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How To File Amended Tax Return

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How To File Amended Tax Return

How to file amended tax return Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. How to file amended tax return Employee-owners. How to file amended tax return Other rules. How to file amended tax return Other rules. How to file amended tax return Property Exchanged for StockNonqualified preferred stock. How to file amended tax return Liabilities. How to file amended tax return Election to reduce basis. How to file amended tax return Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. How to file amended tax return S. How to file amended tax return Real Property Interest Accounting MethodsSection 481(a) adjustment. How to file amended tax return Accounting Periods Recordkeeping Income, Deductions, and Special ProvisionsCosts of Going Into Business Related Persons Income From Qualifying Shipping Activities Election to Expense Qualified Refinery Property Deduction to Comply With EPA Sulfur Regulations Energy-Efficient Commercial Building Property Deduction Corporate Preference Items Dividends-Received Deduction Extraordinary Dividends Below-Market Loans Charitable Contributions Capital Losses Net Operating Losses At-Risk Limits Passive Activity Limits Figuring TaxTax Rate Schedule Alternative Minimum Tax (AMT) Credits Recapture Taxes Accumulated Earnings Tax Distributions to ShareholdersMoney or Property Distributions Distributions of Stock or Stock Rights Constructive Distributions Reporting Dividends and Other Distributions How To Get Tax Help Businesses Taxed as Corporations The rules you must use to determine whether a business is taxed as a corporation changed for businesses formed after 1996. How to file amended tax return Business formed before 1997. How to file amended tax return   A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. How to file amended tax return Business formed after 1996. How to file amended tax return   The following businesses formed after 1996 are taxed as corporations. How to file amended tax return A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. How to file amended tax return A business formed under a state law that refers to it as a joint-stock company or joint-stock association. How to file amended tax return An insurance company. How to file amended tax return Certain banks. How to file amended tax return A business wholly owned by a state or local government. How to file amended tax return A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). How to file amended tax return Certain foreign businesses. How to file amended tax return Any other business that elects to be taxed as a corporation. How to file amended tax return For example, a limited liability company (LLC) can elect to be treated as an association taxable as a corporation by filing Form 8832, Entity Classification Election. How to file amended tax return For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. How to file amended tax return S corporations. How to file amended tax return   Some corporations may meet the qualifications for electing to be S corporations. How to file amended tax return For information on S corporations, see the instructions for Form 1120S, U. How to file amended tax return S. How to file amended tax return Income Tax Return for an S Corporation. How to file amended tax return Personal service corporations. How to file amended tax return   A corporation is a personal service corporation if it meets all of the following requirements. How to file amended tax return Its principal activity during the “testing period” is performing personal services (defined later). How to file amended tax return Generally, the testing period for any tax year is the prior tax year. How to file amended tax return If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of: The last day of its tax year, or The last day of the calendar year in which its tax year begins. How to file amended tax return Its employee-owners substantially perform the services in (1), above. How to file amended tax return This requirement is met if more than 20% of the corporation's compensation cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners. How to file amended tax return Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. How to file amended tax return Personal services. How to file amended tax return   Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts. How to file amended tax return Employee-owners. How to file amended tax return   A person is an employee-owner of a personal service corporation if both of the following apply. How to file amended tax return He or she is an employee of the corporation or performs personal services for, or on behalf of, the corporation (even if he or she is an independent contractor for other purposes) on any day of the testing period. How to file amended tax return He or she owns any stock in the corporation at any time during the testing period. How to file amended tax return Other rules. How to file amended tax return   For other rules that apply to personal service corporations see Accounting Periods, later. How to file amended tax return Closely held corporations. How to file amended tax return   A corporation is closely held if all of the following apply. How to file amended tax return It is not a personal service corporation. How to file amended tax return At any time during the last half of the tax year, more than 50% of the value of its outstanding stock is, directly or indirectly, owned by or for five or fewer individuals. How to file amended tax return “Individual” includes certain trusts and private foundations. How to file amended tax return Other rules. How to file amended tax return   For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. How to file amended tax return Property Exchanged for Stock If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other than nonqualified preferred stock, described later), and immediately afterward you are in control of the corporation, the exchange is usually not taxable. How to file amended tax return This rule applies both to individuals and to groups who transfer property to a corporation. How to file amended tax return It also applies whether the corporation is being formed or is already operating. How to file amended tax return It does not apply in the following situations. How to file amended tax return The corporation is an investment company. How to file amended tax return You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. How to file amended tax return The stock is received in exchange for the corporation's debt (other than a security) or for interest on the corporation's debt (including a security) that accrued while you held the debt. How to file amended tax return Both the corporation and any person involved in a nontaxable exchange of property for stock must attach to their income tax returns a complete statement of all facts pertinent to the exchange. How to file amended tax return For more information, see section 1. How to file amended tax return 351-3 of the Regulations. How to file amended tax return Control of a corporation. How to file amended tax return   To be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock. How to file amended tax return Example 1. How to file amended tax return You and Bill Jones buy property for $100,000. How to file amended tax return You both organize a corporation when the property has a fair market value of $300,000. How to file amended tax return You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. How to file amended tax return No gain is recognized by you, Bill, or the corporation. How to file amended tax return Example 2. How to file amended tax return You and Bill transfer the property with a basis of $100,000 to a corporation in exchange for stock with a fair market value of $300,000. How to file amended tax return This represents only 75% of each class of stock of the corporation. How to file amended tax return The other 25% was already issued to someone else. How to file amended tax return You and Bill recognize a taxable gain of $200,000 on the transaction. How to file amended tax return Services rendered. How to file amended tax return   The term property does not include services rendered or to be rendered to the issuing corporation. How to file amended tax return The value of stock received for services is income to the recipient. How to file amended tax return Example. How to file amended tax return You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. How to file amended tax return Right after the exchange, you own 85% of the outstanding stock. How to file amended tax return No gain is recognized on the exchange of property. How