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Free E-file State Taxes Only

Free e-file state taxes only Index A Abatement of interest and penalties, Abatement of interest and penalties. Free e-file state taxes only Accidents, Deductible losses. Free e-file state taxes only , Nondeductible losses. Free e-file state taxes only Adjusted basis, Adjusted Basis Adjustments to basis, Basis adjustment to corporation's property. Free e-file state taxes only , Adjustments to Basis Amended returns, Amended return. Free e-file state taxes only Appraisals, Appraisal. Free e-file state taxes only , Costs of photographs and appraisals. Free e-file state taxes only Assistance (see Tax help) B Bad debts, Nonbusiness bad debt. Free e-file state taxes only Basis Adjusted, Adjusted Basis Adjustments to, Basis adjustment to corporation's property. Free e-file state taxes only , Adjustments to Basis Replacement property, Basis of replacement property. Free e-file state taxes only Business or income-producing property, Business or income-producing property. Free e-file state taxes only Business purposes, property used partly for, Property used partly for business and partly for personal purposes. Free e-file state taxes only C Cars Accidents, Deductible losses. Free e-file state taxes only Fair market value of, Car value. Free e-file state taxes only Cash gifts, Cash gifts. Free e-file state taxes only Casualty losses, Table 3. Free e-file state taxes only When To Deduct a Casualty or Theft Loss Deductible losses, Deductible losses. Free e-file state taxes only Definition, Casualty Deposits, loss on, Casualty loss or ordinary loss. Free e-file state taxes only Nondeductible losses, Nondeductible losses. Free e-file state taxes only Progressive deterioration, Progressive deterioration. Free e-file state taxes only Proof of, Casualty loss proof. Free e-file state taxes only When to report, Losses. Free e-file state taxes only Workbooks for listing property, Workbooks for casualties and thefts. Free e-file state taxes only Clean up costs, Cost of cleaning up or making repairs. Free e-file state taxes only Condemnation, Condemnations. Free e-file state taxes only Corrosive drywall, Special Procedure for Damage From Corrosive Drywall Costs Appraisals, Costs of photographs and appraisals. Free e-file state taxes only Clean up, Cost of cleaning up or making repairs. Free e-file state taxes only Incidental expenses, Related expenses. Free e-file state taxes only Landscaping, Landscaping. Free e-file state taxes only Photographs taken after loss, Costs of photographs and appraisals. Free e-file state taxes only Protection, Cost of protection. Free e-file state taxes only Repair, Cost of cleaning up or making repairs. Free e-file state taxes only Replacement, Replacement cost. Free e-file state taxes only D Death of taxpayer Postponement of gain, Death of a taxpayer. Free e-file state taxes only Deductible losses, Deductible losses. Free e-file state taxes only Deduction limits, Deduction Limits $100 rule, $100 Rule 10% rule, 10% Rule 2% rule, 2% Rule Deposit losses, Mislaid or lost property. Free e-file state taxes only , Table 3. Free e-file state taxes only When To Deduct a Casualty or Theft Loss Reporting of (Table 1), Table 1. Free e-file state taxes only Reporting Loss on Deposits When to report, Loss on deposits. Free e-file state taxes only Disaster area losses, Lessee's loss. Free e-file state taxes only Claiming on amended return, Claiming a disaster loss on an amended return. Free e-file state taxes only Federal loan canceled, Federal loan canceled. Free e-file state taxes only Federally declared disaster, Business or income-producing property located in a federally declared disaster area. Free e-file state taxes only , Disaster Area Losses Figuring loss deduction, Figuring the loss deduction. Free e-file state taxes only Form 1040X, How to report the loss on Form 1040X. Free e-file state taxes only Home made unsafe, Home made unsafe by disaster. Free e-file state taxes only How to deduct loss in preceding year, How to deduct your loss in the preceding year. Free e-file state taxes only Inventory, Disaster loss to inventory. Free e-file state taxes only Main home rules, Main home in disaster area. Free e-file state taxes only , Gains. Free e-file state taxes only Qualified disaster mitigation payments, Qualified disaster mitigation payments. Free e-file state taxes only Qualified disaster relief payments, Qualified disaster relief payments. Free e-file state taxes only Records to keep, Records. Free e-file state taxes only Tax deadlines postponed, Covered disaster area. Free e-file state taxes only When to deduct, When to deduct the loss. Free e-file state taxes only Table 3, Table 3. Free e-file state taxes only When To Deduct a Casualty or Theft Loss Disaster mitigation payments, Qualified disaster mitigation payments. Free e-file state taxes only Disaster relief grants, Disaster relief. Free e-file state taxes only Drywall, corrosive, Special Procedure for Damage From Corrosive Drywall Due dates Tax deadlines postponed, Postponed Tax Deadlines E Employer's emergency disaster fund, Employer's emergency disaster fund. Free e-file state taxes only F Fair market value (FMV) Decline in value of property in or near casualty area, Decline in market value of property in or near casualty area. Free e-file state taxes only Measuring decrease in, Decrease in Fair Market Value Items not to consider, Figuring Decrease in FMV — Items Not To