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E File State Taxes Only Free

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E File State Taxes Only Free

E file state taxes only free 6. E file state taxes only free   Tax Treaty Benefits Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Purpose of Tax Treaties Common Benefits Competent Authority AssistanceAdditional filing. E file state taxes only free Obtaining Copies of Tax Treaties Topics - This chapter discusses: Some common tax treaty benefits, How to get help in certain situations, and How to get copies of tax treaties. E file state taxes only free Useful Items - You may want to see: Publication 597 Information on the United States—Canada Income Tax Treaty 901 U. E file state taxes only free S. E file state taxes only free Tax Treaties See chapter 7 for information about getting these publications. E file state taxes only free Purpose of Tax Treaties The United States has tax treaties or conventions with many countries. E file state taxes only free See Table 6-1 at the end of this chapter for a list of these countries. E file state taxes only free Under these treaties and conventions, citizens and residents of the United States who are subject to taxes imposed by the foreign countries are entitled to certain credits, deductions, exemptions, and reductions in the rate of taxes of those foreign countries. E file state taxes only free If a foreign country with which the United States has a treaty imposes a tax on you, you may be entitled to benefits under the treaty. E file state taxes only free Treaty benefits generally are available to residents of the United States. E file state taxes only free They generally are not available to U. E file state taxes only free S. E file state taxes only free citizens who do not reside in the United States. E file state taxes only free However, certain treaty benefits and safeguards, such as the nondiscrimination provisions, are available to U. E file state taxes only free S. E file state taxes only free citizens residing in the treaty countries. E file state taxes only free U. E file state taxes only free S. E file state taxes only free citizens residing in a foreign country also may be entitled to benefits under that country's tax treaties with third countries. E file state taxes only free Certification of U. E file state taxes only free S. E file state taxes only free residency. E file state taxes only free   Use Form 8802, Application for United States Residency Certification, to request certification of U. E file state taxes only free S. E file state taxes only free residency for purposes of claiming benefits under a tax treaty. E file state taxes only free Certification can be requested for the current and any prior calendar years. E file state taxes only free You should examine the specific treaty articles to find if you are entitled to a tax credit, tax exemption, reduced rate of tax, or other treaty benefit or safeguard. E file state taxes only free Common Benefits Some common tax treaty benefits are explained below. E file state taxes only free The credits, deductions, exemptions, reductions in rate, and other benefits provided by tax treaties are subject to conditions and various restrictions. E file state taxes only free Benefits provided by certain treaties are not provided by others. E file state taxes only free Personal service income. E file state taxes only free If you are a U. E file state taxes only free S. E file state taxes only free resident who is in a treaty country for a limited number of days in the tax year and you meet certain other requirements, the payment you receive for personal services performed in that country may be exempt from that country's income tax. E file state taxes only free Professors and teachers. E file state taxes only free If you are a U. E file state taxes only free S. E file state taxes only free resident, the payment you receive for the first 2 or 3 years that you are teaching or doing research in a treaty country may be exempt from that country's income tax. E file state taxes only free Students, trainees, and apprentices. E file state taxes only free If you are a U. E file state taxes only free S. E file state taxes only free resident, amounts you receive from the United States for study, research, or business, professional and technical training may be exempt from a treaty country's income tax. E file state taxes only free Some treaties exempt grants, allowances, and awards received from governmental and certain nonprofit organizations. E file state taxes only free Also, under certain circumstances, a limited amount of pay received by students, trainees, and apprentices may be exempt from the income tax of many treaty countries. E file state taxes only free Pensions and annuities. E file state taxes only free If you are a U. E file state taxes only free S. E file state taxes only free resident, nongovernment pensions and annuities you receive may be exempt from the income tax of treaty countries. E file state taxes only free Most treaties contain separate provisions for exempting government pensions and annuities from treaty country income tax, and some treaties provide exemption from the treaty country's income tax for social security payments. E file state taxes only free Investment income. E file state taxes only free If you are a U. E file state taxes only free S. E file state taxes only free resident, investment income, such as interest and dividends, that you receive from sources in a treaty country may be exempt from that country's income tax or taxed at a reduced rate. E file state taxes only free Several treaties provide exemption for capital gains (other than from sales of real property in most cases) if specified requirements are met. E file state taxes only free Tax credit provisions. E file state taxes only free If you are a