to file amended tax return However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. How to file amended tax return Property of relatively small value. How to file amended tax return   The term property does not include property of a relatively small value when it is compared to the value of stock and securities already owned or to be received for services by the transferor if the main purpose of the transfer is to qualify for the nonrecognition of gain or loss by other transferors. How to file amended tax return   Property transferred will not be considered to be of relatively small value if its fair market value is at least 10% of the fair market value of the stock and securities already owned or to be received for services by the transferor. How to file amended tax return Stock received in disproportion to property transferred. How to file amended tax return   If a group of transferors exchange property for corporate stock, each transferor does not have to receive stock in proportion to his or her interest in the property transferred. How to file amended tax return If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. How to file amended tax return It may be treated as if the stock were first received in proportion and then some of it used to make gifts, pay compensation for services, or satisfy the transferor's obligations. How to file amended tax return Money or other property received. How to file amended tax return   If, in an otherwise nontaxable exchange of property for corporate stock, you also receive money or property other than stock, you may have to recognize gain. How to file amended tax return You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. How to file amended tax return The rules for figuring the recognized gain in this situation generally follow those for a partially nontaxable exchange discussed in Publication 544 under Like-Kind Exchanges. How to file amended tax return If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. How to file amended tax return See chapter 3 of Publication 544. How to file amended tax return No loss is recognized. How to file amended tax return Nonqualified preferred stock. How to file amended tax return   Nonqualified preferred stock is treated as property other than stock. How to file amended tax return Generally, it is preferred stock with any of the following features. How to file amended tax return The holder has the right to require the issuer or a related person to redeem or buy the stock. How to file amended tax return The issuer or a related person is required to redeem or buy the stock. How to file amended tax return The issuer or a related person has the right to redeem or buy the stock and, on the issue date, it is more likely than not that the right will be exercised. How to file amended tax return The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. How to file amended tax return For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. How to file amended tax return Liabilities. How to file amended tax return   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. How to file amended tax return There are two exceptions to this treatment. How to file amended tax return If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. How to file amended tax return However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. How to file amended tax return If there is no good business reason for the corporation to assume your liabilities, or if your main purpose in the exchange is to avoid federal income tax, the assumption is treated as if you received money in the amount of the liabilities. How to file amended tax return For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. How to file amended tax return Example. How to file amended tax return You transfer property to a corporation for stock. How to file amended tax return Immediately after the transfer, you control the corporation. How to file amended tax return You also receive $10,000 in the exchange. How to file amended tax return Your adjusted basis in the transferred property is $20,000. How to file amended tax return The stock you receive has a fair market value (FMV) of $16,000. How to file amended tax return The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. How to file amended tax return Gain is realized as follows. How to file amended tax return FMV of stock received $16,000 Cash received 10,000 Liability assumed by corporation 5,000 Total received $31,000 Minus: Adjusted basis of property transferred 20,000 Realized gain $11,000   The liability assumed is not treated as money or other property. How to file amended tax return The recognized gain is limited to $10,000, the cash received. How to file amended tax return Loss on exchange. How to file amended tax return   If you have a loss from an exchange and own, directly or indirectly, more than 50% of the corporation's stock, you cannot deduct the loss. How to file amended tax return For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. How to file amended tax return Basis of stock or other property received. How to file amended tax return   The basis of the stock you receive is generally the adjusted basis of the property you transfer. How to file amended tax return Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. How to file amended tax return Decrease this amount by any cash you received, the fair market value of any other property you received, and any loss recognized on the exchange. How to file amended tax return Also decrease this amount by the amount of any liability the corporation or another party to the exchange assumed from you, unless payment of the liability gives rise to a deduction when paid. How to file amended tax return    Further decreases may be required when the corporation or another party to the exchange assumes from you a liability that gives rise to a deduction when paid, if the basis of the stock would otherwise be higher than its fair market value on the date of the exchange. How to file amended tax return This rule does not apply if the entity assuming the liability acquired either substantially all of the assets or the trade or business with which the liability is associated. How to file amended tax return The basis of any other property you receive is its fair market value on the date of the trade. How to file amended tax return Basis of property transferred. How to file amended tax return   A corporation that receives property from you in exchange for its stock generally has the same basis you had in the property, increased by any gain you recognized on the exchange. How to file amended tax return However, the increase for the gain recognized may be limited. How to file amended tax return For more information, see section 362 of the Internal Revenue Code. How to file amended tax return Election to reduce basis. How to file amended tax return   In a section 351 transaction, if the adjusted basis of the property transferred exceeds the property's fair market value, the transferor and transferee may make an irrevocable election to treat the basis of the stock received by the transferor as having a basis equal to the fair market value of the property transferred. How to file amended tax return The transferor and transferee make this election by attaching a statement to their tax returns filed by the due date (including extensions) for the tax year in which the transaction occurred. How to file amended tax return However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. How to file amended tax return R. How to file amended tax return B. How to file amended tax return 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. How to file amended tax return    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. How to file amended tax return Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. How to file amended tax return Paid-in capital. How to file amended tax return   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. How to file amended tax return These contributions are not taxable to the corporation. How to file amended tax return Basis. How to file amended tax return   The corporation's basis of property contributed to capital by a shareholder is the same as the basis the shareholder had in the property, increased by any gain the shareholder recognized on the exchange. How to file amended tax return However, the increase for the gain recognized may be limited. How to file amended tax return For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. How to file amended tax return   The basis of property contributed to capital by a person other than a shareholder is zero. How to file amended tax return   If a corporation receives a cash contribution from a person other than a shareholder, the corporation must reduce the basis of any property