Consider Items to consider, Figuring Decrease in FMV — Items To Consider Federal disaster relief grants, Federal disaster relief grants. Free e-file state taxes only Federal Emergency Management Agency (FEMA), contacting, Contacting the Federal Emergency Management Agency (FEMA) Federally declared disasters, Business or income-producing property located in a federally declared disaster area. Free e-file state taxes only , Disaster Area Losses Figuring gain, Property used partly for business and partly for personal purposes. Free e-file state taxes only Figuring loss, Theft loss proof. Free e-file state taxes only , Figuring the Deduction Adjusted basis, Adjusted Basis Disaster area losses, Figuring the loss deduction. Free e-file state taxes only Insurance and other reimbursements, Insurance and Other Reimbursements Form 1040, Schedule A, Personal-use property. Free e-file state taxes only Form 1040, Schedule D, Personal-use property. Free e-file state taxes only Form 1040X Disaster area losses, How to report the loss on Form 1040X. Free e-file state taxes only Form 4684 Reporting gains and losses on personal-use property, Personal-use property. Free e-file state taxes only Free tax services, Free help with your tax return. Free e-file state taxes only G Gains Figuring, Figuring a Gain Postponement of, Postponement of Gain, How To Postpone a Gain Reimbursements, Gain from reimbursement. Free e-file state taxes only Reporting of, Contacting the Federal Emergency Management Agency (FEMA) When to report, Changing your mind. Free e-file state taxes only H Help (see Tax help) I Incidental expenses, Related expenses. Free e-file state taxes only Insurance, Insurance and Other Reimbursements Living expenses, payments for, Insurance payments for living expenses. Free e-file state taxes only Interest abatement, Abatement of interest and penalties. Free e-file state taxes only Inventory losses, Loss of inventory. Free e-file state taxes only Disaster area losses, Disaster loss to inventory. Free e-file state taxes only L Landscaping, Landscaping. Free e-file state taxes only Leased property, Leased property. Free e-file state taxes only When to report, Lessee's loss. Free e-file state taxes only Losses Casualty (see Casualty losses) Deposits (see Deposit losses) Disaster areas (see Disaster area losses) Figuring amount (see Figuring loss) Proof of, Deducted loss recovered. Free e-file state taxes only Records of, Theft loss proof. Free e-file state taxes only Reporting of, Contacting the Federal Emergency Management Agency (FEMA) Theft (see Theft losses) When to report, Changing your mind. Free e-file state taxes only (Table 3), Table 3. Free e-file state taxes only When To Deduct a Casualty or Theft Loss M Married taxpayers Deduction limits, Married taxpayers. Free e-file state taxes only , Married taxpayers. Free e-file state taxes only Mislaid or lost property, Mislaid or lost property. Free e-file state taxes only Missing children, photographs of, Reminders N Nonbusiness bad debts, Nonbusiness bad debt. Free e-file state taxes only Nondeductible losses, Nondeductible losses. Free e-file state taxes only P Payments for living expenses, Insurance payments for living expenses. Free e-file state taxes only Penalty abatement, Abatement of interest and penalties. Free e-file state taxes only Personal property Loss deduction, figuring of, Personal property. Free e-file state taxes only Personal-use property Reporting gains and losses, Personal-use property. Free e-file state taxes only Personal-use real property, Exception for personal-use real property. Free e-file state taxes only Photographs Documentation of loss, Costs of photographs and appraisals. Free e-file state taxes only Ponzi-type investment schemes, Losses from Ponzi-type investment schemes. Free e-file state taxes only Postponed tax deadlines, Postponed Tax Deadlines Postponement of gain, Postponement of Gain, How To Postpone a Gain Amended return, Amended return. Free e-file state taxes only Changing mind, Changing your mind. Free e-file state taxes only Replacement property acquired after return filed, Replacement property acquired after return filed. Free e-file state taxes only Replacement property acquired before return filed, Replacement property acquired before return filed. Free e-file state taxes only Required statement, Required statement. Free e-file state taxes only Substituting replacement property, Substituting replacement property. Free e-file state taxes only Three-year limit, Three-year limit. Free e-file state taxes only Proof of loss, Proof of Loss Protection costs, Cost of protection. Free e-file state taxes only Publications (see Tax help) R Records of loss, Theft loss proof. Free e-file state taxes only Recovered stolen property, Recovered stolen property. Free e-file state taxes only Reimbursements Cash gifts, Cash gifts. Free e-file state taxes only Disaster relief, Disaster relief. Free e-file state taxes only Employer's emergency disaster fund, Employer's emergency disaster fund. Free e-file state taxes only Failure to file a claim, Failure to file a claim for reimbursement. Free e-file state taxes only Received after deducting loss, Reimbursement Received After Deducting Loss Types of, Types of Reimbursements Related expenses, Related expenses. Free e-file state taxes only Related person, replacement property bought from, Buying replacement property from a related person. Free e-file state taxes only Repair costs, Cost of cleaning up or