U. E file state taxes only free S. E file state taxes only free resident who receives income from or owns capital in a foreign country, you may be taxed on that income or capital by both the United States and the treaty country. E file state taxes only free Most treaties allow you to take a credit against or deduction from the treaty country's taxes based on the U. E file state taxes only free S. E file state taxes only free tax on the income. E file state taxes only free Nondiscrimination provisions. E file state taxes only free Most U. E file state taxes only free S. E file state taxes only free tax treaties provide that the treaty country cannot discriminate by imposing more burdensome taxes on U. E file state taxes only free S. E file state taxes only free citizens who are residents of the treaty country than it imposes on its own citizens in the same circumstances. E file state taxes only free Saving clauses. E file state taxes only free U. E file state taxes only free S. E file state taxes only free treaties contain saving clauses that provide that the treaties do not affect the U. E file state taxes only free S. E file state taxes only free taxation of its own citizens and residents. E file state taxes only free As a result, U. E file state taxes only free S. E file state taxes only free citizens and residents generally cannot use the treaty to reduce their U. E file state taxes only free S. E file state taxes only free tax liability. E file state taxes only free However, most treaties provide exceptions to saving clauses that allow certain provisions of the treaty to be claimed by U. E file state taxes only free S. E file state taxes only free citizens or residents. E file state taxes only free It is important that you examine the applicable saving clause to determine if an exception applies. E file state taxes only free More information on treaties. E file state taxes only free   Publication 901 contains an explanation of treaty provisions that apply to amounts received by teachers, students, workers, and government employees and pensioners who are alien nonresidents or residents of the United States. E file state taxes only free Since treaty provisions generally are reciprocal, you usually can substitute “United States” for the name of the treaty country whenever it appears, and vice versa when “U. E file state taxes only free S. E file state taxes only free ” appears in the treaty exemption discussions in Publication 901. E file state taxes only free   Publication 597 contains an explanation of a number of frequently-used provisions of the United States–Canada income tax treaty. E file state taxes only free Competent Authority Assistance If you are a U. E file state taxes only free S. E file state taxes only free citizen or resident alien, you can request assistance from the U. E file state taxes only free S. E file state taxes only free competent authority if you think that the actions of the United States, a treaty country, or both, cause or will cause a tax situation not intended by the treaty between the two countries. E file state taxes only free You should read any treaty articles, including the mutual agreement procedure article, that apply in your situation. E file state taxes only free The U. E file state taxes only free S. E file state taxes only free competent authority cannot consider requests involving countries with which the United States does not have a tax treaty. E file state taxes only free Effect of request for assistance. E file state taxes only free   If your request provides a basis for competent authority assistance, the U. E file state taxes only free S. E file state taxes only free competent authority generally will consult with the treaty country competent authority on how to resolve the situation. E file state taxes only free How to make your request. E file state taxes only free   It is important that you make your request for competent authority consideration as soon as either of the following occurs. E file state taxes only free You are denied treaty benefits. E file state taxes only free Actions taken by both the United States and the foreign country result in double taxation or will result in taxation not intended by the treaty. E file state taxes only free   In addition to making a request for assistance, you should take steps so that any agreement reached by the competent authorities is not barred by administrative, legal, or procedural barriers. E file state taxes only free Some of the steps you should consider taking include the following. E file state taxes only free Filing a protective claim for credit or refund of U. E file state taxes only free S. E file state taxes only free taxes. E file state taxes only free Delaying the expiration of any period of limitations on the making of a refund or other tax adjustment. E file state taxes only free Avoiding the lapse or termination of your right to appeal any tax determination. E file state taxes only free Complying with all applicable procedures for invoking competent authority consideration. E file state taxes only free Contesting an adjustment or seeking an appropriate correlative adjustment with respect to the U. E file state taxes only free S. E file state taxes only free or treaty country tax. E file state taxes only free Taxpayers can consult with the U. E file state taxes only free S. E file state taxes only free competent authority to determine whether they need to take protective steps and when any required steps need to be taken. E file state taxes only free   The request should contain all essential items of information, including the following items. E file state taxes only free A reference to the treaty and the treaty provisions on which the request is based. E file state taxes only free The years and amounts involved in both U. E file state taxes only free S. E file state taxes only free