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Hrblock Taxcut

Aarp Free Tax Preparation LocationsState Tax Efile2009 1040 Form1040ez InstructionsHow To Amend Your Tax ReturnTax Amendment Form 20131040 EasyFiling 1040ez ElectronicallyFile My Taxes For FreeIrs Amended Tax Return Form2014 Tax Forms 1040ezEfile State TaxFile Form 1040x FreeFederal Income Tax AmendmentHow To File A Tax AmendmentIrs Form 1040ez InstructionsFree 2010 Tax FormsEfile FreeMilitary Taxes By State2011 Taxes Free Online2011 Tax Forms And Instructions 1040Irs Gov 2012 Tax FormsWww Irs Gov EitcTax Credit For StudentsHow To Fill Out 1040xFile Only State Taxes Free1040 Ez Online1040 Ez DownloadHrblock FreeFiling State Taxes OnlyOnline Taxes HrblockDeadline For Filing TaxesFile 2012 Tax Return FreeE File 2009 Tax ReturnTax Planning Us File Your Own Taxes1040 Tax FormIrs Gov Efile2011 Tax Return TurbotaxCan I Efile 1040nrFile State Taxes Online

Hrblock Taxcut

Hrblock taxcut Index A Additional Medicare Tax, Reminders, Additional Medicare Tax withholding. Hrblock taxcut Adjustments, Reporting Adjustments to Form 941-SS, 944-SS, 944, or 943 Agricultural labor, Deposits. Hrblock taxcut Aliens, nonresidents, Deposits. Hrblock taxcut Assistance (see Tax help) C Calendar, Calendar Comments on publication, Comments and suggestions. Hrblock taxcut Common-law employee, Employee status under common law. Hrblock taxcut Corrected wage and tax statement, Correcting Forms W-2AS, W-2CM, W-2GU, W-2VI, and Form W-3SS. Hrblock taxcut Crew leaders, Farm Crew Leaders Current period adjustments, Current Period Adjustments D Deposit How to deposit, How To Deposit Penalties, Deposit Penalties Period, Deposit Period Requirements, 8. Hrblock taxcut Depositing Taxes Rules $100,000 next-day deposit, $100,000 Next-Day Deposit Rule Accuracy of deposits, Accuracy of Deposits Rule Schedules Monthly, Monthly Deposit Schedule Semiweekly, Semiweekly Deposit Schedule When to deposit, When To Deposit E Electronic deposits, Electronic deposit requirement. Hrblock taxcut Electronic filing and payment, Reminders Employee, 2. Hrblock taxcut Who Are Employees? Employer identification number (EIN), 1. Hrblock taxcut Employer Identification Number (EIN) F Family employees, Deposits. Hrblock taxcut Farm crew leaders, Farm Crew Leaders Farmworkers, 6. Hrblock taxcut Social Security and Medicare Taxes for Farmworkers, Employers of farmworkers. Hrblock taxcut Federal employees, Deposits. Hrblock taxcut Fishing, Deposits. Hrblock taxcut Form, Calendar, Lookback period for employers of nonfarm workers. Hrblock taxcut 4070, 5. Hrblock taxcut Tips 4070A, 5. Hrblock taxcut Tips 8274, Deposits. Hrblock taxcut 940, Calendar 941-SS, Calendar, Current Period Adjustments 941-X, Adjustments to lookback period taxes. Hrblock taxcut 943, Calendar 943-X, Adjustments to lookback period taxes. Hrblock taxcut 944-X, Adjustments to lookback period taxes. Hrblock taxcut Schedule H (Form 1040), Household employers reporting social security and Medicare taxes. Hrblock taxcut SS-4, 1. Hrblock taxcut Employer Identification Number (EIN) SS-5, Reminders, Employee's social security card. Hrblock taxcut SS-8, IRS help. Hrblock taxcut W-2c, Employee's social security card. Hrblock taxcut , Correcting Forms W-2AS, W-2CM, W-2GU, W-2VI, and Form W-3SS. Hrblock taxcut Fringe benefits, Fringe Benefits, Deposits. Hrblock taxcut FUTA tax, 11. Hrblock taxcut Federal Unemployment (FUTA) Tax—U. Hrblock taxcut S. Hrblock taxcut Virgin Islands Employers Only G Government employees, nonfederal, Deposits. Hrblock taxcut Group-term life insurance, Deposits. Hrblock taxcut H Help (see Tax help) Hiring new employees, Reminders Homeworkers, Deposits. Hrblock taxcut Hospital interns, Deposits. Hrblock taxcut Household employers, Household employers reporting social security and Medicare taxes. Hrblock taxcut Household workers, Household employers reporting social security and Medicare taxes. Hrblock taxcut , Deposits. Hrblock taxcut How to deposit, How To Deposit I Insurance agents, Deposits. Hrblock taxcut IRS help (employee v. Hrblock taxcut subcontractor), IRS help. Hrblock taxcut L Lookback period Farmworkers, Lookback period for employers of farmworkers. Hrblock taxcut Nonfarm workers, Lookback period for employers of nonfarm workers. Hrblock taxcut M Meals and lodging, Deposits. Hrblock taxcut Ministers, Deposits. Hrblock taxcut Monthly deposit schedule, Monthly Deposit Schedule Moving expenses, Deposits. Hrblock taxcut N Newspaper delivery, Deposits. Hrblock taxcut Noncash payments, Deposits. Hrblock taxcut Nonprofit organizations, Deposits. Hrblock taxcut P Partners, Deposits. Hrblock taxcut Penalties, Deposit Penalties Pension plans, Deposits. Hrblock taxcut Prior period adjustments, Prior Period Adjustments Private delivery services, Reminders Publications (see Tax help) R Recordkeeping, Reminders Religious orders, Deposits. Hrblock taxcut Retirement and pension plans, Deposits. Hrblock taxcut S Salespersons, Deposits. Hrblock taxcut Scholarships and fellowships, Deposits. Hrblock taxcut Semiweekly deposit schedule, Semiweekly Deposit Schedule Severance pay, Deposits. Hrblock taxcut Sick pay, Sick pay. Hrblock taxcut , Sick pay payments. Hrblock taxcut , Deposits. Hrblock taxcut Social security number (SSN), 3. Hrblock taxcut Employee's Social Security Number (SSN) Statutory employee, Statutory employees. Hrblock taxcut Statutory nonemployee, Statutory nonemployees. Hrblock taxcut Students, Deposits. Hrblock taxcut Suggestions for publication, Comments and suggestions. Hrblock taxcut Supplemental unemployment compensation benefits, Deposits. Hrblock taxcut T Tax help, How To Get Tax Help Tax Help, Tax help. Hrblock taxcut Taxes paid by employer, Employee's portion of taxes paid by employer. Hrblock taxcut Tips, 5. Hrblock taxcut Tips, Deposits. Hrblock taxcut Travel and business expenses, Travel and business expenses. Hrblock taxcut Trust fund recovery penalty, Trust fund recovery penalty. Hrblock taxcut W Wage and Tax Statement, 10. Hrblock taxcut Wage and Tax Statements Prev  Up     Home   More Online Publications
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Understanding your CP2501 Notice

