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Amended Return Instructions

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Amended Return Instructions

Amended return instructions Publication 929 - Main Content Table of Contents Part 1. Amended return instructions Rules for All Dependents Filing RequirementsEarned Income Only Unearned Income Only Both Earned and Unearned Income Other Filing Requirements Should a Return Be Filed Even If Not Required? Responsibility for Child's ReturnThird party designee. Amended return instructions Designated as representative. Amended return instructions IRS notice. Amended return instructions Standard DeductionStandard Deduction of Zero Dependent's Own Exemption Withholding From WagesExceptions. Amended return instructions Part 2. Amended return instructions Tax on Unearned Income of Certain ChildrenWhich Parent's Return To Use Parent's Election To Report Child's Interest and DividendsEffect of Making the Election Figuring Child's Income Figuring Additional Tax Tax for Certain Children Who Have Unearned IncomeProviding Parental Information (Form 8615, Lines A–C) Step 1. Amended return instructions Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. Amended return instructions Figuring a Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. Amended return instructions Figuring the Child's Tax (Form 8615, Part III) Alternative Minimum Tax Illustrated Example Part 1. Amended return instructions Rules for All Dependents This part of the publication discusses the filing requirements for dependents, who is responsible for a child's return, how to figure a dependent's standard deduction and exemption (if any), and whether a dependent can claim exemption from federal income tax withholding. Amended return instructions Filing Requirements Whether a dependent has to file a return generally depends on the amount of the dependent's earned and unearned income and whether the dependent is married, is age 65 or older, or is blind. Amended return instructions A dependent may have to file a return even if his or her income is less than the amount that would normally require a return. Amended return instructions See Other Filing Requirements, later. Amended return instructions The following sections apply to dependents with: Earned income only, Unearned income only, and Both earned and unearned income. Amended return instructions  To find out whether a dependent must file, read the section that applies, or use Table 1. Amended return instructions Earned Income Only A dependent whose gross income is only earned income must file a return if the gross income is more than the amount listed in the following table. Amended return instructions Marital Status Amount Single   Under 65 and not blind $6,100 Either 65 or older or blind $7,600 65 or older and blind $9,100 Married*   Under 65 and not blind $6,100 Either 65 or older or blind $7,300 65 or older and blind $8,500 *If a dependent's spouse itemizes deductions on a separate return, the dependent must file a return if the dependent has $5 or more of gross income (earned and/or unearned). Amended return instructions Example. Amended return instructions William is 16. Amended return instructions His mother claims an exemption for him on her income tax return. Amended return instructions He worked part time on weekends during the school year and full time during the summer. Amended return instructions He earned $7,000 in wages. Amended return instructions He did not have any unearned income. Amended return instructions He must file a tax return because he has earned income only and his gross income is more than $6,100. Amended return instructions If he is blind, he does not have to file a return because his gross income is not more than $7,600. Amended return instructions Unearned Income Only A dependent whose gross income is only unearned income must file a return if the gross income is more than the amount listed in the following table. Amended return instructions Marital Status Amount Single   Under 65 and not blind $1,000 Either 65 or older or blind $2,500 65 or older and blind $4,000 Married*   Under 65 and not blind $1,000 Either 65 or older or blind $2,200 65 or older and blind $3,400 *If a dependent's spouse itemizes deductions on a separate return, the dependent must file a return if the dependent has $5 or more of gross income (earned and/or unearned). Amended return instructions Example. Amended return instructions Sarah is 18 and single. Amended return instructions Her parents can claim an exemption for her on their income tax return. Amended return instructions She received $1,970 of taxable interest and dividend income. Amended return instructions She did not work during the year. Amended return instructions She must file a tax return because she has unearned income only and her gross income is more than $1,000. Amended return instructions If she is blind, she does not have to file a return because she has unearned income only and her gross income is not more than $2,500. Amended return instructions Election to report child's unearned income on parent's return. Amended return instructions   A parent of a child under age 19 (or under age 24 if a full-time student) may be able to elect to include the child's interest and dividend income on the parent's return. Amended return instructions See Parent's Election To Report Child's Interest and Dividends in Part 2. Amended return instructions If the parent makes this election, the child does not have to file a return. Amended return instructions Both Earned and Unearned Income A dependent who has both earned and unearned income generally must file a return if the dependent's gross income is more than line 5 of the following worksheet. Amended return instructions Filing Requirement Worksheet for Most Dependents 1. Amended return instructions Enter dependent's earned income plus $350     2. Amended return instructions Minimum amount   $1,000 3. Amended return instructions Compare lines 1 and 2. Amended return instructions Enter the larger amount     4. Amended return instructions Maximum amount   6,100 5. Amended return instructions Compare lines 3 and 4. Amended return instructions Enter the smaller amount     6. Amended return instructions Enter the dependent's gross income. Amended return instructions If line 6 is more than line 5, the dependent must file an income tax return. Amended return instructions If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 6 is $5 or more. Amended return instructions       Table 1. Amended return instructions 2013 Filing Requirements for Dependents If your parent (or someone else) can claim you as a dependent, use this table to see if you must file a return. Amended return instructions   See the definitions of “dependent,”“earned income,”“unearned income,” and “gross income” in the Glossary. Amended return instructions   Single dependents—Were you either age 65 or older or blind?     No. Amended return instructions You must file a return if any of the following apply. Amended return instructions       Your unearned income was over $1,000. Amended return instructions Your earned income was over $6,100. Amended return instructions Your gross income was more than the larger of—       $1,000, or Your earned income (up to $5,750) plus $350. Amended return instructions         Yes. Amended return instructions You must file a return if any of the following apply. Amended return instructions     Your unearned income was over $2,500 ($4,000 if 65 or older and blind), Your earned income was over $7,600 ($9,100 if 65 or older and blind), Your gross income was more than the larger of—       $2,500 ($4,000 if 65 or older and blind), or Your earned income (up to $5,750) plus $1,850 ($3,350 if 65 or older and blind). Amended return instructions       Married dependents—Were you either age 65 or older or blind?     No. Amended return instructions You must file a return if any of the following apply. Amended return instructions       Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. Amended return instructions Your unearned income was over $1,000. Amended return instructions Your earned income was over $6,100. Amended return instructions Your gross income was more than the larger of—       $1,000, or Your earned income (up to $5,750) plus $350. Amended return instructions       Yes. Amended return instructions You must file a return if any of the following apply. Amended return instructions       Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. Amended return instructions Your unearned income was over $2,200 ($3,400 if 65 or older and blind), Your earned income was over $7,300 ($8,500 if 65 or older and blind), Your gross income was more than the larger of—       $2,200 ($3,400 if 65 or older and blind), or Your earned income (up to $5,750) plus $1,550 ($2,750 if 65 or older and blind). Amended return instructions       Example 1. Amended return instructions Joe is 20, single, not blind, and a full-time college student. Amended return instructions He does not provide more than half of his own support, and his parents claim an exemption for him on their income tax return. Amended return instructions He received $200 taxable interest income and earned $2,750 from a part-time job. Amended return instructions He does not have to file a tax return because his gross income of $2,950 ($200 interest plus $2,750 in wages) is not more than $3,100, the amount on line 5 of his filled-in Filing Requirement Worksheet for Most Dependents (shown next). Amended return instructions Filled-in Example 1 Filing Requirement Worksheet  for Most Dependents 1. Amended return instructions Enter dependent's earned income plus $350   $ 3,100 2. Amended return instructions Minimum amount   1,000 3. Amended return instructions Compare lines 1 and 2. Amended return instructions Enter the larger amount   3,100 4. Amended return instructions Maximum amount   6,100 5. Amended return instructions Compare lines 3 and 4. Amended return instructions Enter the smaller amount   3,100 6. Amended return instructions Enter the dependent's gross income. Amended return instructions If line 6 is more than line 5, the dependent must file an income tax return. Amended return instructions If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 6 is $5 or more. Amended return instructions   $ 2,950   Example 2. Amended return instructions The facts are the same as in Example 1 except that Joe had $600 taxable interest income. Amended return instructions He must file a tax return because his gross income of $3,350 ($600 interest plus $2,750 wages) is more than $3,100, the amount on line 5 of his filled-in worksheet (shown next). Amended return instructions Filled-in Example 2 Filing Requirement Worksheet for Most Dependents 1. Amended return instructions Enter dependent's earned income plus $350   $ 3,100 2. Amended return instructions Minimum amount   1,000 3. Amended return instructions Compare lines 1 and 2. Amended return instructions Enter the larger amount   3,100 4. Amended return instructions Maximum amount   6,100 5. Amended return instructions Compare lines 3 and 4. Amended return instructions Enter the smaller amount   3,100 6. Amended return instructions Enter the dependent's gross income. Amended return instructions If line 6 is more than line 5, the dependent must file an income tax return. Amended return instructions If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 6 is $5 or more. Amended return instructions   $ 3,350   Age 65 or older or blind. Amended return instructions A dependent who is age 65 or older or blind must file a return if his or her gross income is more than line 7 of the following worksheet. Amended return instructions Filing Requirement Worksheet  for Dependents Who Are Age 65 or Older or Blind 1. Amended return instructions Enter dependent's earned income plus $350     2. Amended return instructions Minimum amount   $1,000 3. Amended return instructions Compare lines 1 and 2. Amended return instructions Enter the larger amount     4. Amended return instructions Maximum amount   6,100 5. Amended return instructions Compare lines 3 and 4. Amended return instructions Enter the smaller amount     6. Amended return instructions Enter the amount from the following table that applies to the dependent       Marital Status Amount     Single         Either 65 or older or blind $1,500       65 or older and blind $3,000     Married         Either 65 or older or blind $1,200       65 or older and blind $2,400   7. Amended return instructions Add lines 5 and 6. Amended return instructions Enter the total     8. Amended return instructions Enter the dependent's gross income. Amended return instructions If line 8 is more than line 7, the dependent must file an income tax return. Amended return instructions If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 8 is $5 or more     Example 3. Amended return instructions The facts are the same as in Example 2 except that Joe is also blind. Amended return instructions He does not have to file a return because his gross income of $3,350 is not more than $4,600, the amount on line 7 of his filled-in Filing Requirement Worksheet for Dependents Who Are Age 65 or Older or Blind (shown next). Amended return