dollars and foreign currency. E file state taxes only free A brief description of the issues for which competent authority assistance is requested. E file state taxes only free   A complete listing of the information that must be included with the request can be found in Revenue Procedure 2006-54, or its successor. E file state taxes only free Revenue Procedure 2006-54 is available at www. E file state taxes only free irs. E file state taxes only free gov/irb/2006-49_IRB/ar13. E file state taxes only free html. E file state taxes only free   Also, see Notice 2013-78, which provides proposed updates to the procedures for requesting U. E file state taxes only free S. E file state taxes only free competent authority assistance under tax treaties. E file state taxes only free As noted, Revenue Procedure 2006-54 will be superseded by a revenue procedure to be published in the future. E file state taxes only free    Your request for competent authority consideration should be addressed to:   Deputy Commissioner (International) Large Business and International Division Internal Revenue Service 1111 Constitution Avenue, NW Routing M4-365 Washington, DC 20224 Attn: TAIT Additional filing. E file state taxes only free   In the case of U. E file state taxes only free S. E file state taxes only free - initiated adjustments, you also must file a copy of the request with the IRS office where your case is pending. E file state taxes only free If the request is filed after the matter has been designated for litigation or while a suit contesting your relevant tax liability is pending in a United States court, a copy of the request, with a separate statement attached identifying the court where the suit is pending and the docket number of the action, also must be filed with the: Office of Associate Chief Counsel (International) Internal Revenue Service 1111 Constitution Avenue, NW Washington, DC 20224 Additional details on the procedures for requesting competent authority assistance are included in Revenue Procedure 2006-54, or its successor. E file state taxes only free Obtaining Copies of Tax Treaties Table 6-1 lists those countries with which the United States has income tax treaties. E file state taxes only free This table is updated through October 31, 2013. E file state taxes only free You can get complete information about treaty provisions from the taxing authority in the country from which you receive income or from the treaty itself. E file state taxes only free You can obtain the text of most U. E file state taxes only free S. E file state taxes only free treaties at IRS. E file state taxes only free gov. E file state taxes only free You also can request the text of treaties from the Department of Treasury at the following address. E file state taxes only free Department of Treasury Office of Business and Public Liaison Rm. E file state taxes only free 3411 1500 Pennsylvania Avenue, NW  Washington, DC 20220 If you have questions about a treaty and you are in the United States, Puerto Rico, or the U. E file state taxes only free S. E file state taxes only free Virgin Islands, you can call the IRS at 1-800-829-1040. E file state taxes only free Table 6–1. E file state taxes only free List of Tax Treaties (Updated through October 31, 2013) Country Official Text  Symbol1 General  Effective Date Citation Applicable Treasury Explanations  or Treasury Decision (T. E file state taxes only free D. E file state taxes only free ) Australia TIAS 10773 Dec. E file state taxes only free 1, 1983 1986-2 C. E file state taxes only free B. E file state taxes only free 220 1986-2 C. E file state taxes only free B. E file state taxes only free 246 Protocol TIAS Jan. E file state taxes only free 1, 2004     Austria TIAS Jan. E file state taxes only free 1, 1999     Bangladesh TIAS Jan. E file state taxes only free 1, 2007     Barbados TIAS 11090 Jan. E file state taxes only free 1, 1984 1991-2 C. E file state taxes only free B. E file state taxes only free 436 1991-2 C. E file state taxes only free B. E file state taxes only free 466 Protocol TIAS Jan. E file state taxes only free 1, 2005     Belgium TIAS Jan. E file state taxes only free 1, 2008     Bulgaria TIAS Jan. E file state taxes only free 1, 2009     Canada2 TIAS 11087 Jan. E file state taxes only free 1, 1985 1986-2 C. E file state taxes only free B. E file state taxes only free 258 1987-2 C. E file state taxes only free B. E file state taxes only free 298 Protocol TIAS Jan. E file state taxes only free 1, 2009     China, People's Republic of TIAS 12065 Jan. E file state taxes only free 1, 1987 1988-1 C. E file state taxes only free B. E file state taxes only free 414 1988-1 C. E file state taxes only free B. E file state taxes only free 447 Commonwealth of Independent States3 TIAS 8225 Jan. E file state taxes only free 1, 1976 1976-2 C. E file state taxes only free B. E file state taxes only free 463 1976-2 C. E file state taxes only free B. E file state taxes only free 475 Cyprus TIAS 10965 Jan. E file state taxes only free 1, 1986 1989-2 C. E file state taxes only free B. E file state taxes only free 280 1989-2 C. E file state taxes only free B. E file state taxes only free 314 Czech Republic TIAS Jan. E file state taxes only free 1, 1993     Denmark TIAS Jan. E file state taxes only free 1, 2001     Protocol TIAS Jan. E file state taxes only free 1, 2008     Egypt TIAS 10149 Jan. E file state taxes only free 1, 1982 1982-1 C. E file state taxes only free B. E file state taxes only free 219 1982-1 C. E file state taxes only free B. E file state taxes only free 243 Estonia TIAS Jan. E file state taxes only free 1, 2000     Finland TIAS 12101 Jan. E file state taxes only free 1, 1991     Protocol TIAS Jan. E file state taxes only free 1, 2008     France TIAS Jan. E file state taxes only free 1, 1996     Protocol TIAS Jan. E file state taxes only free 1, 2009     