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Form To Amend Tax Return

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Form To Amend Tax Return

Form to amend tax return Publication 600 - Main Contents Table of Contents Actual Expenses Optional Sales Tax Tables Instructions for the State and Local General Sales Tax Deduction WorksheetWhat if you lived in more than one state? What if you lived in more than one locality? What if your local general sales tax rate changed during 2006? What if you lived in more than one locality in the same state during 2006? Actual Expenses Generally, you can deduct the actual state and local general sales taxes (including compensating use taxes) you paid in 2006 if the tax rate was the same as the general sales tax rate. Form to amend tax return However, sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate. Form to amend tax return If you paid sales tax on a motor vehicle at a rate higher than the general sales tax rate, you can deduct only the amount of tax that you would have paid at the general sales tax rate on that vehicle. Form to amend tax return Motor vehicles include cars, motorcycles, motor homes, recreational vehicles, sport utility vehicles, trucks, vans, and off-road vehicles. Form to amend tax return Also include any state and local general sales taxes paid for a leased motor vehicle. Form to amend tax return Do not include sales taxes paid on items used in your trade or business. Form to amend tax return To deduct your actual expenses, enter the amount on Schedule A, line 5, and enter “ST” on the dotted line to the left of the line 5 entry space. Form to amend tax return You must keep your actual receipts showing general sales taxes paid to use this method. Form to amend tax return Refund of general sales taxes. Form to amend tax return   If you received a refund of state or local general sales taxes in 2006 for amounts paid in 2006, reduce your actual 2006 state and local general sales taxes by this amount. Form to amend tax return If you received a refund of state or local general sales taxes in 2006 for prior year purchases, do not reduce your 2006 state and local general sales taxes by this amount. Form to amend tax return But if you deducted your actual state and local general sales taxes in the earlier year and the deduction reduced your tax, you may have to include the refund in income on Form 1040, line 21. Form to amend tax return See Recoveries in Pub. Form to amend tax return 525 for details. Form to amend tax return Optional Sales Tax Tables Instead of using your actual expenses, you can use the tables on pages 5 through 7 to figure your state and local general sales tax deduction. Form to amend tax return You may also be able to add the state and local general sales taxes paid on certain specified items. Form to amend tax return To figure your state and local general sales tax deduction using the tables, complete the worksheet below. Form to amend tax return If your filing status is married filing separately, both you and your spouse elect to deduct sales taxes, and your spouse elects to use the optional sales tax tables, you also must use the tables to figure your state and local general sales tax deduction. Form to amend tax return State and Local General Sales Tax Deduction Worksheet (See the instructions that begin on page 3. Form to amend tax return ) Before you begin: See the instructions for line 1 on page 3 if: You lived in more than one state during 2006, or You had any nontaxable income in 2006. Form to amend tax return   1. Form to amend tax return Enter your state general sales taxes from the applicable table on page 5 or 6 (see page 3 of the instructions) 1. Form to amend tax return $     Next. Form to amend tax return If, for all of 2006, you lived only in Connecticut, the District of Columbia, Hawaii, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Rhode Island, Virginia, or West Virginia, skip lines 2 through 5, enter -0- on line 6, and go to line 7. Form to amend tax return Otherwise, go to line 2       2. Form to amend tax return Did you live in Alaska, Arizona, Arkansas (Texarkana only), California (Los Angeles County only), Colorado, Georgia, Illinois, Louisiana, New York State, or North Carolina in 2006?         No. Form to amend tax return Enter -0-                   Yes. Form to amend tax return Enter your local general sales taxes from the applicable table on page 7 (see page 3 of the instructions)     2. Form to amend tax return $       3. Form to amend tax return Did your locality impose a local general sales tax in 2006? Residents of California, Nevada, and Texarkana, Arkansas, see page 3 of the instructions             No. Form to amend tax return Skip lines 3 through 5, enter -0- on line 6, and go to line 7             Yes. Form to amend tax return Enter your local general sales tax rate, but omit the percentage sign. Form to amend tax return For example, if your local general sales tax rate was 2. Form to amend tax return 5%, enter 2. Form to amend tax return 5. Form to amend tax return If your local general sales tax rate changed or you lived in more than one locality in the same state during 2006, see page 3 of the instructions. Form to amend tax return (If you do not know your local general sales tax rate, contact your local government. Form to amend tax return ) 3. Form to amend tax return . Form to amend tax return       4. Form to amend tax return Did you enter -0- on line 2 above?             No. Form to amend tax return Skip lines 4 and 5 and go to line 6             Yes. Form to amend tax return Enter your state general sales tax rate (shown in the table heading for your state), but omit the percentage sign. Form to amend tax return For example, if your state general sales tax rate is 6%, enter 6. Form to amend tax return 0 4. Form to amend tax return . Form to amend tax return       5. Form to amend tax return Divide line 3 by line 4. Form to amend tax return Enter the result as a decimal (rounded to at least three places) 5. Form to amend tax return . Form to amend tax return       6. Form to amend tax return Did you enter -0- on line 2 above?             No. Form to amend tax return Multiply line 2 by line 3   6. Form to amend tax return $     Yes. Form to amend tax return Multiply line 1 by line 5. Form to amend tax return If you lived in more than one locality in the same state during 2006, see page 4 of the instructions           7. Form to amend tax return Enter your state and local general sales taxes paid on specified items, if any (see page 4 of the instructions) 7. Form to amend tax return $   8. Form to amend tax return Deduction for general sales taxes. Form to amend tax return Add lines 1, 6, and 7. Form to amend tax return Enter the result here and the total from all your state and local general sales tax deduction worksheets, if you completed more than one, on Schedule A, line 5. Form to amend tax return Be sure to enter “ST” on the dotted line to the left of the entry space 8. Form to amend tax return $     Instructions for the State and Local General Sales Tax Deduction Worksheet Line 1. Form to amend tax return    If you lived in the same state for all of 2006, enter the applicable amount, based on your 2006 income and exemptions, from the optional state sales tax table for your state on page 5 or 6. Form to amend tax return Read down the “At least-But less than” columns for your state and find the line that includes your 2006 income. Form to amend tax return If married filing separately, do not include your spouse's income. Form to amend tax return Your 2006 income is the amount shown on your Form 1040, line 38, plus any nontaxable items, such as the following. Form to amend tax return Tax-exempt interest. Form to amend tax return Veterans' benefits. Form to amend tax return Nontaxable combat pay. Form to amend tax return Workers' compensation. Form to amend tax return Nontaxable part of social security and railroad retirement benefits. Form to amend tax return Nontaxable part of IRA, pension, or annuity distributions. Form to amend tax return Do not include rollovers. Form to amend tax return Public assistance payments. Form to amend tax return The exemptions column refers to the number of exemptions claimed on Form 1040, line 6d. Form to amend tax return Do not include any additional exemptions you listed on Form 8914 for individuals displaced by Hurricane Katrina. Form to amend tax return What if you lived in more than one state?    