 21 days. 2010 turbotax Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. 2010 turbotax You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. 2010 turbotax The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. 2010 turbotax Use the Interactive Tax Assistant (ITA) to research your tax questions. 2010 turbotax No need to wait on the phone or stand in line. 2010 turbotax The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. 2010 turbotax When you reach the response screen, you can print the entire interview and the final response for your records. 2010 turbotax New subject areas are added on a regular basis. 2010 turbotax  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. 2010 turbotax gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. 2010 turbotax You can use the IRS Tax Map to search publications and instructions by topic or keyword. 2010 turbotax The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. 2010 turbotax When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. 2010 turbotax Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. 2010 turbotax You can also ask the IRS to mail a return or an account transcript to you. 2010 turbotax Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. 2010 turbotax gov or by calling 1-800-908-9946. 2010 turbotax Tax return and tax account transcripts are generally available for the current year and the past three years. 2010 turbotax Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. 2010 turbotax Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. 2010 turbotax If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. 2010 turbotax Check the status of your amended return using Where's My Amended Return? Go to IRS. 2010 turbotax gov and enter Where's My Amended Return? in the search box. 2010 turbotax You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. 2010 turbotax It can take up to 3 weeks from the date you mailed it to show up in our system. 2010 turbotax Make a payment using one of several safe and convenient electronic payment options available on IRS. 2010 turbotax gov. 2010 turbotax Select the Payment tab on the front page of IRS. 2010 turbotax gov for more information. 2010 turbotax Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. 2010 turbotax Figure your income tax withholding with the IRS Withholding Calculator on IRS. 2010 turbotax gov. 2010 turbotax Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. 2010 turbotax Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. 2010 turbotax gov. 2010 turbotax Request an Electronic Filing PIN by going to IRS. 2010 turbotax gov and entering Electronic Filing PIN in the search box. 2010 turbotax Download forms, instructions and publications, including accessible versions for people with disabilities. 2010 turbotax Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. 2010 turbotax gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. 2010 turbotax An employee can answer questions about your tax account or help you set up a payment plan. 2010 turbotax Before you visit, check the Office Locator on IRS. 2010 turbotax gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. 2010 turbotax If you have a special need, such as a disability, you can request an appointment. 2010 turbotax Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. 2010 turbotax Apply for an Employer Identification Number (EIN). 2010 turbotax Go to IRS. 2010 turbotax gov and enter Apply for an EIN in the search box. 2010 turbotax Read the Internal Revenue Code, regulations, or other official guidance. 2010 turbotax Read Internal Revenue Bulletins. 2010 turbotax Sign up to receive local and national tax news and more by email. 2010 turbotax Just click on “subscriptions” above the search box on IRS. 2010 turbotax gov and choose from a variety of options. 2010 turbotax Phone. 2010 turbotax    You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. 2010 turbotax Download the free IRS2Go app from the iTunes app store or from Google Play. 2010 turbotax Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. 2010 turbotax gov, or download the IRS2Go app. 2010 turbotax Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. 2010 turbotax The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. 2010 turbotax Most VITA and TCE sites offer free electronic filing. 2010 turbotax Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. 2010 turbotax Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. 2010 turbotax Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. 2010 turbotax If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. 2010 turbotax The IRS issues more than 9 out of 10 refunds in less than 21 days. 2010 turbotax Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. 2010 turbotax Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. 2010 turbotax The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. 2010 turbotax Note, the above information is for our automated hotline. 2010 turbotax Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. 2010 turbotax Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. 2010 turbotax You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. 2010 turbotax It can take up to 3 weeks from the date you mailed it to show up in our system. 2010 turbotax Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). 2010 turbotax You should receive your order within 10 business days. 2010 turbotax Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. 2010 turbotax If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. 2010 turbotax Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. 2010 turbotax The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. 2010 turbotax These individuals can also contact the IRS through relay services such as the Federal Relay Service. 2010 turbotax Walk-in. 2010 turbotax   You can find a selection of forms, publications and services — in person. 2010 turbotax Products. 2010 turbotax You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. 2010 turbotax Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. 2010 turbotax Services. 2010 turbotax You can walk in to your local TAC for face-to-face tax help. 2010 turbotax An employee can answer questions about your tax account or help you set up a payment plan. 2010 turbotax Before visiting, use the Office Locator tool on IRS. 2010 turbotax gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. 2010 turbotax Mail. 2010 turbotax   You can send your order for forms, instructions, and publications to the address below. 2010 turbotax You should receive a response within 10 business days after your request is received. 2010 turbotax Internal Revenue Service 1201 N. 2010 turbotax Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. 2010 turbotax The Taxpayer Advocate Service (TAS) is your voice at the IRS. 2010 turbotax Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. 2010 turbotax   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. 2010 turbotax We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. 2010 turbotax You face (or your business is facing) an immediate threat of adverse action. 2010 turbotax You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. 2010 turbotax   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. 2010 turbotax Here's why we can help: TAS is an independent organization within the IRS. 2010 turbotax Our advocates know how to work with the IRS. 2010 turbotax Our services are free and tailored to meet your needs. 2010 turbotax We have offices in every state, the District of Columbia, and Puerto Rico. 2010 turbotax   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at Taxpayer Advocate, or call us toll-free at 1-877-777-4778. 2010 turbotax   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. 2010 turbotax If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. 2010 turbotax Low Income Taxpayer Clinics Low Income