instructions   Filled-in Example 3 Filing Requirement Worksheet  for Dependents Who Are Age 65 or Older or Blind 1. Amended return instructions Enter dependent's earned income plus $350   $3,100 2. Amended return instructions Minimum amount   1,000 3. Amended return instructions Compare lines 1 and 2. Amended return instructions Enter the larger amount   3,100 4. Amended return instructions Maximum amount   6,100 5. Amended return instructions Compare lines 3 and 4. Amended return instructions Enter the smaller amount   3,100 6. Amended return instructions Enter the amount from the following table that applies to the dependent   1,500   Marital Status Amount     Single         Either 65 or older or blind $1,500       65 or older and blind $3,000     Married         Either 65 or older or blind $1,200       65 or older and blind $2,400   7. Amended return instructions Add lines 5 and 6. Amended return instructions Enter the total   4,600 8. Amended return instructions Enter the dependent's gross income. Amended return instructions If line 8 is more than line 7, the dependent must file an income tax return. Amended return instructions If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 8 is $5 or more   $3,350 Other Filing Requirements Some dependents may have to file a tax return even if their income is less than the amount that would normally require them to file a return. Amended return instructions A dependent must file a tax return if he or she owes any other taxes, such as: Social security and Medicare taxes on tips not reported to his or her employer or on wages received from an employer who did not withhold these taxes, Uncollected social security and Medicare or railroad retirement taxes on tips reported to his or her employer or on group-term life insurance, Alternative minimum tax, Additional tax on a health savings account from Form 8889, Part III, Recapture taxes, such as the tax from recapture of an education credit, or Additional tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account. Amended return instructions But if the dependent is filing a return only because of this tax, the dependent can file Form 5329 by itself. Amended return instructions A dependent must also file a tax return if he or she: Had wages of $108. Amended return instructions 28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes, or Had net earnings from self-employment of at least $400. Amended return instructions Spouse itemizes. Amended return instructions   A dependent must file a return if the dependent's spouse itemizes deductions on a separate return and the dependent has $5 or more of gross income (earned and/or unearned). Amended return instructions Should a Return Be Filed Even If Not Required? Even if a dependent does not meet any of the filing requirements discussed earlier, he or she should file a tax return if either of the following applies. Amended return instructions Income tax was withheld from his or her income. Amended return instructions He or she qualifies for the earned income credit, additional child tax credit, health coverage tax credit, or refundable American opportunity education credit. Amended return instructions See the tax return instructions to find out who qualifies for these credits. Amended return instructions  By filing a return, the dependent can get a refund. Amended return instructions Responsibility for Child's Return Generally, a child is responsible for filing his or her own tax return and for paying any tax, penalties, or interest on that return. Amended return instructions If a child cannot file his or her own return for any reason, such as age, the child's parent, guardian, or other legally responsible person must file it for the child. Amended return instructions Signing the child's return. Amended return instructions   If the child cannot sign his or her return, a parent or guardian must sign the child's name followed by the words “By (signature), parent (or guardian) for minor child. Amended return instructions ” Authority of parent or guardian. Amended return instructions   A parent or guardian who signs a return on a child's behalf can deal with the IRS on all matters connected with the return. Amended return instructions   In general, a parent or guardian who does not sign the child's return can only provide information concerning the child's return and pay the child's tax. Amended return instructions That parent or guardian is not entitled to receive information from the IRS or legally bind the child to a tax liability arising from the return. Amended return instructions Third party designee. Amended return instructions   A child's parent or guardian who does not sign the child's return may be authorized, as a third party designee, to discuss the processing of the return with the IRS as well as provide information concerning the return. Amended return instructions The child or the person signing the return on the child's behalf must check the “Yes” box in the “Third Party Designee” area of the return and name the parent or guardian as the designee. Amended return instructions   If designated, a parent or guardian can respond to certain IRS notices and receive information about the processing of the return and the status of a refund or payment. Amended return instructions This designation does not authorize the parent or guardian to receive any refund check, bind the child to any tax liability, or otherwise represent the child before the IRS. Amended return instructions See the return instructions for more information. Amended return instructions Designated as representative. Amended return instructions   A parent or guardian who does not sign the child's return may be designated as the child's representative by the child or the person signing the return on the child's behalf. Amended return instructions Form 2848, Power of Attorney and Declaration of Representative, is used to designate a child's representative. Amended return instructions See Publication 947, Practice Before the IRS and Power of Attorney, for more information. Amended return instructions   If designated, a parent or guardian can receive information about the child's return but cannot legally bind the child to a tax liability unless authorized to do so by the law of the state in which the child lives. Amended return instructions IRS notice. Amended return instructions   If you or the child receives a notice from the IRS concerning the child's return or tax liability, you should immediately inform the IRS that the notice concerns a child. Amended return instructions The notice will show who to contact. Amended return instructions The IRS will try to resolve the matter with the parent(s) or guardian(s) of the child consistent with their authority. Amended return instructions Child's earnings. Amended return instructions   For federal income tax purposes, amounts a child earns by performing services are included in the gross income of the child and not the gross income of the parent. Amended return instructions This is true even if, under state law, the parent has the right to the earnings and may actually have received them. Amended return instructions If the child does not pay the tax due on this income, the parent may be liable for the tax. Amended return instructions Child's expenses. Amended return instructions   Deductions for payments that are made out of a child's earnings are the child's, even if the payments are made by the parent. Amended return instructions Example. Amended return instructions You made payments on your child's behalf that are deductible as a business expense and a charitable contribution. Amended return instructions You made the payments out of your child's earnings. Amended return instructions These items can be deducted only on the child's return. Amended return instructions Standard Deduction The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the larger of: $1,000, or The individual's earned income plus $350, but not more than the regular standard deduction (generally $6,100). Amended return instructions However, the standard deduction may be higher for a dependent who: Is 65 or older, or Is blind. Amended return instructions Certain dependents cannot claim any standard deduction. Amended return instructions See Standard Deduction of Zero , later. Amended return instructions Worksheet 1. Amended return instructions   Use Worksheet 1 to figure the dependent's standard deduction. Amended return instructions Worksheet 1. Amended return instructions Standard Deduction Worksheet for Dependents Use this worksheet only if someone else can claim you (or your spouse, if filing jointly) as a dependent. Amended return instructions If you were 65 or older and/or blind, check the correct number of boxes below. Amended return instructions Put the total number of boxes checked in box c and go to line 1. Amended return instructions a. Amended return instructions You 65 or older   Blind   b. Amended return instructions Your spouse, if claiming  spouse's exemption 65 or older   Blind   c. Amended return instructions Total boxes checked         1. Amended return instructions Enter your earned income (defined below) plus $350. Amended return instructions If none, enter -0-. Amended return instructions 1. Amended return instructions     2. Amended return instructions Minimum amount. Amended return instructions   2. Amended return instructions $1,000   3. Amended return instructions Compare lines 1 and 2. Amended return instructions Enter the larger of the two amounts here. Amended return instructions 3. Amended return instructions     4. Amended return instructions Enter on line 4 the amount shown below for your filing status. Amended return instructions       Single or Married filing separately—$6,100 Married filing jointly—$12,200 Head of household—$8,950 4. Amended return instructions     5. Amended return instructions Standard deduction. Amended return instructions         a. Amended return instructions Compare lines 3 and 4. Amended return instructions Enter the smaller amount here. Amended return instructions If under 65 and not blind, stop here. Amended return instructions This is your standard deduction. Amended return instructions Otherwise, go on to line 5b. Amended return instructions 5a. Amended return instructions     b. Amended return instructions If 65 or older or blind, multiply $1,500 ($1,200 if married) by the number in box c above. Amended return instructions Enter the result here. Amended return instructions 5b. Amended return instructions     c. Amended return instructions Add lines 5a and 5b. Amended return instructions This is your standard deduction for 2013. Amended return instructions 5c. Amended return instructions     Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. Amended return instructions It also includes any amount received as a scholarship that you must include in income. Amended return instructions   Example 1. Amended return instructions Michael is single, age 15, and not blind. Amended return instructions His parents can claim him as a dependent on their tax return. Amended return instructions He has taxable interest income of $800 and wages of $150. Amended return instructions He enters $500 (his earned income plus $350) on line 1 of Worksheet 1. Amended return instructions On line 3, he enters $1,000, the larger of $500 or $1,000. Amended return instructions Michael enters $6,100 on line 4. Amended return instructions On line 5a, he enters $1,000, the smaller of $1,000 or $6,100. Amended return instructions His standard deduction is $1,000. Amended return instructions Example 2. Amended return instructions Judy, a full-time student, is single, age 22, and not blind. Amended return instructions Her parents can claim her as a dependent on their tax return. Amended return instructions She has dividend income of $275 and wages of $2,500. Amended return instructions She enters $2,850 (her earned income plus $350) on line 1 of Worksheet 1. Amended return instructions On line 3, she enters $2,850, the larger of $2,850 or $1,000. Amended return instructions She enters $6,100 on line 4. Amended return instructions On line 5a, she enters $2,850 (the smaller of $2,850 or $6,100) as her standard deduction. Amended return instructions Example 3. Amended return instructions Amy, who is single, is claimed as a dependent on her parents' tax return. Amended return instructions She is 18 years old and blind. Amended return instructions She has taxable interest income of $1,000 and wages of $2,000. Amended return instructions She enters $2,350 (her earned income plus $350) on line 1 of Worksheet 1. Amended return instructions She enters $2,350 (the larger of $2,350 or $1,000) on line 3, $6,100 on line 4, and $2,350 (the smaller of $2,350 or $6,100) on line 5a. Amended return instructions Because Amy is blind, she checks the box for blindness and enters “1” in box c at the top of Worksheet 1. Amended return instructions She enters $1,500 (the number in box c times $1,500) on line 5b. Amended return instructions Her standard deduction on line 5c is $3,850 ($2,350 + $1,500). Amended return instructions Standard Deduction of Zero The standard deduction for the following dependents is zero. Amended return instructions A married