making repairs. Free e-file state taxes only Replacement cost, Replacement cost. Free e-file state taxes only Replacement period, Replacement Period Extension of, Extension. Free e-file state taxes only Replacement property, Replacement Property Advance payment, Advance payment. Free e-file state taxes only Basis adjustment to corporation's property, Basis adjustment to corporation's property. Free e-file state taxes only Basis of, Basis of replacement property. Free e-file state taxes only Main home, Main home replaced. Free e-file state taxes only In disaster area, Main home in disaster area. Free e-file state taxes only Postponement of gain, Replacement property acquired before return filed. Free e-file state taxes only Reporting gains and losses, Reporting a gain. Free e-file state taxes only , How To Report Gains and Losses Basis, adjustments to, Adjustments to Basis Business and income-producing property, Business and income-producing property. Free e-file state taxes only Deductions exceeding income, If Deductions Are More Than Income Deposits, How to report. Free e-file state taxes only Table 1, Table 1. Free e-file state taxes only Reporting Loss on Deposits Disaster area losses, How to report the loss on Form 1040X. Free e-file state taxes only Personal-use property, Personal-use property. Free e-file state taxes only Timing of, When To Report Gains and Losses S Sentimental value, Sentimental value. Free e-file state taxes only State disaster relief grants for businesses, State disaster relief grants for businesses. Free e-file state taxes only Stolen property (see Theft losses) T Tables and figures Reporting loss on deposits (Table 1), Table 1. Free e-file state taxes only Reporting Loss on Deposits When to deduct losses (Table 3), Table 3. Free e-file state taxes only When To Deduct a Casualty or Theft Loss Tax help, How To Get Tax Help Theft losses, Theft FMV of stolen property, FMV of stolen property. Free e-file state taxes only Mislaid or lost property, Mislaid or lost property. Free e-file state taxes only Proof of, Theft loss proof. Free e-file state taxes only When to deduct (Table 3), Table 3. Free e-file state taxes only When To Deduct a Casualty or Theft Loss When to report, Losses. Free e-file state taxes only Workbooks for listing property, Workbooks for casualties and thefts. Free e-file state taxes only Timber loss, Timber loss. Free e-file state taxes only W Workbooks for property lost due to casualties and thefts, Workbooks for casualties and thefts. Free e-file state taxes only Prev  Up     Home   More Online Publications
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The Free E-file State Taxes Only

Free e-file state taxes only 2. Free e-file state taxes only   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. Free e-file state taxes only Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. Free e-file state taxes only S. Free e-file state taxes only or foreign source income. Free e-file state taxes only This chapter discusses the rules for determining if the source of your income is from: American Samoa, The Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of Puerto Rico (Puerto Rico), Guam, or The U. Free e-file state taxes only S. Free e-file state taxes only Virgin Islands (USVI). Free e-file state taxes only Generally, the same rules that apply for determining U. Free e-file state taxes only S. Free e-file state taxes only source income also apply for determining possession source income. Free e-file state taxes only However, there are some important exceptions to these rules. Free e-file state taxes only Both the general rules and the exceptions are discussed in this chapter. Free e-file state taxes only U. Free e-file state taxes only S. Free e-file state taxes only income rule. Free e-file state taxes only   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. Free e-file state taxes only Table 2-1 shows the general rules for determining whether income is from sources within the United States. Free e-file state taxes only Table 2-1. Free e-file state taxes only General Rules for Determining U. Free e-file state taxes only S. Free e-file state taxes only Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Free e-file state taxes only Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. Free e-file state taxes only For more information, see Regulations section 1. Free e-file state taxes only 863-1(b). Free e-file state taxes only Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. Free e-file state taxes only Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. Free e-file state taxes only Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. Free e-file state taxes only It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. Free e-file state taxes only Services performed wholly within a relevant possession. Free e-file state taxes only   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. Free e-file state taxes only However, there is an exception for income earned as a member of the U. Free e-file state taxes only S. Free e-file state taxes only Armed Forces or a civilian spouse. Free e-file state taxes only U. Free e-file state taxes only S. Free e-file state taxes only Armed Forces. Free e-file state taxes only   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. Free e-file state taxes only However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. Free e-file state taxes only Civilian spouse of active duty member of the U. Free e-file state