acquired with the contribution during the 12-month period beginning on the day it received the contribution by the amount of the contribution. How to file amended tax return If the amount contributed is more than the cost of the property acquired, then reduce, but not below zero, the basis of the other properties held by the corporation on the last day of the 12-month period in the following order. How to file amended tax return Depreciable property. How to file amended tax return Amortizable property. How to file amended tax return Property subject to cost depletion but not to percentage depletion. How to file amended tax return All other remaining properties. How to file amended tax return   Reduce the basis of property in each category to zero before going on to the next category. How to file amended tax return   There may be more than one piece of property in each category. How to file amended tax return Base the reduction of the basis of each property on the following ratio:   Basis of each piece of property   Bases of all properties (within that category) If the corporation wishes to make this adjustment in some other way, it must get IRS approval. How to file amended tax return The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. How to file amended tax return Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. How to file amended tax return A corporation generally must make estimated tax payments as it earns or receives income during its tax year. How to file amended tax return After the end of the year, the corporation must file an income tax return. How to file amended tax return This section will help you determine when and how to pay and file corporate income taxes. How to file amended tax return For certain corporations affected by Presidentially declared disasters such as hurricanes, the due dates for filing returns, paying taxes, and performing other time-sensitive acts may be extended. How to file amended tax return The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. How to file amended tax return For more information, visit www. How to file amended tax return irs. How to file amended tax return gov/newsroom/article/0,,id=108362. How to file amended tax return 00. How to file amended tax return Income Tax Return This section will help you determine when and how to report a corporation's income tax. How to file amended tax return Who must file. How to file amended tax return   Unless exempt under section 501 of the Internal Revenue Code, all domestic corporations in existence for any part of a tax year (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. How to file amended tax return Which form to file. How to file amended tax return   A corporation generally must file Form 1120, U. How to file amended tax return S. How to file amended tax return Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. How to file amended tax return Certain organizations and entities must file special returns. How to file amended tax return For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. How to file amended tax return Electronic filing. How to file amended tax return   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. How to file amended tax return Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. How to file amended tax return However, in certain instances, these corporations can request a waiver. How to file amended tax return For more information regarding electronic filing, visit www. How to file amended tax return irs. How to file amended tax return gov/efile. How to file amended tax return When to file. How to file amended tax return   Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. How to file amended tax return A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. How to file amended tax return A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. How to file amended tax return Example 1. How to file amended tax return A corporation's tax year ends December 31. How to file amended tax return It must file its income tax return by March 15th. How to file amended tax return Example 2. How to file amended tax return A corporation's tax year ends June 30. How to file amended tax return It must file its income tax return by September 15th. How to file amended tax return   If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. How to file amended tax return Extension of time to file. How to file amended tax return   File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, to request an extension of time to file a corporation income tax return. How to file amended tax return The IRS will grant the extension if you complete the form properly, file it, and pay any tax due by the original due date for the return. How to file amended tax return   Form 7004 does not extend the time for paying the tax due on the return. How to file amended tax return Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. How to file amended tax return The interest is figured from the original due date of the return to the date of payment. How to file amended tax return   For more information, see the instructions for Form 7004. How to file amended tax return How to pay your taxes. How to file amended tax return   A corporation must pay its tax due in full no later than the 15th day of the 3rd month after the end of its tax year. How to file amended tax return Electronic Federal Tax Payment System (EFTPS). How to file amended tax return   Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). How to file amended tax return For more information on EFTPS and enrollment, visit www. How to file amended tax return eftps. How to file amended tax return gov or call 1-800-555-4477. How to file amended tax return Also see Publication 966, The Secure Way to Pay Your Federal Taxes. How to file amended tax return Note. How to file amended tax return Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. How to file amended tax return Penalties Generally, if the corporation receives a notice about interest and penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. How to file amended tax return Do not attach an explanation when the corporation's return is filed. How to file amended tax return See the instructions for your income tax return. How to file amended tax return Late filing of return. How to file amended tax return    A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. How to file amended tax return If the corporation is charged a penalty for late payment of tax (discussed next) for the same period of time, the penalty for late filing is reduced by the amount of the penalty for late payment. How to file amended tax return The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. How to file amended tax return The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. How to file amended tax return Late payment of tax. How to file amended tax return    A corporation that does not pay the tax when due may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. How to file amended tax return The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. How to file amended tax return Trust fund recovery penalty. How to file amended tax return   If income, social security, and Medicare taxes that a corporation must withhold from employee wages are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. How to file amended tax return The penalty is the full amount of the unpaid trust fund tax. How to file amended tax return This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. How to file amended tax return   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying these taxes, and who acted willfully in not doing so. How to file amended tax return   A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. How to file amended tax return A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. How to file amended tax return   Willfully means voluntarily, consciously, and intentionally. How to file amended tax return A responsible person acts willfully if the person knows the required actions are not taking place. How to file amended tax return   For more information on withholding and paying these taxes, see Publication 15 (Circular E), Employer's Tax Guide, and Publication 51, (Circular A), Agricultural Employer's Tax Guide. How to file amended tax return Other penalties. How to file amended tax return   Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. How to file amended tax return See sections 6662, 6662A, and 6663 of the Internal Revenue Code. How to file amended tax return Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. How to file amended tax return If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. How to file amended tax return This section will explain how to avoid this penalty. How to file amended tax return When to pay estimated tax. How