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Income Tax 2012 Forms

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Income Tax 2012 Forms

Income tax 2012 forms Publication 547(SP) - Introductory Material Table of Contents Qué Hay de Nuevo Recordatorios IntroductionCómo pedir formularios y publicaciones. Income tax 2012 forms Preguntas sobre los impuestos. Income tax 2012 forms Useful Items - You may want to see: Qué Hay de Nuevo Nueva Sección C en el Formulario 4684 para esquemas de inversión de tipo Ponzi (Ponzi-type schemes). Income tax 2012 forms  La Sección C del Formulario 4684 (disponible en inglés) es nueva para el año 2013. Income tax 2012 forms Usted debe completar la Seción C si está reclamando una deducción de pérdida por robo debido a un esquema de inversión de tipo Ponzi (Ponzi-type scheme) y estará usando el Procedimiento Tributario (Revenue Procedure) 2009-20, según modificado por el Procedimiento Tributario (Revenue Procedure) 2011-58. Income tax 2012 forms La Sección C del Formulario 4864 reemplaza el Anexo A del Procedimiento Tributario (Revenue Procedure) 2009-20. Income tax 2012 forms No necesita completar el Anexo A. Income tax 2012 forms Para más información, vea Pérdidas provenientes de esquemas de inversión de tipo Ponzi (Ponzi-type schemes) , más adelante. Income tax 2012 forms Recordatorios Acontecimientos futuros. Income tax 2012 forms  Si desea obtener la información más reciente sobre los acontecimientos relacionados con la Publicación 547(SP), tal como legislación promulgada después que ésta fue impresa, acceda a www. Income tax 2012 forms irs. Income tax 2012 forms gov/Spanish/About-Publication-547(SP). Income tax 2012 forms Fotografías de niños desaparecidos. Income tax 2012 forms  El Servicio de Impuestos Internos (IRS, por sus siglas en inglés) se enorgullece en colaborar con el Centro Nacional de Niños Desaparecidos y Explotados (National Center for Missing and Exploited Children). Income tax 2012 forms En esta publicación, pueden aparecer fotografías de niños desaparecidos que han sido seleccionadas por el Centro. Income tax 2012 forms Estas fotografías aparecen en páginas que de otra manera estarían en blanco. Income tax 2012 forms Usted puede ayudar a que estos niños regresen a sus hogares si identifica alguno de ellos y llama gratis al 1-800-THE-LOST (1-800-843-5678). Income tax 2012 forms Introduction Esta publicación explica el trato tributario de casos de hechos fortuitos, robos y pérdidas de depósitos monetarios. Income tax 2012 forms Un hecho fortuito ocurre cuando su propiedad resulta dañada por causa de algún desastre, como por ejemplo, una tormenta, un incendio, un accidente automovilístico u otro suceso de esta índole. Income tax 2012 forms Un robo ocurre cuando alguien hurta sus bienes. Income tax 2012 forms La pérdida de depósitos monetarios ocurre cuando su institución bancaria se declara insolvente o en quiebra (bancarrota). Income tax 2012 forms Esta publicación aborda los siguientes temas: Definiciones de hecho fortuito, robo y pérdida de depósitos monetarios. Income tax 2012 forms Cómo calcular el monto de su pérdida o ganancia. Income tax 2012 forms Cómo se tratan tributariamente seguros y otros reembolsos que reciba. Income tax 2012 forms Límites de la deducción. Income tax 2012 forms Cómo y cuándo declarar un caso de hecho fortuito o robo. Income tax 2012 forms Reglas especiales para pérdidas en zonas de desastre. Income tax 2012 forms Formularios que tiene que presentar. Income tax 2012 forms   Normalmente, si es víctima de un hecho fortuito o robo, tiene que presentar el Formulario 4684 (disponible sólo en inglés). Income tax 2012 forms Asimismo, es posible que tenga que presentar uno o más de los siguientes formularios (todos en inglés): Anexo A (Formulario 1040). Income tax 2012 forms Formulario 1040NR, Anexo A (para extranjeros no residentes). Income tax 2012 forms Anexo D. Income tax 2012 forms Formulario 4797. Income tax 2012 forms Para información adicional sobre qué formulario utilizar, vea más adelante la sección sobre Cómo Declarar Pérdidas y Ganancias . Income tax 2012 forms Expropiaciones forzosas. Income tax 2012 forms   Para obtener información sobre expropiaciones forzosas de propiedades, vea el tema Involuntary Conversions (Conversiones involuntarias) en el capítulo 1 de la Publicación 544, Sales and Other Dispositions of Assets (Ventas y otras enajenaciones de activos), en inglés. Income tax 2012 forms Registros para el cálculo de pérdidas por hecho fortuito y robo. Income tax 2012 forms   La Publicación 584SP, Registro de Pérdidas por Hechos Fortuitos (Imprevistos), Desastres y Robos (Propiedad de uso Personal) está a su disposición para ayudarle a hacer una lista de artículos de sus bienes de uso personal que hayan sido robados o dañados y calcular su pérdida. Income tax 2012 forms En dicha publicación se incluyen tablas para ayudarle a calcular el monto de las pérdidas de su vivienda, artículos de la misma y vehículos motorizados. Income tax 2012 forms   La Publicación 584-B, Business Casualty, Disaster, and Theft Loss Workbook (Registro de pérdidas por hechos fortuitos, desastres y robos de propiedad de uso comercial), en inglés puede ayudarle a hacer una lista de artículos que hayan sido robados o dañados en su empresa o bienes de generación de ingresos, y calcular su pérdida. Income tax 2012 forms Comentarios y sugerencias. Income tax 2012 forms   Agradecemos sus comentarios y sugerencias sobre esta publicación para ediciones futuras. Income tax 2012 forms   Puede escribirnos a la siguiente dirección: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Income tax 2012 forms NW, IR-6526 Washington, DC 20224   Contestamos gran parte de correspondencia por teléfono. Income tax 2012 forms Por lo tanto, nos sería útil si en su correspondencia incluye el número telefónico con su código de área donde podemos ubicarlo durante el día. Income tax 2012 forms   Puede enviarnos comentarios a través de www. Income tax 2012 forms irs. Income tax 2012 forms gov/formspubs, pulsando sobre “ Comment on Tax Forms and Publications ” (Comentarios sobre formularios y publicaciones tributarios) bajo el título “ Information about ” (Información sobre), en inglés. Income tax 2012 forms   Aunque no podemos contestar cada uno de los comentarios, agradecemos su opinión y tendremos en cuenta sus comentarios cuando revisemos nuestros productos. Income tax 2012 forms Cómo pedir formularios y publicaciones. Income tax 2012 forms   Visite el sitio web del IRS www. Income tax 2012 forms irs. Income tax 2012 forms gov/espanol y pulse sobre el enlace “Formularios y Publicaciones” para descargar formularios y publicaciones. Income tax 2012 forms Llame al 1-800-829-3676 o escriba a la dirección que aparece a continuación y recibirá respuesta a los 10 días de que el IRS reciba su solicitud: Internal Revenue Service 1201 N. Income tax 2012 forms Mitsubishi Motorway Bloomington, IL 61705-6613 Preguntas sobre los impuestos. Income tax 2012 forms   Si tiene alguna pregunta acerca de sus impuestos, consulte la información disponible en IRS. Income tax 2012 forms gov/espanol o llame al número 1-800-829-1040. Income tax 2012 forms No podemos contestar preguntas sobre impuestos enviadas a las direcciones anteriores. Income tax 2012 forms Useful Items - You may want to see: Publicación 523 Selling Your Home (Venta de su vivienda), en inglés 525 Taxable and Nontaxable Income (Ingresos tributables y no tributables), en inglés 550 Investment Income and Expenses (Ingresos y gastos de inversiones), en inglés 551 Basis of Assets (Base de activos), en inglés 584SP Registro de Pérdidas por Hechos Fortuitos (Imprevistos), Desastres y Robos (Propiedad de Uso Personal) 584-B Business Casualty, Disaster, and Theft Loss Workbook (Registro de pérdidas por hechos fortuitos, desastres y robos comerciales), en inglés  Formulario (e Instrucciones) Anexo A (Formulario 1040) Itemized Deductions (Deducciones detalladas), en inglés Anexo A (Formulario 1040NR) Itemized Deductions (for nonresident aliens) (Deducciones detalladas (para extranjeros no residentes)), en inglés Anexo D (Formulario 1040) Capital Gains and Losses (Pérdidas y ganancias de capital), en inglés 4684 Casualties and Thefts (Hechos fortuitos y robos), en inglés 4797 Sales of Business Property (Ventas de bienes comerciales), en inglés  Para más información sobre cómo obtener publicaciones y formularios, vea la sección Cómo Obtener Ayuda con los Impuestos al final de esta publicación. 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Principal Reduction Alternative Under the Home Affordable Modification Program

