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Amend my taxes free online 4. Amend my taxes free online   Farm Business Expenses Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible ExpensesReasonable allocation. Amend my taxes free online Prepaid Farm Supplies Prepaid Livestock Feed Labor Hired Repairs and Maintenance Interest Breeding Fees Fertilizer and Lime Taxes Insurance Rent and Leasing Depreciation Business Use of Your Home Truck and Car Expenses Travel Expenses Marketing Quota Penalties Tenant House Expenses Items Purchased for Resale Other Expenses Domestic Production Activities Deduction Capital ExpensesForestation and reforestation costs. Amend my taxes free online Nondeductible ExpensesPersonal, Living, and Family Expenses Other Nondeductible Items Losses From Operating a FarmAt-Risk Limits Passive Activity Limits Excess Farm Loss Limit Not-for-Profit FarmingUsing the presumption later. Amend my taxes free online Category 1. Amend my taxes free online Category 2. Amend my taxes free online Category 3. Amend my taxes free online What's New for 2013 Standard mileage rate. Amend my taxes free online  For 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 56. Amend my taxes free online 5 cents. Amend my taxes free online See Truck and Car Expenses , later. Amend my taxes free online Simplified method for business use of home deduction. Amend my taxes free online  The IRS now provides a simplified method to determine your expenses for business use of your home. Amend my taxes free online For more information, see Schedule C (Form 1040), Part II, and its instructions. Amend my taxes free online Introduction You can generally deduct the current costs of operating your farm. Amend my taxes free online Current costs are expenses you do not have to capitalize or include in inventory costs. Amend my taxes free online However, your deduction for the cost of livestock feed and certain other supplies may be limited. Amend my taxes free online If you have an operating loss, you may not be able to deduct all of it. Amend my taxes free online Topics - This chapter discusses: Deductible expenses Domestic production activities deduction Capital expenses Nondeductible expenses Losses from operating a farm Not-for-profit farming Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch F (Form 1040) Profit or Loss From Farming 1045 Application for Tentative Refund 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit 8903 Domestic Production Activities Deduction See chapter 16 for information about getting publications and forms. Amend my taxes free online Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. Amend my taxes free online “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. Amend my taxes free online Schedule F, Part II, lists some common farm expenses that are typically deductible. Amend my taxes free online This chapter discusses many of these expenses, as well as others not listed on Schedule F. Amend my taxes free online Reimbursed expenses. Amend my taxes free online   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. Amend my taxes free online If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. Amend my taxes free online See Refund or reimbursement under Income From Other Sources in chapter 3. Amend my taxes free online Personal and business expenses. Amend my taxes free online   Some expenses you pay during the tax year may be part personal and part business. Amend my taxes free online These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. Amend my taxes free online   You must allocate these mixed expenses between their business and personal parts. Amend my taxes free online Generally, the personal part of these expenses is not deductible. Amend my taxes free online The business portion of the expenses is deductible on Schedule F. Amend my taxes free online Example. Amend my taxes free online You paid $1,500 for electricity during the tax year. Amend my taxes free online You used 1/3 of the electricity for personal purposes and 2/3 for farming. Amend my taxes free online Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. Amend my taxes free online Reasonable allocation. Amend my taxes free online   It is not always easy to determine the business and nonbusiness parts of an expense. Amend my taxes free online There is no method of allocation that applies to all mixed expenses. Amend my taxes free online Any reasonable allocation is acceptable. Amend my taxes free online What is reasonable depends on the circumstances in each case. Amend my taxes free online Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. Amend my taxes free online Feed, seed, fertilizer, and similar farm supplies not used or consumed during the year, but not including farm supplies that you would have consumed during the year if not for a fire, storm, flood, other casualty, disease, or drought. Amend my taxes free online Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. Amend my taxes free online However, include only the amount that would be deductible in the following year if you had capitalized the cost and deducted it ratably over the lesser of 12 months or the useful life of the poultry. Amend my taxes free online Poultry bought for resale and not resold during the year. Amend my taxes free online Deduction limit. Amend my taxes free online   If you use the cash method of accounting to report your income and expenses, your deduction for prepaid farm supplies in the year you pay for them may be limited to 50% of your other deductible farm expenses for the year (all Schedule F deductions except prepaid farm supplies). Amend my taxes free online This limit does not apply if you meet one of the exceptions described later. Amend my taxes free online See Chapter 2 for a discussion of the cash method of accounting. Amend my taxes free online   If the limit applies, you can deduct the excess cost of farm supplies other than poultry in the year you use or consume the supplies. Amend my taxes free online The excess cost of poultry bought for use (or for both use and resale) in your farm business is deductible in the year following the year you pay for it. Amend my taxes free online The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. Amend my taxes free online Example. Amend my taxes free online You may not qualify for the exception described next. Amend my taxes free online During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. Amend my taxes free online Your total prepaid farm supplies expense for 2013 is $5,500. Amend my taxes free online Your other deductible farm expenses totaled $10,000 for 2013. Amend my taxes free online Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. Amend my taxes free online The excess prepaid farm supplies expense of $500 ($5,500 − $5,000) is deductible in a later tax year when you use or consume the supplies. Amend my taxes free online Exceptions. Amend my taxes free online   This limit on the deduction for prepaid farm supplies expense does not apply if you are a farm-related taxpayer and either of the following apply. Amend my taxes free online Your prepaid farm supplies expense is more than 50% of your other deductible farm expenses because of a change in business operations caused by unusual circumstances. Amend my taxes free online Your total prepaid farm supplies expense for the preceding 3 tax years is less than 50% of your total other deductible farm expenses for those 3 tax years. Amend my taxes free online   You are a farm-related taxpayer if any of the following tests apply. Amend my taxes free online Your main home is on a farm. Amend my taxes free online Your principal business is farming. Amend my taxes free online A member of your family meets (1) or (2). Amend my taxes free online For this purpose, your family includes your brothers and sisters, half-brothers and half-sisters, spouse, parents, grandparents, children, grandchildren, and aunts and uncles and their children. Amend my taxes free online    Whether or not the deduction limit for prepaid farm supplies applies, your expenses for prepaid livestock feed may be subject to the rules for advance payment of livestock feed, discussed next. Amend my taxes free online Prepaid Livestock Feed If you report your income and expenses under the cash method of accounting, you cannot deduct in the year paid the cost of feed your livestock will consume in a later year unless you meet all the following tests. Amend my taxes free online The payment is for the purchase of feed rather than a deposit. Amend my taxes free online The prepayment has a business purpose and is not merely for tax avoidance. Amend my taxes free online Deducting the prepayment does not result in a material distortion of your income. Amend my taxes free online If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. Amend my taxes free online If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. Amend my taxes free online This rule does not apply to the purchase of commodity futures contracts. Amend my taxes free online Payment for the purchase of feed. Amend my taxes free online   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. Amend my taxes free online It is for the purchase of feed if you can show you made it under a binding commitment to accept delivery of a specific quantity of feed at a fixed price and you are not entitled, by contract or business custom, to a refund or repurchase. Amend my taxes free online   The following are some factors that show a payment is a deposit rather than for the purchase of feed. Amend my taxes free online The absence of specific quantity terms. Amend my taxes free online The right to a refund of any unapplied payment credit at the end of the contract. Amend my taxes free online The seller's treatment of the payment as a deposit. Amend my taxes free online The right to substitute other goods or products for those specified in the contract. Amend my taxes free online   A provision permitting substitution of ingredients to vary the particular feed mix to meet your livestock's current diet requirements will not suggest a deposit. Amend my taxes free online Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. Amend my taxes free online Business purpose. Amend my taxes free online   The prepayment has a business purpose only if you have a reasonable expectation of receiving some business benefit from prepaying the cost of livestock feed. Amend my taxes free online The following are some examples of business benefits. Amend my taxes free online Fixing maximum prices and securing an assured feed supply. Amend my taxes free online Securing preferential treatment in anticipation of a feed shortage. Amend my taxes free online   Other factors considered in determining the existence of a business purpose are whether the prepayment was a condition imposed by the seller and whether that condition was meaningful. Amend my taxes free online No material distortion of income. Amend my taxes free online   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. Amend my taxes free online Your customary business practice in conducting your livestock operations. Amend my taxes free online The expense in relation to past purchases. Amend my taxes free online The time of year you made the purchase. Amend my taxes free online The expense in relation to your income for the year. Amend my taxes free online Labor Hired You can deduct reasonable wages paid for regular farm labor, piecework, contract labor, and other forms of labor hired to perform your farming operations. Amend my taxes free online You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. Amend my taxes free online The cost of boarding farm labor is a deductible labor cost. Amend my taxes free online Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. Amend my taxes free online If you must withhold social security, Medicare, and income taxes from your employees' cash wages, you can still deduct the full amount of wages before withholding. Amend my taxes free online See chapter 13 for more information on employment taxes. Amend my taxes free online Also, deduct the employer's share of the social security and Medicare taxes you must pay on your employees' wages as a farm business expense on Schedule F, line 29. Amend my taxes free online See Taxes , later. Amend my taxes free online Property for services. Amend my taxes free online   If you transfer property to an employee in payment for services, you can deduct as wages paid the fair market value of the property on the date of transfer. Amend my taxes free online If the employee pays you anything for the property, deduct as wages the fair market value of the property minus the payment by the employee for the property. Amend my taxes free online   Treat the wages deducted as an amount received for the property. Amend my taxes free online You may have a gain or loss to report if the property's adjusted basis on the date of transfer is different from its fair market value. Amend my taxes free online Any gain or loss has the same character the exchanged property had in your hands. Amend my taxes free online For more information, see chapter 8. Amend my taxes free online Child as an employee. Amend my taxes free online   You can deduct reasonable wages or other compensation you pay to your child for doing farmwork if a true employer-employee relationship exists between you and your child. Amend my taxes free online Include these wages in the child's income. Amend my taxes free online The child may have to file an income tax return. Amend my taxes free online These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. Amend my taxes free online For more information, see Family Employees in chapter 13. Amend my taxes free online    A Form W-2, Wage and Tax Statement, should be issued to the child employee. Amend my taxes free online   The fact that your child spends the wages to buy clothes or other necessities you normally furnish does not prevent you from deducting your child's wages as a farm expense. Amend my taxes free online The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. Amend my taxes free online Spouse as an employee. Amend my taxes free online   You can deduct reasonable wages or other compensation you pay to your spouse if a true employer-employee relationship exists between you and your spouse. Amend my taxes free online Wages you pay to your spouse are subject to social security and Medicare taxes. Amend my taxes free online For more information, see Family Employees in chapter 13. Amend my taxes free online Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. Amend my taxes free online However, those wages may be subject to the employment taxes discussed in chapter 13. Amend my taxes free online Household workers. Amend my taxes free online   Do not deduct amounts paid to persons engaged in household work, except to the extent their services are used in boarding or otherwise caring for farm laborers. Amend my taxes free online Construction labor. Amend my taxes free online   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. Amend my taxes free online These wages are part of the cost of the building or other improvement. Amend my taxes free online You must capitalize them. Amend my taxes free online Maintaining your home. Amend my taxes free online   If your farm employee spends time maintaining or repairing your home, the wages and employment taxes you pay for that work are nondeductible personal expenses. Amend my taxes free online For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. Amend my taxes free online The employee devotes the remaining time to work on your farm. Amend my taxes free online You cannot deduct 5% of the wages and employment taxes you pay for that employee. Amend my taxes free online Employment Credits Reduce your deduction for wages by the amount of any employment credits you claim such as the work opportunity credit for qualified tax-exempt organizations hiring qualified veterans (Form 5884-C). Amend my taxes free online Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. Amend my taxes free online Common items of repair and maintenance are repainting, replacing shingles and supports on farm buildings, and periodic or routine maintenance of trucks, tractors, and other farm machinery. Amend my taxes free online However, repairs to, or overhauls of, depreciable property that substantially prolong the life of the property, increase its value, or adapt it to a different use are capital expenses. Amend my taxes free online For example, if you repair the barn roof, the cost is deductible. Amend my taxes free online But if you replace the roof, it is a capital expense. Amend my taxes free online For more information, see Capital Expenses , later. Amend my taxes free online Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. Amend my taxes free online Cash method. Amend my taxes free online   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. Amend my taxes free online You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. Amend my taxes free online You can, however, deduct the interest when you start making payments on the new loan. Amend my taxes free online For more information, see Cash Method in chapter 2. Amend my taxes free online Prepaid interest. Amend my taxes free online   Under the cash method, you generally cannot deduct any interest paid before the year it is due. Amend my taxes free online Interest paid in advance may be deducted only in the tax year in which it is due. Amend my taxes free online Accrual method. Amend my taxes free online   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. Amend my taxes free online However, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. Amend my taxes free online For more information, see Accrual Method in chapter 2. Amend my taxes free online Allocation of interest. Amend my taxes free online   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. Amend my taxes free online Allocate the interest to the following categories. Amend my taxes free online Trade or business interest. Amend my taxes free online Passive activity interest. Amend my taxes free online Investment interest. Amend my taxes free online Portfolio interest. Amend my taxes free online Personal interest. Amend my taxes free online   You generally allocate interest on a loan the same way you allocate the loan proceeds. Amend my taxes free online You allocate loan proceeds by