If you lived in more than one state during 2006, look up the table amount for each state using the above rules. Form to amend tax return If there is no table for your state, the table amount is considered to be zero. Form to amend tax return Multiply the table amount for each state you lived in by a fraction. Form to amend tax return The numerator of the fraction is the number of days you lived in the state during 2006 and the denominator is the total number of days in the year (365). Form to amend tax return Enter the total of the prorated table amounts for each state on line 1. Form to amend tax return However, if you also lived in a locality during 2006 that imposed a local general sales tax, do not enter the total on line 1. Form to amend tax return Instead, complete a separate worksheet for each state you lived in and enter the prorated amount for that state on line 1. Form to amend tax return Example. Form to amend tax return You lived in State A from January 1 through August 31, 2006 (243 days), and in State B from September 1 through December 31, 2006 (122 days). Form to amend tax return The table amount for State A is $500. Form to amend tax return The table amount for State B is $400. Form to amend tax return You would figure your state general sales tax as follows. Form to amend tax return State A: $500 x 243/365 = $333   State B: $400 x 122/365 = 134   Total = $467   If none of the localities in which you lived during 2006 imposed a local general sales tax, enter $467 on line 1 of your worksheet. Form to amend tax return Otherwise, complete a separate worksheet for State A and State B. Form to amend tax return Enter $333 on line 1 of the State A worksheet and $134 on line 1 of the State B worksheet. Form to amend tax return Line 2. Form to amend tax return   If you checked the “No” box, enter -0- on line 2, and go to line 3. Form to amend tax return If you checked the “Yes” box and lived in the same locality for all of 2006, enter the applicable amount, based on your 2006 income and exemptions, from the optional local sales tax table for your locality on page 7. Form to amend tax return Read down the “At least-But less than” columns for your locality and find the line that includes your 2006 income. Form to amend tax return See the line 1 instructions on this page to figure your 2006 income. Form to amend tax return The exemptions column refers to the number of exemptions claimed on Form 1040, line 6d. Form to amend tax return Do not include any additional exemptions you listed on Form 8914 for individuals displaced by Hurricane Katrina. Form to amend tax return What if you lived in more than one locality?   If you lived in more than one locality during 2006, look up the table amount for each locality using the above rules. Form to amend tax return If there is no table for your locality, the table amount is considered to be zero. Form to amend tax return Multiply the table amount for each locality you lived in by a fraction. Form to amend tax return The numerator of the fraction is the number of days you lived in the locality during 2006 and the denominator is the total number of days in the year (365). Form to amend tax return If you lived in more than one locality in the same state and the local general sales tax rate was the same for each locality, enter the total of the prorated table amounts for each locality in that state on line 2. Form to amend tax return Otherwise, complete a separate worksheet for lines 2 through 6 for each locality and enter each prorated table amount on line 2 of the applicable worksheet. Form to amend tax return Example. Form to amend tax return You lived in Locality 1 from January 1 through August 31, 2006 (243 days), and in Locality 2 from September 1 through December 31, 2006 (122 days). Form to amend tax return The table amount for Locality 1 is $100. Form to amend tax return The table amount for Locality 2 is $150. Form to amend tax return You would figure the amount to enter on line 2 as follows. Form to amend tax return Note that this amount may not equal your local sales tax deduction, which is figured on line 6 of the worksheet. Form to amend tax return Locality 1: $100 x 243/365 = $67   Locality 2: $150 x 122/365 = 50   Total = $117   Line 3. Form to amend tax return   If you lived in California, check the “No” box if your combined state and local general sales tax rate is 7. Form to amend tax return 25%. Form to amend tax return Otherwise, check the “Yes” box and include on line 3 only the part of the combined rate that is more than 7. Form to amend tax return 25%. Form to amend tax return   If you lived in Nevada, check the “No” box if your combined state and local general sales tax rate is 6. Form to amend tax return 5%. Form to amend tax return Otherwise, check the “Yes” box and include on line 3 only the part of the combined rate that is more than 6. Form to amend tax return 5%. Form to amend tax return   If you lived in Texarkana, Arkansas, check the “Yes” box and enter “4. Form to amend tax return 0” on line 3. Form to amend tax return Your local general sales tax rate of 4. Form to amend tax return 0% includes the additional 1. Form to amend tax return 0% Arkansas state sales tax rate for Texarkana and the 1. Form to amend tax return 5% sales tax rate for Miller County. Form to amend tax return What if your local general sales tax rate changed during 2006?    If you checked the “Yes” box and your local general sales tax rate changed during 2006, figure the rate to enter on line 3 as follows. Form to amend tax return Multiply each tax rate for the period it was in effect by a fraction. Form to amend tax return The numerator of the fraction is the number of days the rate was in effect during 2006 and the denominator is the total number of days in the year (365). Form to amend tax return Enter the total of the prorated tax rates on line 3. Form to amend tax return Example. Form to amend tax return Locality 1 imposed a 1% local general sales tax from January 1 through September 30, 2006 (273 days). Form to amend tax return The rate increased to 1. Form to amend tax return 75% for the period from October 1 through December 31, 2006 (92 days). Form to amend tax return You would enter “1. Form to amend tax return 189” on line 3, figured as follows. Form to amend tax return January 1 - September 30: 1. Form to amend tax return 00 x 273/365 = 0. Form to amend tax return 748   October 1 - December 31: 1. Form to amend tax return 75 x 92/365 = 0. Form to amend tax return 441   Total = 1. Form to amend tax return 189   What if you lived in more than one locality in the same state during 2006?    Complete a separate worksheet for lines 2 through 6 for each locality in your state if you lived in more than one locality in the same state during 2006 and either of the following applies. Form to amend tax return Each locality did not have the same local general sales tax rate. Form to amend tax return You lived in Texarkana, AR, or Los Angeles County, CA. Form to amend tax return   To figure the amount to enter on line 3 of the worksheet for each locality in which you lived (except a locality for which you used the table on page 7 to figure your local general sales tax deduction), multiply the local general sales tax rate by a fraction. Form to amend tax return The numerator of the fraction is the number of days you lived in the locality during 2006 and the denominator is the total number of days in the year (365). Form to amend tax return Example. Form to amend tax return You lived in Locality 1 from January 1 through August 31, 2006 (243 days), and in Locality 2 from September 1 through December 31, 2006 (122 days). Form to amend tax return The local general sales tax rate for Locality 1 is 1%. Form to amend tax return The rate for Locality 2 is 1. Form to amend tax return 75%. Form to amend tax return You would enter “0. Form to amend tax return 666” on line 3 for the Locality 1 worksheet and “0. Form to amend tax return 585” for the Locality 2 worksheet, figured as follows. Form to amend tax return Locality 1: 1. Form to amend tax return 00 x 243/365 = 0. Form to amend tax return 666   Locality 2: 1. Form to amend tax return 75 x 122/365 = 0. Form to amend tax return 585   Line 6. Form to amend tax return   If you lived in more than one locality in the same state during 2006, you should have completed line 1 only on the first worksheet for that state and separate worksheets for lines 2 through 6 for any other locality within that state in which you lived during 2006. Form to amend tax return If you checked the “Yes” box on line 6 of any of those worksheets, multiply line 5 of that worksheet by the amount that you entered on line 1 for that state on the first worksheet. Form to amend tax return Line 7. Form to amend tax return    Enter on line 7 any state and local general sales taxes paid on the following specified items. Form to amend tax return If you are completing more than one worksheet, include the total for line 7 on only one of the worksheets. Form to amend tax return A motor vehicle (including a car, motorcycle, motor home, recreational vehicle, sport utility vehicle, truck, van, and off-road vehicle). Form to amend tax return Also include any state and local general sales taxes paid for a leased motor vehicle. Form to amend tax return If the state sales tax rate on these items is higher than the general sales tax rate, only include the amount of tax you would have paid at the general sales tax rate. Form to amend tax return An aircraft or boat, if the tax rate was the same as the general sales tax rate. Form to amend tax return A home (including a mobile home or prefabricated home) or substantial addition to or major renovation of a home, but only if the tax rate was the same as the general sales tax rate and any of the following applies. Form to amend tax return Your state or locality imposes a general sales tax directly on the sale of a home or on the cost of a substantial addition or major renovation. Form to amend tax return You purchased the materials to build a home or substantial addition or to perform a major renovation and paid the sales tax directly. Form to amend tax return Under your state law, your contractor is considered your agent in the construction of the home or substantial addition or the performance of a major renovation. Form to amend tax return The contract must state that the contractor is authorized to act in your name and must follow your directions on construction decisions. Form to amend tax return In this case, you will be considered to have purchased any items subject to a sales tax and to have paid the sales tax directly. Form to amend tax return   Do not include sales taxes paid on items used in your trade or business. Form to amend tax return If you received a refund of state or local general sales taxes in 2006, see Refund of general sales taxes on page 1. Form to amend tax return Prev  Up  Next   Home   More Online Publications