to file amended tax return   Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. How to file amended tax return Example 1. How to file amended tax return Your corporation's tax year ends December 31. How to file amended tax return Installment payments are due on April 15, June 15, September 15, and December 15. How to file amended tax return Example 2. How to file amended tax return Your corporation's tax year ends June 30. How to file amended tax return Installment payments are due on October 15, December 15, March 15, and June 15. How to file amended tax return   If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. How to file amended tax return How to figure each required installment. How to file amended tax return   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. How to file amended tax return You will generally use one of the following two methods to figure each required installment. How to file amended tax return You should use the method that yields the smallest installment payments. How to file amended tax return Note. How to file amended tax return In these discussions, “return” generally refers to the corporation's original return. How to file amended tax return However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. How to file amended tax return Method 1. How to file amended tax return   Each required installment is 25% of the income tax the corporation will show on its return for the current year. How to file amended tax return Method 2. How to file amended tax return   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. How to file amended tax return   To use Method 2: The corporation must have filed a return for the previous year, The return must have been for a full 12 months, and The return must have shown a positive tax liability (not zero). How to file amended tax return Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. How to file amended tax return   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. How to file amended tax return Other methods. How to file amended tax return   If a corporation's income is expected to vary during the year because, for example, its business is seasonal, it may be able to lower the amount of one or more required installments by using one or both of the following methods. How to file amended tax return The annualized income installment method. How to file amended tax return The adjusted seasonal installment method. How to file amended tax return Use Schedule A of Form 1120-W to determine if using one or both of these methods will lower the amount of any required installments. How to file amended tax return Refiguring required installments. How to file amended tax return   If after the corporation figures and deposits its estimated tax it finds that its tax liability for the year will be more or less than originally estimated, it may have to refigure its required installments to see if an underpayment penalty may apply. How to file amended tax return An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. How to file amended tax return Underpayment penalty. How to file amended tax return   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. How to file amended tax return The penalty is figured separately for each installment due date. How to file amended tax return The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. How to file amended tax return This is true even if the corporation is due a refund when its return is filed. How to file amended tax return Form 2220. How to file amended tax return   Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and to figure the amount of the penalty. How to file amended tax return   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. How to file amended tax return The amount of the underpayment. How to file amended tax return The period during which the underpayment was due and unpaid. How to file amended tax return The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. How to file amended tax return   A corporation generally does not have to file Form 2220 with its income tax return because the IRS will figure any penalty and bill the corporation. How to file amended tax return However, even if the corporation does not owe a penalty, complete and attach the form to the corporation's tax return if any of the following apply. How to file amended tax return The annualized income installment method was used to figure any required installment. How to file amended tax return The adjusted seasonal installment method was used to figure any required installment. How to file amended tax return The corporation is a large corporation figuring its first required installment based on the prior year's tax. How to file amended tax return How to pay estimated tax. How to file amended tax return   A corporation is generally required to use EFTPS to pay its taxes. How to file amended tax return See Electronic Federal Tax Payment System (EFTPS), earlier. How to file amended tax return Also see the Instructions for Form 1120-W. How to file amended tax return Quick refund of overpayments. How to file amended tax return   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. How to file amended tax return Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, to apply for a quick refund of an overpayment of estimated tax. How to file amended tax return A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. How to file amended tax return Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. How to file amended tax return File Form 4466 before the 16th day of the 3rd month after the end of the tax year, but before the corporation files its income tax return. How to file amended tax return Do not file Form 4466 before the end of the corporation's tax year. How to file amended tax return An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. How to file amended tax return The IRS will act on the form within 45 days from the date you file it. How to file amended tax return U. How to file amended tax return S. How to file amended tax return Real Property Interest If a domestic corporation acquires a U. How to file amended tax return S. How to file amended tax return real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. How to file amended tax return The amount paid includes cash, the fair market value of other property, and any assumed liability. How to file amended tax return If a domestic corporation distributes a U. How to file amended tax return S. How to file amended tax return real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. How to file amended tax return A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. How to file amended tax return For more information, see section 1445 of the Internal Revenue Code; Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities; Form 8288, U. How to file amended tax return S. How to file amended tax return Withholding Tax Return for Dispositions by Foreign Persons of U. How to file amended tax return S. How to file amended tax return Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. How to file amended tax return S. How to file amended tax return Real Property Interests. How to file amended tax return Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. How to file amended tax return Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. How to file amended tax return In all cases, the method used must clearly show taxable income. How to file amended tax return Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. How to file amended tax return Accrual method. How to file amended tax return   Generally, a corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. How to file amended tax return A corporation engaged in farming operations also must use the accrual method. How to file amended tax return   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. How to file amended tax return However, qualifying taxpayers and eligible businesses of qualifying small business taxpayers are excepted from using the accrual method for eligible trades or businesses and may account for inventoriable items as materials and supplies that are not incidental. How to file amended tax return   Under the accrual method, an amount is includable in income when: All the events have occurred that fix the right to receive the income, which is the earliest of the date: The required performance takes place, Payment is due, or Payment is received; and The amount can be determined with reasonable accuracy. How to file amended tax return   Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year when: All events that determine the liability have occurred, The amount of the liability can be figured with reasonable accuracy, and Economic performance takes place with respect to the expense. How to file amended tax return   There are exceptions