Germany TIAS Jan. E file state taxes only free 1, 1990     Protocol TIAS Jan. E file state taxes only free 1, 2008     Greece TIAS 2902 Jan. E file state taxes only free 1, 1953 1958-2 C. E file state taxes only free B. E file state taxes only free 1054 T. E file state taxes only free D. E file state taxes only free 6109, 1954-2 C. E file state taxes only free B. E file state taxes only free 638 Hungary TIAS 9560 Jan. E file state taxes only free 1, 1980 1980-1 C. E file state taxes only free B. E file state taxes only free 333 1980-1 C. E file state taxes only free B. E file state taxes only free 354 Iceland TIAS 8151 Jan. E file state taxes only free 1, 2009     India TIAS Jan. E file state taxes only free 1, 1991     Indonesia TIAS 11593 Jan. E file state taxes only free 1, 1990     Ireland TIAS Jan. E file state taxes only free 1, 1998     Israel TIAS Jan. E file state taxes only free 1, 1995     Italy TIAS Jan. E file state taxes only free 1, 2010     Jamaica TIAS 10207 Jan. E file state taxes only free 1, 1982 1982-1 C. E file state taxes only free B. E file state taxes only free 257 1982-1 C. E file state taxes only free B. E file state taxes only free 291 Japan TIAS Jan. E file state taxes only free 1, 2005     Kazakhstan TIAS Jan. E file state taxes only free 1, 1996     Korea, South TIAS 9506 Jan. E file state taxes only free 1, 1980 1979-2 C. E file state taxes only free B. E file state taxes only free 435 1979-2 C. E file state taxes only free B. E file state taxes only free 458 Latvia TIAS Jan. E file state taxes only free 1, 2000     Lithuania TIAS Jan. E file state taxes only free 1, 2000     Luxembourg TIAS Jan. E file state taxes only free 1, 2001     Malta TIAS Jan. E file state taxes only free 1, 2011     Mexico TIAS Jan. E file state taxes only free 1,1994     Protocol TIAS Jan. E file state taxes only free 1, 2004               Table 6–1 (continued). E file state taxes only free Country Official Text  Symbol1 General  Effective Date Citation Applicable Treasury Explanations  or Treasury Decision (T. E file state taxes only free D. E file state taxes only free ) Morocco TIAS 10195 Jan. E file state taxes only free 1, 1981 1982-2 C. E file state taxes only free B. E file state taxes only free 405 1982-2 C. E file state taxes only free B. E file state taxes only free 427 Netherlands TIAS Jan. E file state taxes only free 1, 1994     Protocol TIAS Jan. E file state taxes only free 1, 2005     New Zealand TIAS 10772 Nov. E file state taxes only free 2, 1983 1990-2 C. E file state taxes only free B. E file state taxes only free 274 1990-2 C. E file state taxes only free B. E file state taxes only free 303 Protocol TIAS Jan. E file state taxes only free 1, 2011     Norway TIAS 7474 Jan. E file state taxes only free 1, 1971 1973-1 C. E file state taxes only free B. E file state taxes only free 669 1973-1 C. E file state taxes only free B. E file state taxes only free 693 Protocol TIAS 10205 Jan. E file state taxes only free 1, 1982 1982-2 C. E file state taxes only free B. E file state taxes only free 440 1982-2 C. E file state taxes only free B. E file state taxes only free 454 Pakistan TIAS 4232 Jan. E file state taxes only free 1, 1959 1960-2 C. E file state taxes only free B. E file state taxes only free 646 T. E file state taxes only free D. E file state taxes only free 6431, 1960-1 C. E file state taxes only free B. E file state taxes only free 755 Philippines TIAS 10417 Jan. E file state taxes only free 1, 1983 1984-2 C. E file state taxes only free B. E file state taxes only free 384 1984-2 C. E file state taxes only free B. E file state taxes only free 412 Poland TIAS 8486 Jan. E file state taxes only free 1, 1974 1977-1 C. E file state taxes only free B. E file state taxes only free 416 1977-1 C. E file state taxes only free B. E file state taxes only free 427 Portugal TIAS Jan. E file state taxes only free 1, 1996     Romania TIAS 8228 Jan. E file state taxes only free 1, 1974 1976-2 C. E file state taxes only free B. E file state taxes only free 492 1976-2 C. E file state taxes only free B. E file state taxes only free 504 Russia TIAS Jan. E file state taxes only free 1, 1994     Slovak Republic TIAS Jan. E file state taxes only free 1, 1993     Slovenia TIAS Jan. E file state taxes only free 1, 2002     South Africa TIAS Jan. E file state taxes only free 1, 1998     Spain TIAS Jan. E file state taxes only free 1, 1991     Sri Lanka TIAS Jan. E file state taxes only free 1, 2004     Sweden TIAS Jan. E file state taxes only free 1, 1996     Protocol TIAS Jan. E file state taxes only free 1, 2007     Switzerland TIAS Jan. E file state taxes only free 1, 1998     Thailand TIAS Jan. E file state taxes only free 1, 1998     Trinidad and Tobago TIAS 7047 Jan. E file state taxes only free 1, 1970 1971-2 C. E file state taxes only free B. E file state taxes only free 479   Tunisia TIAS Jan. E file state taxes only free 1, 1990     Turkey TIAS Jan. E file state taxes only free 1, 1998     Ukraine TIAS Jan. E file state taxes only free 1, 2001     United Kingdom TIAS Jan. E file state taxes only free 1, 2004     Venezuela TIAS Jan. E file state taxes only free 1, 2000      1(TIAS) — Treaties and Other International Act Series. E file state taxes only free  2Information on the treaty can be found in Publication 597, Information on the United States—Canada Income Tax Treaty. E file state taxes only free 3The U. E file state taxes only free S. E file state taxes only free -U. E file state taxes only free S. E file state taxes only free S. E file state taxes only free R. E file state taxes only free income tax treaty applies to the countries of Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan. E file state taxes only free Prev  Up  Next   Home   More Online Publications
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IRS Urges Taxpayers to Avoid Becoming Victims of Tax Scams