tracing disbursements to specific uses. Amend my taxes free online The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. Amend my taxes free online Secured loan. Amend my taxes free online   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. Amend my taxes free online Example. Amend my taxes free online You secure a loan with property used in your farming business. Amend my taxes free online You use the loan proceeds to buy a car for personal use. Amend my taxes free online You must allocate interest expense on the loan to personal use (purchase of the car) even though the loan is secured by farm business property. Amend my taxes free online If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. Amend my taxes free online The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. Amend my taxes free online However, you can choose to treat the loan as not secured by your home. Amend my taxes free online For more information, see Publication 936. Amend my taxes free online Allocation period. Amend my taxes free online   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. Amend my taxes free online The date the loan is repaid. Amend my taxes free online The date the loan is reallocated to another use. Amend my taxes free online More information. Amend my taxes free online   For more information on interest, see chapter 4 in Publication 535. Amend my taxes free online Breeding Fees You can deduct breeding fees as a farm business expense. Amend my taxes free online However, if you use an accrual method of accounting, you must capitalize breeding fees and allocate them to the cost basis of the calf, foal, etc. Amend my taxes free online For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. Amend my taxes free online Fertilizer and Lime You can deduct in the year paid or incurred the cost of fertilizer, lime, and other materials applied to farmland to enrich, neutralize, or condition it if the benefits last a year or less. Amend my taxes free online You can also deduct the cost of applying these materials in the year you pay or incur it. Amend my taxes free online However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. Amend my taxes free online If the benefits of the fertilizer, lime, or other materials last substantially more than one year, you generally capitalize their cost and deduct a part each year the benefits last. Amend my taxes free online However, you can choose to deduct these expenses in the year paid or incurred. Amend my taxes free online If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. Amend my taxes free online If you sell farmland on which fertilizer or lime has been applied and if the selling price of the land includes part or all of the cost of the fertilizer or lime, you report the sale amount attributable to the fertilizer or lime as ordinary income. Amend my taxes free online Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. Amend my taxes free online It does not include land you have never used previously for producing crops or sustaining livestock. Amend my taxes free online You cannot deduct initial land preparation costs. Amend my taxes free online (See Capital Expenses , later. Amend my taxes free online ) Include government payments you receive for lime or fertilizer in income. Amend my taxes free online See Fertilizer and Lime under Agricultural Program Payments in chapter 3. Amend my taxes free online Taxes You can deduct as a farm business expense the real estate and personal property taxes on farm business assets, such as farm equipment, animals, farmland, and farm buildings. Amend my taxes free online You also can deduct the social security and Medicare taxes you pay to match the amount withheld from the wages of farm employees and any federal unemployment tax you pay. Amend my taxes free online For information on employment taxes, see chapter 13. Amend my taxes free online Allocation of taxes. Amend my taxes free online   The taxes on the part of your farm you use as your home (including the furnishings and surrounding land not used for farming) are nonbusiness taxes. Amend my taxes free online You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). Amend my taxes free online To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. Amend my taxes free online The allocation can be done from the assessed valuations. Amend my taxes free online If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. Amend my taxes free online State and local general sales taxes. Amend my taxes free online   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. Amend my taxes free online Include state and local general sales taxes imposed on the purchase of assets for use in your farm business as part of the cost you depreciate. Amend my taxes free online Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. Amend my taxes free online State and federal income taxes. Amend my taxes free online   Individuals cannot deduct state and federal income taxes as farm business expenses. Amend my taxes free online Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Amend my taxes free online However, you cannot deduct federal income tax. Amend my taxes free online Highway use tax. Amend my taxes free online   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. Amend my taxes free online For information on the tax itself, including information on vehicles subject to the tax, see the Instructions for Form 2290, Heavy Highway Vehicle Use Tax Return. Amend my taxes free online Self-employment tax deduction. Amend my taxes free online   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. Amend my taxes free online For more information, see chapter 12. Amend my taxes free online Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. Amend my taxes free online This includes premiums you pay for the following types of insurance. Amend my taxes free online Fire, storm, crop, theft, liability, and other insurance on farm business assets. Amend my taxes free online Health and accident insurance on your farm employees. Amend my taxes free online Workers' compensation insurance set by state law that covers any claims for job-related bodily injuries or diseases suffered by employees on your farm, regardless of fault. Amend my taxes free online Business interruption insurance. Amend my taxes free online State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). Amend my taxes free online Insurance to secure a loan. Amend my taxes free online   If you take out a policy on your life or on the life of another person with a financial interest in your farm business to get or protect a business loan, you cannot deduct the premiums as a business expense. Amend my taxes free online In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. Amend my taxes free online Advance premiums. Amend my taxes free online   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. Amend my taxes free online Example. Amend my taxes free online On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. Amend my taxes free online The policy will cover a period of 3 years beginning on July 1, 2013. Amend my taxes free online Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. Amend my taxes free online Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. Amend my taxes free online In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). Amend my taxes free online Deduct the remaining $500 in 2016. Amend my taxes free online Had the policy been effective on January 1, 2013, the deductible expense would have been $1,000 for each of the years 2013, 2014, and 2015, based on one-third of the premium used each year. Amend my taxes free online Business interruption insurance. Amend my taxes free online   Use and occupancy and business interruption insurance premiums are deductible as a business expense. Amend my taxes free online This insurance pays for lost profits if your business is shut down due to a fire or other cause. Amend my taxes free online Report any proceeds in full on Schedule F, Part I. Amend my taxes free online Self-employed health insurance deduction. Amend my taxes free online   If you are self-employed, you can deduct as an adjustment to income on Form 1040 your payments for medical, dental, and qualified long-term care insurance coverage for yourself, your spouse, and your dependents when figuring your adjusted gross income on your Form 1040. Amend my taxes free online Effective March 30, 2010, the insurance can also cover any child of yours under age 27 at the end of 2013, even if the child was not your dependent. Amend my taxes free online Generally, this deduction cannot be more than the net profit from the business under which the plan was established. Amend my taxes free online   If you or your spouse is also an employee of another person, you cannot take the deduction for any month in which you are eligible to participate in a subsidized health plan maintained by your employer or your spouse's employer. Amend my taxes free online   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. Amend my taxes free online Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. Amend my taxes free online   For more information, see Deductible Premiums in Publication 535, chapter 6. Amend my taxes free online Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. Amend my taxes free online However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. Amend my taxes free online Advance payments. Amend my taxes free online   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. Amend my taxes free online Farm home. Amend my taxes free online   If you rent a farm, do not deduct the part of the rental expense that represents the fair rental value of the farm home in which you live. Amend my taxes free online Lease or Purchase If you lease a farm building or equipment, you must determine whether or not the agreement must be treated as a conditional sales contract rather than a lease. Amend my taxes free online If the agreement is treated as a conditional sales contract, the payments under the agreement (so far as they do not represent interest or other charges) are payments for the purchase of the property. Amend my taxes free online Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. Amend my taxes free online Conditional sales contract. Amend my taxes free online   Whether an agreement is a conditional sales contract depends on the intent of the parties. Amend my taxes free online Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. Amend my taxes free online No single test, or special combination of tests, always applies. Amend my taxes free online However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. Amend my taxes free online The agreement applies part of each payment toward an equity interest you will receive. Amend my taxes free online You get title to the property after you make a stated amount of required payments. Amend my taxes free online The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. Amend my taxes free online You pay much more than the current fair rental value of the property. Amend my taxes free online You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. Amend my taxes free online Determine this value when you make the agreement. Amend my taxes free online You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. Amend my taxes free online The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. Amend my taxes free online Example. Amend my taxes free online You lease new farm equipment from a dealer who both sells and leases. Amend my taxes free online The agreement includes an option to purchase the equipment for a specified price. Amend my taxes free online The lease payments and the specified option price equal the sales price of the equipment plus interest. Amend my taxes free online Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. Amend my taxes free online For federal income tax purposes, the agreement is a conditional sales contract. Amend my taxes free online You cannot deduct any of the lease payments as rent. Amend my taxes free online You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. Amend my taxes free online Motor vehicle leases. Amend my taxes free online   Special rules apply to lease agreements that have a terminal rental adjustment clause. Amend my taxes free online In general, this is a clause that provides for a rental price adjustment based on the amount the lessor is able to sell the vehicle for at the end of the lease. Amend my taxes free online If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. Amend my taxes free online For more information, see Internal Revenue Code (IRC) section 7701(h). Amend my taxes free online Leveraged leases. Amend my taxes free online   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). Amend my taxes free online For more information, see Publication 535, chapter 3, and Revenue Procedure 2001-28, which begins on page 1156 of Internal Revenue Bulletin 2001-19 at www. Amend my taxes free online irs. Amend my taxes free online gov/pub/irs-irbs/irb01-19. Amend my taxes free online pdf. Amend my taxes free online Depreciation If property you acquire to use in your farm business is expected to last more than one year, you generally cannot deduct the entire cost in the year you acquire it. Amend my taxes free online You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. Amend my taxes free online However, you can choose to deduct part or all of the cost of certain qualifying property, up to a limit, as a section 179 deduction in the year you place it in service. Amend my taxes free online Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. Amend my taxes free online Business Use of Your Home You can deduct expenses for the business use of your home if you use part of your home exclusively and regularly: As the principal place of business for any trade or business in which you engage, As a place to meet or deal with patients, clients, or customers in the normal course of your trade or business, or In connection with your trade or business, if you are using a separate structure that is not attached to your home. Amend my taxes free online Your home office will qualify as your principal place of business for deducting expenses for its use if you meet both of the following requirements. Amend my taxes free online You use it exclusively and regularly for the administrative or management activities of your trade or business. Amend my taxes free online You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Amend my taxes free online If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. Amend my taxes free online The IRS now provides a simplified method to determine your expenses for business use of your home. Amend my taxes free online For more information, see Schedule C (Form 1040), Part II, and its instructions. Amend my taxes free online Deduction limit. Amend my taxes free online   If your gross income from farming equals or exceeds your total farm expenses (including expenses for the business use of your home), you can deduct all your farm expenses. Amend my taxes free online But if your gross income from farming is less than your total farm expenses, your deduction for certain expenses for the use of your home in your farming business is limited. Amend my taxes free online   Your deduction for otherwise nondeductible expenses, such as utilities, insurance, and depreciation (with depreciation taken last), cannot be more than the gross income from farming minus the following expenses. Amend my taxes free online The business part of expenses you could deduct even if you did not use your home for business (such as deductible mortgage interest, real estate taxes, and casualty and theft losses). Amend my taxes free online Farm expenses other than expenses that relate to the use of your home. Amend my taxes free online If you are self-employed, do not include your deduction for half of your self-employment tax. Amend my taxes free online   Deductions over the current year's limit can be carried over to your next tax year. Amend my taxes free online They are subject to the deduction limit for the next tax year. Amend my taxes free online More information. Amend my taxes free online   See Publication 587 for more information on deducting expenses for the business use of your home. Amend my taxes free online Telephone expense. Amend my taxes free online   You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. Amend my taxes free online However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for your farm business, are deductible business expenses. Amend my taxes free online Cell phone charges for calls relating to your farm business are deductible. Amend my taxes free online If the cell phone you use for your farm business is part of a family cell phone plan, you must allocate and deduct only the portion of the charges attributable to farm business calls. Amend my taxes free online Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. Amend my taxes free online Only expenses for business use are deductible. Amend my taxes free online These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). Amend my taxes free online Standard mileage rate. Amend my taxes free online   Instead of using actual costs, under certain conditions you can use the standard mileage rate. Amend my taxes free online The standard mileage rate for each mile of business use is 56. Amend my taxes free online 5 cents in 2013. Amend my taxes free online You can use the standard mileage rate for a car or a light truck, such as a van, pickup, or panel truck, you own or lease. Amend my taxes free online   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. Amend my taxes free online You are not using five or more vehicles at the same time if you alternate using the vehicles (you use them at different times) for business. Amend my taxes free online Example. Amend my taxes free online Maureen owns a car and four pickup trucks that are used in her farm business. Amend my taxes free online Her farm employees use the trucks and she uses the car for business. Amend my taxes free online Maureen cannot use the standard mileage rate for the car or the trucks. Amend my taxes free online This is because all five vehicles are used in Maureen's farm business at the same time. Amend my taxes free online She must use actual expenses for all vehicles. Amend my taxes free online Business use percentage. Amend my