dependent filing a separate return whose spouse itemizes deductions. Amended return instructions A dependent who files a return for a period of less than 12 months due to a change in his or her annual accounting period. Amended return instructions A nonresident or dual-status alien dependent, unless the dependent is married to a U. Amended return instructions S. Amended return instructions citizen or resident alien at the end of the year and chooses to be treated as a U. Amended return instructions S. Amended return instructions resident for the year. Amended return instructions See Publication 519, U. Amended return instructions S. Amended return instructions Tax Guide for Aliens, for information on making this choice. Amended return instructions Example. Amended return instructions Jennifer, who is a dependent of her parents, is entitled to file a joint return with her husband. Amended return instructions However, her husband elects to file a separate return and itemize his deductions. Amended return instructions Because he itemizes, Jennifer's standard deduction on her return is zero. Amended return instructions She can, however, itemize any of her allowable deductions. Amended return instructions Dependent's Own Exemption A person who can be claimed as a dependent on another taxpayer's return cannot claim his or her own exemption. Amended return instructions This is true even if the other taxpayer does not actually claim the exemption. Amended return instructions Example. Amended return instructions James and Barbara can claim their child, Ben, as a dependent on their return. Amended return instructions Ben is a college student who works during the summer and must file a tax return. Amended return instructions Ben cannot claim his own exemption on his return. Amended return instructions This is true even if James and Barbara do not claim him as a dependent on their return. Amended return instructions Withholding From Wages Employers generally withhold federal income tax, social security tax, and Medicare tax from an employee's wages. Amended return instructions If the employee claims exemption from withholding on Form W-4, the employer will not withhold federal income tax. Amended return instructions The exemption from withholding does not apply to social security and Medicare taxes. Amended return instructions Conditions for exemption from withholding. Amended return instructions   An employee can claim exemption from withholding for 2014 only if he or she meets both of the following conditions. Amended return instructions For 2013, the employee had a right to a refund of all federal income tax withheld because he or she had no tax liability. Amended return instructions For 2014, the employee expects a refund of all federal income tax withheld because he or she expects to have no tax liability. Amended return instructions Dependents. Amended return instructions   An employee who is a dependent ordinarily cannot claim exemption from withholding if both of the following are true. Amended return instructions The employee's gross income will be more than $1,000, the minimum standard deduction for 2014. Amended return instructions The employee's unearned income will be more than $350. Amended return instructions Exceptions. Amended return instructions   An employee may be able to claim exemption from withholding even if the employee is a dependent, if the employee: Is age 65 or older, Is blind, or Will claim on his or her 2014 tax return: Adjustments to income, Tax credits, or Itemized deductions. Amended return instructions The above exceptions do not apply to supplemental wages greater than $1,000,000. Amended return instructions For more information, see Exemption From Withholding in chapter 1 of Publication 505. Amended return instructions Example. Amended return instructions Guy is 17 and a student. Amended return instructions During the summer he works part time at a grocery store. Amended return instructions He expects to earn about $1,200 this year. Amended return instructions He also worked at the store last summer and received a refund of all his withheld income tax because he did not have a tax liability. Amended return instructions The only other income he expects during the year is $375 interest on a savings account. Amended return instructions He expects that his parents will be able to claim him as a dependent on their tax return. Amended return instructions He is not blind and will not claim adjustments to income, itemized deductions, a higher standard deduction, or tax credits on his return. Amended return instructions Guy cannot claim exemption from withholding when he fills out Form W-4 because his parents will be able to claim him as a dependent, his gross income will be more than $1,000 (the minimum standard deduction amount) and his unearned income will be more than $350. Amended return instructions Claiming exemption from withholding. Amended return instructions    To claim exemption from withholding, an employee must enter “Exempt” in the space provided on Form W-4, line 7. Amended return instructions The employee must complete the rest of the form, as explained in the form instructions, and give it to his or her employer. Amended return instructions Renewing an exemption from withholding. Amended return instructions   An exemption from withholding is good for only one year. Amended return instructions An employee must file a new Form W-4 by February 15 each year to continue the exemption. Amended return instructions Part 2. Amended return instructions Tax on Unearned Income of Certain Children The two rules that follow may affect the tax on the unearned income of certain children. Amended return instructions If the child's interest and dividend income (including capital gain distributions) total less than $10,000, the child's parent may be able to choose to include that income on the parent's return rather than file a return for the child. Amended return instructions (See Parent's Election To Report Child's Interest and Dividends , later. Amended return instructions ) If the child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. Amended return instructions (See Tax for Certain Children Who Have Unearned Income , later. Amended return instructions ) For these rules, the term “child” includes a legally adopted child and a stepchild. Amended return instructions These rules apply whether or not the child is a dependent. Amended return instructions These rules do not apply if neither of the child's parents were living at the end of the year. Amended return instructions Which Parent's Return To Use If a child's parents are married to each other and file a joint return, use the joint return to figure the tax on the child's unearned income. Amended return instructions The tax rate and other return information from that return are used to figure the child's tax as explained later under Tax for Certain Children Who Have Unearned Income . Amended return instructions Parents Who Do Not File a Joint Return For parents who do not file a joint return, the following discussions explain which parent's tax return must be used to figure the tax. Amended return instructions Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends . Amended return instructions Parents are married. Amended return instructions   If the child's parents file separate returns, use the return of the parent with the greater taxable income. Amended return instructions Parents not living together. Amended return instructions   If the child's parents are married to each other but not living together, and the parent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial parent. Amended return instructions If the custodial parent is not considered unmarried, use the return of the parent with the greater taxable income. Amended return instructions   For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in Publication 501. Amended return instructions Parents are divorced. Amended return instructions   If the child's parents are divorced or legally separated, and the parent who had custody of the child for the greater part of the year (the custodial parent) has not remarried, use the return of the custodial parent. Amended return instructions Custodial parent remarried. Amended return instructions   If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. Amended return instructions Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. Amended return instructions Do not use the return of the noncustodial parent. Amended return instructions   If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. Amended return instructions If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies. Amended return instructions Parents never married. Amended return instructions   If a child's parents have never been married to each other, but lived together all year, use the return of the parent with the greater taxable income. Amended return instructions If the parents did not live together all year, the rules explained earlier under Parents are divorced apply. Amended return instructions Widowed parent remarried. Amended return instructions   If a widow or widower remarries, the new spouse is treated as the child's other parent. Amended return instructions The rules explained earlier under Custodial parent remarried apply. Amended return instructions Parent's Election To Report Child's Interest and Dividends You may be able to elect to include your child's interest and dividend income (including capital gain distributions) on your tax return. Amended return instructions If you do, your child will not have to file a return. Amended return instructions You can make this election only if all the following conditions are met. Amended return instructions Your child was under age 19 (or under age 24 if a full-time student) at the end of the year. Amended return instructions Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends). Amended return instructions The child's gross income was less than $10,000. Amended return instructions The child is required to file a return unless you make this election. Amended return instructions The child does not file a joint return for the year. Amended return instructions No estimated tax payment was made for the year, and no overpayment from the previous year (or from any amended return) was applied to this year under your child's name and social security number. Amended return instructions No federal income tax was withheld from your child's income under the backup withholding rules. Amended return instructions You are the parent whose return must be used when applying the special tax rules for children. Amended return instructions (See Which Parent's Return To Use , earlier. Amended return instructions ) These conditions are also shown in Figure 1. Amended return instructions Certain January 1 birthdays. Amended return instructions   A child born on January 1, 1995, is considered to be age 19 at the end of 2013. Amended return instructions You cannot make this election for such a child unless the child was a full-time student. Amended return instructions   A child born on January 1, 1990, is considered to be age 24 at the end of 2013. Amended return instructions You cannot make this election for such a child. Amended return instructions How to make the election. Amended return instructions    Make the election by attaching Form 8814 to your Form 1040 or Form 1040NR. Amended return instructions (If you make this election, you cannot file Form 1040A or Form 1040EZ. Amended return instructions ) Attach a separate Form 8814 for each child for whom you make the election. Amended return instructions You can make the election for one or more children and not for others. Amended return instructions Effect of Making the Election The federal income tax on your child's income may be more if you make the Form 8814 election. Amended return instructions Rate may be higher. Amended return instructions   If your child received qualified dividends or capital gain distributions, you may pay up to $100 more tax if you make this election instead of filing a separate tax return for the child. Amended return instructions This is because the tax rate on the child's income between $1,000 and $2,000 is 10% if you make this election. Amended return instructions However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions. Amended return instructions Deductions you cannot take. Amended return instructions   By making the Form 8814 election, you cannot take any of the following deductions that the child would be entitled to on his or her return. Amended return instructions The additional standard deduction if the child is blind. Amended return instructions The deduction for a penalty on an early withdrawal of your child's savings. Amended return instructions Itemized deductions (such as your child's investment expenses or charitable contributions). Amended return instructions Figure 1. Amended return instructions Can You Include Your Child's Income On Your Tax Return? Please click here for the text description of the image. Amended return instructions Figure 1. Amended return instructions Can You Include Your Child's Income On Your Tax Return? Deductible investment interest. Amended return instructions   If