taxes only S. Free e-file state taxes only Armed Forces. Free e-file state taxes only   If you are a bona fide resident of a U. Free e-file state taxes only S. Free e-file state taxes only possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. Free e-file state taxes only Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. Free e-file state taxes only S. Free e-file state taxes only possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. Free e-file state taxes only Services performed partly inside and partly outside a relevant possession. Free e-file state taxes only   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. Free e-file state taxes only Compensation (other than certain fringe benefits) is sourced on a time basis. Free e-file state taxes only Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Free e-file state taxes only   Or, you may be permitted to use an alternative basis to determine the source of compensation. Free e-file state taxes only See Alternative basis , later. Free e-file state taxes only   If you are self-employed, determine the source of your income for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. Free e-file state taxes only In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Free e-file state taxes only Time basis. Free e-file state taxes only   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). Free e-file state taxes only Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed  services in the relevant  possession during the year     Total number of days you  performed services during the year           You can use a unit of time less than a day in the above fraction, if appropriate. Free e-file state taxes only The time period for which the income is made does not have to be a year. Free e-file state taxes only Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. Free e-file state taxes only Example. Free e-file state taxes only In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. Free e-file state taxes only Your Puerto Rico source income is $60,000, figured as follows. Free e-file state taxes only       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. Free e-file state taxes only   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Free e-file state taxes only Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. Free e-file state taxes only You determine the period to which the income is attributable based on the facts and circumstances of your case. Free e-file state taxes only For more information on multi-year compensation, see Treasury Decision (T. Free e-file state taxes only D. Free e-file state taxes only ) 9212 and Regulations section 1. Free e-file state taxes only 861-4, 2005-35 I. Free e-file state taxes only R. Free e-file state taxes only B. Free e-file state taxes only 429, available at www. Free e-file state taxes only irs. Free e-file state taxes only gov/irb/2005-35_IRB/ar14. Free e-file state taxes only html. Free e-file state taxes only Certain fringe benefits sourced on a geographical basis. Free e-file state taxes only   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. Free e-file state taxes only Housing. Free e-file state taxes only Education. Free e-file state taxes only Local transportation. Free e-file state taxes only Tax reimbursement. Free e-file state taxes only Hazardous or hardship duty pay. Free e-file state taxes only Moving expense reimbursement. Free e-file state taxes only For information on determining the source of the fringe benefits listed above, see Regulations section 1. Free e-file state taxes only 861-4. Free e-file state taxes only Alternative basis. Free e-file state taxes only   You can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your income than the time or geographical basis. Free e-file state taxes only If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your income. Free e-file state taxes only De minimis exception. Free e-file state taxes only   There is an exception to the rule for determining the source of income earned in a possession. Free e-file state taxes only Generally, you will not have income from a possession if during a tax year you: Are a U. Free e-file state taxes only S. Free e-file state taxes only citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. Free e-file state taxes only This exception began with income earned during your 2008 tax year. Free e-file state taxes only Pensions. Free e-file state taxes only   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. Free e-file state taxes only The contribution portion is sourced according to where services were performed that earned the pension. Free e-file state taxes only The investment earnings portion is sourced according to the location of the pension trust. Free e-file state taxes only Example. Free e-file state taxes only You are a U. Free e-file state taxes only S. Free e-file state taxes only citizen who worked in Puerto Rico for a U. Free e-file state taxes only S. Free e-file state taxes only company. Free e-file state taxes only All services were performed in Puerto Rico. Free e-file state taxes only Upon retirement you remained in Puerto Rico and began receiving your pension from the U. Free e-file state taxes only S. Free e-file state taxes only pension trust of your employer. Free e-file state taxes only Distributions from the U. Free e-file state taxes only S. Free e-file state taxes only pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. Free e-file state taxes only S. Free