taxes free online   You can claim 75% of the use of a car or light truck as business use without any records if you used the vehicle during most of the normal business day directly in connection with the business of farming. Amend my taxes free online You choose this method of substantiating business use the first year the vehicle is placed in service. Amend my taxes free online Once you make this choice, you may not change to another method later. Amend my taxes free online The following are uses directly connected with the business of farming. Amend my taxes free online Cultivating land. Amend my taxes free online Raising or harvesting any agricultural or horticultural commodity. Amend my taxes free online Raising, shearing, feeding, caring for, training, and managing animals. Amend my taxes free online Driving to the feed or supply store. Amend my taxes free online   If you keep records and they show that your business use was more than 75%, you may be able to claim more. Amend my taxes free online See Recordkeeping requirements under Travel Expenses , below. Amend my taxes free online More information. Amend my taxes free online   For more information on deductible truck and car expenses, see Publication 463, chapter 4. Amend my taxes free online If you pay your employees for the use of their truck or car in your farm business, see Reimbursements to employees under Travel Expenses next. Amend my taxes free online Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. Amend my taxes free online You cannot deduct lavish or extravagant expenses. Amend my taxes free online Usually, the location of your farm business is considered your home for tax purposes. Amend my taxes free online You are traveling away from home if: Your duties require you to be absent from your farm substantially longer than an ordinary work day, and You need to get sleep or rest to meet the demands of your work while away from home. Amend my taxes free online If you meet these requirements and can prove the time, place, and business purpose of your travel, you can deduct your ordinary and necessary travel expenses. Amend my taxes free online The following are some types of deductible travel expenses. Amend my taxes free online Air, rail, bus, and car transportation; Meals and lodging; Dry cleaning and laundry; Telephone and fax; Transportation between your hotel and your temporary work or business meeting location; and Tips for any of the above expenses. Amend my taxes free online Meals. Amend my taxes free online   You ordinarily can deduct only 50% of your business-related meals expenses. Amend my taxes free online You can deduct the cost of your meals while traveling on business only if your business trip is overnight or long enough to require you to stop for sleep or rest to properly perform your duties. Amend my taxes free online You cannot deduct any of the cost of meals if it is not necessary for you to rest, unless you meet the rules for business entertainment. Amend my taxes free online For information on entertainment expenses, see Publication 463, chapter 2. Amend my taxes free online   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. Amend my taxes free online You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. Amend my taxes free online    Recordkeeping requirements. Amend my taxes free online You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. Amend my taxes free online Estimates or approximations do not qualify as proof of an expense. Amend my taxes free online   You should keep an account book or similar record, supported by adequate documentary evidence, such as receipts, that together support each element of an expense. Amend my taxes free online Generally, it is best to record the expense and get documentation of it at the time you pay it. Amend my taxes free online   If you choose to deduct a standard meal allowance rather than the actual expense, you do not have to keep records to prove amounts spent for meals and incidental items. Amend my taxes free online However, you must still keep records to prove the actual amount of other travel expenses, and the time, place, and business purpose of your travel. Amend my taxes free online More information. Amend my taxes free online   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. Amend my taxes free online Reimbursements to employees. Amend my taxes free online   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. Amend my taxes free online Employees may be reimbursed under an accountable or nonaccountable plan. Amend my taxes free online Under an accountable plan, the employee must provide evidence of expenses. Amend my taxes free online Under a nonaccountable plan, no evidence of expenses is required. Amend my taxes free online If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. Amend my taxes free online If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. Amend my taxes free online For more information, see Publication 535, chapter 11. Amend my taxes free online Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. Amend my taxes free online However, if you do not pay the penalty, but instead the purchaser of your crop deducts it from the payment to you, include in gross income only the amount you received. Amend my taxes free online Do not take a separate deduction for the penalty. Amend my taxes free online Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. Amend my taxes free online These costs include repairs, utilities, insurance, and depreciation. Amend my taxes free online The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. Amend my taxes free online Items Purchased for Resale If you use the cash method of accounting, you ordinarily deduct the cost of livestock and other items purchased for resale only in the year of sale. Amend my taxes free online You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. Amend my taxes free online However, see Chickens, seeds, and young plants , below. Amend my taxes free online Example. Amend my taxes free online You use the cash method of accounting. Amend my taxes free online In 2013, you buy 50 steers you will sell in 2014. Amend my taxes free online You cannot deduct the cost of the steers on your 2013 tax return. Amend my taxes free online You deduct their cost on your 2014 Schedule F, Part I. Amend my taxes free online Chickens, seeds, and young plants. Amend my taxes free online   If you are a cash method farmer, you can deduct the cost of hens and baby chicks bought for commercial egg production, or for raising and resale, as an expense on Schedule F, Part I, in the year paid if you do it consistently and it does not distort income. Amend my taxes free online You also can deduct the cost of seeds and young plants bought for further development and cultivation before sale as an expense on Schedule F, Part I, when paid if you do this consistently and you do not figure your income on the crop method. Amend my taxes free online However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. Amend my taxes free online   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. Amend my taxes free online You cannot also deduct the cost from the selling price. Amend my taxes free online   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. Amend my taxes free online Deduct the cost of these seeds and plants through depletion allowances. Amend my taxes free online For more information, see Depletion in chapter 7. Amend my taxes free online   The cost of chickens and plants used as food for your family is never deductible. Amend my taxes free online   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. Amend my taxes free online These rules are discussed in chapter 6. Amend my taxes free online Example. Amend my taxes free online You use the cash method of accounting. Amend my taxes free online In 2013, you buy 500 baby chicks to raise for resale in 2014. Amend my taxes free online You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. Amend my taxes free online Unless you previously adopted the method of deducting these costs in the year you sell the chickens or the harvested crops, you can deduct the cost of both the baby chicks and the seed wheat in 2013. Amend my taxes free online Election to use crop method. Amend my taxes free online   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. Amend my taxes free online You must get IRS approval to use the crop method. Amend my taxes free online If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. Amend my taxes free online For more information, see Crop method under Special Methods of Accounting in chapter 2. Amend my taxes free online Choosing a method. Amend my taxes free online   You can adopt either the crop method or the cash method for deducting the cost in the first year you buy egg-laying hens, pullets, chicks, or seeds and young plants. Amend my taxes free online   Although you must use the same method for egg-laying hens, pullets, and chicks, you can use a different method for seeds and young plants. Amend my taxes free online Once you use a particular method for any of these items, use it for those items until you get IRS approval to change your method. Amend my taxes free online For more information, see Change in Accounting Method in chapter 2. Amend my taxes free online Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. Amend my taxes free online These expenses must be for business purposes and  (1) paid, if you use the cash method of accounting, or (2) incurred, if you use an accrual method of accounting. Amend my taxes free online Accounting fees. Amend my taxes free online Advertising. Amend my taxes free online Business travel and meals. Amend my taxes free online Commissions. Amend my taxes free online Consultant fees. Amend my taxes free online Crop scouting expenses. Amend my taxes free online Dues to cooperatives. Amend my taxes free online Educational expenses (to maintain and improve farming skills). Amend my taxes free online Farm-related attorney fees. Amend my taxes free online Farm magazines. Amend my taxes free online Ginning. Amend my taxes free online Insect sprays and dusts. Amend my taxes free online Litter and bedding. Amend my taxes free online Livestock fees. Amend my taxes free online Marketing fees. Amend my taxes free online Milk assessment. Amend my taxes free online Recordkeeping expenses. Amend my taxes free online Service charges. Amend my taxes free online Small tools expected to last one year or less. Amend my taxes free online Stamps and stationery. Amend my taxes free online Subscriptions to professional, technical, and trade journals that deal with farming. Amend my taxes free online Tying material and containers. Amend my taxes free online Loan expenses. Amend my taxes free online   You prorate and deduct loan expenses, such as legal fees and commissions, you pay to get a farm loan over the term of the loan. Amend my taxes free online Tax preparation fees. Amend my taxes free online   You can deduct as a farm business expense on Schedule F the cost of preparing that part of your tax return relating to your farm business. Amend my taxes free online You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. Amend my taxes free online   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. Amend my taxes free online Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. Amend my taxes free online You can deduct 9% of the lesser of your qualified production activities income or your taxable income (adjusted gross income for individuals) for the tax year. Amend my taxes free online Your deduction is limited to 50% of the Form W-2 wages you paid for the tax year that are properly allocable to domestic production gross receipts. Amend my taxes free online For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. Amend my taxes free online Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. Amend my taxes free online Income from cooperatives. Amend my taxes free online   If you receive a patronage dividend or qualified per-unit retain allocation from a cooperative which is engaged in the manufacturing, production, growth, or extraction in whole or in significant part of any agricultural or horticultural product or in the marketing of agricultural or horticultural products, your income from the cooperative can give rise to a domestic production activities deduction. Amend my taxes free online This deduction amount is reported on Form 1099-PATR, box 6. Amend my taxes free online In order for you to qualify for the deduction, the cooperative is required to send you a written notice designating your portion of the domestic production activities deduction. Amend my taxes free online More information. Amend my taxes free online   For more information on the domestic production activities deduction, see the Instructions for Form 8903. Amend my taxes free online Capital Expenses A capital expense is a payment, or a debt incurred, for the acquisition, improvement, or restoration of an asset that is expected to last more than one year. Amend my taxes free online You include the expense in the basis of the asset. Amend my taxes free online Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. Amend my taxes free online See chapters 2  and 6. Amend my taxes free online Capital expenses are generally not deductible, but they may be depreciable. Amend my taxes free online However, you can elect to deduct certain capital expenses, such as the following. Amend my taxes free online The cost of fertilizer, lime, etc. Amend my taxes free online (See Fertilizer and Lime under Deductible Expenses , earlier. Amend my taxes free online ) Soil and water conservation expenses. Amend my taxes free online (See chapter 5. Amend my taxes free online ) The cost of property that qualifies for a deduction under section 179. Amend my taxes free online (See chapter 7. Amend my taxes free online ) Business start-up costs. Amend my taxes free online (See Business start-up and organizational costs , later. Amend my taxes free online ) Forestation and reforestation costs. Amend my taxes free online (See Forestation and reforestation costs , later. Amend my taxes free online ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. Amend my taxes free online Land and buildings. Amend my taxes free online Additions, alterations, and improvements to buildings, etc. Amend my taxes free online Cars and trucks. Amend my taxes free online Equipment and machinery. Amend my taxes free online Fences. Amend my taxes free online Draft, breeding, sport, and dairy livestock. Amend my taxes free online Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. Amend my taxes free online Water wells, including drilling and equipping costs. Amend my taxes free online Land preparation costs, such as: Clearing land for farming, Leveling and conditioning land, Purchasing and planting trees, Building irrigation canals and ditches, Laying irrigation pipes, Installing drain tile, Modifying channels or streams, Constructing earthen, masonry, or concrete tanks, reservoirs, or dams, and Building roads. Amend my taxes free online Business start-up and organizational costs. Amend my taxes free online   You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. Amend my taxes free online The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Amend my taxes free online Any remaining costs must be amortized. Amend my taxes free online See chapter 7. Amend my taxes free online   You elect to deduct start-up or organizational costs by claiming the deduction on the income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Amend my taxes free online However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Amend my taxes free online Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Amend my taxes free online 9100-2” at the top of the amended return. Amend my taxes free online File the amended return at the same address you filed the original return. Amend my taxes free online The election applies when figuring taxable income for the current tax year and all subsequent years. Amend my taxes free online   You can choose to forgo the election by clearly electing to capitalize your start-up or organizational costs on an income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Amend my taxes free online For more information about start-up and organizational costs, see chapter 7. Amend my taxes free online Crop production expenses. Amend my taxes free online   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. Amend my taxes free online However, except for certain taxpayers required to use an accrual method of accounting, the capitalization rules do not apply to plants with a preproductive period of 2 years or less. Amend my taxes free online For more information, see Uniform Capitalization Rules in chapter 6. Amend my taxes free online Timber. Amend my taxes free online   Capitalize the cost of acquiring timber. Amend my taxes free online Do not include the cost of land in the cost of the timber. Amend my taxes free online You must generally capitalize direct costs incurred in reforestation. Amend my taxes free online However, you can elect to deduct some forestation and reforestation costs. Amend my taxes free online See Forestation and reforestation costs next. Amend my taxes free online Reforestation costs include the following. Amend my taxes free online Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. Amend my taxes free online The cost of seed or seedlings. Amend my taxes free online Labor and tool expenses. Amend my taxes free online Depreciation on equipment used in planting or seeding. Amend my taxes free online Costs incurred in replanting to replace lost seedlings. Amend my taxes free online You can choose to capitalize certain indirect reforestation costs. Amend my taxes free online   These capitalized amounts are your basis for the timber. Amend my taxes free online Recover your basis when you sell the timber or take depletion allowances when you cut the timber. Amend my taxes free online See Depletion in chapter 7. Amend my taxes free online Forestation and reforestation costs. Amend my taxes free online   You can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. Amend my taxes free online Any remaining costs can be amortized over an 84-month period. Amend my taxes free online See chapter 7. Amend my taxes free online If you make an election to deduct or amortize qualifying reforestation costs, you should