you use Form 8814, your child's unearned income is considered your unearned income. Amended return instructions To figure the limit on your deductible investment interest, add the child's unearned income to yours. Amended return instructions However, if your child received qualified dividends, capital gain distributions, or Alaska Permanent Fund dividends, see chapter 3 of Publication 550 for information about how to figure the limit. Amended return instructions Alternative minimum tax. Amended return instructions    If your child received tax-exempt interest (or exempt-interest dividends paid by a regulated investment company) from certain private activity bonds, you must determine if that interest is a tax preference item for alternative minimum tax (AMT) purposes. Amended return instructions If it is, you must include it with your own tax preference items when figuring your AMT. Amended return instructions See Form 6251, Alternative Minimum Tax—Individuals, and its instructions for details. Amended return instructions Reduced deductions or credits. Amended return instructions   If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return, including the following. Amended return instructions Deduction for contributions to a traditional individual retirement arrangement (IRA). Amended return instructions Deduction for student loan interest. Amended return instructions Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses. Amended return instructions Credit for child and dependent care expenses. Amended return instructions Child tax credit. Amended return instructions Education tax credits. Amended return instructions Earned income credit. Amended return instructions Penalty for underpayment of estimated tax. Amended return instructions   If you make this election for 2013 and did not have enough tax withheld or pay enough estimated tax to cover the tax you owe, you may be subject to a penalty. Amended return instructions If you plan to make this election for 2014, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. Amended return instructions Get Publication 505 for more information. Amended return instructions Figuring Child's Income Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. Amended return instructions Only the amount over $2,000 is added to your income. Amended return instructions The amount over $2,000 is shown on Form 8814, line 6. Amended return instructions Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. Amended return instructions Include the amount from Form 8814, line 12, on Form 1040 or Form 1040NR, line 21. Amended return instructions If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Form 1040 or Form 1040NR, line 21. Amended return instructions On the dotted line next to line 21, enter “Form 8814” and the total of the Form 8814, line 12 amounts. Amended return instructions Note. Amended return instructions The tax on the first $2,000 is figured on Form 8814, Part II. Amended return instructions See Figuring Additional Tax , later. Amended return instructions Qualified dividends. Amended return instructions   Enter on Form 8814, line 2a, any ordinary dividends your child received. Amended return instructions This amount may include qualified dividends. Amended return instructions Qualified dividends are those dividends reported on Form 1040, line 9b, or Form 1040NR, line 10b, and are eligible for lower tax rates that apply to a net capital gain. Amended return instructions For detailed information about qualified dividends, see Publication 550. Amended return instructions   If your child received qualified dividends, the amount of these dividends that is added to your income must be reported on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. Amended return instructions You do not include these dividends on Form 8814, line 12, or on line 21 of Form 1040 or Form 1040NR. Amended return instructions   Enter the child's qualified dividends on Form 8814, line 2b. Amended return instructions But do not include this amount on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. Amended return instructions Instead, include the amount from Form 8814, line 9, on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. Amended return instructions (The amount on Form 8814, line 9, may be less than the amount on Form 8814, line 2b, because lines 7 through 12 of the form divide the $2,000 base amount on Form 8814, line 5, between the child's qualified dividends, capital gain distributions, and other interest and dividend income, reducing each of those amounts. Amended return instructions ) Capital gain distributions. Amended return instructions   Enter on Form 8814, line 3, any capital gain distributions your child received. Amended return instructions The amount of these distributions that is added to your income must be reported on Schedule D (Form 1040), line 13, or, if you are not required to file Schedule D, on Form 1040, line 13, or Form 1040NR, line 14. Amended return instructions You do not include it on Form 8814, line 12, or on line 21 of Form 1040 or Form 1040NR. Amended return instructions   Include the amount from Form 8814, line 10, on Schedule D, line 13; Form 1040, line 13; or Form 1040NR, line 14, whichever applies. Amended return instructions (The amount on Form 8814, line 10, may be less than the amount on Form 8814, line 3, because lines 7 through 12 of the form divide the $2,000 base amount on Form 8814, line 5, between the child's qualified dividends, capital gain distributions, and other interest and dividend income, reducing each of those amounts. Amended return instructions ) Collectibles (28% rate) gain. Amended return instructions    If any of the child's capital gain distributions are reported on Form 1099-DIV as collectibles (28% rate) gain, you must determine how much to also include on line 4 of the 28% Rate Gain Worksheet, in the instructions for Schedule D, line 18. Amended return instructions Multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. Amended return instructions The numerator is the part of the child's total capital gain distribution that is collectibles (28% rate) gain. Amended return instructions The denominator is the child's total capital gain distribution. Amended return instructions Enter the result on line 4 of the 28% Rate Gain Worksheet. Amended return instructions Unrecaptured section 1250 gain. Amended return instructions   If any of the child's capital gain distributions are reported on Form 1099-DIV as unrecaptured section 1250 gain, you must determine how much to include on line 11 of the Unrecaptured Section 1250 Gain Worksheet in the instructions for Schedule D, line 19. Amended return instructions Multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. Amended return instructions The numerator is the part of the child's total capital gain distribution that is unrecaptured section 1250 gain. Amended return instructions The denominator is the child's total capital gain distribution. Amended return instructions Enter the result on the Unrecaptured Section 1250 Gain Worksheet, line 11. Amended return instructions Section 1202 gain. Amended return instructions   If any of the child's capital gain distributions are reported as section 1202 gain (gain on qualified small business stock) on Form 1099-DIV, part or all of that gain may be eligible for the section 1202 exclusion. Amended return instructions (For information about the exclusion, see chapter 4 of Publication 550. Amended return instructions ) To figure that part, multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. Amended return instructions The numerator is the part of the child's total capital gain distribution that is section 1202 gain. Amended return instructions The denominator is the child's total capital gain distribution. Amended return instructions Your section 1202 exclusion is generally 50% of the result, but may be subject to a limit. Amended return instructions In some cases, the exclusion is more than 50%. Amended return instructions See the instructions for Schedule D for details and information on how to report the exclusion amount. Amended return instructions Example. Amended return instructions Fred is 6 years old. Amended return instructions In 2013, he received dividend income of $2,100, which included $1,575 of ordinary dividends and a $525 capital gain distribution from a mutual fund. Amended return instructions (None of the distributions were reported on Form 1099-DIV as unrecaptured section 1250 gain, section 1202 gain, or collectibles (28% rate) gain. Amended return instructions ) All of the ordinary dividends are qualified dividends. Amended return instructions He has no other income and is not subject to backup withholding. Amended return instructions No estimated tax payments were made under his name and social security number. Amended return instructions Fred's parents elect to include Fred's income on their tax return instead of filing a return for him. Amended return instructions They figure the amount to report on Form 1040, lines 9a and 9b, the amount to report on their Schedule D, line 13, and the amount to report on Form 1040, line 21, as follows. Amended return instructions They leave lines 1a and 1b of Form 8814 blank because Fred does not have any interest income. Amended return instructions They enter his ordinary dividends of $1,575 on lines 2a and 2b because all of Fred's ordinary dividends are qualified dividends. Amended return instructions They enter the amount of Fred's capital gain distributions, $525, on line 3. Amended return instructions Next, they add the amounts on lines 1a, 2a, and 3 and enter the result, $2,100, on line 4. Amended return instructions They subtract the base amount on line 5, $2,000, from the amount on line 4, $2,100, and enter the result, $100, on line 6. Amended return instructions This is the total amount from Form 8814 to be reported on their return. Amended return instructions Next, they figure how much of this amount is qualified dividends and how much is capital gain distributions. Amended return instructions They divide the amount on line 2b, $1,575, by the amount on line 4, $2,100. Amended return instructions They enter the result, . Amended return instructions 75, on line 7. Amended return instructions They divide the amount on line 3, $525, by the amount on line 4, $2,100. Amended return instructions They enter the result, . Amended return instructions 25, on line 8. Amended return instructions They multiply the amount on line 6, $100, by the decimal on line 7, . Amended return instructions 75, and enter the result, $75, on line 9. Amended return instructions They multiply the amount on line 6, $100, by the decimal on line 8, . Amended return instructions 25, and enter the result, $25, on line 10. Amended return instructions They include the amount from line 9, $75, on lines 9a and 9b of their Form 1040 and enter “Form 8814 – $75” on the dotted lines next to lines 9a and 9b. Amended return instructions They include the amount from line 10, $25, on line 13 of their Schedule D (Form 1040) and enter “Form 8814 – $25” on the dotted line next to Schedule D, line 13. Amended return instructions They enter $100 ($75 + $25) on line 11 and -0- ($100 – $100) on line 12. Amended return instructions Because the amount on line 12 is -0-, they do not include any amount from Form 8814 on their Form 1040, line 21. Amended return instructions Figuring Additional Tax Use Form 8814, Part II, to figure the tax on the $2,000 of your child's interest and dividends that you do not include in your income. Amended return instructions This tax is added to the tax figured on your income. Amended return instructions This additional tax is the smaller of: 10% x (your child's gross income − $1,000), or $100. Amended return instructions Include the amount from line 15 of all your Forms 8814 in the total on Form 1040, line 44, or Form 1040NR, line 42. Amended return instructions Check box a on Form 1040, line 44, or Form 1040NR, line 42. Amended return instructions Tax for Certain Children Who Have Unearned Income If a child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. Amended return instructions If the parent does not or cannot choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. Amended return instructions Attach the completed form to the child's Form 1040, Form 1040A, or Form 1040NR. Amended return instructions When Form 8615 must be filed. Amended return instructions   Form 8615 must be filed for a child if all of the following statements are true. Amended return instructions The child's unearned income was more than $2,000. Amended return instructions The child is required to file a return for 2013. Amended return instructions The child either: Was under age 18 at the end of the year, Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or Was over age 18 and under age 24 at the end of the year, was a full-time student, and did not have earned income that was more than half of his or her support. Amended return instructions At least one of the child's parents was alive at the end of 2013. Amended return instructions The child does not file a joint return for 2013. Amended return instructions These conditions are also shown in Figure 2. Amended return instructions