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The Form To Amend Tax Return

Form to amend tax return 8. Form to amend tax return   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. Form to amend tax return Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. Form to amend tax return 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. Form to amend tax return 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. Form to amend tax return Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. Form to amend tax return This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. Form to amend tax return A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Form to amend tax return An exchange is a transfer of property for other property or services. Form to amend tax return Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. Form to amend tax return If the amount you realize from a sale or exchange of property is more than its adjusted basis, you will have a gain. Form to amend tax return If the adjusted basis of the property is more than the amount you realize, you will have a loss. Form to amend tax return Basis and adjusted basis. Form to amend tax return   The basis of property you buy is usually its cost. Form to amend tax return The adjusted basis of property is basis plus certain additions and minus certain deductions. Form to amend tax return See chapter 6 for more information about basis and adjusted basis. Form to amend tax return Amount realized. Form to amend tax return   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. Form to amend tax return 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. Form to amend tax return   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. Form to amend tax return Amount recognized. Form to amend tax return   Your gain or loss realized from a sale or exchange of certain property is usually a recognized gain or loss for tax purposes. Form to amend tax return A recognized gain is a gain you must include in gross income and report on your income tax return. Form to amend tax return A recognized loss is a loss you deduct from gross income. Form to amend tax return However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. Form to amend tax return See Like-Kind Exchanges next. Form to amend tax return Also, a loss from the disposition of property held for personal use is not deductible. Form to amend tax return Like-Kind Exchanges Certain exchanges of property are not taxable. Form to amend tax return This means any gain from the exchange is not recognized, and any loss cannot be deducted. Form to amend tax return Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Form to amend tax return The exchange of property for the same kind of property is the most common type of nontaxable exchange. Form to amend tax return To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. Form to amend tax return Qualifying property. Form to amend tax return Like-kind property. Form to amend tax return These two requirements are discussed later. Form to amend tax return Multiple-party transactions. Form to amend tax return   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. Form to amend tax return Any part of these multiple-party transactions can qualify as a like-kind exchange if it meets all the requirements described in this section. Form to amend tax return Receipt of title from third party. Form to amend tax return   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. Form to amend tax return Basis of property received. Form to amend tax return   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. Form to amend tax return See chapter 6 for more information. Form to amend tax return Money paid. Form to amend tax return   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. Form to amend tax return The basis of the property received is the basis of the property given up, increased by the money paid. Form to amend tax return Example. Form to amend tax return You traded an old tractor with an adjusted basis of $15,000 for a new one. Form to amend tax return The new tractor costs $300,000. Form to amend tax return You were allowed $80,000 for the old tractor and paid $220,000 cash. Form to amend tax return 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). Form to amend tax return 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. Form to amend tax return 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. Form to amend tax return Reporting the exchange. Form to amend tax return   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. Form to amend tax return The Instructions for Form 8824 explain how to report the details of the exchange. Form to amend tax return   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. Form to amend tax return You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. Form to amend tax return See chapter 9 for more information. Form to amend tax return Qualifying property. Form to amend tax return   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. Form to amend tax return Machinery, buildings, land, trucks, breeding livestock, rental houses, and certain mutual ditch, reservoir, or irrigation company stock are examples of property that may qualify. Form to amend tax return Nonqualifying property. Form to amend tax return   The rules for like-kind exchanges do not apply to exchanges of the following property. Form to amend tax return Property you use for personal purposes, such as your home and family car. Form to amend tax return Stock in trade or other property held primarily for sale, such as crops and produce. Form to amend tax return Stocks, bonds, or notes. Form to amend tax return However, see Qualifying property above. Form to amend tax return Other securities or evidences of indebtedness, such as accounts receivable. Form to amend tax return Partnership interests. Form to amend tax return However, you may have a nontaxable exchange under other rules. Form to amend tax return See Other Nontaxable Exchanges in chapter 1 of Publication 544. Form to amend tax return Like-kind property. Form to amend tax return   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. Form to amend tax return Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Form to amend tax return Generally, real property exchanged for real property qualifies as an exchange of like-kind property. Form to amend tax return For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. Form to amend tax return   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. Form to amend tax return An exchange of a tractor for acreage, however, is not an exchange of like-kind property. Form to amend tax return The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. Form to amend tax return For example, the exchange of a bull for a cow is not a like-kind exchange. Form to amend tax return 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. Form to amend tax return    Note. Form to amend tax return Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. Form to amend tax return Personal property. Form to amend tax return   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. Form to amend tax return Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. Form to amend tax return Property classified in any General Asset Class may not be classified within a Product Class. Form to amend tax return Assets that are not in the same class will qualify as like-kind property if they are of the same nature or character. Form to amend tax return General Asset Classes. Form to amend tax return   General Asset Classes describe the types of property frequently used in many businesses. Form to amend tax return They include, but are not limited to, the following property. Form to amend tax return Office furniture, fixtures, and equipment (asset class 00. Form to amend tax return 11). Form to amend tax return Information systems, such as computers and peripheral equipment (asset class 00. Form to amend tax return 12). Form to amend tax return Data handling equipment except computers (asset class 00. Form to amend tax return 13). Form to amend tax return Automobiles and taxis (asset class 00. Form to amend tax return 22). Form to amend tax return Light general purpose trucks (asset class 00. Form to amend tax return 241). Form to amend tax return Heavy general purpose trucks (asset class 00. Form to amend tax return 242). Form to amend tax return Tractor units for use over-the-road (asset class 00. Form to amend tax return 26). Form to amend tax return Trailers and trailer-mounted containers (asset class 00. Form to amend tax return 27). Form to amend tax return Industrial steam and electric generation and/or distribution systems (asset class 00. Form to amend tax return 4). Form to amend tax return