create and maintain separate timber accounts for each qualified timber property. Amend my taxes free online The accounts should include all reforestation treatments and the dates they were applied. Amend my taxes free online Any qualified timber property that is subject to the deduction or amortization election cannot be included in any other timber account for which depletion is allowed. Amend my taxes free online The timber account should be maintained until the timber is disposed of. Amend my taxes free online For more information, see Notice 2006-47, 2006-20 I. Amend my taxes free online R. Amend my taxes free online B. Amend my taxes free online 892, available at  www. Amend my taxes free online irs. Amend my taxes free online gov/irb/2006-20_IRB/ar11. Amend my taxes free online html. Amend my taxes free online   You elect to deduct forestation and reforestation costs by claiming the deduction on the income tax return filed by the due date (including extensions) for the tax year in which the expenses were paid or incurred. Amend my taxes free online If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. Amend my taxes free online If you are not filing Form T (Timber), attach a statement to your return with the following information. Amend my taxes free online The unique stand identification numbers. Amend my taxes free online The total number of acres reforested during the tax year. Amend my taxes free online The nature of the reforestation treatments. Amend my taxes free online The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. Amend my taxes free online   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Amend my taxes free online Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Amend my taxes free online 9100-2” at the top of the amended return. Amend my taxes free online File the amended return at the same address you filed the original return. Amend my taxes free online    For more information about forestation and reforestation costs, see chapter 7. Amend my taxes free online    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. Amend my taxes free online You can view this publication on the Internet at  www. Amend my taxes free online fs. Amend my taxes free online fed. Amend my taxes free online us/publications. Amend my taxes free online Christmas tree cultivation. Amend my taxes free online   If you are in the business of planting and cultivating Christmas trees to sell when they are more than 6 years old, capitalize expenses incurred for planting and stump culture and add them to the basis of the standing trees. Amend my taxes free online Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. Amend my taxes free online For more information, see Timber Depletion under Depletion in chapter 7. Amend my taxes free online   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. Amend my taxes free online Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. Amend my taxes free online   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. Amend my taxes free online If the improvements do not have a determinable useful life, add their cost to the basis of the land. Amend my taxes free online The cost is recovered when you sell or otherwise dispose of it. Amend my taxes free online If the improvements have a determinable useful life, recover their cost through depreciation. Amend my taxes free online Capitalize the cost of equipment and other depreciable assets, such as culverts and fences, to the extent you do not use them in planting Christmas trees. Amend my taxes free online Recover these costs through depreciation. Amend my taxes free online Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. Amend my taxes free online Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. Amend my taxes free online These include rent and insurance premiums paid on property used as your home, life insurance premiums on yourself or your family, the cost of maintaining cars, trucks, or horses for personal use, allowances to minor children, attorneys' fees and legal expenses incurred in personal matters, and household expenses. Amend my taxes free online Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. Amend my taxes free online Other Nondeductible Items You cannot deduct the following items on your tax return. Amend my taxes free online Loss of growing plants, produce, and crops. Amend my taxes free online   Losses of plants, produce, and crops raised for sale are generally not deductible. Amend my taxes free online However, you may have a deductible loss on plants with a preproductive period of more than 2 years. Amend my taxes free online See chapter 11 for more information. Amend my taxes free online Repayment of loans. Amend my taxes free online   You cannot deduct the repayment of a loan. Amend my taxes free online However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. Amend my taxes free online See Interest , earlier. Amend my taxes free online Estate, inheritance, legacy, succession, and gift taxes. Amend my taxes free online   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. Amend my taxes free online Loss of livestock. Amend my taxes free online   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. Amend my taxes free online Losses from sales or exchanges between related persons. Amend my taxes free online   You cannot deduct losses from sales or exchanges of property between you and certain related persons, including your spouse, brother, sister, ancestor, or lineal descendant. Amend my taxes free online For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Amend my taxes free online Cost of raising unharvested crops. Amend my taxes free online   You cannot deduct the cost of raising unharvested crops sold with land owned more than one year if you sell both at the same time and to the same person. Amend my taxes free online Add these costs to the basis of the land to determine the gain or loss on the sale. Amend my taxes free online For more information, see Section 1231 Gains and Losses in chapter 9. Amend my taxes free online Cost of unharvested crops bought with land. Amend my taxes free online   Capitalize the purchase price of land, including the cost allocable to unharvested crops. Amend my taxes free online You cannot deduct the cost of the crops at the time of purchase. Amend my taxes free online However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. Amend my taxes free online Cost related to gifts. Amend my taxes free online   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. Amend my taxes free online The costs are not deductible in the year of the gift or any later year. Amend my taxes free online For example, you cannot deduct the cost of raising cattle or the cost of planting and raising unharvested wheat on parcels of land given as a gift to your children. Amend my taxes free online Club dues and membership fees. Amend my taxes free online   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. Amend my taxes free online This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Amend my taxes free online Exception. Amend my taxes free online   The following organizations will not be treated as a club organized for business, pleasure, recreation, or other social purposes, unless one of its main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities. Amend my taxes free online Boards of trade. Amend my taxes free online Business leagues. Amend my taxes free online Chambers of commerce. Amend my taxes free online Civic or public service organizations. Amend my taxes free online Professional associations. Amend my taxes free online Trade associations. Amend my taxes free online Real estate boards. Amend my taxes free online Fines and penalties. Amend my taxes free online   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. Amend my taxes free online Losses From Operating a Farm If your deductible farm expenses are more than your farm income, you have a loss from the operation of your farm. Amend my taxes free online The amount of the loss you can deduct when figuring your taxable income may be limited. Amend my taxes free online To figure your deductible loss, you must apply the following limits. Amend my taxes free online The at-risk limits. Amend my taxes free online The passive activity limits. Amend my taxes free online The following discussions explain these limits. Amend my taxes free online If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. Amend my taxes free online See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Amend my taxes free online If you do not carry on your farming activity to make a profit, your loss deduction may be limited by the not-for-profit rules. Amend my taxes free online See Not-for-Profit Farming, later. Amend my taxes free online At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. Amend my taxes free online These rules limit the losses you can deduct when figuring your taxable income. Amend my taxes free online The deductible loss from an activity is limited to the amount you have at risk in the activity. Amend my taxes free online You are at risk in any activity for: The money and adjusted basis of property you contribute to the activity, and Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. Amend my taxes free online You are not at risk, however, for amounts you borrow for use in a farming activity from a person who has an interest in the activity (other than as a creditor) or a person related to someone (other than you) having such an interest. Amend my taxes free online For more information, see Publication 925. Amend my taxes free online Passive Activity Limits A passive activity is generally any activity involving the conduct of any trade or business in which you do not materially participate. Amend my taxes free online Generally, a rental activity is a passive activity. Amend my taxes free online If you have a passive activity, special rules limit the loss you can deduct in the tax year. Amend my taxes free online You generally can deduct losses from passive activities only up to income from passive activities. Amend my taxes free online Credits are similarly limited. Amend my taxes free online For more information, see Publication 925. Amend my taxes free online Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. Amend my taxes free online This limit applies to any farming businesses, other than a C corporation, that received a direct or counter-cyclical payment (or any payment in lieu of such payments) under title I of the Food, Conservation, and Energy Act of 2008, or from a Commodity Credit Corporation loan. Amend my taxes free online Your farming losses are limited to the greater of: $300,000 ($150,000 for a married person filing a separate return), or The total net farm income for the prior five tax years. Amend my taxes free online Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. Amend my taxes free online Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. Amend my taxes free online For more details, see IRC section 461(j). Amend my taxes free online Excess farm loss. Amend my taxes free online   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). Amend my taxes free online This loss can be determined by taking the excess of: The total deductions for the tax year from your farming businesses, over The total gross income or gain for the tax year from your farming businesses, plus the greater of: $300,000 ($150,000 for a married person filing a separate return), or The excess (if any) of the total gross income or gain from your farming businesses for the prior five tax years over the total deductions from your farming businesses for the prior five tax years. Amend my taxes free online   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. Amend my taxes free online Not-for-Profit Farming If you operate a farm for profit, you can deduct all the ordinary and necessary expenses of carrying on the business of farming on Schedule F. Amend my taxes free online However, if you do not carry on your farming activity, or other activity you engage or invest in, to make a profit, you report the income from the activity on Form 1040, line 21, and you can deduct expenses of carrying on the activity only if you itemize your deductions on Schedule A (Form 1040). Amend my taxes free online Also, there is a limit on the deductions you can take. Amend my taxes free online You cannot use a loss from that activity to offset income from other activities. Amend my taxes free online Activities you do as a hobby, or mainly for sport or recreation, come under this limit. Amend my taxes free online An investment activity intended only to produce tax losses for the investors also comes under this limit. Amend my taxes free online The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Amend my taxes free online It does not apply to corporations other than S corporations. Amend my taxes free online In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. Amend my taxes free online No one factor alone is decisive. Amend my taxes free online Among the factors to consider are whether: You operate your farm in a businesslike manner; The time and effort you spend on farming indicate you intend to make it profitable; You depend on income from farming for your livelihood; Your losses are due to circumstances beyond your control or are normal in the start-up phase of farming; You change your methods of operation in an attempt to improve profitability; You, or your advisors, have the knowledge needed to carry on the farming activity as a successful business; You were successful in making a profit in similar activities in the past; You make a profit from farming in some years and the amount of profit you make; and You can expect to make a future profit from the appreciation of the assets used in the farming activity. Amend my taxes free online Presumption of profit. Amend my taxes free online   Your farming or other activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Amend my taxes free online Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. Amend my taxes free online The activity must be substantially the same for each year within this period. Amend my taxes free online You have a profit when the gross income from an activity is more than the deductions for it. Amend my taxes free online   If a taxpayer dies before the end of the 5-year (or 7-year) period, the period ends on the date of the taxpayer's death. Amend my taxes free online   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. Amend my taxes free online This means the limits discussed here do not apply. Amend my taxes free online You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. Amend my taxes free online You can rely on this presumption in every case, unless the IRS shows it is not valid. Amend my taxes free online   If you fail the 3- (or 2-) years-of-profit test, you still may be considered to operate your farm for profit by considering the factors listed earlier. Amend my taxes free online Using the presumption later. Amend my taxes free online   If you are starting out in farming and do not have 3 (or 2) years showing a profit, you may want to take advantage of this presumption later, after you have had the 5 (or 7) years of experience allowed by the test. Amend my taxes free online   You can choose to do this by filing Form 5213. Amend my taxes free online Filing this form postpones any determination that your farming activity is not carried on for profit until 5 (or 7) years have passed since you first started farming. Amend my taxes free online You must file Form 5213 within 3 years after the due date of your return for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving a written notice from the IRS proposing to disallow deductions attributable to the activity. Amend my taxes free online   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. Amend my taxes free online Accordingly, it will not limit your deductions. Amend my taxes free online Rather, you will gain time to earn a profit in 3 (or 2) out of the first 5 (or 7) years you carry on the farming activity. Amend my taxes free online If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Amend my taxes free online If you do not have 3 (or 2) years of profit (and cannot otherwise show that you operated your farm for profit), the limit applies retroactively to any year in the 5-year (or 7-year) period with a loss. Amend my taxes free online   Filing Form 5213 automatically extends the period of limitations on any year
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General sources of insurance information include the American Council of Life Insurers, the Insurance Information Institute , the National Association of Insurance Commissioners, and your state insurance department. You can also visit insure.com

When buying insurance, whether its home, life, auto, rental or other:

  • Find out whether your state insurance department offers any information concerning insurance companies and rates. This is a good way to get a feeling for the range of prices and the lowest-cost providers in your area.
  • Check several sources for the best deal. Try getting quotes from an insurance focused website, but be aware that many online services may provide prices for just a few companies. An independent insurance agent that works with several insurers in your local area might be able to get you a better deal.
  • Make sure the insurance company is licensed and covered by the state's guaranty fund. The fund pays claims in case the company defaults. Your state insurance department can provide this information.
  • Check the financial stability and soundness of the insurance company. Ratings from A.M. Best, Standard and Poor's, and Moody's Investors Services are available online and at most public libraries.
  • Research the complaint record of the company. Contact your state insurance department or visit the website of the National Association of Insurance Commissioners, which has a database of complaints filed with state regulators.
  • Find out what others think about the company's customer service. Consumers can rate homeowner insurance companies at J.D. Power's website.
  • Once you pay your first insurance premium, make sure you receive a written policy. This tells you the agent forwarded your premium to the insurance company. If you don't receive a policy within 60 days, contact your agent and the insurance company.