Certain January 1 birthdays. Amended return instructions   Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed. Amended return instructions IF a child was born on. Amended return instructions . Amended return instructions . Amended return instructions THEN, at the end of 2013, the child is considered to be. Amended return instructions . Amended return instructions . Amended return instructions January 1, 1996 18* January 1, 1995 19** January 1, 1990 24*** *This child is not under age 18. Amended return instructions The child meets condition 3 only if the child did not have earned income that was more than half of the child's support. Amended return instructions  **This child meets condition 3 only if the child was a full-time student who did not have earned income that was more than half of the child's support. Amended return instructions  ***Do not use Form 8615 for this child. Amended return instructions Figure 2. Amended return instructions Do You Have To Use Form 8615 To Figure Your Child's Tax? Please click here for the text description of the image. Amended return instructions Figure 2. Amended return instructions Do You Have To Use Form 8615 To Figure Your Child's Tax? Providing Parental Information (Form 8615, Lines A–C) On Form 8615, lines A and B, enter the parent's name and social security number. Amended return instructions (If the parents filed a joint return, enter the name and social security number listed first on the joint return. Amended return instructions ) On line C, check the box for the parent's filing status. Amended return instructions See Which Parent's Return To Use, earlier, for information on which parent's return information must be used on Form 8615. Amended return instructions Parent with different tax year. Amended return instructions   If the parent and the child do not have the same tax year, complete Form 8615 using the information on the parent's return for the tax year that ends in the child's tax year. Amended return instructions Example. Amended return instructions Kimberly must use her mother's tax and taxable income to complete her Form 8615 for calendar year 2013 (January 1 – December 31). Amended return instructions Kimberly's mother files her tax return on a fiscal year basis (July 1 – June 30). Amended return instructions Kimberly must use the information on her mother's return for the tax year ending June 30, 2013, to complete her 2013 Form 8615. Amended return instructions Parent's return information not known timely. Amended return instructions   If the information needed from the parent's return is not known by the time the child's return is due (usually April 15), you can file the return using estimates. Amended return instructions   You can use any reasonable estimate. Amended return instructions This includes using information from last year's return. Amended return instructions If you use an estimated amount on Form 8615, enter “Estimated” on the line next to the amount. Amended return instructions   When you get the correct information, file an amended return on Form 1040X, Amended U. Amended return instructions S. Amended return instructions Individual Income Tax Return. Amended return instructions Extension of time to file. Amended return instructions   Instead of using estimates, you can get an automatic 6-month extension of time to file if, by the date your return is due, you file Form 4868, Application for Automatic Extension of Time To File U. Amended return instructions S. Amended return instructions Individual Income Tax Return. Amended return instructions See the instructions for Form 4868 for details. Amended return instructions    An extension of time to file is not an extension of time to pay. Amended return instructions You must make an accurate estimate of the tax for 2013. Amended return instructions If you do not pay the full amount due by the regular due date, the child will owe interest and may also be charged penalties. Amended return instructions See Form 4868 and its instructions. Amended return instructions Parent's return information not available. Amended return instructions   If a child cannot get the required information about his or her parent's tax return, the child (or the child's legal representative) can request the necessary information from the Internal Revenue Service (IRS). Amended return instructions How to request. Amended return instructions   After the end of the tax year, send a signed, written request for the information to the Internal Revenue Service Center where the parent's return will be filed. Amended return instructions (The IRS cannot process a request received before the end of the tax year. Amended return instructions )    You should also consider getting an extension of time to file the child's return, because there may be a delay in getting the requested information. Amended return instructions   The request must contain all of the following. Amended return instructions A statement that you are making the request to comply with section 1(g) of the Internal Revenue Code and that you have tried to get the information from the parent. Amended return instructions Proof of the child's age (for example, a copy of the child's birth certificate). Amended return instructions Evidence the child has more than $2,000 of unearned income (for example, a copy of the child's prior year tax return or copies of Forms 1099 for the current year). Amended return instructions The name, address, social security number (if known), and filing status (if known) of the parent whose information is to be shown on Form 8615. Amended return instructions    A child's legal representative making the request should include a copy of his or her Power of Attorney, such as Form 2848, or proof of legal guardianship. Amended return instructions Step 1. Amended return instructions Figuring the Child's Net Unearned Income (Form 8615, Part I) The first step in figuring a child's tax using Form 8615 is to figure the child's net unearned income. Amended return instructions To do that, use Form 8615, Part I. Amended return instructions Line 1 (Unearned Income) If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. Amended return instructions Adjusted gross income is shown on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37. Amended return instructions Form 1040EZ and Form 1040NR-EZ cannot be used if Form 8615 must be filed. Amended return instructions If the child had earned income, figure the amount to enter on Form 8615, line 1, by using the worksheet in the instructions for the form. Amended return instructions However, use the following worksheet if: the child has excluded any foreign earned income, deducted a loss from self-employment, or has a net operating loss from another year. Amended return instructions Alternate Worksheet for Form 8615, Line 1 A. Amended return instructions Enter the amount from the child's Form 1040, line 22, or Form 1040NR, line 23   B. Amended return instructions Enter the total of any net loss  from self-employment, any net operating loss deduction, any foreign earned income exclusion, and any foreign housing exclusion from the child's Form 1040 or Form 1040NR. Amended return instructions Enter this total as a positive number (greater than zero)   C. Amended return instructions Add line A and line B and  enter the total   D. Amended return instructions Enter the child's earned income plus any amount from the child's Form 1040, line 30, or the child's Form 1040NR, line 30     Generally, the child's earned income is the total of the amounts reported on Form 1040, lines 7, 12, and 18 (if line 12 or 18 is a loss, use zero) or Form 1040NR, lines 8, 13, and 19 (if line 13 or 19 is a loss, use zero)   E. Amended return instructions Subtract line D from line C. Amended return instructions Enter the result here and on Form 8615, line 1   Unearned income defined. Amended return instructions   Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually performed. Amended return instructions It includes taxable interest, dividends, capital gains (including capital gain distributions), the taxable part of social security and pension payments, certain distributions from trusts, and unemployment compensation. Amended return instructions Unearned income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages). Amended return instructions Nontaxable income. Amended return instructions   For this purpose, unearned income includes only amounts the child must include in gross income. Amended return instructions Nontaxable unearned income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included. Amended return instructions Capital loss. Amended return instructions   A child's capital losses are taken into account in figuring the child's unearned income. Amended return instructions Capital losses are first applied against capital gains. Amended return instructions If the capital losses are more than the capital gains, the difference (up to $3,000) is subtracted from the child's interest, dividends, and other unearned income. Amended return instructions Any difference over $3,000 is carried to the next year. Amended return instructions Income from property received as a gift. Amended return instructions   A child's unearned income includes all income produced by property belonging to the child. Amended return instructions This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it. Amended return instructions   A child's unearned income includes income produced by property given as a gift to the child. Amended return instructions This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act. Amended return instructions Example. Amended return instructions Amanda Black, age 13, received the following income. Amended return instructions Dividends—$800 Wages—$2,100 Taxable interest—$1,200 Tax-exempt interest—$100 Capital gains—$300 Capital losses—($200) The dividends were qualified dividends on stock given to her by her grandparents. Amended return instructions Amanda's unearned income is $2,100. Amended return instructions This is the total of the dividends ($800), taxable interest ($1,200), and capital gains reduced by capital losses ($300 − $200 = $100). Amended return instructions Her wages are earned (not unearned) income because they are received for work actually performed. Amended return instructions Her tax-exempt interest is not included because it is nontaxable. Amended return instructions Trust income. Amended return instructions   If a child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other unearned income from the trust are unearned income to the child. Amended return instructions   However, taxable distributions from a qualified disability trust are considered earned income for the purposes of completing Form 8615. Amended return instructions See the Form 8615 instructions for details. Amended return instructions Adjustment to income. Amended return instructions   In figuring the amount to enter on line 1, the child's unearned income is reduced by any penalty on the early withdrawal of savings. Amended return instructions Line 2 (Deductions) If the child does not itemize deductions on Schedule A (Form 1040 or Form 1040NR), enter $2,000 on line 2. Amended return instructions If the child itemizes deductions, enter on line 2 the larger of: $1,000 plus the portion of the child's itemized deductions on Schedule A (Form 1040), line 29 (or Schedule A (Form 1040NR), line 15), that are directly connected with the production of the unearned income entered on line 1, or $2,000. Amended return instructions Directly connected. Amended return instructions   Itemized deductions are directly connected with the production of unearned income if they are for expenses paid to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. Amended return instructions These expenses include custodian fees and service charges, service fees to collect taxable interest and dividends, and certain investment counsel fees. Amended return instructions    These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). Amended return instructions Only the amount greater than 2% of the child's adjusted gross income can be deducted. Amended return instructions See Publication 529, Miscellaneous Deductions, for more information. Amended return instructions Example 1. Amended return instructions Roger, age 12, has unearned income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 (net of the 2%-of-adjusted-gross-income limit) that are directly connected with his unearned income. Amended return instructions His adjusted gross income is $8,000, which is entered on Form 1040, line 38, and on Form 8615, line 1. Amended return instructions Roger enters $2,000 on line 2 because that is more than the total of $1,000 plus his directly-connected itemized deductions of $300. Amended return instructions Example 2. Amended return instructions Eleanor, age 8, has unearned income of $16,000 and an early withdrawal penalty of $100. Amended return instructions She has no other income. Amended return instructions She has itemized deductions of $1,050 (net of the 2%-of-adjusted-gross-income limit) that are directly connected with the production of her unearned income. Amended return instructions Her adjusted gross income, entered on line 