Product Classes. Form to amend tax return   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). Form to amend tax return The latest version of the manual can be accessed at www. Form to amend tax return census. Form to amend tax return gov/eos/www/naics/. Form to amend tax return Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. Form to amend tax return ntis. Form to amend tax return gov/products/naics. Form to amend tax return aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. Form to amend tax return A CD-ROM version with search and retrieval software is also available from NTIS. Form to amend tax return    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. Form to amend tax return Partially nontaxable exchange. Form to amend tax return   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. Form to amend tax return 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. Form to amend tax return A loss is not deductible. Form to amend tax return Example 1. Form to amend tax return 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. Form to amend tax return 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). Form to amend tax return However, only $10,000, the cash received, is recognized (included in income). Form to amend tax return Example 2. Form to amend tax return Assume the same facts as in Example 1, except that, instead of money, you received a tractor with a FMV of $10,000. Form to amend tax return Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). Form to amend tax return Example 3. Form to amend tax return Assume in Example 1 that the FMV of the land you received was only $15,000. Form to amend tax return Your $5,000 loss is not recognized. Form to amend tax return Unlike property given up. Form to amend tax return   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. Form to amend tax return The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. Form to amend tax return Like-kind exchanges between related persons. Form to amend tax return   Special rules apply to like-kind exchanges between related persons. Form to amend tax return These rules affect both direct and indirect exchanges. Form to amend tax return Under these rules, if either person disposes of the property within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Form to amend tax return The gain or loss on the original exchange must be recognized as of the date of the later disposition. Form to amend tax return The 2-year holding period begins on the date of the last transfer of property that was part of the like-kind exchange. Form to amend tax return Related persons. Form to amend tax return   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. Form to amend tax return ), 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. Form to amend tax return   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. Form to amend tax return Example. Form to amend tax return You used a grey pickup truck in your farming business. Form to amend tax return Your sister used a red pickup truck in her landscaping business. Form to amend tax return In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. Form to amend tax return At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. Form to amend tax return The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. Form to amend tax return 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). Form to amend tax return 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). Form to amend tax return However, because this was a like-kind exchange, you recognized no gain. Form to amend tax return 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). Form to amend tax return She recognized gain only to the extent of the money she received, $200. Form to amend tax return 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). Form to amend tax return In 2013, you sold the red pickup truck to a third party for $7,000. Form to amend tax return Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Form to amend tax return On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. Form to amend tax return 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). Form to amend tax return In addition, your sister must report on her tax return for 2013 the $6,000 balance of her gain on the 2012 exchange. Form to amend tax return Her adjusted basis in the grey pickup truck is increased to $7,000 (its $1,000 basis plus the $6,000 gain recognized). Form to amend tax return Exceptions to the rules for related persons. Form to amend tax return   The following property dispositions are excluded from these rules. Form to amend tax return Dispositions due to the death of either related person. Form to amend tax return Involuntary conversions. Form to amend tax return 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. Form to amend tax return Multiple property exchanges. Form to amend tax return   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. Form to amend tax return However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. Form to amend tax return Transfer and receive properties in two or more exchange groups. Form to amend tax return Transfer or receive more than one property within a single exchange group. Form to amend tax return   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. Form to amend tax return Deferred exchange. Form to amend tax return   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. Form to amend tax return 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. Form to amend tax return The property you receive is replacement property. Form to amend tax return The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. Form to amend tax return In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. Form to amend tax return   For more information see Deferred Exchanges in chapter 1 of Publication 544. Form to amend tax return 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. Form to amend tax return This rule does not apply if the recipient is a nonresident alien. Form to amend tax return 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. Form to amend tax return 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. Form to amend tax return The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Form to amend tax return 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. Form to amend tax return This rule applies for determining loss as well as gain. Form to amend tax return Any gain recognized on a transfer in trust increases the basis. Form to amend tax return For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. Form to amend tax return 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). Form to amend tax return You may also have a capital gain if your section 1231 transactions result in a net gain. Form to amend tax return See Section 1231 Gains and Losses in  chapter 9. Form to amend tax return 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). Form to amend tax return Your net capital gains may be taxed at a lower tax rate than ordinary income. Form to amend tax return See Capital Gains Tax Rates , later. Form to amend tax return Your deduction for a net capital loss may be limited. Form to amend tax return See Treatment of Capital Losses , later. Form to amend tax return Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. Form to amend tax return The following items are examples of capital assets. Form to amend tax return A home owned and occupied by you and your family. Form to amend tax return Household furnishings. Form to amend tax return A car used for pleasure. Form to amend tax return 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. Form to amend tax return Stocks and bonds. Form to amend tax return However, there are special rules for gains on qualified small business stock. Form to amend tax return 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. Form to amend tax return Personal-use property. Form to amend tax return   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. Form to amend tax return Loss from the sale or exchange of personal-use property is not deductible. Form to amend tax return You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Form to amend tax return For information on casualties and thefts, see chapter 11. Form to amend tax return 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. Form to amend tax return The time you own an asset before disposing of it is the holding period. Form to amend tax return If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. Form to amend tax return Report it in Part I of Schedule D (Form 1040). Form to amend tax return If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. Form to amend tax return Report it in Part II of Schedule D (Form 1040). Form to amend tax return Holding period. Form to amend tax return   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. Form to amend tax return The day you disposed of the property is part of your holding period. Form to amend tax return Example. Form to amend tax return If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Form to amend tax return 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. Form to amend tax return Inherited property. Form to amend tax return   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Form to amend tax return This rule does not apply to livestock used in a farm business. Form to amend tax return See Holding period