You need to contact us. We've received information not reported on your tax return.


What you need to do

  • Read your notice carefully — it explains the information we received.
  • Complete the notice's response form whether or not the information is right or wrong.

You may want to...

  • Contact the business or person reporting the information if it is wrong. Ask them to correct it.
  • Order a transcript of your return.
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Answers to Common Questions

Is the notice a bill?
No. It informs you about the information we've received.

What do I need to do?
Complete the notice's response form.

What do I do if the information is wrong?
The response form has instructions on what to do if the new information is wrong. You also may want to contact whoever reported the information and ask them to correct it.

I want to check a copy of my original return. I don't have one. How can I get one?
You can order a transcript of your return. You also can get one by completing and sending us a Form 4506-T, Request for Transcript of Tax Return.

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The information is wrong because someone else is using my name and Social Security number. What can I do?
You can visit our Identity theft information to find out more about what you can do. You also should call us and let us know.

Why did it take you so long to contact me about this matter?
Our computer systems match the information you report on your tax return with information reported by employers, banks, businesses, and others. This matching takes several months to complete.


Tips for next year

You can avoid future problems by:

  • keeping accurate and full records
  • waiting until you get all of your income statements to file your tax return
  • checking the records you get from your employer, mortgage company, bank, or other sources of income (W-2s, 1098s, 1099s, etc.) to make sure they're correct
  • including all your income on your tax return
  • following the instructions on how to report income, expenses and deductions
  • filing an amended tax return for any information you receive after you've filed your return

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about how to file electronically.

Page Last Reviewed or Updated: 28-Feb-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Hrblock Taxcut

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