e-file state taxes only source income. Free e-file state taxes only Investment Income This category includes such income as interest, dividends, rents, and royalties. Free e-file state taxes only Interest income. Free e-file state taxes only   The source of interest income is generally determined by the residence of the payer. Free e-file state taxes only Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. Free e-file state taxes only   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. Free e-file state taxes only See Regulations section 1. Free e-file state taxes only 937-2(i) for more information. Free e-file state taxes only Dividends. Free e-file state taxes only   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. Free e-file state taxes only There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. Free e-file state taxes only For more information, see Regulations section 1. Free e-file state taxes only 937-2(g). Free e-file state taxes only Rental income. Free e-file state taxes only   Rents from property located in a relevant possession are treated as income from sources within that possession. Free e-file state taxes only Royalties. Free e-file state taxes only   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. Free e-file state taxes only   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. Free e-file state taxes only Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. Free e-file state taxes only The most common situations are discussed below. Free e-file state taxes only Real property. Free e-file state taxes only   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. Free e-file state taxes only The location of the property generally determines the source of income from the sale. Free e-file state taxes only For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. Free e-file state taxes only If, however, the home you sold was located in the United States, the gain is U. Free e-file state taxes only S. Free e-file state taxes only source income. Free e-file state taxes only Personal property. Free e-file state taxes only   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. Free e-file state taxes only Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. Free e-file state taxes only If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. Free e-file state taxes only   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. Free e-file state taxes only The rules applying to sales of inventory are discussed below. Free e-file state taxes only For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. Free e-file state taxes only Inventory. Free e-file state taxes only   Your inventory is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. Free e-file state taxes only The source of income from the sale of inventory depends on whether the inventory was purchased or produced. Free e-file state taxes only Purchased. Free e-file state taxes only   Income from the sale of inventory that you purchased is sourced where you sell the property. Free e-file state taxes only Generally, this is where title to the property passes to the buyer. Free e-file state taxes only Produced. Free e-file state taxes only   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. Free e-file state taxes only For information on making the allocation, see Regulations section 1. Free e-file state taxes only 863-3(f). Free e-file state taxes only Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. Free e-file state taxes only S. Free e-file state taxes only citizen or resident alien prior to becoming a bona fide resident of a possession. Free e-file state taxes only You are subject to these special rules if you meet both of the following conditions. Free e-file state taxes only For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. Free e-file state taxes only For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). Free e-file state taxes only If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. Free e-file state taxes only Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. Free e-file state taxes only S. Free e-file state taxes only tax return. Free e-file state taxes only (See chapter 3 for additional filing information. Free e-file state taxes only ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. Free e-file state taxes only These rules apply to dispositions after April 11, 2005. Free e-file state taxes only For details, see Regulations section 1. Free e-file state taxes only 937-2(f)(1) and Examples 1 and 2 of section 1. Free e-file state taxes only 937-2(k). Free e-file state taxes only Example 1. Free e-file state taxes only In 2007, Cheryl Jones, a U. Free e-file state taxes only S. Free e-file state taxes only citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. Free e-file state taxes only S. Free e-file state taxes only corporation listed on the New York Stock Exchange. Free e-file state taxes only On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. Free e-file state taxes only Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. Free e-file state taxes only On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. Free e-file state taxes only On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. Free e-file state taxes only Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. Free e-file state taxes only The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. Free e-file state taxes only This existing special rule applies if you are a U. Free e-file state