under Livestock , later. Form to amend tax return Nonbusiness bad debt. Form to amend tax return   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. Form to amend tax return See chapter 4 of Publication 550. Form to amend tax return Nontaxable exchange. Form to amend tax return   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. Form to amend tax return That is, it begins on the same day as your holding period for the old property. Form to amend tax return Gift. Form to amend tax return   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. Form to amend tax return Real property. Form to amend tax return   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. Form to amend tax return   However, taking possession of real property under an option agreement is not enough to start the holding period. Form to amend tax return The holding period cannot start until there is an actual contract of sale. Form to amend tax return The holding period of the seller cannot end before that time. Form to amend tax return 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. Form to amend tax return Net short-term capital gain or loss. Form to amend tax return   Combine your short-term capital gains and losses. Form to amend tax return Do this by adding all of your short-term capital gains. Form to amend tax return Then add all of your short-term capital losses. Form to amend tax return Subtract the lesser total from the greater. Form to amend tax return The difference is your net short-term capital gain or loss. Form to amend tax return Net long-term capital gain or loss. Form to amend tax return   Follow the same steps to combine your long-term capital gains and losses. Form to amend tax return The result is your net long-term capital gain or loss. Form to amend tax return Net gain. Form to amend tax return   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Form to amend tax return 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. Form to amend tax return See Capital Gains Tax Rates , later. Form to amend tax return Net loss. Form to amend tax return   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Form to amend tax return But there are limits on how much loss you can deduct and when you can deduct it. Form to amend tax return See Treatment of Capital Losses next. Form to amend tax return 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. Form to amend tax return 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). Form to amend tax return If your other income is low, you may not be able to use the full $3,000. Form to amend tax return The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). Form to amend tax return Capital loss carryover. Form to amend tax return   Generally, you have a capital loss carryover if either of the following situations applies to you. Form to amend tax return Your net loss on Schedule D (Form 1040), is more than the yearly limit. Form to amend tax return Your taxable income without your deduction for exemptions is less than zero. Form to amend tax return 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. Form to amend tax return    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). Form to amend tax return 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. Form to amend tax return These lower rates are called the maximum capital gains rates. Form to amend tax return 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. Form to amend tax return See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). Form to amend tax return Also see Publication 550. Form to amend tax return Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. Form to amend tax return A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). Form to amend tax return Property held for sale in the ordinary course of your farm business. Form to amend tax return   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. Form to amend tax return 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). Form to amend tax return The treatment of this property is discussed in chapter 3. Form to amend tax return Land and depreciable properties. Form to amend tax return   Land and depreciable property you use in farming are not capital assets. Form to amend tax return Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. Form to amend tax return 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. Form to amend tax return The sales of these business assets are reported on Form 4797. Form to amend tax return See chapter 9 for more information. Form to amend tax return 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. Form to amend tax return Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. Form to amend tax return 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. Form to amend tax return 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. Form to amend tax return A forward contract is generally similar to a futures contract except that the terms are not standardized and the contract is not exchange traded. Form to amend tax return Businesses may enter into commodity futures contracts or forward contracts and may acquire options on commodity futures contracts as either of the following. Form to amend tax return Hedging transactions. Form to amend tax return Transactions that are not hedging transactions. Form to amend tax return 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. Form to amend tax return There is a limit on the amount of capital losses you can deduct each year. Form to amend tax return Hedging transactions are not subject to the mark-to-market rules. Form to amend tax return 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. Form to amend tax return 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. Form to amend tax return The gain or loss on the termination of these hedges is generally ordinary gain or loss. Form to amend tax return 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. Form to amend tax return 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. Form to amend tax return Examples include fuel and feed. Form to amend tax return If you have numerous transactions in the commodity futures market during the year, you must be able to show which transactions are hedging transactions. Form to amend tax return Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. Form to amend tax return It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. Form to amend tax return Retain the identification of each hedging transaction with your books and records. Form to amend tax return Also, identify the item(s) or aggregate risk that is being hedged in your records. Form to amend tax return 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. Form to amend tax return 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. Form to amend tax return Accounting methods for hedging transactions. Form to amend tax return   The accounting method you use for a hedging transaction must clearly reflect income. Form to amend tax return 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. Form to amend tax return There are requirements and limits on the method you can use for certain hedging transactions. Form to amend tax return See Regulations section 1. Form to amend tax return 446-4(e) for those requirements and limits. Form to amend tax return   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. Form to amend tax return Cash method. Form to amend tax return Farm-price method. Form to amend tax return Unit-livestock-price method. Form to amend tax return   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. Form to amend tax return   Your books and records must describe the accounting method used for each type of hedging transaction. Form to amend tax return They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. Form to amend tax return You must make the additional identification no more than 35 days after entering into the hedging transaction. Form to amend tax return Example of a hedging transaction. Form to amend tax return   You file your income tax returns on the cash method. Form to amend tax return On July 2 you anticipate a yield of 50,000 bushels of corn this year. Form to amend tax return The December futures price is $5. Form to amend tax return 75 a bushel, but there are indications that by harvest time the price will drop. Form to amend tax return To protect yourself against a drop in the price, you enter into the following hedging transaction. Form to amend tax return You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. Form to amend tax return 75 a bushel. Form to amend tax return   The price did not drop as anticipated but rose to $6 a bushel. Form to amend tax return In November, you sell your crop at a local elevator for $6 a bushel. Form to amend tax return You also close out your futures position by buying ten December contracts for $6 a bushel. Form to amend tax return You paid a broker's commission of $1,400 ($70 per contract) for the complete in and out position in the futures market. Form to amend tax return   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. Form to amend tax return Your loss on the hedge is 25 cents a bushel. Form to amend tax return In effect, the net selling price of your corn is $5. Form to amend tax return 75 a bushel. Form to amend tax return   Report the results of your futures transactions and your sale of corn separately on Schedule F. Form to amend