If you suspect fraud, call the National Insurance Crime Bureau's hotline at 1-800-835-6422. Or for more information, check out the Coalition Against Insurance Fraud website

The Amend My Taxes Free Online

Amend my taxes free online 8. Amend my taxes free online   Gains and Losses Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesDetermining Gain or Loss Like-Kind Exchanges Transfer to Spouse Ordinary or Capital Gain or LossCapital Assets Noncapital Assets Hedging (Commodity Futures) Livestock Converted Wetland and Highly Erodible Cropland Timber Sale of a Farm Foreclosure or Repossession Abandonment Introduction This chapter explains how to figure, and report on your tax return, your gain or loss on the disposition of your property or debt and whether such gain or loss is ordinary or capital. Amend my taxes free online Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. Amend my taxes free online Dispositions discussed in this chapter include sales, exchanges, foreclosures, repossessions, canceled debts, hedging transactions, and elections to treat cutting of timber as a sale or exchange. Amend my taxes free online Topics - This chapter discusses: Sales and exchanges Ordinary or capital gain or loss Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 523 Selling Your Home 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 908 Bankruptcy Tax Guide Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8949 Sales and Other Dispositions of Capital Assets See chapter 16 for information about getting publications and forms. Amend my taxes free online Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. Amend my taxes free online This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. Amend my taxes free online A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Amend my taxes free online An exchange is a transfer of property for other property or services. Amend my taxes free online Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. Amend my taxes free online If the amount you realize from a sale or exchange of property is more than its adjusted basis, you will have a gain. Amend my taxes free online If the adjusted basis of the property is more than the amount you realize, you will have a loss. Amend my taxes free online Basis and adjusted basis. Amend my taxes free online   The basis of property you buy is usually its cost. Amend my taxes free online The adjusted basis of property is basis plus certain additions and minus certain deductions. Amend my taxes free online See chapter 6 for more information about basis and adjusted basis. Amend my taxes free online Amount realized. Amend my taxes free online   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (FMV) (defined in chapter 6) of all property or services you receive. Amend my taxes free online The amount you realize also includes any of your liabilities assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Amend my taxes free online   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. Amend my taxes free online Amount recognized. Amend my taxes free online   Your gain or loss realized from a sale or exchange of certain property is usually a recognized gain or loss for tax purposes. Amend my taxes free online A recognized gain is a gain you must include in gross income and report on your income tax return. Amend my taxes free online A recognized loss is a loss you deduct from gross income. Amend my taxes free online However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. Amend my taxes free online See Like-Kind Exchanges next. Amend my taxes free online Also, a loss from the disposition of property held for personal use is not deductible. Amend my taxes free online Like-Kind Exchanges Certain exchanges of property are not taxable. Amend my taxes free online This means any gain from the exchange is not recognized, and any loss cannot be deducted. Amend my taxes free online Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Amend my taxes free online The exchange of property for the same kind of property is the most common type of nontaxable exchange. Amend my taxes free online To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. Amend my taxes free online Qualifying property. Amend my taxes free online Like-kind property. Amend my taxes free online These two requirements are discussed later. Amend my taxes free online Multiple-party transactions. Amend my taxes free online   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. Amend my taxes free online Any part of these multiple-party transactions can qualify as a like-kind exchange if it meets all the requirements described in this section. Amend my taxes free online Receipt of title from third party. Amend my taxes free online   If you receive property in a like-kind exchange and the other party who transfers the property to you does not give you the title, but a third party does, you can still treat this transaction as a like-kind exchange if it meets all the requirements. Amend my taxes free online Basis of property received. Amend my taxes free online   If you receive property in a like-kind exchange, the basis of the property will be the same as the basis of the property you gave up. Amend my taxes free online See chapter 6 for more information. Amend my taxes free online Money paid. Amend my taxes free online   If, in addition to giving up like-kind property, you pay money in a like-kind exchange, you still have no recognized gain or loss. Amend my taxes free online The basis of the property received is the basis of the property given up, increased by the money paid. Amend my taxes free online Example. Amend my taxes free online You traded an old tractor with an adjusted basis of $15,000 for a new one. Amend my taxes free online The new tractor costs $300,000. Amend my taxes free online You were allowed $80,000 for the old tractor and paid $220,000 cash. Amend my taxes free online You have no recognized gain or loss on the transaction regardless of the adjusted basis of your old tractor and the basis of the new tractor is $235,000, the adjusted basis of the old tractor plus the cash paid ($15,000 + $220,000). Amend my taxes free online If you had sold the old tractor to a third party for $80,000 and bought a new one, you would have a recognized gain or loss on the sale of your old tractor equal to the difference between the amount realized and the adjusted basis of the old tractor. Amend my taxes free online In this case, the taxable gain would be $65,000 ($80,000 − $15,000) and the basis of the new tractor would be $300,000. Amend my taxes free online Reporting the exchange. Amend my taxes free online   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. Amend my taxes free online The Instructions for Form 8824 explain how to report the details of the exchange. Amend my taxes free online   If you have any recognized gain because you received money or unlike property, report it on Schedule D (Form 1040) or Form 4797, whichever applies. Amend my taxes free online You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. Amend my taxes free online See chapter 9 for more information. Amend my taxes free online Qualifying property. Amend my taxes free online   In a like-kind exchange, both the property you give up and the property you receive must be held by you for investment or for productive use in your trade or business. Amend my taxes free online Machinery, buildings, land, trucks, breeding livestock, rental houses, and certain mutual ditch, reservoir, or irrigation company stock are examples of property that may qualify. Amend my taxes free online Nonqualifying property. Amend my taxes free online   The rules for like-kind exchanges do not apply to exchanges of the following property. Amend my taxes free online Property you use for personal purposes, such as your home and family car. Amend my taxes free online Stock in trade or other property held primarily for sale, such as crops and produce. Amend my taxes free online Stocks, bonds, or notes. Amend my taxes free online However, see Qualifying property above. Amend my taxes free online Other securities or evidences of indebtedness, such as accounts receivable. Amend my taxes free online Partnership interests. Amend my taxes free online However, you may have a nontaxable exchange under other rules. Amend my taxes free online See Other Nontaxable Exchanges in chapter 1 of Publication 544. Amend my taxes free online Like-kind property. Amend my taxes free online   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. Amend my taxes free online Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Amend my taxes free online Generally, real property exchanged for real property qualifies as an exchange of like-kind property. Amend my taxes free online For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. Amend my taxes free online   An exchange of a tractor for a new tractor is an exchange of like-kind property, and so is an exchange of timber land for crop acreage. Amend my taxes free online An exchange of a tractor for acreage, however, is not an exchange of like-kind property. Amend my taxes free online The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. Amend my taxes free online For example, the exchange of a bull for a cow is not a like-kind exchange. Amend my taxes free online An exchange of the assets of a business for the assets of a similar business cannot be treated as an exchange of one property for another property. Amend my taxes free online    Note. Amend my taxes free online Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. Amend my taxes free online Personal property. Amend my taxes free online   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. Amend my taxes free online Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. Amend my taxes free online Property classified in any General Asset Class may not be classified within a Product Class. Amend my taxes free online Assets that are not in the same class will qualify as like-kind property if they are of the same nature or character. Amend my taxes free online General Asset Classes. Amend my taxes free online   General Asset Classes describe the types of property frequently used in many businesses. Amend my taxes free online They include, but are not limited to, the following property. Amend my taxes free online Office furniture, fixtures, and equipment (asset class 00. Amend my taxes free online 11). Amend my taxes free online Information systems, such as computers and peripheral equipment (asset class 00. Amend my taxes free online 12). Amend my taxes free online Data handling equipment except computers (asset class 00. Amend my taxes free online 13). Amend my taxes free online Automobiles and taxis (asset class 00. Amend my taxes free online 22). Amend my taxes free online Light general purpose trucks (asset class 00. Amend my taxes free online 241). Amend my taxes free online Heavy general purpose trucks (asset class 00. Amend my taxes free online 242). Amend my taxes free online Tractor units for use over-the-road (asset class 00. Amend my taxes free online 26). Amend my taxes free online Trailers and trailer-mounted containers (asset class 00. Amend my taxes free online 27). Amend my taxes free online Industrial steam and electric generation and/or distribution systems (asset class 00. Amend my taxes free online 4). Amend my taxes free online Product Classes. Amend my taxes free online   Product Classes include property listed in a 6-digit product class in sectors 31 through 33 of the North American Industry Classification System (NAICS) of the Executive Office of the President, Office of Management and Budget, United States, (NAICS Manual). Amend my taxes free online The latest version of the manual can be accessed at www. Amend my taxes free online census. Amend my taxes free online gov/eos/www/naics/. Amend my taxes free online Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. Amend my taxes free online ntis. Amend my taxes free online gov/products/naics. Amend my taxes free online aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. Amend my taxes free online A CD-ROM version with search and retrieval software is also available from NTIS. Amend my taxes free online    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. Amend my taxes free online Partially nontaxable exchange. Amend my taxes free online   If, in addition to like-kind property, you receive money or unlike property in an exchange on which you realize gain, you have a partially nontaxable exchange. Amend my taxes free online You are taxed on the gain you realize, but only to the extent of the money and the FMV of the unlike property you receive. Amend my taxes free online A loss is not deductible. Amend my taxes free online Example 1. Amend my taxes free online You trade farmland that cost $30,000 for $10,000 cash and other land to be used in farming with a FMV of $50,000. Amend my taxes free online You have a realized gain of $30,000 ($50,000 FMV of new land + $10,000 cash − $30,000 basis of old farmland = $30,000 realized gain). Amend my taxes free online However, only $10,000, the cash received, is recognized (included in income). Amend my taxes free online Example 2. Amend my taxes free online Assume the same facts as in Example 1, except that, instead of money, you received a tractor with a FMV of $10,000. Amend my taxes free online Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). Amend my taxes free online Example 3. Amend my taxes free online Assume in Example 1 that the FMV of the land you received was only $15,000. Amend my taxes free online Your $5,000 loss is not recognized. Amend my taxes free online Unlike property given up. Amend my taxes free online   If, in addition to like-kind property, you give up unlike property, you must recognize gain or loss on the unlike property you give up. Amend my taxes free online The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. Amend my taxes free online Like-kind exchanges between related persons. Amend my taxes free online   Special rules apply to like-kind exchanges between related persons. Amend my taxes free online These rules affect both direct and indirect exchanges. Amend my taxes free online Under these rules, if either person disposes of the property within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Amend my taxes free online The gain or loss on the original exchange must be recognized as of the date of the later disposition. Amend my taxes free online The 2-year holding period begins on the date of the last transfer of property that was part of the like-kind exchange. Amend my taxes free online Related persons. Amend my taxes free online   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. Amend my taxes free online ), you and a corporation in which you have more than 50% ownership, you and a partnership in which you directly or indirectly own more than a 50% interest of the capital or profits, and two partnerships in which you directly or indirectly own more than 50% of the capital interests or profits. Amend my taxes free online   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. Amend my taxes free online Example. Amend my taxes free online You used a grey pickup truck in your farming business. Amend my taxes free online Your sister used a red pickup truck in her landscaping business. Amend my taxes free online In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. Amend my taxes free online At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. Amend my taxes free online The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. Amend my taxes free online You realized a gain of $1,000 (the $7,200 FMV of the red pickup truck, minus the grey pickup truck's $6,000 adjusted basis, minus the $200 you paid). Amend my taxes free online Your sister realized a gain of $6,200 (the $7,000 FMV of the grey pickup truck plus the $200 you paid, minus the $1,000 adjusted basis of the red pickup truck). Amend my taxes free online However, because this was a like-kind exchange, you recognized no gain. Amend my taxes free online Your basis in the red pickup truck was $6,200 (the $6,000 adjusted basis of the grey pickup truck plus the $200 you paid). Amend my taxes free online She recognized gain only to the extent of the money she received, $200. Amend my taxes free online Her basis in the grey pickup truck was $1,000 (the $1,000 adjusted basis of the red pickup truck minus the $200 received, plus the $200 gain recognized). Amend my taxes free online In 2013, you sold the red pickup truck to a third party for $7,000. Amend my taxes free online Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Amend my taxes free online On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. Amend my taxes free online You also report a loss on the sale as $200 (the adjusted basis of the red pickup truck, $7,200 (its $6,200 basis plus the $1,000 gain recognized), minus the $7,000 realized from the sale). Amend my taxes free online In addition, your sister must report on her tax return for 2013 the $6,000 balance of her gain on the 2012 exchange. Amend my taxes free online Her adjusted basis in the grey pickup truck is increased to $7,000 (its $1,000 basis plus the $6,000 gain recognized). Amend my taxes free online Exceptions to the rules for related persons. Amend my taxes free online   The following property dispositions are excluded from these rules. Amend my taxes free online Dispositions due to the death of either related person. Amend my taxes free online Involuntary conversions. Amend my taxes free online Dispositions where it is established to the satisfaction of the IRS that neither the exchange nor the disposition has, as a main purpose, the avoidance of federal income tax. Amend my taxes free online Multiple property exchanges. Amend my taxes free online   Under the like-kind exchange rules, you must generally make a property-by-property comparison to figure your recognized gain and the basis of the property you receive in the exchange. Amend my taxes free online However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. Amend my taxes free online Transfer and receive properties