to the economic performance rule for certain items, including recurring expenses. How to file amended tax return See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. How to file amended tax return Nonaccrual experience method. How to file amended tax return   Accrual method corporations are not required to maintain accruals for certain amounts from the performance of services that, on the basis of their experience, will not be collected, if: The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; or The corporation's average annual gross receipts for the 3 prior tax years does not exceed $5 million. How to file amended tax return   This provision does not apply if interest is required to be paid on the amount or if there is any penalty for failure to pay the amount timely. How to file amended tax return Percentage of completion method. How to file amended tax return   Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percentage of completion method described in section 460 of the Internal Revenue Code. How to file amended tax return Mark-to-market accounting method. How to file amended tax return   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. How to file amended tax return Under this method any security held by a dealer as inventory must be included in inventory at its FMV. How to file amended tax return Any security not held as inventory at the close of the tax year is treated as sold at its FMV on the last business day of the tax year. How to file amended tax return Any gain or loss must be taken into account in determining gross income. How to file amended tax return The gain or loss taken into account is treated as ordinary gain or loss. How to file amended tax return   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. How to file amended tax return Change in accounting method. How to file amended tax return   A corporation can change its method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). How to file amended tax return The corporation must file Form 3115, Application for Change in Accounting Method. How to file amended tax return For more information, see Form 3115 and Publication 538. How to file amended tax return Section 481(a) adjustment. How to file amended tax return   The corporation may have to make an adjustment under section 481(a) of the Internal Revenue Code to prevent amounts of income or expense from being duplicated or omitted. How to file amended tax return The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. How to file amended tax return However, a corporation can elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. How to file amended tax return The corporation must complete the appropriate lines of Form 3115 to make the election. How to file amended tax return See the Instructions for Form 3115. How to file amended tax return Accounting Periods A corporation must figure its taxable income on the basis of a tax year. How to file amended tax return A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. How to file amended tax return Generally, corporations can use either a calendar year or a fiscal year as its tax year. How to file amended tax return Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. How to file amended tax return For more information, see Publication 538. How to file amended tax return Personal service corporation. How to file amended tax return   A personal service corporation must use a calendar year as its tax year unless: It elects to use a 52–53 week tax year that ends with reference to the calendar year; It can establish a business purpose for a different tax year and obtains approval of the IRS. How to file amended tax return See Form 1128, Application To Adopt, Change, or Retain a Tax Year, and Publication 538; or It elects under section 444 of the Internal Revenue Code to have a tax year other than a calendar year. How to file amended tax return Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. How to file amended tax return   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. How to file amended tax return See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. How to file amended tax return Change of tax year. How to file amended tax return   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. How to file amended tax return However, under certain conditions, a corporation can change its tax year without getting the consent. How to file amended tax return For more information, see Form 1128 and Publication 538. How to file amended tax return Recordkeeping A corporation should keep its records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. How to file amended tax return Usually records that support items of income, deductions, or credits on the return must be kept for 3 years from the date the return is due or filed, whichever is later. How to file amended tax return Keep records that verify the corporation's basis in property for as long as they are needed to figure the basis of the original or replacement property. How to file amended tax return The corporation should keep copies of all filed returns. How to file amended tax return They help in preparing future and amended returns and in the calculation of earnings and profits. How to file amended tax return Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. How to file amended tax return However, the following special provisions apply only to corporations. How to file amended tax return Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. How to file amended tax return However, a corporation can elect to deduct a limited amount of start-up or organizational costs. How to file amended tax return Any costs not deducted can be amortized. How to file amended tax return Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. How to file amended tax return Organizational costs are the direct costs of creating the corporation. How to file amended tax return For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. How to file amended tax return Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. How to file amended tax return Related Persons A corporation that uses an accrual method of accounting cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until the corporation makes the payment and the corresponding amount is includible in the related person's gross income. How to file amended tax return Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. How to file amended tax return If a deduction is denied, the rule will continue to apply even if the corporation's relationship with the person ends before the expense or interest is includible in the gross income of that person. How to file amended tax return These rules also deny the deduction of losses on the sale or exchange of property between related persons. How to file amended tax return Related persons. How to file amended tax return   For purposes of this rule, the following persons are related to a corporation. How to file amended tax return Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). How to file amended tax return An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. How to file amended tax return A trust fiduciary, when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. How to file amended tax return An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. How to file amended tax return A partnership, if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. How to file amended tax return Any employee-owner, if the corporation is a personal service corporation (see Personal service corporation, earlier), regardless of the amount of stock owned by the employee-owner. How to file amended tax return Ownership of stock. How to file amended tax return   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. How to file amended tax return Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, is treated as being owned proportionately by or for its shareholders, partners, or beneficiaries. How to file amended tax return An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. How to file amended tax return Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. How to file amended tax return Any individual owning (other than by applying (2), above) stock in a corporation, is treated as also owning the stock owned directly or indirectly by that individual's partner. How to file amended tax return To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. How to file amended tax return But stock constructively owned by an individual under (2) or (3) is not treated as actually owned by the individual for applying either (2) or (3) to make another person the constructive owner of that stock. How to file amended tax return Reallocation of income and deductions. How to file amended tax return   Where it is necessary to clearly show income or prevent tax