tax return See the instructions for the 2013 Schedule F (Form 1040). Form to amend tax return   The loss on your futures transactions is $13,900, figured as follows. Form to amend tax return July 2 - Sold December corn futures (50,000 bu. Form to amend tax return @$5. Form to amend tax return 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Form to amend tax return @$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. Form to amend tax return   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. Form to amend tax return × $6). Form to amend tax return Report it on Schedule F, Part I, line 2, as income from sales of products you raised. Form to amend tax return   Assume you were right and the price went down 25 cents a bushel. Form to amend tax return In effect, you would still net $5. Form to amend tax return 75 a bushel, figured as follows. Form to amend tax return Sold cash corn, per bushel $5. Form to amend tax return 50 Gain on hedge, per bushel . Form to amend tax return 25 Net price, per bushel $5. Form to amend tax return 75       The gain on your futures transactions would have been $11,100, figured as follows. Form to amend tax return July 2 - Sold December corn futures (50,000 bu. Form to amend tax return @$5. Form to amend tax return 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Form to amend tax return @$5. Form to amend tax return 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. Form to amend tax return   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. Form to amend tax return Livestock This part discusses the sale or exchange of livestock used in your farm business. Form to amend tax return Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. Form to amend tax return However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. Form to amend tax return See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. Form to amend tax return The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. Form to amend tax return The sale of this livestock is reported on Schedule F. Form to amend tax return See chapter 3. Form to amend tax return Also, special rules apply to sales or exchanges caused by weather-related conditions. Form to amend tax return See chapter 3. Form to amend tax return Holding period. Form to amend tax return   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). Form to amend tax return Livestock. Form to amend tax return   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. Form to amend tax return Also, for section 1231 transactions, livestock does not include chickens, turkeys, pigeons, geese, emus, ostriches, rheas, or other birds, fish, frogs, reptiles, etc. Form to amend tax return Livestock used in farm business. Form to amend tax return   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. Form to amend tax return The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. Form to amend tax return 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. Form to amend tax return 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. Form to amend tax return Example 1. Form to amend tax return You discover an animal that you intend to use for breeding purposes is sterile. Form to amend tax return You dispose of it within a reasonable time. Form to amend tax return This animal was held for breeding purposes. Form to amend tax return Example 2. Form to amend tax return 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. Form to amend tax return These young animals were held for breeding or dairy purposes. Form to amend tax return 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. Form to amend tax return See Sales Caused by Weather-Related Conditions in chapter 3. Form to amend tax return Example 3. Form to amend tax return You are in the business of raising hogs for slaughter. Form to amend tax return Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. Form to amend tax return You sell the brood sows after obtaining the litter. Form to amend tax return 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. Form to amend tax return Example 4. Form to amend tax return You are in the business of raising registered cattle for sale to others for use as breeding cattle. Form to amend tax return The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. Form to amend tax return Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. Form to amend tax return Such use does not demonstrate that you are holding the cattle for breeding purposes. Form to amend tax return 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. Form to amend tax return The same applies to hog and sheep breeders. Form to amend tax return Example 5. Form to amend tax return You breed, raise, and train horses for racing purposes. Form to amend tax return Every year you cull horses from your racing stable. Form to amend tax return 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. Form to amend tax return These horses are all considered held for sporting purposes. Form to amend tax return Figuring gain or loss on the cash method. Form to amend tax return   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. Form to amend tax return Raised livestock. Form to amend tax return   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. Form to amend tax return Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. Form to amend tax return The basis of the animal sold is zero if the costs of raising it were deducted during the years the animal was being raised. Form to amend tax return However, see Uniform Capitalization Rules in chapter 6. Form to amend tax return Purchased livestock. Form to amend tax return   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. Form to amend tax return Example. Form to amend tax return A farmer sold a breeding cow on January 8, 2013, for $1,250. Form to amend tax return Expenses of the sale were $125. Form to amend tax return The cow was bought July 2, 2009, for $1,300. Form to amend tax return Depreciation (not less than the amount allowable) was $867. Form to amend tax return 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. Form to amend tax return Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. Form to amend tax return Any loss on the disposition of such property is treated as a long-term capital loss. Form to amend tax return Converted wetland. Form to amend tax return   This is generally land that was drained or filled to make the production of agricultural commodities possible. Form to amend tax return 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. Form to amend tax return   A wetland (before conversion) is land that meets all the following conditions. Form to amend tax return 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. Form to amend tax return 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. Form to amend tax return It supports, under normal circumstances, mostly plants that grow in saturated soil. Form to amend tax return Highly erodible cropland. Form to amend tax return   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. Form to amend tax return Generally, highly erodible cropland is land currently classified by the Department of Agriculture as Class IV, VI, VII, or VIII under its classification system. Form to amend tax return 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. Form to amend tax return Successor. Form to amend tax return   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. Form to amend tax return Timber Standing timber you held as investment property is a capital asset. Form to amend tax return Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. Form to amend tax return If you held the timber primarily for sale to customers, it is not a capital asset. Form to amend tax return Gain or loss on its sale is ordinary business income or loss. Form to amend tax return It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). Form to amend tax return See the Instructions for Schedule F (Form 1040). Form to amend tax return 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. Form to amend tax return Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. Form to amend tax return , are ordinary farm income and expenses reported on Schedule F. Form to amend tax return 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. Form to amend tax return Timber considered cut. Form to amend tax return   Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Form to amend tax return This is true whether the timber is cut under contract or whether you cut it yourself. Form to amend tax return Christmas trees. Form to amend tax return   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. Form to amend tax return They qualify for both rules discussed below. Form to amend tax return Election to treat cutting as a sale or exchange. Form to amend tax return   Under the general rule, the cutting of timber results in no gain or loss. Form to amend tax return It is not until a sale or exchange occurs that gain or loss is realized. Form to amend tax return 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. Form to amend tax return 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. Form to amend tax return Any later sale results in ordinary business income or loss. Form to amend tax return See the example below. Form to amend tax return   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. Form to amend tax return Making the election. Form to amend