in two or more exchange groups. Amend my taxes free online Transfer or receive more than one property within a single exchange group. Amend my taxes free online   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. Amend my taxes free online Deferred exchange. Amend my taxes free online   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. Amend my taxes free online A deferred exchange is an exchange in which you transfer property you use in business or hold for investment and later receive like-kind property you will use in business or hold for investment. Amend my taxes free online The property you receive is replacement property. Amend my taxes free online The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. Amend my taxes free online In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. Amend my taxes free online   For more information see Deferred Exchanges in chapter 1 of Publication 544. Amend my taxes free online Transfer to Spouse No gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or a former spouse if incident to divorce. Amend my taxes free online This rule does not apply if the recipient is a nonresident alien. Amend my taxes free online Nor does this rule apply to a transfer in trust to the extent the liabilities assumed and the liabilities on the property are more than the property's adjusted basis. Amend my taxes free online Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is not considered a sale or exchange. Amend my taxes free online The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Amend my taxes free online This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its FMV at the time of transfer or any consideration paid by the recipient. Amend my taxes free online This rule applies for determining loss as well as gain. Amend my taxes free online Any gain recognized on a transfer in trust increases the basis. Amend my taxes free online For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. Amend my taxes free online Ordinary or Capital Gain or Loss Generally, you will have a capital gain or loss if you sell or exchange a capital asset (defined below). Amend my taxes free online You may also have a capital gain if your section 1231 transactions result in a net gain. Amend my taxes free online See Section 1231 Gains and Losses in  chapter 9. Amend my taxes free online To figure your net capital gain or loss, you must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). Amend my taxes free online Your net capital gains may be taxed at a lower tax rate than ordinary income. Amend my taxes free online See Capital Gains Tax Rates , later. Amend my taxes free online Your deduction for a net capital loss may be limited. Amend my taxes free online See Treatment of Capital Losses , later. Amend my taxes free online Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. Amend my taxes free online The following items are examples of capital assets. Amend my taxes free online A home owned and occupied by you and your family. Amend my taxes free online Household furnishings. Amend my taxes free online A car used for pleasure. Amend my taxes free online If your car is used both for pleasure and for farm business, it is partly a capital asset and partly a noncapital asset, defined later. Amend my taxes free online Stocks and bonds. Amend my taxes free online However, there are special rules for gains on qualified small business stock. Amend my taxes free online For more information on this subject, see Gains on Qualified Small Business Stock and Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. Amend my taxes free online Personal-use property. Amend my taxes free online   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. Amend my taxes free online Loss from the sale or exchange of personal-use property is not deductible. Amend my taxes free online You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Amend my taxes free online For information on casualties and thefts, see chapter 11. Amend my taxes free online Long and Short Term Where you report a capital gain or loss depends on how long you own the asset before you sell or exchange it. Amend my taxes free online The time you own an asset before disposing of it is the holding period. Amend my taxes free online If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. Amend my taxes free online Report it in Part I of Schedule D (Form 1040). Amend my taxes free online If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. Amend my taxes free online Report it in Part II of Schedule D (Form 1040). Amend my taxes free online Holding period. Amend my taxes free online   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. Amend my taxes free online The day you disposed of the property is part of your holding period. Amend my taxes free online Example. Amend my taxes free online If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Amend my taxes free online If you sold the asset on June 19, 2013, your holding period is not longer than 1 year, but if you sold it on June 20, 2013, your holding period is longer than 1 year. Amend my taxes free online Inherited property. Amend my taxes free online   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Amend my taxes free online This rule does not apply to livestock used in a farm business. Amend my taxes free online See Holding period under Livestock , later. Amend my taxes free online Nonbusiness bad debt. Amend my taxes free online   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. Amend my taxes free online See chapter 4 of Publication 550. Amend my taxes free online Nontaxable exchange. Amend my taxes free online   If you acquire an asset in exchange for another asset and your basis for the new asset is figured, in whole or in part, by using your basis in the old property, the holding period of the new property includes the holding period of the old property. Amend my taxes free online That is, it begins on the same day as your holding period for the old property. Amend my taxes free online Gift. Amend my taxes free online   If you receive a gift of property and your basis in it is figured using the donor's basis, your holding period includes the donor's holding period. Amend my taxes free online Real property. Amend my taxes free online   To figure how long you held real property, start counting on the day after you received title to it or, if earlier, on the day after you took possession of it and assumed the burdens and privileges of ownership. Amend my taxes free online   However, taking possession of real property under an option agreement is not enough to start the holding period. Amend my taxes free online The holding period cannot start until there is an actual contract of sale. Amend my taxes free online The holding period of the seller cannot end before that time. Amend my taxes free online Figuring Net Gain or Loss The totals for short-term capital gains and losses and the totals for long-term capital gains and losses must be figured separately. Amend my taxes free online Net short-term capital gain or loss. Amend my taxes free online   Combine your short-term capital gains and losses. Amend my taxes free online Do this by adding all of your short-term capital gains. Amend my taxes free online Then add all of your short-term capital losses. Amend my taxes free online Subtract the lesser total from the greater. Amend my taxes free online The difference is your net short-term capital gain or loss. Amend my taxes free online Net long-term capital gain or loss. Amend my taxes free online   Follow the same steps to combine your long-term capital gains and losses. Amend my taxes free online The result is your net long-term capital gain or loss. Amend my taxes free online Net gain. Amend my taxes free online   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Amend my taxes free online However, part of your gain (but not more than your net capital gain) may be taxed at a lower rate than the rate of tax on your ordinary income. Amend my taxes free online See Capital Gains Tax Rates , later. Amend my taxes free online Net loss. Amend my taxes free online   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Amend my taxes free online But there are limits on how much loss you can deduct and when you can deduct it. Amend my taxes free online See Treatment of Capital Losses next. Amend my taxes free online Treatment of Capital Losses If your capital losses are more than your capital gains, you must claim the difference even if you do not have ordinary income to offset it. Amend my taxes free online For taxpayers other than corporations, the yearly limit on the capital loss you can deduct is $3,000 ($1,500 if you are married and file a separate return). Amend my taxes free online If your other income is low, you may not be able to use the full $3,000. Amend my taxes free online The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). Amend my taxes free online Capital loss carryover. Amend my taxes free online   Generally, you have a capital loss carryover if either of the following situations applies to you. Amend my taxes free online Your net loss on Schedule D (Form 1040), is more than the yearly limit. Amend my taxes free online Your taxable income without your deduction for exemptions is less than zero. Amend my taxes free online If either of these situations applies to you for 2013, see Capital Losses under Reporting Capital Gains and Losses in chapter 4 of Publication 550 to figure the amount you can carry over to 2014. Amend my taxes free online    To figure your capital loss carryover from 2013 to 2014, you will need a copy of your 2013 Form 1040 and Schedule D (Form 1040). Amend my taxes free online Capital Gains Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. Amend my taxes free online These lower rates are called the maximum capital gains rates. Amend my taxes free online The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. Amend my taxes free online See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). Amend my taxes free online Also see Publication 550. Amend my taxes free online Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. Amend my taxes free online A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). Amend my taxes free online Property held for sale in the ordinary course of your farm business. Amend my taxes free online   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. Amend my taxes free online Gain or loss from sales or other dispositions of this property is reported on Schedule F (Form 1040) (not on Schedule D (Form 1040) or Form 4797). Amend my taxes free online The treatment of this property is discussed in chapter 3. Amend my taxes free online Land and depreciable properties. Amend my taxes free online   Land and depreciable property you use in farming are not capital assets. Amend my taxes free online Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. Amend my taxes free online However, your gains and losses from sales and exchanges of your farmland and depreciable properties must be considered together with certain other transactions to determine whether the gains and losses are treated as capital or ordinary gains and losses. Amend my taxes free online The sales of these business assets are reported on Form 4797. Amend my taxes free online See chapter 9 for more information. Amend my taxes free online Hedging (Commodity Futures) Hedging transactions are transactions that you enter into in the normal course of business primarily to manage the risk of interest rate or price changes, or currency fluctuations, with respect to borrowings, ordinary property, or ordinary obligations. Amend my taxes free online Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. Amend my taxes free online A commodity futures contract is a standardized, exchange-traded contract for the sale or purchase of a fixed amount of a commodity at a future date for a fixed price. Amend my taxes free online The holder of an option on a futures contract has the right (but not the obligation) for a specified period of time to enter into a futures contract to buy or sell at a particular price. Amend my taxes free online A forward contract is generally similar to a futures contract except that the terms are not standardized and the contract is not exchange traded. Amend my taxes free online Businesses may enter into commodity futures contracts or forward contracts and may acquire options on commodity futures contracts as either of the following. Amend my taxes free online Hedging transactions. Amend my taxes free online Transactions that are not hedging transactions. Amend my taxes free online Futures transactions with exchange-traded commodity futures contracts that are not hedging transactions, generally, result in capital gain or loss and are subject to the mark-to-market rules discussed in Publication 550. Amend my taxes free online There is a limit on the amount of capital losses you can deduct each year. Amend my taxes free online Hedging transactions are not subject to the mark-to-market rules. Amend my taxes free online If, as a farmer-producer, to protect yourself from the risk of unfavorable price fluctuations, you enter into commodity forward contracts, futures contracts, or options on futures contracts and the contracts cover an amount of the commodity within your range of production, the transactions are generally considered hedging transactions. Amend my taxes free online They can take place at any time you have the commodity under production, have it on hand for sale, or reasonably expect to have it on hand. Amend my taxes free online The gain or loss on the termination of these hedges is generally ordinary gain or loss. Amend my taxes free online Farmers who file their income tax returns on the cash method report any profit or loss on the hedging transaction on Schedule F, line 8. Amend my taxes free online Gains or losses from hedging transactions that hedge supplies of a type regularly used or consumed in the ordinary course of your trade or business may be ordinary gains or losses. Amend my taxes free online Examples include fuel and feed. Amend my taxes free online If you have numerous transactions in the commodity futures market during the year, you must be able to show which transactions are hedging transactions. Amend my taxes free online Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. Amend my taxes free online It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. Amend my taxes free online Retain the identification of each hedging transaction with your books and records. Amend my taxes free online Also, identify the item(s) or aggregate risk that is being hedged in your records. Amend my taxes free online Although the identification of the hedging transaction must be made before the end of the day it was entered into, you have 35 days after entering into the transaction to identify the hedged item(s) or risk. Amend my taxes free online For more information on the tax treatment of futures and options contracts, see Commodity Futures and Section 1256 Contracts Marked to Market in Publication 550. Amend my taxes free online Accounting methods for hedging transactions. Amend my taxes free online   The accounting method you use for a hedging transaction must clearly reflect income. Amend my taxes free online This means that your accounting method must reasonably match the timing of income, deduction, gain, or loss from a hedging transaction with the timing of income, deduction, gain, or loss from the item or items being hedged. Amend my taxes free online There are requirements and limits on the method you can use for certain hedging transactions. Amend my taxes free online See Regulations section 1. Amend my taxes free online 446-4(e) for those requirements and limits. Amend my taxes free online   Hedging transactions must be accounted for under the rules stated above unless the transaction is subject to mark-to-market accounting under section 475 or you use an accounting method other than the following methods. Amend my taxes free online Cash method. Amend my taxes free online Farm-price method. Amend my taxes free online Unit-livestock-price method. Amend my taxes free online   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. Amend my taxes free online   Your books and records must describe the accounting method used for each type of hedging transaction. Amend my taxes free online They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. Amend my taxes free online You must make the additional identification no more than 35 days after entering into the hedging transaction. Amend my taxes free online Example of a hedging transaction. Amend my taxes free online   You file your income tax returns on the cash method. Amend my taxes free online On July 2 you anticipate a yield of 50,000 bushels of corn this year. Amend my taxes free online The December futures price is $5. Amend my taxes free online 75 a bushel, but there are indications that by harvest time the price will drop. Amend my taxes free online To protect yourself against a drop in the price, you enter into the following hedging transaction. Amend my taxes free online You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. Amend my taxes free online 75 a bushel. Amend my taxes free online   The price did not drop as anticipated but rose to $6 a bushel. Amend my taxes free online In November, you sell your crop at a local elevator for $6 a bushel. Amend my taxes free online You also close out your futures position by buying ten December contracts for $6 a bushel. Amend my taxes free online You paid a broker's commission of $1,400 ($70 per contract) for the complete in and out position in the futures market. Amend my taxes free online   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. Amend my taxes free online Your loss on the hedge is 25 cents a bushel. Amend my taxes free online In effect, the net selling price of your corn is $5. Amend my taxes free online 75 a bushel. Amend my taxes free online   Report the results of your futures transactions and your sale of corn separately on Schedule F. Amend my taxes free online See the instructions