evasion, the IRS can reallocate gross income, deductions, credits, or allowances between two or more organizations, trades, or businesses owned or controlled directly, or indirectly, by the same interests. How to file amended tax return Complete liquidations. How to file amended tax return   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. How to file amended tax return More information. How to file amended tax return   For more information about the related person rules, see Publication 544. How to file amended tax return Income From Qualifying Shipping Activities A corporation may make an election to be taxed on its notional shipping income at the highest corporate tax rate. How to file amended tax return If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. How to file amended tax return Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. How to file amended tax return A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. How to file amended tax return A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. How to file amended tax return For more information regarding the election, see Form 8902. How to file amended tax return Election to Expense Qualified Refinery Property A corporation can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct 50% of the cost of qualified refinery property (defined in section 179C(c) of the Internal Revenue Code), placed in service before January 1, 2014. How to file amended tax return The deduction is allowed for the year in which the property is placed in service. How to file amended tax return A subchapter T cooperative can make an irrevocable election on its return by the due date (including extensions) to allocate this deduction to its owners based on their ownership interest. How to file amended tax return For more information, see section 179C of the Internal Revenue Code and the related Regulations. How to file amended tax return Deduction to Comply With EPA Sulfur Regulations A small business refiner can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct up to 75% of qualified costs paid or incurred to comply with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency (EPA). How to file amended tax return A subchapter T cooperative can make an irrevocable election on its return filed by the due date (including extensions) to allocate the deduction to its owners based on their ownership interest. How to file amended tax return For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. How to file amended tax return Energy-Efficient Commercial Building Property Deduction A corporation can claim a deduction for costs associated with energy-efficient commercial building property, placed in service before January 1, 2014. How to file amended tax return In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. How to file amended tax return 1-2001 domestic building; The property must be either a part of the interior lighting system, the heating, cooling, ventilation and hot water system, or the building envelope (defined in section 179D(c)(1)(C) of the Internal Revenue Code); and The property must be installed as part of a plan to reduce the total annual energy and power costs of the building by 50% or more. How to file amended tax return The deduction is limited to $1. How to file amended tax return 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. How to file amended tax return Other rules and limitations apply. How to file amended tax return The corporation must reduce the basis of any property by any deduction taken. How to file amended tax return The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. How to file amended tax return For more information, see section 179D of the Internal Revenue Code. How to file amended tax return Also see Notice 2006-52, 2006-26 I. How to file amended tax return R. How to file amended tax return B. How to file amended tax return 1175, clarified and amplified by Notice 2008-40, 2008-14 I. How to file amended tax return R. How to file amended tax return B. How to file amended tax return 725, and any successor. How to file amended tax return Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. How to file amended tax return These items are known as corporate preference items and they include the following. How to file amended tax return Gain on the disposition of section 1250 property. How to file amended tax return For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. How to file amended tax return Percentage depletion for iron ore and coal (including lignite). How to file amended tax return For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. How to file amended tax return Amortization of pollution control facilities. How to file amended tax return For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. How to file amended tax return Mineral exploration and development costs. How to file amended tax return For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. How to file amended tax return For more information on corporate preference items, see section 291 of the Internal Revenue Code. How to file amended tax return Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. How to file amended tax return This section discusses the general rules that apply. How to file amended tax return The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. How to file amended tax return For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. How to file amended tax return Dividends from domestic corporations. How to file amended tax return   A corporation can deduct, within certain limits, 70% of the dividends received if the corporation receiving the dividend owns less than 20% of the corporation distributing the dividend. How to file amended tax return If the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct 80% of the dividends received. How to file amended tax return Ownership. How to file amended tax return   Determine ownership, for these rules, by the amount of voting power and value of the paying corporation's stock (other than certain preferred stock) the receiving corporation owns. How to file amended tax return Small business investment companies. How to file amended tax return   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. How to file amended tax return Dividends from regulated investment companies. How to file amended tax return   Regulated investment company dividends received are subject to certain limits. How to file amended tax return Capital gain dividends received from a regulated investment company do not qualify for the deduction. How to file amended tax return For more information, see section 854 of the Internal Revenue Code. How to file amended tax return No deduction allowed for certain dividends. How to file amended tax return   Corporations cannot take a deduction for dividends received from the following entities. How to file amended tax return A real estate investment trust (REIT). How to file amended tax return A corporation exempt from tax under section 501 or 521 of the Internal Revenue Code either for the tax year of the distribution or the preceding tax year. How to file amended tax return A corporation whose stock was held less than 46 days during the 91-day period beginning 45 days before the stock became ex-dividend with respect to the dividend. How to file amended tax return Ex-dividend means the holder has no rights to the dividend. How to file amended tax return A corporation whose preferred stock was held less than 91 days during the 181-day period beginning 90 days before the stock became ex-dividend with respect to the dividend if the dividends received are for a period or periods totaling more than 366 days. How to file amended tax return Any corporation, if your corporation is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. How to file amended tax return Dividends on deposits. How to file amended tax return   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. How to file amended tax return They do not qualify for this deduction. How to file amended tax return Limit on deduction for dividends. How to file amended tax return   The total deduction for dividends received or accrued is generally limited (in the following order) to: 80% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from 20%-owned corporations, then 70% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from less-than-20%-owned corporations (reducing taxable income by the total dividends received from 20%-owned corporations). How to file amended tax return Figuring the limit. How to file amended tax return   In figuring the limit, determine taxable income without the following items. How to file amended tax return The net operating loss deduction. How to file amended tax return The domestic production activities deduction. How to file amended tax