tax return   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. Form to amend tax return You do not have to make the election in the first year you cut the timber. Form to amend tax return You can make it in any year to which the election would apply. Form to amend tax return If the timber is partnership property, the election is made on the partnership return. Form to amend tax return This election cannot be made on an amended return. Form to amend tax return   Once you have made the election, it remains in effect for all later years unless you revoke it. Form to amend tax return Election under section 631(a) may be revoked. Form to amend tax return   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. Form to amend tax return The prior election (and revocation) is disregarded for purposes of making a subsequent election. Form to amend tax return See Form T (Timber), Forest Activities Schedule, for more information. Form to amend tax return Gain or loss. Form to amend tax return   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. Form to amend tax return   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. Form to amend tax return 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. Form to amend tax return 611-3. Form to amend tax return   Depletion of timber is discussed in chapter 7. Form to amend tax return Example. Form to amend tax return   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Form to amend tax return It had an adjusted basis for depletion of $40 per MBF. Form to amend tax return You are a calendar year taxpayer. Form to amend tax return On January 1, 2013, the timber had a FMV of $350 per MBF. Form to amend tax return It was cut in April for sale. Form to amend tax return On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Form to amend tax return You report the difference between the FMV and your adjusted basis for depletion as a gain. Form to amend tax return 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. Form to amend tax return You figure your gain as follows. Form to amend tax return 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. Form to amend tax return Outright sales of timber. Form to amend tax return   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). Form to amend tax return 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). Form to amend tax return Cutting contract. Form to amend tax return   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Form to amend tax return You are the owner of the timber. Form to amend tax return You held the timber longer than 1 year before its disposal. Form to amend tax return You kept an economic interest in the timber. Form to amend tax return   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. Form to amend tax return   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. Form to amend tax return Include this amount on Form 4797 along with your other section 1231 gains or losses. Form to amend tax return Date of disposal. Form to amend tax return   The date of disposal is the date the timber is cut. Form to amend tax return 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. Form to amend tax return   This election applies only to figure the holding period of the timber. Form to amend tax return It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Form to amend tax return   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Form to amend tax return The statement must identify the advance payments subject to the election and the contract under which they were made. Form to amend tax return   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). Form to amend tax return Attach the statement to the amended return and write “Filed pursuant to section 301. Form to amend tax return 9100-2” at the top of the statement. Form to amend tax return File the amended return at the same address the original return was filed. Form to amend tax return Owner. Form to amend tax return   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. Form to amend tax return 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. Form to amend tax return Tree stumps. Form to amend tax return   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. Form to amend tax return Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Form to amend tax return However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Form to amend tax return Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Form to amend tax return   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Form to amend tax return 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). Form to amend tax return If you have a gain from the sale, you may be allowed to exclude the gain on your home. Form to amend tax return For more information, see Publication 523, Selling Your Home. Form to amend tax return The gain on the sale of your business property is taxable. Form to amend tax return A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. Form to amend tax return Your taxable gain or loss on the sale of property used in your farm business is taxed under the rules for section 1231 transactions. Form to amend tax return See chapter 9. Form to amend tax return Losses from personal-use property, other than casualty or theft losses, are not deductible. Form to amend tax return 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. Form to amend tax return See chapter 10 for information about installment sales. Form to amend tax return When you sell your farm, the gain or loss on each asset is figured separately. Form to amend tax return The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. Form to amend tax return Each of the assets sold must be classified as one of the following. Form to amend tax return Capital asset held 1 year or less. Form to amend tax return Capital asset held longer than 1 year. Form to amend tax return 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 ). Form to amend tax return 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). Form to amend tax return 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. Form to amend tax return Allocation of consideration paid for a farm. Form to amend tax return   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. Form to amend tax return The residual method is required only if the group of assets sold constitutes a trade or business. Form to amend tax return This method determines gain or loss from the transfer of each asset. Form to amend tax return It also determines the buyer's basis in the business assets. Form to amend tax return For more information, see Sale of a Business in chapter 2 of Publication 544. Form to amend tax return Property used in farm operation. Form to amend tax return   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. Form to amend tax return Recognized gains and losses on business property must be reported on your return for the year of the sale. Form to amend tax return If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). Form to amend tax return Example. Form to amend tax return You sell your farm, including your main home, which you have owned since December 2001. Form to amend tax return You realize gain on the sale as follows. Form to amend tax return   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. Form to amend tax return 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. Form to amend tax return Treat the balance as section 1231 gain. Form to amend tax return 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 . Form to amend tax return Partial sale. Form to amend tax return   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. Form to amend tax return You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. Form to amend tax return For a detailed discussion on installment sales, see Publication 544. Form to amend tax return Adjusted basis of the part sold. Form to amend tax return   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. Form to amend tax return , on the part sold. Form to amend tax return 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 . Form to amend tax return Example. Form to amend tax return You bought a 600-acre farm for $700,000. Form to amend tax return The farm included land and buildings. Form to amend tax return The purchase contract designated $600,000 of the purchase price to the land. Form to amend tax return You later sold 60 acres of land on which you had installed a fence. Form to amend tax return 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. Form to amend tax return Use this amount to determine your gain or loss on the sale of the 60 acres. Form to amend tax return Assessed values for local property taxes. Form to amend tax return   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. Form to amend tax return Example. Form to amend tax return Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. Form to amend tax return 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. Form to amend tax return The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. Form to amend tax return Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. Form to amend tax return The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). Form to amend tax return Sale of your home. Form to amend tax return   Your home is a capital asset and not property used in the trade or business of farming. Form to amend tax return 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. Form