for the 2013 Schedule F (Form 1040). Amend my taxes free online   The loss on your futures transactions is $13,900, figured as follows. Amend my taxes free online July 2 - Sold December corn futures (50,000 bu. Amend my taxes free online @$5. Amend my taxes free online 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Amend my taxes free online @$6 plus $1,400 broker's commission) 301,400 Futures loss ($13,900) This loss is reported as a negative figure on Schedule F, Part I, line 8, as other income. Amend my taxes free online   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. Amend my taxes free online × $6). Amend my taxes free online Report it on Schedule F, Part I, line 2, as income from sales of products you raised. Amend my taxes free online   Assume you were right and the price went down 25 cents a bushel. Amend my taxes free online In effect, you would still net $5. Amend my taxes free online 75 a bushel, figured as follows. Amend my taxes free online Sold cash corn, per bushel $5. Amend my taxes free online 50 Gain on hedge, per bushel . Amend my taxes free online 25 Net price, per bushel $5. Amend my taxes free online 75       The gain on your futures transactions would have been $11,100, figured as follows. Amend my taxes free online July 2 - Sold December corn futures (50,000 bu. Amend my taxes free online @$5. Amend my taxes free online 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Amend my taxes free online @$5. Amend my taxes free online 50 plus $1,400 broker's commission) 276,400 Futures gain $11,100 The $11,100 is reported on Schedule F, Part I, line 8, as other income. Amend my taxes free online   The proceeds from the sale of your corn at the local elevator, $275,000, are reported on Schedule F, Part I, line 2, as income from sales of products you raised. Amend my taxes free online Livestock This part discusses the sale or exchange of livestock used in your farm business. Amend my taxes free online Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. Amend my taxes free online However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. Amend my taxes free online See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. Amend my taxes free online The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. Amend my taxes free online The sale of this livestock is reported on Schedule F. Amend my taxes free online See chapter 3. Amend my taxes free online Also, special rules apply to sales or exchanges caused by weather-related conditions. Amend my taxes free online See chapter 3. Amend my taxes free online Holding period. Amend my taxes free online   The sale or exchange of livestock used in your farm business (defined below) qualifies as a section 1231 transaction if you held the livestock for 12 months or more (24 months or more for horses and cattle). Amend my taxes free online Livestock. Amend my taxes free online   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. Amend my taxes free online Also, for section 1231 transactions, livestock does not include chickens, turkeys, pigeons, geese, emus, ostriches, rheas, or other birds, fish, frogs, reptiles, etc. Amend my taxes free online Livestock used in farm business. Amend my taxes free online   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. Amend my taxes free online The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. Amend my taxes free online An animal is not held for draft, breeding, dairy, or sporting purposes merely because it is suitable for that purpose, or because it is held for sale to other persons for use by them for that purpose. Amend my taxes free online However, a draft, breeding, or sporting purpose may be present if an animal is disposed of within a reasonable time after it is prevented from its intended use or made undesirable as a result of an accident, disease, drought, or unfitness of the animal. Amend my taxes free online Example 1. Amend my taxes free online You discover an animal that you intend to use for breeding purposes is sterile. Amend my taxes free online You dispose of it within a reasonable time. Amend my taxes free online This animal was held for breeding purposes. Amend my taxes free online Example 2. Amend my taxes free online You retire and sell your entire herd, including young animals that you would have used for breeding or dairy purposes had you remained in business. Amend my taxes free online These young animals were held for breeding or dairy purposes. Amend my taxes free online Also, if you sell young animals to reduce your breeding or dairy herd because of drought, these animals are treated as having been held for breeding or dairy purposes. Amend my taxes free online See Sales Caused by Weather-Related Conditions in chapter 3. Amend my taxes free online Example 3. Amend my taxes free online You are in the business of raising hogs for slaughter. Amend my taxes free online Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. Amend my taxes free online You sell the brood sows after obtaining the litter. Amend my taxes free online Even though you hold these brood sows for ultimate sale to customers in the ordinary course of your business, they are considered to be held for breeding purposes. Amend my taxes free online Example 4. Amend my taxes free online You are in the business of raising registered cattle for sale to others for use as breeding cattle. Amend my taxes free online The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. Amend my taxes free online Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. Amend my taxes free online Such use does not demonstrate that you are holding the cattle for breeding purposes. Amend my taxes free online However, those cattle you held as additions or replacements to your own breeding herd to produce calves are considered to be held for breeding purposes, even though they may not actually have produced calves. Amend my taxes free online The same applies to hog and sheep breeders. Amend my taxes free online Example 5. Amend my taxes free online You breed, raise, and train horses for racing purposes. Amend my taxes free online Every year you cull horses from your racing stable. Amend my taxes free online In 2013, you decided that to prevent your racing stable from getting too large to be effectively operated, you must cull six horses that had been raced at public tracks in 2012. Amend my taxes free online These horses are all considered held for sporting purposes. Amend my taxes free online Figuring gain or loss on the cash method. Amend my taxes free online   Farmers or ranchers who use the cash method of accounting figure their gain or loss on the sale of livestock used in their farming business as follows. Amend my taxes free online Raised livestock. Amend my taxes free online   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. Amend my taxes free online Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. Amend my taxes free online The basis of the animal sold is zero if the costs of raising it were deducted during the years the animal was being raised. Amend my taxes free online However, see Uniform Capitalization Rules in chapter 6. Amend my taxes free online Purchased livestock. Amend my taxes free online   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. Amend my taxes free online Example. Amend my taxes free online A farmer sold a breeding cow on January 8, 2013, for $1,250. Amend my taxes free online Expenses of the sale were $125. Amend my taxes free online The cow was bought July 2, 2009, for $1,300. Amend my taxes free online Depreciation (not less than the amount allowable) was $867. Amend my taxes free online Gross sales price $1,250 Cost (basis) $1,300   Minus: Depreciation deduction 867   Unrecovered cost (adjusted basis) $ 433   Expense of sale 125 558 Gain realized $ 692 Converted Wetland and Highly Erodible Cropland Special rules apply to dispositions of land converted to farming use after March 1, 1986. Amend my taxes free online Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. Amend my taxes free online Any loss on the disposition of such property is treated as a long-term capital loss. Amend my taxes free online Converted wetland. Amend my taxes free online   This is generally land that was drained or filled to make the production of agricultural commodities possible. Amend my taxes free online It includes converted wetland held by the person who originally converted it or held by any other person who used the converted wetland at any time after conversion for farming. Amend my taxes free online   A wetland (before conversion) is land that meets all the following conditions. Amend my taxes free online It is mostly soil that, in its undrained condition, is saturated, flooded, or ponded long enough during a growing season to develop an oxygen-deficient state that supports the growth and regeneration of plants growing in water. Amend my taxes free online It is saturated by surface or groundwater at a frequency and duration sufficient to support mostly plants that are adapted for life in saturated soil. Amend my taxes free online It supports, under normal circumstances, mostly plants that grow in saturated soil. Amend my taxes free online Highly erodible cropland. Amend my taxes free online   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. Amend my taxes free online Generally, highly erodible cropland is land currently classified by the Department of Agriculture as Class IV, VI, VII, or VIII under its classification system. Amend my taxes free online Highly erodible cropland also includes land that would have an excessive average annual erosion rate in relation to the soil loss tolerance level, as determined by the Department of Agriculture. Amend my taxes free online Successor. Amend my taxes free online   Converted wetland or highly erodible cropland is also land held by any person whose basis in the land is figured by reference to the adjusted basis of a person in whose hands the property was converted wetland or highly erodible cropland. Amend my taxes free online Timber Standing timber you held as investment property is a capital asset. Amend my taxes free online Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. Amend my taxes free online If you held the timber primarily for sale to customers, it is not a capital asset. Amend my taxes free online Gain or loss on its sale is ordinary business income or loss. Amend my taxes free online It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). Amend my taxes free online See the Instructions for Schedule F (Form 1040). Amend my taxes free online Farmers who cut timber on their land and sell it as logs, firewood, or pulpwood usually have no cost or other basis for that timber. Amend my taxes free online Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. Amend my taxes free online , are ordinary farm income and expenses reported on Schedule F. Amend my taxes free online Different rules apply if you owned the timber longer than 1 year and elect to treat timber cutting as a sale or exchange or you enter into a cutting contract, discussed below. Amend my taxes free online Timber considered cut. Amend my taxes free online   Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Amend my taxes free online This is true whether the timber is cut under contract or whether you cut it yourself. Amend my taxes free online Christmas trees. Amend my taxes free online   Evergreen trees, such as Christmas trees, that are more than 6 years old when severed from their roots and sold for ornamental purposes are included in the term timber. Amend my taxes free online They qualify for both rules discussed below. Amend my taxes free online Election to treat cutting as a sale or exchange. Amend my taxes free online   Under the general rule, the cutting of timber results in no gain or loss. Amend my taxes free online It is not until a sale or exchange occurs that gain or loss is realized. Amend my taxes free online But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year it is cut. Amend my taxes free online Even though the cut timber is not actually sold or exchanged, you report your gain or loss on the cutting for the year the timber is cut. Amend my taxes free online Any later sale results in ordinary business income or loss. Amend my taxes free online See the example below. Amend my taxes free online   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or use in your trade or business. Amend my taxes free online Making the election. Amend my taxes free online   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of your gain or loss. Amend my taxes free online You do not have to make the election in the first year you cut the timber. Amend my taxes free online You can make it in any year to which the election would apply. Amend my taxes free online If the timber is partnership property, the election is made on the partnership return. Amend my taxes free online This election cannot be made on an amended return. Amend my taxes free online   Once you have made the election, it remains in effect for all later years unless you revoke it. Amend my taxes free online Election under section 631(a) may be revoked. Amend my taxes free online   If you previously elected for any tax year ending before October 23, 2004, to treat the cutting of timber as a sale or exchange under section 631(a), you may revoke this election without the consent of the IRS for any tax year ending after October 22, 2004. Amend my taxes free online The prior election (and revocation) is disregarded for purposes of making a subsequent election. Amend my taxes free online See Form T (Timber), Forest Activities Schedule, for more information. Amend my taxes free online Gain or loss. Amend my taxes free online   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its FMV on the first day of your tax year in which it is cut. Amend my taxes free online   Your adjusted basis for depletion of cut timber is based on the number of units (board feet, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. Amend my taxes free online Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 and Regulations section 1. Amend my taxes free online 611-3. Amend my taxes free online   Depletion of timber is discussed in chapter 7. Amend my taxes free online Example. Amend my taxes free online   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Amend my taxes free online It had an adjusted basis for depletion of $40 per MBF. Amend my taxes free online You are a calendar year taxpayer. Amend my taxes free online On January 1, 2013, the timber had a FMV of $350 per MBF. Amend my taxes free online It was cut in April for sale. Amend my taxes free online On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Amend my taxes free online You report the difference between the FMV and your adjusted basis for depletion as a gain. Amend my taxes free online This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as a capital gain or as ordinary gain. Amend my taxes free online You figure your gain as follows. Amend my taxes free online FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000   The FMV becomes your basis in the cut timber, and a later sale of the cut timber, including any by-product or tree tops, will result in ordinary business income or loss. Amend my taxes free online Outright sales of timber. Amend my taxes free online   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined later). Amend my taxes free online However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see Date of disposal below). Amend my taxes free online Cutting contract. Amend my taxes free online   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Amend my taxes free online You are the owner of the timber. Amend my taxes free online You held the timber longer than 1 year before its disposal. Amend my taxes free online You kept an economic interest in the timber. Amend my taxes free online   You have kept an economic interest in standing timber if, under the cutting contract, the expected return on your investment is conditioned on the cutting of the timber. Amend my taxes free online   The difference between the amount realized from the disposal of the timber and its adjusted basis for depletion is treated as gain or loss on its sale. Amend my taxes free online Include this amount on Form 4797 along with your other section 1231 gains or losses. Amend my taxes free online Date of disposal. Amend my taxes free online   The date of disposal is the date the timber is cut. Amend my taxes free online However, for outright sales by landowners or if you receive payment under the contract before the timber is cut, you can elect to treat the date of payment as the date of disposal. Amend my taxes free online   This election applies only to figure the holding period of the timber. Amend my taxes free online It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Amend my taxes free online   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Amend my taxes free online The statement must identify the advance payments subject to the election and the contract under which they were made. Amend my taxes free online   If you timely filed your return for the year you received payment without making the election, you can still make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). Amend my taxes free online Attach the statement to the amended return and write “Filed pursuant to section 301. Amend my taxes free online 9100-2” at the top of the statement. Amend my taxes free online File the amended return at the same address the original return was filed. Amend my taxes free online Owner. Amend my taxes free online   An owner is any person who owns an interest in the timber, including a sublessor and the holder of a contract to cut the timber. Amend my taxes free online You own an interest in timber if you have the right to cut it for sale on your own account or for use in your business. Amend my taxes free online Tree stumps. Amend my taxes free online   Tree stumps are a capital asset if they are on land held by an investor who is not in the timber or stump business as a buyer, seller, or processor. Amend my taxes free online Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Amend my taxes free online However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Amend my taxes free online Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Amend my taxes free online   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Amend my taxes free online Sale of a Farm The sale of your farm will usually involve the sale of both nonbusiness property (your home) and business property (the land and buildings used in the farm operation and perhaps machinery and livestock). Amend my taxes free online If you have a gain from the sale, you may be allowed to exclude the gain on your home. Amend my taxes free online For more information, see Publication 523, Selling Your Home. Amend my taxes free online The gain on the sale of your business property is taxable. Amend my taxes free online A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. Amend my taxes free online Your taxable gain or loss on the sale of property used in your farm business is taxed under the rules for section 1231 transactions. Amend my taxes free online See chapter 9. Amend my taxes free online Losses from personal-use property, other than casualty or theft losses, are not deductible. Amend my taxes free online If you receive payments for your farm in installments, your gain is taxed over the period of years the payments are received, unless you elect not to use the installment method of reporting the gain. Amend my taxes free online See chapter 10 for information about installment sales. Amend my taxes free online When you sell your farm, the gain or loss on each asset is figured separately. Amend my taxes free online The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. Amend my taxes free online Each of the assets sold must be classified as one of the following. Amend my taxes free online Capital asset held 1 year or less. Amend my taxes free online Capital asset held longer than 1 year. Amend my taxes free online Property (including real estate) used in your business and held 1 year or less (including draft, breeding, dairy, and sporting animals held less than the holding periods discussed earlier under Livestock ). Amend my taxes free online Property (including real estate) used in your business and held longer than 1 year (including only draft, breeding, dairy, and sporting animals held for the holding periods discussed earlier). Amend my taxes free online Property held primarily for sale or which is of the kind that would be included in inventory if on hand at the end of your tax year. Amend my taxes free online Allocation of consideration paid for a farm. Amend my taxes free online   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. Amend my taxes free online The residual method is required only if the group of assets sold constitutes a trade or business. Amend my taxes free online This method determines gain or loss from the transfer of each asset. Amend my taxes free online It also determines the buyer's basis in the business assets. Amend my taxes free online For more information, see Sale of a Business in chapter 2 of Publication 544. Amend my taxes free online Property used in farm operation. Amend my taxes free online   The rules for excluding the gain on the sale of your home, described later under Sale of your home , do not apply to the property used for your farming business. Amend my taxes free online Recognized gains and losses on business property must be reported on your return for the year of the sale. Amend my taxes free online If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). Amend my taxes free online Example. Amend my taxes free online You sell your farm, including your main home, which you have owned since December 2001. Amend my taxes free online You realize gain on the sale as follows. Amend my taxes free online   Farm   Farm   With Home Without   Home Only Home Selling price $382,000 $158,000 $224,000 Cost (or other basis) 240,000 110,000 130,000 Gain $142,000 $48,000 $94,000 You must report the $94,000 gain from the sale of the property used in your farm business. Amend my taxes free online All or a part of that gain may have to be reported as ordinary income from the recapture of depreciation or soil and water conservation expenses. Amend my taxes free online Treat the balance as section 1231 gain. Amend my taxes free online The $48,000 gain from the sale of your home is not taxable as long as you meet the requirements explained later under Sale of your home . Amend my taxes free online Partial sale. Amend my taxes free online   If you sell only part of your farm, you must report any recognized gain or loss on the sale of that part on your tax return for the year of the sale. Amend my taxes free online You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. Amend my taxes free online For a detailed discussion on installment sales, see Publication 544. Amend my taxes free online Adjusted basis of the part sold. Amend my taxes free online   This is the properly allocated part of your original cost or other basis of the entire farm plus or minus necessary adjustments for improvements, depreciation, etc. Amend my taxes free online , on the part sold. Amend my taxes free online If your home is on the farm, you must properly adjust the basis to exclude those costs from your farm asset costs, as discussed below under Sale of your home . Amend my taxes free online Example. Amend my taxes free online You bought a 600-acre farm for $700,000. Amend my taxes free online The farm included land and buildings. Amend my taxes free online The purchase contract designated $600,000 of the purchase price to the land. Amend my taxes free online You later sold 60 acres of land on which you had installed a fence. Amend my taxes free online Your adjusted basis for the part of your farm sold is $60,000 (1/10 of $600,000), plus any unrecovered cost (cost not depreciated) of the fence on the 60 acres at the time of sale. Amend my taxes free online Use this amount to determine your gain or loss on the sale of the 60 acres. Amend my taxes free online Assessed values for local property taxes. Amend my taxes free online   If you paid a flat sum for the entire farm and no other facts are available for properly allocating your original cost or other basis between the land and the buildings, you can use the assessed values for local property taxes for the year of purchase to allocate the costs. Amend my taxes free online Example. Amend my taxes free online Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. Amend my taxes free online However, in the year of purchase, local taxes on the entire property were based on assessed valuations of $420,000 for land and $140,000 for improvements, or a total of $560,000. Amend my taxes free online The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. Amend my taxes free online Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. Amend my taxes free online The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). Amend my taxes free online Sale of your home. Amend my taxes free online   Your home is a capital asset and not property used in the trade or business of farming. Amend my taxes free online If you sell a farm that includes a house you and your family occupy, you must determine the part of the selling price and the part of the cost or other basis allocable to your home. Amend my taxes free online Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. Amend my taxes free online   If you use part of your home for business, you must make an appropriate adjustment to the basis for depreciation allowed or allowable. Amend my taxes free online For more information on basis, see chapter 6. Amend my taxes free online More information. Amend my taxes free online   For more information on selling your home, see Publication 523. Amend my taxes free online Gain from condemnation. Amend my taxes free online   If you have a gain from a condemnation or sale under threat of condemnation, you may use the preceding rules for excluding the gain, rather than the rules discussed under Postponing Gain in chapter 11. Amend my taxes free online However, any gain that cannot be excluded (because it is more than the limit) may be postponed under the rules discussed under Postponing Gain in chapter 11. Amend my taxes free online Foreclosure or Repossession If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Amend my taxes free online The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Amend my taxes free online This is true even if you voluntarily return the property to the lender. Amend my taxes free online You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. Amend my taxes free online Buyer's (borrower's) gain or loss. Amend my taxes free online   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Amend my taxes free online The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Amend my taxes free online See Determining Gain or Loss , earlier. Amend my taxes free online Worksheet 8-1. Amend my taxes free online Worksheet for Foreclosures andRepossessions Part 1. Amend my taxes free online Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Amend my taxes free online Complete this part only if you were personally liable for the debt. Amend my taxes free online Otherwise, go to Part 2. Amend my taxes free online   1. Amend my taxes free online Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable after the transfer of property   2. Amend my taxes free online Enter the Fair Market Value of the transferred property   3. Amend my taxes free online Ordinary income from cancellation of debt upon foreclosure or repossession. Amend my taxes free online * Subtract line 2 from line 1. Amend my taxes free online If zero or less, enter -0-   Part 2. Amend my taxes free online Figure your gain or loss from foreclosure or repossession. Amend my taxes free online   4. Amend my taxes free online If you completed Part 1, enter the smaller of line 1 or line 2. Amend my taxes free online If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. Amend my taxes free online Enter any proceeds you received from the foreclosure sale   6. Amend my taxes free online Add lines 4 and 5   7. Amend my taxes free online Enter the adjusted basis of the transferred property   8. Amend my taxes free online Gain or loss from foreclosure or repossession. Amend my taxes free online Subtract line 7  from line 6   * The income may not be taxable. Amend my taxes free online See Cancellation of debt . Amend my taxes free online    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. Amend my taxes free online Amount realized on a nonrecourse debt. Amend my taxes free online   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full amount of the debt canceled by the transfer. Amend my taxes free online The full canceled debt is included in the amount realized even if the fair market value of the property is less than the canceled debt. Amend my taxes free online Example 1. Amend my taxes free online Ann paid $200,000 for land used in her farming business. Amend my taxes free online She paid $15,000 down and borrowed the remaining $185,000 from a bank. Amend my taxes free online Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. Amend my taxes free online The bank foreclosed on the loan 2 years after Ann stopped making payments. Amend my taxes free online When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. Amend my taxes free online The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. Amend my taxes free online She figures her gain or loss on Form 4797, Part I, by comparing the amount realized ($180,000) with her adjusted basis ($200,000). Amend my taxes free online She has a $20,000 deductible loss. Amend my taxes free online Example 2. Amend my taxes free online Assume the same facts as in Example 1 except the FMV of the land was $210,000. Amend my taxes free online The result is the same. Amend my taxes free online The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. Amend my taxes free online Because her adjusted basis is $200,000, she has a deductible loss of $20,000, which she reports on Form 4797, Part I. Amend my taxes free online Amount realized on a recourse debt. Amend my taxes free online   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Amend my taxes free online   You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Amend my taxes free online The amount realized does not include the canceled debt that is your income from cancellation of debt. Amend my taxes free online See Cancellation of debt , later. Amend my taxes free online Example 3. Amend my taxes free online Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). Amend my taxes free online In this case, the amount she realizes is $170,000. Amend my taxes free online This is the canceled debt ($180,000) up to the FMV of the land ($170,000). Amend my taxes free online Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). Amend my taxes free online She has a $30,000 deductible loss, which she figures on Form 4797, Part I. Amend my taxes free online She is also treated as receiving ordinary income from cancellation of debt. Amend my taxes free online That income is $10,000 ($180,000 − $170,000). Amend my taxes free online This is the part of the canceled debt not included in the amount realized. Amend my taxes free online She reports this as other income on Schedule F, line 8. Amend my taxes free online Seller's (lender's) gain or loss on repossession. Amend my taxes free online   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Amend my taxes free online For more information, see Repossession in Publication 537, Installment Sales. Amend my taxes free online Cancellation of debt. Amend my taxes free online   If property that is repossessed or foreclosed upon secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the FMV of the property. Amend my taxes free online This income is separate from any gain or loss realized from the foreclosure or repossession. Amend my taxes free online Report the income from cancellation of a business debt on Schedule F, line 8. Amend my taxes free online Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Amend my taxes free online    You can use Worksheet 8-1 to figure your income from cancellation of debt. Amend my taxes free online   However, income from cancellation of debt is not taxed if any of the following apply. Amend my taxes free online The cancellation is intended as a gift. Amend my taxes free online The debt is qualified farm debt (see chapter 3). Amend my taxes free online The debt is qualified real property business debt (see chapter 5 of Publication 334). Amend my taxes free online You are insolvent or bankrupt (see  chapter 3). Amend my taxes free online The debt is qualified principal residence indebtedness (see chapter 3). Amend my taxes free online   Use Form 982 to report the income exclusion. Amend my taxes free online Abandonment The abandonment of property is a disposition of property. Amend my taxes free online You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership, but without passing it on to anyone else. Amend my taxes free online Business or investment property. Amend my taxes free online   Loss from abandonment of business or investment property is deductible as a loss. Amend my taxes free online Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Amend my taxes free online If your adjusted basis is more than the amount you realize (if any), then you have a loss. Amend my taxes free online If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Amend my taxes free online This rule also applies to leasehold improvements the lessor made for the lessee. Amend my taxes free online However, if the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed earlier under Foreclosure or Repossession . Amend my taxes free online   If the abandoned property is secured by debt, special rules apply. Amend my taxes free online The tax consequences of abandonment of property that secures a debt depend on whether you are personally liable for the debt (recourse debt) or were not personally liable for the debt (nonrecourse debt). Amend my taxes free online For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Amend my taxes free online The abandonment loss is deducted in the tax year in which the loss is sustained. Amend my taxes free online Report the loss on Form 4797, Part II, line 10. Amend my taxes free online Personal-use property. Amend my taxes free online   You cannot deduct any loss from abandonment of your home or other property held for personal use. Amend my taxes free online Canceled debt. Amend my taxes free online   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. Amend my taxes free online This income is separate from any loss realized from abandonment of the property. Amend my taxes free online Report income from cancellation of a debt related to a business or rental activity as business or rental income. Amend my taxes free online Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Amend my taxes free online   However, income from cancellation of debt is not taxed in certain circumstances. Amend my taxes free online See Cancellation of debt earlier under Foreclosure or Repossession . Amend my taxes free online Forms 1099-A and 1099-C. Amend my taxes free online   A lender who acquires an interest in your property in a foreclosure, repossession, or abandonment should send you Form 1099-A showing the information you need to figure your loss from the foreclosure, repossession, or abandonment. Amend my taxes free online However, if the lender cancels part of your debt and the lender must file Form 1099-C, the lender may include the information about the foreclosure, repossession, or abandonment on that form instead of Form 1099-A. Amend my taxes free online The lender must file Form 1099-C and send you a copy if the canceled debt is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Amend my taxes free online For foreclosures, repossessions, abandonments of property, and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Amend my taxes free online Prev  Up  Next   Home   More Online Publications