1, is $15,900 ($16,000 − $100). Amended return instructions The amount on line 2 is $2,050. Amended return instructions This is the larger of: $1,000 plus the $1,050 of directly connected itemized deductions, or $2,000. Amended return instructions Line 3 Subtract line 2 from line 1 and enter the result on this line. Amended return instructions If zero or less, do not complete the rest of the form. Amended return instructions However, you must still attach Form 8615 to the child's tax return. Amended return instructions Figure the tax on the child's taxable income in the normal manner. Amended return instructions Line 4 (Child's Taxable Income) Enter on line 4 the child's taxable income from Form 1040, line 43; Form 1040A, line 27; or Form 1040NR, line 41. Amended return instructions Child files Form 2555 or 2555-EZ. Amended return instructions   If the child files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, the Foreign Earned Income Tax Worksheet (in the Form 1040 instructions) is used to figure the child's tax. Amended return instructions Enter the amount from line 3 of the Foreign Earned Income Tax Worksheet as the child's taxable income on Form 8615, line 4. Amended return instructions Line 5 (Net Unearned Income) A child's net unearned income cannot be more than his or her taxable income. Amended return instructions Enter on Form 8615, line 5, the smaller of line 3 or line 4. Amended return instructions This is the child's net unearned income. Amended return instructions If zero or less, do not complete the rest of the form. Amended return instructions However, you must still attach Form 8615 to the child's tax return. Amended return instructions Figure the tax on the child's taxable income in the normal manner. Amended return instructions Step 2. Amended return instructions Figuring a Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) The next step in completing Form 8615 is to figure a tentative tax on the child's net unearned income at the parent's tax rate. Amended return instructions The tentative tax at the parent's tax rate is the difference between the tax on the parent's taxable income figured with the child's net unearned income (plus the net unearned income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it. Amended return instructions When figuring the tentative tax at the parent's tax rate on Form 8615, do not refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net unearned income. Amended return instructions For example, do not refigure the medical expense deduction. Amended return instructions Figure the tentative tax on Form 8615, lines 6 through 13. Amended return instructions Line 6 (Parent's Taxable Income) Enter on line 6 the amount from the parent's Form 1040, line 43; Form 1040A, line 27; Form 1040EZ, line 6; Form 1040NR, line 41; or Form 1040NR-EZ, line 14. Amended return instructions If the parent's taxable income is zero or less, enter zero on line 6. Amended return instructions Parent files Form 2555 or 2555-EZ. Amended return instructions   If the parent files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, the Foreign Earned Income Tax Worksheet in the Form 1040 instructions is used to figure the parent's tax. Amended return instructions Enter the amount from line 3 of the Foreign Earned Income Tax Worksheet as the parent's taxable income, on line 6 of Form 8615. Amended return instructions Line 7 (Net Unearned Income of Other Children) If the tax return information of the parent is also used on any other child's Form 8615, enter on line 7 the total of the amounts from line 5 of all the other children's Forms 8615. Amended return instructions Do not include the amount from line 5 of the Form 8615 being completed. Amended return instructions (The term “other child” means any other child whose Form 8615 uses the tax information of the parent identified on Lines A and B of Form 8615. Amended return instructions ) Example. Amended return instructions Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. Amended return instructions The children's net unearned income amounts on line 5 of their Forms 8615 are: Sharon—$800 Jerry—$600 Mike—$1,000 Line 7 of Sharon's Form 8615 will show $1,600, the total of the amounts on line 5 of Jerry's and Mike's Forms 8615. Amended return instructions Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000). Amended return instructions Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600). Amended return instructions Other children's information not available. Amended return instructions   If the net unearned income of the other children is not available when the return is due, either file the return using estimates or get an extension of time to file. Amended return instructions Estimates and extensions are discussed earlier under Providing Parental Information (Form 8615, Lines A–C) . Amended return instructions Line 8 (Parent's Taxable Income Plus Children's Net Unearned Income) Enter on this line the total of lines 5, 6, and 7. Amended return instructions You must determine the amount of net capital gain and qualified dividends included on this line before completing Form 8615, line 9. Amended return instructions Net capital gain. Amended return instructions   Net capital gain is the smaller of the gain, if any, on Schedule D (Form 1040), line 15, or the gain, if any, on Schedule D, line 16. Amended return instructions If Schedule D is not required, it is the amount on Form 1040, line 13; Form 1040A, line 10; or Form 1040NR, line 14. Amended return instructions Qualified dividends. Amended return instructions   Qualified dividends are those dividends reported on line 9b of Form 1040 or Form 1040A, or line 10b of Form 1040NR. Amended return instructions Net capital gain and qualified dividends on line 8. Amended return instructions   If neither the child, nor the parent, nor any other child has net capital gain, the net capital gain on line 8 is zero. Amended return instructions   If neither the child, nor the parent, nor any other child has qualified dividends, the amount of qualified dividends on line 8 is zero. Amended return instructions   If the child, parent, or any other child has net capital gain, figure the amount of net capital gain included on line 8 by adding together the net capital gain amounts included on lines 5, 6, and 7 of Form 8615. Amended return instructions   If the child, parent, or any other child has qualified dividends, figure the amount of qualified dividends included on line 8 by adding together the qualified dividend amounts included on lines 5, 6, and 7. Amended return instructions   Use the instructions for Form 8615, line 8, including the appropriate Line 5 Worksheet, to find these amounts. Amended return instructions See the instructions for Form 8615 for more details. Amended return instructions Note. Amended return instructions The amount of any net capital gain or qualified dividends is not separately reported on line 8. Amended return instructions It is  needed, however, when figuring the tax on line 9. Amended return instructions Line 9 (Tax on Parent's Taxable Income Plus Children's Net Unearned Income) Figure the tax on the amount on line 8 using the Tax Table, the Tax Computation Worksheet, the Qualified Dividends and Capital Gain Tax Worksheet (in the Form 1040, 1040A, or 1040NR instructions), the Schedule D Tax Worksheet (in the Schedule D instructions), or Schedule J (Form 1040), as follows. Amended return instructions If line 8 does not include any net capital gain or qualified dividends, use the Tax Table or Tax Computation Worksheet to figure this tax. Amended return instructions But if Schedule J, Income Averaging for Farmers and Fishermen, is used to figure the tax on the parent's return, use it to figure this tax. Amended return instructions If line 8 includes any net capital gain or qualified dividends, use the Qualified Dividends and Capital Gain Tax Worksheet to figure this tax. Amended return instructions For details, see the instructions for Form 8615, line 9. Amended return instructions However, if the child, parent, or any other child has 28% rate gain or unrecaptured section 1250 gain, use the Schedule D Tax Worksheet. Amended return instructions But if Schedule J is used to figure the tax on the parent's return, use it to figure this tax. Amended return instructions Child files Form 2555 or 2555-EZ. Amended return instructions   If line 8 includes any net capital gain or qualified dividends and the child, or any other child filing Form 8615, also files Form 2555 or 2555-EZ, use Using the Schedule D Tax Worksheet for line 9 tax, next, to figure the line 9 tax. Amended return instructions Using the Schedule D Tax Worksheet for line 9 tax. Amended return instructions    Use the Schedule D Tax Worksheet (in the Schedule D instructions) to figure the line 9 tax on Form 8615 if the child, parent, or any other child has unrecaptured section 1250 gain or 28% rate gain. Amended return instructions If you must use the Schedule D Tax Worksheet, first complete any Schedule D and any actual Schedule D Tax Worksheet required for the child, parent, or any other child. Amended return instructions Then figure the line 9 tax using another Schedule D Tax Worksheet. Amended return instructions (Do not attach this Schedule D Tax Worksheet to the child's return. Amended return instructions )   Complete this Schedule D Tax Worksheet as follows. Amended return instructions On line 1, enter the amount from Form 8615, line 8. Amended return instructions On line 2, enter the qualified dividends included on Form 8615, line 8. Amended return instructions (See the earlier discussion for line 8. Amended return instructions ) On line 3, enter the total of the amounts, if any, on line 4g of all Forms 4952 filed by the child, parent, or any other child. Amended return instructions On line 4, enter the total of the amounts, if any, on line 4e of all Forms 4952 filed by the child, parent, or any other child. Amended return instructions If applicable, include instead the smaller amount entered on the dotted line next to line 4e. Amended return instructions On lines 5 and 6, follow the worksheet instructions. Amended return instructions On line 7, enter the net capital gain included on Form 8615, line 8. Amended return instructions (See the earlier discussion for line 8. Amended return instructions ) On lines 8 through 10, follow the worksheet instructions. Amended return instructions On line 11, enter zero if neither the child, nor the parent, nor any other child has unrecaptured section 1250 gain (Schedule D, line 19) or 28% rate gain (Schedule D, line 18). Amended return instructions Otherwise, enter the amount of unrecaptured section 1250 gain and 28% rate gain included in the net capital gain on line 8 of Form 8615. Amended return instructions Figure these amounts as explained later under Figuring unrecaptured section 1250 gain (line 11) and Figuring 28% rate gain (line 11). Amended return instructions If the Foreign Earned Income Tax Worksheet was used to figure the parent's tax or the tax of any child, go to step 10 below. Amended return instructions Otherwise, skip steps 10, 11, and 12 below, and go to step 13. Amended return instructions Determine whether there is a line 8 capital gain excess as follows. Amended return instructions Add the amounts on line 2 of all Foreign Earned Income Tax Worksheets completed by the parent or any child for whom Form 8615 is filed. Amended return instructions (But for each child do not add more than the excess, if any, of the amount on line 5 of the child's Form 8615 over the child's taxable income on Form 1040, line 43; Form 1040A, line 27; or Form 1040NR, line 41. Amended return instructions ) Subtract (a) from the amount on line 1 of this Schedule D Tax Worksheet. Amended return instructions Subtract (b) from the amount on line 10 of this Schedule D Tax Worksheet. Amended return instructions If the result is more than zero, that amount is the line 8 capital gain excess. Amended return instructions If the result is zero or less, there is no line 8 capital gain excess. Amended return instructions If there is no line 8 capital gain excess, skip step 12 below and go to step 13. Amended return instructions If there is a line 8 capital gain excess, complete a second Schedule D Tax Worksheet as instructed above and in step 13, but in its entirety and with the following additional modifications. Amended return instructions (These modifications are to be made only for purposes of filling out this additional Schedule D Tax Worksheet. Amended return instructions ) Reduce the amount you would otherwise enter on line 9 (but not below zero) by the line 8 capital gain excess. Amended return instructions Reduce the amount you would otherwise enter on line 6 (but not below zero) by any of the line 8 capital gain excess not used in (a) above. Amended return instructions If the child, parent, or any other child has 28% rate gain, reduce the amount you would otherwise enter on line 8 of Worksheet 1 for Line 11 of the Schedule D Tax Worksheet – 28% Rate Gain (Line 9 Tax), shown later, (but not below zero) by the line 8 capital gain excess, and refigure the amount on line 11 of this Schedule D Tax Worksheet. Amended return instructions If the child, parent, or any other child has unrecaptured section 1250 gain, reduce the amount you would otherwise enter on line 8 of Worksheet 2 for Line 11 of the Schedule D Tax Worksheet – Unrecaptured Section 1250 Gain (Line 9 Tax) (but not below zero) by the line 8 capital gain excess not used in 12(c), and refigure the amount on line 11 of this Schedule D Tax Worksheet. Amended return instructions Complete lines 12 through 45 following the worksheet instructions. Amended return instructions Use the parent's filing status to complete lines 15, 42, and 44. Amended return instructions Enter the amount from line 45 of this Schedule D Tax Worksheet on Form 8615, line 9, and check the box on that line
 