return The deduction for dividends received. How to file amended tax return Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). How to file amended tax return Any capital loss carryback to the tax year. How to file amended tax return Effect of net operating loss. How to file amended tax return   If a corporation has a net operating loss (NOL) for a tax year, the limit of 80% (or 70%) of taxable income does not apply. How to file amended tax return To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. How to file amended tax return Example 1. How to file amended tax return A corporation loses $25,000 from operations. How to file amended tax return It receives $100,000 in dividends from a 20%-owned corporation. How to file amended tax return Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. How to file amended tax return If it claims the full dividends-received deduction of $80,000 ($100,000 × 80%) and combines it with an operations loss of $25,000, it will have an NOL of ($5,000). How to file amended tax return Therefore, the 80% of taxable income limit does not apply. How to file amended tax return The corporation can deduct the full $80,000. How to file amended tax return Example 2. How to file amended tax return Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. How to file amended tax return Its taxable income is $85,000 before the deduction for dividends received. How to file amended tax return After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. How to file amended tax return Because the corporation will not have an NOL after applying a full dividends-received deduction, its allowable dividends-received deduction is limited to 80% of its taxable income, or $68,000 ($85,000 × 80%). How to file amended tax return Extraordinary Dividends If a corporation receives an extraordinary dividend on stock held 2 years or less before the dividend announcement date, it generally must reduce its basis in the stock by the nontaxed part of the dividend. How to file amended tax return The nontaxed part is any dividends-received deduction allowable for the dividends. How to file amended tax return Extraordinary dividend. How to file amended tax return   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. How to file amended tax return The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. How to file amended tax return Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. How to file amended tax return Treat all dividends received that have ex-dividend dates within a 365-consecutive-day period as extraordinary dividends if the total of the dividends exceeds 20% of the corporation's adjusted basis in the stock. How to file amended tax return Disqualified preferred stock. How to file amended tax return   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. How to file amended tax return   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. How to file amended tax return The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. How to file amended tax return The issue price of the stock exceeds its liquidation rights or stated redemption price. How to file amended tax return The stock is otherwise structured to avoid the rules for extraordinary dividends and to enable corporate shareholders to reduce tax through a combination of dividends-received deductions and loss on the disposition of the stock. How to file amended tax return   These rules apply to stock issued after July 10, 1989, unless it was issued under a written binding contract in effect on that date, and thereafter, before the issuance of the stock. How to file amended tax return More information. How to file amended tax return   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. How to file amended tax return Below-Market Loans If a corporation receives a below-market loan and uses the proceeds for its trade or business, it may be able to deduct the forgone interest. How to file amended tax return A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. How to file amended tax return A below-market loan generally is treated as an arm's-length transaction in which the borrower is considered as having received both the following: A loan in exchange for a note that requires payment of interest at the applicable federal rate, and An additional payment in an amount equal to the forgone interest. How to file amended tax return Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. How to file amended tax return Foregone interest. How to file amended tax return   For any period, forgone interest is equal to: The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. How to file amended tax return See Below-market loans, in chapter 4 of Publication 535 for more information. How to file amended tax return Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. How to file amended tax return The contribution is deductible if made to, or for the use of, a qualified organization. How to file amended tax return For more information on qualified organizations, see Publication 526, Charitable Contributions. How to file amended tax return Also see, Exempt Organizations Select Check (EO Select Check) at www. How to file amended tax return irs. How to file amended tax return gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. How to file amended tax return Note. How to file amended tax return You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. How to file amended tax return Cash method corporation. How to file amended tax return   A corporation using the cash method of accounting deducts contributions in the tax year paid. How to file amended tax return Accrual method corporation. How to file amended tax return   A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the 15th day of the 3rd month after the close of that tax year. How to file amended tax return Make the choice by reporting the contribution on the corporation's return for the tax year. How to file amended tax return A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. How to file amended tax return The declaration must include the date the resolution was adopted. How to file amended tax return Limitations on deduction. How to file amended tax return   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. How to file amended tax return Figure taxable income for this purpose without the following. How to file amended tax return The deduction for charitable contributions. How to file amended tax return The dividends-received deduction. How to file amended tax return The deduction allowed under section 249 of the Internal Revenue Code. How to file amended tax return The domestic production activities deduction. How to file amended tax return Any net operating loss carryback to the tax year. How to file amended tax return Any capital loss carryback to the tax year. How to file amended tax return Farmers and ranchers. How to file amended tax return    Corporations that are farmers and ranchers should see section 170(b)(2) of the Internal Revenue Code for special rules that may affect the deduction limit. How to file amended tax return Carryover of excess contributions. How to file amended tax return   You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. How to file amended tax return You lose any excess not used within that period. How to file amended tax return For example, if a corporation has a carryover of excess contributions paid in 2010 and it does not use all the excess on its return for 2011, it can carry any excess over to 2012, 2013, 2014, and 2015, if applicable. How to file amended tax return Any excess not used in 2015 is lost. How to file amended tax return Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10% limit). How to file amended tax return You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. How to file amended tax return Cash contributions. How to file amended tax return   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. How to file amended tax return The record can be a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the contribution. How to file amended tax return Keep the record of the contribution with the other corporate records. How to file amended tax return Do not attach the records to the corporation's return. How to file amended tax return For more information on cash contributions, see Publication 526. How to file amended tax return Gifts of $250 or more. How to file amended tax return   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. How to file amended tax return The acknowledgement should show the amount of cash contributed, a description of the property contributed, and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. How to file amended tax return The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. How to file amended tax return Keep the acknowledgement with other corporate