IR-2011-73, July 11, 2011

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Tax Refund Scams :
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WASHINGTON — The Internal Revenue Service today encouraged taxpayers to guard against being misled by unscrupulous individuals trying to persuade them to file false claims for tax credits or rebates.

The IRS has noted an increase in tax-return-related scams, frequently involving unsuspecting taxpayers who normally do not have a filing requirement in the first place. These taxpayers are led to believe they should file a return with the IRS for tax credits, refunds or rebates for which they are not really entitled. Many of these recent scams have been targeted in the South and Midwest.

Most paid tax return preparers provide honest and professional service, but there are some who engage in fraud and other illegal activities.   Unscrupulous promoters deceive people into paying for advice on how to file false claims. Some promoters may charge unreasonable amounts for preparing legitimate returns that could have been prepared for free by the IRS or IRS sponsored Volunteer Income Tax Assistance partners. In other situations, identity theft is involved.

Taxpayers should be wary of any of the following:

  • Fictitious claims for refunds or rebates based on excess or withheld Social Security benefits.
  • Claims that Treasury Form 1080 can be used to transfer funds from the Social Security Administration to the IRS enabling a payout from the IRS.
  • Unfamiliar for-profit tax services teaming up with local churches.
  • Home-made flyers and brochures implying credits or refunds are available without proof of eligibility.
  • Offers of free money with no documentation required.
  • Promises of refunds for “Low Income – No Documents Tax Returns.”
  • Claims for the expired Economic Recovery Credit Program or Recovery Rebate Credit. 
  • Advice on claiming the Earned Income Tax Credit based on exaggerated reports of self-employment income.

In some cases non-existent Social Security refunds or rebates have been the bait used by the con artists.  In other situations, taxpayers deserve the tax credits they are promised but the preparer uses fictitious or inflated information on the return which results in a fraudulent return.

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file with little or no documentation, have been appearing in community churches around the country. Promoters are targeting church congregations, exploiting their good intentions and credibility. These schemes also often spread by word of mouth among unsuspecting and well-intentioned people telling their friends and relatives. 
Promoters of these scams often prey upon low income individuals and the elderly. 

They build false hopes and charge people good money for bad advice.  In the end, the victims discover their claims are rejected or the refund barely exceeds what they paid the promoter.  Meanwhile, their money and the promoters are long gone.

Unsuspecting individuals are most likely to get caught up in scams and the IRS is warning all taxpayers, and those that help others prepare returns, to remain vigilant. If it sounds too good to be true, it probably is.

Anyone with questions about a tax credit or program should visit www.IRS.gov, call the IRS toll-free number at 800-829-1040 or visit a local IRS Taxpayer Assistance Center.

For questions about rebates, credit and benefits from other federal agencies contact the relevant agency directly for accurate information. 

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Page Last Reviewed or Updated: 19-Mar-2014

The E File State Taxes Only Free

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