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Page Last Reviewed or Updated: 24-Mar-2014

The Amended Return Instructions

Amended return instructions 9. Amended return instructions   Dispositions of Property Used in Farming Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. Amended return instructions Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sale Other Dispositions Other GainsExceptions. Amended return instructions Amount to report as ordinary income. Amended return instructions Applicable percentage. Amended return instructions Amount to report as ordinary income. Amended return instructions Applicable percentage. Amended return instructions Introduction When you dispose of property used in your farm business, your taxable gain or loss is usually treated as ordinary income (which is taxed at the same rates as wages and interest income) or capital gain (which is generally taxed at lower rates) under the rules for section 1231 transactions. Amended return instructions When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. Amended return instructions Any gain remaining after applying the depreciation recapture rules is a section 1231 gain, which may be taxed as a capital gain. Amended return instructions Gains and losses from property used in farming are reported on Form 4797, Sales of Business Property. Amended return instructions Table 9-1 contains examples of items reported on Form 4797 and refers to the part of that form on which they first should be reported. Amended return instructions Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Other gains Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. Amended return instructions Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (explained below). Amended return instructions Their treatment as ordinary or capital gains depends on whether you have a net gain or a net loss from all of your section 1231 transactions in the tax year. Amended return instructions Table 9-1. Amended return instructions Where to First Report Certain Items on Form 4797 Type of property Held 1 year  or less Held more than  1 year 1 Depreciable trade or business property:       a Sold or exchanged at a gain Part II Part III (1245, 1250)   b Sold or exchanged at a loss Part II Part I 2 Farmland held less than 10 years for which soil, water, or land clearing expenses were deducted:       a Sold at a gain Part II Part III (1252)   b Sold at a loss Part II Part I 3 All other farmland Part II Part I 4 Disposition of cost-sharing payment property described in section 126 Part II Part III (1255) 5 Cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less  than 24 mos. Amended return instructions Held 24 mos. Amended return instructions  or more   a Sold at a gain Part II Part III (1245)   b Sold at a loss Part II Part I   c Raised cattle and horses sold at a gain Part II Part I 6 Livestock other than cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less  than 12 mos. Amended return instructions Held 12 mos. Amended return instructions   or more   a Sold at a gain Part II Part III (1245)   b Sold at a loss Part II Part I   c Raised livestock sold at a gain Part II Part I If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). Amended return instructions Do not take that gain into account as section 1231 gain. Amended return instructions Section 1231 transactions. Amended return instructions   Gain or loss on the following transactions is subject to section 1231 treatment. Amended return instructions Sale or exchange of cattle and horses. Amended return instructions The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 24 months or longer. Amended return instructions Sale or exchange of other livestock. Amended return instructions This livestock must be held for draft, breeding, dairy, or sporting purposes and held for 12 months or longer. Amended return instructions Other livestock includes hogs, mules, sheep, goats, donkeys, and other fur-bearing animals. Amended return instructions Other livestock does not include poultry. Amended return instructions Sale or exchange of depreciable personal property. Amended return instructions This property must be used in your business and held longer than 1 year. Amended return instructions Generally, property held for the production of rents or royalties is considered to be used in a trade or business. Amended return instructions Examples of depreciable personal property include farm machinery and trucks. Amended return instructions It also includes amortizable section 197 intangibles. Amended return instructions Sale or exchange of real estate. Amended return instructions This property must be used in your business and held longer than 1 year. Amended return instructions Examples are your farm or ranch (including barns and sheds). Amended return instructions Sale or exchange of unharvested crops. Amended return instructions The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person, and the land must have been held longer than 1 year. Amended return instructions You cannot keep any right or option to reacquire the land directly or indirectly (other than a right customarily incident to a mortgage or other security transaction). Amended return instructions Growing crops sold with a leasehold on the land, even if sold to the same person in a single transaction, are not included. Amended return instructions Distributive share of partnership gains and losses. Amended return instructions Your distributive share must be from the sale or exchange of property listed above and held longer than 1 year (or for the required period for certain livestock). Amended return instructions Cutting or disposal of timber. Amended return instructions Special 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, as described in chapter 8 under Timber . Amended return instructions Condemnation. Amended return instructions The condemned property (defined in chapter 11) must have been held longer than 1 year. Amended return instructions It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. Amended return instructions It cannot be property held for personal use. Amended return instructions Casualty or theft. Amended return instructions The casualty or theft must have affected business property, property held for the production of rents or royalties, or investment property (such as notes and bonds). Amended return instructions You must have held the property longer than 1 year. Amended return instructions However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. Amended return instructions Section 1231 does not apply to personal casualty gains and losses. Amended return instructions See chapter 11 for information on how to treat those gains and losses. Amended return instructions If the property is not held for the required holding period, the transaction is not subject to section 1231 treatment, and any gain or loss is ordinary income reported in Part II of Form 4797. Amended return instructions See Table 9-1. Amended return instructions Property for sale to customers. Amended return instructions   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. Amended return instructions If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. Amended return instructions Treatment as ordinary or capital. Amended return instructions   To determine the treatment of section 1231 gains and losses, combine all of your section 1231 gains and losses for the year. Amended return instructions If you have a net section 1231 loss, it is an ordinary loss. Amended return instructions If you have a net section 1231 gain, it is ordinary income up to your nonrecaptured section 1231 losses from previous years, explained next. Amended return instructions The rest, if any, is long-term capital gain. Amended return instructions Nonrecaptured section 1231 losses. Amended return instructions   Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain by treating the gain as ordinary income. Amended return instructions These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. Amended return instructions Example. Amended return instructions In 2013, Ben has a $2,000 net section 1231 gain. Amended return instructions To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. Amended return instructions From 2008 through 2012 he had the following section 1231 gains and losses. Amended return instructions Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800   Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. Amended return instructions 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500)   3) Net section 1231 gain (2012) 1,800   4) Remaining net section 1231 loss from prior 5 years ($700)   5) Gain treated as  ordinary income $700 6) Gain treated as long-term  capital gain $1,300 His remaining net section 1231 loss from 2010 is completely recaptured in 2013. Amended return instructions Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if it is otherwise nontaxable) as ordinary income. Amended return instructions To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. Amended return instructions For more information, see chapter 3 of Publication 544. Amended return instructions Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable. Amended return instructions Any recognized gain that is more than the part that is ordinary income is a section 1231 gain. Amended return instructions See Treatment as ordinary or capital under Section 1231 Gains and Losses , earlier. Amended return instructions Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. Amended return instructions Personal property (either tangible or intangible). Amended return instructions Other tangible property (except buildings and their structural components) used as any of the following. Amended return instructions See Buildings and structural components below. Amended return instructions An integral part of manufacturing, production, or extraction, or of furnishing certain services. Amended return instructions A research facility in any of the activities in (a). Amended return instructions A facility in any of the activities in (a) above, for the bulk storage of fungible commodities (discussed later). Amended return instructions That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. Amended return instructions Amortization of certified pollution control facilities. Amended return instructions The section 179 expense deduction. Amended return instructions Deduction for clean-fuel vehicles and certain refueling property. Amended return instructions Expenditures to remove architectural and transportation barriers to the handicapped and elderly. Amended return instructions Certain reforestation expenditures (as described under Reforestation Costs in chapter 7. Amended return instructions Single purpose agricultural (livestock) or horticultural structures. Amended return instructions Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. Amended return instructions Buildings and structural components. Amended return instructions   Section 1245 property does not include buildings and structural components. Amended return instructions The term building includes a house, barn, warehouse, or garage. Amended return instructions The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. Amended return instructions   Do not treat a structure that is essentially machinery or equipment as a building or structural component. Amended return instructions Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. Amended return instructions   The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. Amended return instructions Structures such as oil and gas storage tanks, grain storage bins, and silos are not treated as buildings, but as section 1245 property. Amended return instructions Facility for bulk storage of fungible commodities. Amended return instructions   This is a facility used mainly for the bulk storage of fungible commodities. Amended return instructions Bulk storage means storage of a commodity in a large mass before it is used. Amended return instructions For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. Amended return instructions To be fungible, a commodity must be such that one part may be used in place of another. Amended return instructions Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. Amended return instructions The depreciation (which includes any section 179 deduction claimed) and amortization allowed or allowable on the property. Amended return instructions The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). Amended return instructions For any