records. How to file amended tax return Do not attach the acknowledgement to the return. How to file amended tax return Contributions of property other than cash. How to file amended tax return   If a corporation (other than a closely-held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. How to file amended tax return In addition the corporation should keep a record of: The approximate date and manner of acquisition of the donated property and The cost or other basis of the donated property held by the donor for less than 12 months prior to contribution. How to file amended tax return   Closely held and personal service corporations must complete and attach Form 8283, Noncash Charitable Contributions, to their returns if they claim a deduction of more than $500 for non-cash contributions. How to file amended tax return For all other corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to the corporation's return. How to file amended tax return   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. How to file amended tax return A qualified appraisal is not required for the donation of cash, publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant intervening use or material improvement. How to file amended tax return The appraisal should be maintained with other corporate records and only attached to the corporation's return when the deduction claimed exceeds $500,000; $20,000 for donated art work. How to file amended tax return   See Form 8283 for more information. How to file amended tax return Qualified conservation contributions. How to file amended tax return   If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used. How to file amended tax return For more information, see section 170(h) of the Internal Revenue Code. How to file amended tax return Contributions of used vehicles. How to file amended tax return   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. How to file amended tax return The deduction is limited, and other special rules apply. How to file amended tax return For more information, see Publication 526. How to file amended tax return Reduction for contributions of certain property. How to file amended tax return   For a charitable contribution of property, the corporation must reduce the contribution by the sum of: The ordinary income and short-term capital gain that would have resulted if the property were sold at its FMV and For certain contributions, the long-term capital gain that would have resulted if the property were sold at its FMV. How to file amended tax return   The reduction for the long-term capital gain applies to: Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption; Contributions of any property to or for the use of certain private foundations except for stock for which market quotations are readily available; and Contributions of any patent, certain copyrights, trademark, trade name, trade secret, know-how, software (that is a section 197 intangible), or similar property, or applications or registrations of such property. How to file amended tax return Larger deduction. How to file amended tax return   A corporation (other than an S corporation) may be able to claim a deduction equal to the lesser of (a) the basis of the donated inventory or property plus one-half of the inventory or property's appreciation (gain if the donated inventory or property was sold at fair market value on the date of the donation), or (b) two times basis of the donated inventory or property. How to file amended tax return This deduction may be allowed for certain contributions of: Certain inventory and other property made to a donee organization and used solely for the care of the ill, the needy, and infants. How to file amended tax return Scientific property constructed by the corporation (other than an S corporation, personal holding company, or personal service corporation) and donated no later than 2 years after substantial completion of the construction. How to file amended tax return The property must be donated to a qualified organization and its original use must be by the donee for research, experimentation, or research training within the United States in the area of physical or biological science. How to file amended tax return Computer technology and equipment acquired or constructed and donated no later than 3 years after either acquisition or substantial completion of construction to an educational organization for educational purposes within the United States. How to file amended tax return Contributions to organizations conducting lobbying activities. How to file amended tax return   Contributions made to an organization that conducts lobbying activities are not deductible if: The lobbying activities relate to matters of direct financial interest to the donor's trade or business and The principal purpose of the contribution was to avoid federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor. How to file amended tax return More information. How to file amended tax return   For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 of the Internal Revenue Code, the related regulations, and Publication 526. How to file amended tax return Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. How to file amended tax return In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. How to file amended tax return Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. How to file amended tax return A capital loss is carried to other years in the following order. How to file amended tax return 3 years prior to the loss year. How to file amended tax return 2 years prior to the loss year. How to file amended tax return 1 year prior to the loss year. How to file amended tax return Any loss remaining is carried forward for 5 years. How to file amended tax return When you carry a net capital loss to another tax year, treat it as a short-term loss. How to file amended tax return It does not retain its original identity as long term or short term. How to file amended tax return Example. How to file amended tax return A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. How to file amended tax return The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. How to file amended tax return The corporation treats this $6,000 as a short-term loss when carried back or forward. How to file amended tax return The corporation carries the $6,000 short-term loss back 3 years. How to file amended tax return In year 1, the corporation had a net short-term capital gain of $8,000 and a net long-term capital gain of $5,000. How to file amended tax return It subtracts the $6,000 short-term loss first from the net short-term gain. How to file amended tax return This results in a net capital gain for year 1 of $7,000. How to file amended tax return This consists of a net short-term capital gain of $2,000 ($8,000 − $6,000) and a net long-term capital gain of $5,000. How to file amended tax return S corporation status. How to file amended tax return   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. How to file amended tax return Rules for carryover and carryback. How to file amended tax return   When carrying a capital loss from one year to another, the following rules apply. How to file amended tax return When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. How to file amended tax return In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. How to file amended tax return If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. How to file amended tax return You cannot use a capital loss carried from another year to produce or increase a net operating loss in the year to which you carry it back. How to file amended tax return Refunds. How to file amended tax return   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. How to file amended tax return If your corrected tax is less than the tax you originally owed, use either Form 1139, Corporate Application for Tentative Refund, or Form 1120X, Amended U. How to file amended tax return S. How to file amended tax return Corporation Income Tax Return, to apply for a refund. How to file amended tax return Form 1139. How to file amended tax return    A corporation can get a refund faster by using Form 1139. How to file amended tax return It cannot file Form 1139 before filing the return for the corporation's capital loss year, but it must file Form 1139 no later than 1 year after the year it sustains the capital loss. How to file amended tax return Form 1120X. How to file amended tax return   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. How to file amended tax return The corporation must file the Form 1120X within 3 years of the due date, includin
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The How To File Amended Tax Return

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