taxes only S. Free e-file state taxes only citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. Free e-file state taxes only S. Free e-file state taxes only assets during the 10-year period beginning when you became a bona fide resident. Free e-file state taxes only The gain is U. Free e-file state taxes only S. Free e-file state taxes only source income that generally is subject to U. Free e-file state taxes only S. Free e-file state taxes only tax if the property is either (1) located in the United States; (2) stock issued by a U. Free e-file state taxes only S. Free e-file state taxes only corporation or a debt obligation of a U. Free e-file state taxes only S. Free e-file state taxes only person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). Free e-file state taxes only See chapter 3 for filing information. Free e-file state taxes only Special election. Free e-file state taxes only   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. Free e-file state taxes only Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. Free e-file state taxes only This election overrides both of the special rules discussed earlier. Free e-file state taxes only   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. Free e-file state taxes only Marketable securities. Free e-file state taxes only   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. Free e-file state taxes only Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. Free e-file state taxes only S. Free e-file state taxes only holding periods. Free e-file state taxes only   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. Free e-file state taxes only The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. Free e-file state taxes only This is your gain (or loss) that is treated as being from sources within the relevant possession. Free e-file state taxes only If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. Free e-file state taxes only Example 2. Free e-file state taxes only Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. Free e-file state taxes only S. Free e-file state taxes only and possession holding periods. Free e-file state taxes only Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. Free e-file state taxes only Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). Free e-file state taxes only By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Free e-file state taxes only Other personal property. Free e-file state taxes only   For personal property other than marketable securities, use a time-based allocation. Free e-file state taxes only Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. Free e-file state taxes only      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. Free e-file state taxes only Example 3. Free e-file state taxes only In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. Free e-file state taxes only On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. Free e-file state taxes only On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. Free e-file state taxes only She had owned the interest for a total of 1,720 days. Free e-file state taxes only Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. Free e-file state taxes only The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). Free e-file state taxes only By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Free e-file state taxes only Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. Free e-file state taxes only Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. Free e-file state taxes only These rules do not apply to amounts paid as salary or other compensation for services. Free e-file state taxes only See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. Free e-file state taxes only Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. Free e-file state taxes only These circumstances are listed below. Free e-file state taxes only You have an office or other fixed place of business in the relevant possession to which the income can be attributed. Free e-file state taxes only That office or place of business is a material factor in producing the income. Free e-file state taxes only The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Free e-file state taxes only An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Free e-file state taxes only The three kinds of income from sources outside the relevant possession to which these rules apply are the following. Free e-file state taxes only Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. Free e-file state taxes only Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the relevant possession. Free e-file state taxes only Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. Free e-file state taxes only Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Free e-file state taxes only Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. Free e-file state taxes only Example. Free e-file state taxes only Marcy Jackson is a bona fide resident of American Samoa. Free e-file state taxes only Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. Free e-file state taxes only A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. Free e-file state taxes only Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. Free e-file state taxes only The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. Free e-file state taxes only However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. Free e-file state taxes only Prev  Up  Next   Home   More Online Publications