other disposition of section 1245 property, ordinary income is the lesser of (1) above or the amount by which its fair market value (FMV) is more than its adjusted basis. Amended return instructions For details, see chapter 3 of Publication 544. Amended return instructions Use Part III of Form 4797 to figure the ordinary income part of the gain. Amended return instructions Depreciation claimed on other property or claimed by other taxpayers. Amended return instructions   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. Amended return instructions Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. Amended return instructions For details on exchanges of property that are not taxable, see Like-Kind Exchanges in chapter 8. Amended return instructions Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift and part of the transfer is a sale or exchange). Amended return instructions Example. Amended return instructions Jeff Free paid $120,000 for a tractor in 2012. Amended return instructions On February 23, 2013, he traded it for a chopper and paid an additional $30,000. Amended return instructions To figure his depreciation deduction on the chopper for the current year, Jeff continues to use the basis of the tractor as he would have before the trade. Amended return instructions Jeff can also depreciate the additional $30,000 for the chopper. Amended return instructions Depreciation and amortization. Amended return instructions   Depreciation and amortization deductions that must be recaptured as ordinary income include (but are not limited to) the following items. Amended return instructions See Depreciation Recapture in chapter 3 of Publication 544 for more details. Amended return instructions Ordinary depreciation deductions. Amended return instructions Section 179 deduction (see chapter 7). Amended return instructions Any special depreciation allowance. Amended return instructions Amortization deductions for all the following costs. Amended return instructions Acquiring a lease. Amended return instructions Lessee improvements. Amended return instructions Pollution control facilities. Amended return instructions Reforestation expenses. Amended return instructions Section 197 intangibles. Amended return instructions Qualified disaster expenses. Amended return instructions Franchises, trademarks, and trade names acquired before August 11, 1993. Amended return instructions Example. Amended return instructions You file your returns on a calendar year basis. Amended return instructions In February 2011, you bought and placed in service for 100% use in your farming business a light-duty truck (5-year property) that cost $10,000. Amended return instructions You used the half-year convention and your MACRS deductions for the truck were $1,500 in 2011 and $2,550 in 2012. Amended return instructions You did not claim the section 179 expense deduction for the truck. Amended return instructions You sold it in May 2013 for $7,000. Amended return instructions The MACRS deduction in 2013, the year of sale, is $893 (½ of $1,785). Amended return instructions Figure the gain treated as ordinary income as follows. Amended return instructions 1) Amount realized $7,000 2) Cost (February 2011) $10,000   3) Depreciation allowed or allowable (MACRS deductions: $1,500 + $2,550 + $893) 4,943   4) Adjusted basis (subtract line 3 from line 2) $5,057 5) Gain realized (subtract line 4 from line 1) 1,943 6) Gain treated as ordinary income (lesser of line 3 or line 5) $1,943 Depreciation allowed or allowable. Amended return instructions   You generally use the greater of the depreciation allowed or allowable when figuring the part of gain to report as ordinary income. Amended return instructions If, in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. Amended return instructions If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. Amended return instructions This treatment applies only when figuring what part of the gain is treated as ordinary income under the rules for section 1245 depreciation recapture. Amended return instructions Disposition of plants and animals. Amended return instructions   If you elect not to use the uniform capitalization rules (see chapter 6), you must treat any plant you produce as section 1245 property. Amended return instructions If you have a gain on the property's disposition, you must recapture the pre-productive expenses you would have capitalized if you had not made the election by treating the gain, up to the amount of these expenses, as ordinary income. Amended return instructions For section 1231 transactions, show these expenses as depreciation on Form 4797, Part III, line 22. Amended return instructions For plant sales that are reported on Schedule F (1040), Profit or Loss From Farming, this recapture rule does not change the reporting of income because the gain is already ordinary income. Amended return instructions You can use the farm-price method or the unit-livestock-price method discussed in  chapter 2 to figure these expenses. Amended return instructions Example. Amended return instructions Janet Maple sold her apple orchard in 2013 for $80,000. Amended return instructions Her adjusted basis at the time of sale was $60,000. Amended return instructions She bought the orchard in 2006, but the trees did not produce a crop until 2009. Amended return instructions Her pre-productive expenses were $6,000. Amended return instructions She elected not to use the uniform capitalization rules. Amended return instructions Janet must treat $6,000 of the gain as ordinary income. Amended return instructions Section 1250 Property Section 1250 property includes all real property subject to an allowance for depreciation that is not and never has been section 1245 property. Amended return instructions It includes buildings and structural components that are not section 1245 property (discussed earlier). Amended return instructions It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. Amended return instructions A fee simple interest in land is not section 1250 property because, like land, it is not depreciable. Amended return instructions Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable. Amended return instructions To determine the additional depreciation on section 1250 property, see Depreciation Recapture in chapter 3 of Publication 544. Amended return instructions You will not have additional depreciation if any of the following apply to the property disposed of. Amended return instructions You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method and you have held the property longer than 1 year. Amended return instructions You chose the alternate ACRS (straight line) method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. Amended return instructions The property was nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made) and you held it longer than 1 year. Amended return instructions These properties are depreciated using the straight line method. Amended return instructions Installment Sale If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. Amended return instructions This applies even if no payments are received in that year. Amended return instructions If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. Amended return instructions For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. Amended return instructions If you dispose of more than one asset in a single transaction, you must separately figure the gain on each asset so that it may be properly reported. Amended return instructions To do this, allocate the selling price and the payments you receive in the year of sale to each asset. Amended return instructions Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. Amended return instructions For more information on installment sales, see chapter 10. Amended return instructions Other Dispositions Chapter 3 of Publication 544 discusses the tax treatment of the following transfers of depreciable property. Amended return instructions By gift. Amended return instructions At death. Amended return instructions In like-kind exchanges. Amended return instructions In involuntary conversions. Amended return instructions Publication 544 also explains how to handle a single transaction involving multiple properties. Amended return instructions Other Gains This section discusses gain on the disposition of farmland for which you were allowed either of the following. Amended return instructions Deductions for soil and water conservation expenditures (section 1252 property). Amended return instructions Exclusions from income for certain cost sharing payments (section 1255 property). Amended return instructions Section 1252 property. Amended return instructions   If you disposed of farmland you held more than 1 year and less than 10 years at a gain and you were allowed deductions for soil and water conservation expenses for the land, as discussed in chapter 5, you must treat part of the gain as ordinary income and treat the balance as section 1231 gain. Amended return instructions Exceptions. Amended return instructions   Do not treat gain on the following transactions as gain on section 1252 property. Amended return instructions Disposition of farmland by gift. Amended return instructions Transfer of farm property at death (except for income in respect of a decedent). Amended return instructions For more information, see Regulations section 1. Amended return instructions 1252-2. Amended return instructions Amount to report as ordinary income. Amended return instructions   You report as ordinary income the lesser of the following amounts. Amended return instructions Your gain (determined by subtracting the adjusted basis from the amount realized from a sale, exchange, or involuntary conversion, or the FMV for all other dispositions). Amended return instructions The total deductions allowed for soil and water conservation expenses multiplied by the applicable percentage, discussed next. Amended return instructions Applicable percentage. Amended return instructions   The applicable percentage is based on the length of time you held the land. Amended return instructions If you dispose of your farmland within 5 years after the date you acquired it, the percentage is 100%. Amended return instructions If you dispose of the land within the 6th through 9th year after you acquired it, the applicable percentage is reduced by 20% a year for each year or part of a year you hold the land after the 5th year. Amended return instructions If you dispose of the land 10 or more years after you acquired it, the percentage is 0%, and the entire gain is a section 1231 gain. Amended return instructions Example. Amended return instructions You acquired farmland on January 19, 2005. Amended return instructions On October 3, 2013, you sold the land at a $30,000 gain. Amended return instructions Between January 1 and October 3, 2013, you incur soil and water conservation expenditures of $15,000 for the land that are fully deductible in 2013. Amended return instructions The applicable percentage is 40% since you sold the land within the 8th year after you acquired it. Amended return instructions You treat $6,000 (40% of $15,000) of the $30,000 gain as ordinary income and the $24,000 balance as a section 1231 gain. Amended return instructions Section 1255 property. Amended return instructions   If you receive certain cost-sharing payments on property and you exclude those payments from income (as discussed in chapter 3), you may have to treat part of any gain as ordinary income and treat the balance as a section 1231 gain. Amended return instructions If you chose not to exclude these payments, you will not have to recognize ordinary income under this provision. Amended return instructions Amount to report as ordinary income. Amended return instructions   You report as ordinary income the lesser of the following amounts. Amended return instructions The applicable percentage of the total excluded cost-sharing payments. Amended return instructions The gain on the disposition of the property. Amended return instructions You do not report ordinary income under this rule to the extent the gain is recognized as ordinary income under sections 1231 through 1254, 1256, and 1257. Amended return instructions However, if applicable, gain reported under this rule must be reported regardless of any contrary provisions (including nonrecognition provisions) under any other section. Amended return instructions Applicable percentage. Amended return instructions   The applicable percentage of the excluded cost-sharing payments to be reported as ordinary income is based on the length of time you hold the property after receiving the payments. Amended return instructions If the property is held less than 10 years after you receive the payments, the percentage is 100%. Amended return instructions After 10 years, the percentage is reduced by 10% a year, or part of a year, until the rate is 0%. Amended return instructions Form 4797, Part III. Amended return instructions   Use Form 4797, Part III, to figure the ordinary income part of a gain from the sale, exchange, or involuntary conversion of section 1252 property and section 1255 property. 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