to amend tax return Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. Form to amend tax return   If you use part of your home for business, you must make an appropriate adjustment to the basis for depreciation allowed or allowable. Form to amend tax return For more information on basis, see chapter 6. Form to amend tax return More information. Form to amend tax return   For more information on selling your home, see Publication 523. Form to amend tax return Gain from condemnation. Form to amend tax return   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. Form to amend tax return 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. Form to amend tax return 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. Form to amend tax return The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Form to amend tax return This is true even if you voluntarily return the property to the lender. Form to amend tax return You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. Form to amend tax return Buyer's (borrower's) gain or loss. Form to amend tax return   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. Form to amend tax return The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Form to amend tax return See Determining Gain or Loss , earlier. Form to amend tax return Worksheet 8-1. Form to amend tax return Worksheet for Foreclosures andRepossessions Part 1. Form to amend tax return Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Form to amend tax return Complete this part only if you were personally liable for the debt. Form to amend tax return Otherwise, go to Part 2. Form to amend tax return   1. Form to amend tax return 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. Form to amend tax return Enter the Fair Market Value of the transferred property   3. Form to amend tax return Ordinary income from cancellation of debt upon foreclosure or repossession. Form to amend tax return * Subtract line 2 from line 1. Form to amend tax return If zero or less, enter -0-   Part 2. Form to amend tax return Figure your gain or loss from foreclosure or repossession. Form to amend tax return   4. Form to amend tax return If you completed Part 1, enter the smaller of line 1 or line 2. Form to amend tax return If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. Form to amend tax return Enter any proceeds you received from the foreclosure sale   6. Form to amend tax return Add lines 4 and 5   7. Form to amend tax return Enter the adjusted basis of the transferred property   8. Form to amend tax return Gain or loss from foreclosure or repossession. Form to amend tax return Subtract line 7  from line 6   * The income may not be taxable. Form to amend tax return See Cancellation of debt . Form to amend tax return    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. Form to amend tax return Amount realized on a nonrecourse debt. Form to amend tax return   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. Form to amend tax return 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. Form to amend tax return Example 1. Form to amend tax return Ann paid $200,000 for land used in her farming business. Form to amend tax return She paid $15,000 down and borrowed the remaining $185,000 from a bank. Form to amend tax return Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. Form to amend tax return The bank foreclosed on the loan 2 years after Ann stopped making payments. Form to amend tax return When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. Form to amend tax return The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. Form to amend tax return She figures her gain or loss on Form 4797, Part I, by comparing the amount realized ($180,000) with her adjusted basis ($200,000). Form to amend tax return She has a $20,000 deductible loss. Form to amend tax return Example 2. Form to amend tax return Assume the same facts as in Example 1 except the FMV of the land was $210,000. Form to amend tax return The result is the same. Form to amend tax return The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. Form to amend tax return Because her adjusted basis is $200,000, she has a deductible loss of $20,000, which she reports on Form 4797, Part I. Form to amend tax return Amount realized on a recourse debt. Form to amend tax return   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. Form to amend tax return   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. Form to amend tax return The amount realized does not include the canceled debt that is your income from cancellation of debt. Form to amend tax return See Cancellation of debt , later. Form to amend tax return Example 3. Form to amend tax return Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). Form to amend tax return In this case, the amount she realizes is $170,000. Form to amend tax return This is the canceled debt ($180,000) up to the FMV of the land ($170,000). Form to amend tax return Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). Form to amend tax return She has a $30,000 deductible loss, which she figures on Form 4797, Part I. Form to amend tax return She is also treated as receiving ordinary income from cancellation of debt. Form to amend tax return That income is $10,000 ($180,000 − $170,000). Form to amend tax return This is the part of the canceled debt not included in the amount realized. Form to amend tax return She reports this as other income on Schedule F, line 8. Form to amend tax return Seller's (lender's) gain or loss on repossession. Form to amend tax return   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. Form to amend tax return For more information, see Repossession in Publication 537, Installment Sales. Form to amend tax return Cancellation of debt. Form to amend tax return   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. Form to amend tax return This income is separate from any gain or loss realized from the foreclosure or repossession. Form to amend tax return Report the income from cancellation of a business debt on Schedule F, line 8. Form to amend tax return Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Form to amend tax return    You can use Worksheet 8-1 to figure your income from cancellation of debt. Form to amend tax return   However, income from cancellation of debt is not taxed if any of the following apply. Form to amend tax return The cancellation is intended as a gift. Form to amend tax return The debt is qualified farm debt (see chapter 3). Form to amend tax return The debt is qualified real property business debt (see chapter 5 of Publication 334). Form to amend tax return You are insolvent or bankrupt (see  chapter 3). Form to amend tax return The debt is qualified principal residence indebtedness (see chapter 3). Form to amend tax return   Use Form 982 to report the income exclusion. Form to amend tax return Abandonment The abandonment of property is a disposition of property. Form to amend tax return 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. Form to amend tax return Business or investment property. Form to amend tax return   Loss from abandonment of business or investment property is deductible as a loss. Form to amend tax return Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Form to amend tax return If your adjusted basis is more than the amount you realize (if any), then you have a loss. Form to amend tax return If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Form to amend tax return This rule also applies to leasehold improvements the lessor made for the lessee. Form to amend tax return 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 . Form to amend tax return   If the abandoned property is secured by debt, special rules apply. Form to amend tax return 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). Form to amend tax return For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Form to amend tax return The abandonment loss is deducted in the tax year in which the loss is sustained. Form to amend tax return Report the loss on Form 4797, Part II, line 10. Form to amend tax return Personal-use property. Form to amend tax return   You cannot deduct any loss from abandonment of your home or other property held for personal use. Form to amend tax return Canceled debt. Form to amend tax return   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. Form to amend tax return This income is separate from any loss realized from abandonment of the property. Form to amend tax return Report income from cancellation of a debt related to a business or rental activity as business or rental income. Form to amend tax return Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Form to amend tax return   However, income from cancellation of debt is not taxed in certain circumstances. Form to amend tax return See Cancellation of debt earlier under Foreclosure or Repossession . Form to amend tax return Forms 1099-A and 1099-C. Form to amend tax return   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. Form to amend tax return 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. Form to amend tax return 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. Form to amend tax return For foreclosures, repossessions, abandonments of property, and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Form to amend tax return Prev  Up  Next   Home   More Online Publications