Background


To help distressed homeowners lower their monthly mortgage payments, the U.S. Departments of the Treasury and of Housing and Urban Development established the Home Affordable Modification ProgramSM (HAMPSM) for mortgage loans that are not owned or guaranteed by Fannie Mae or Freddie Mac.

Under HAMP, a participating loan servicer must consider a sequence of modification steps for each eligible homeowner’s mortgage loan until the loan’s monthly payment is reduced to 31 percent of the homeowner’s verified monthly gross (pre-tax) income. Sometimes, a change in the mortgage loan’s interest rate is sufficient to reach the 31–percent target. Sometimes additional modification steps of term extension or forbearance are necessary as well. See the Home Affordable Modification Program (HAMP) page on the MakingHomeAffordable.gov website.

(For mortgage loans that are owned or guaranteed by Fannie Mae or Freddie Mac, eligible homeowners may be offered modifications under related programs also called “HAMP.” Because these related programs do not contain the principal reduction provision that these FAQs address, these FAQs use the term “HAMP” to refer only to the program for mortgage loans that are not owned or guaranteed by Fannie Mae or Freddie Mac.)

Since the last quarter of 2010, if a mortgage loan is being considered for a HAMP modification and if the ratio of the amount owed to the value of the home is greater than 115 percent, then the servicer must consider whether a Principal Reduction AlternativeSM (PRA) principal reduction should be effected as one part of the HAMP modification. See the Principal Reduction Alternative (PRA) page on the MakingHomeAffordable.gov website. 

For HAMP modifications that include a PRA principal reduction, the unpaid principal balance of the modified loan is divided into an interest-bearing principal amount and a non-interest-bearing PRA Forbearance Amount. If the homeowner then achieves a payment history that is sufficiently timely over a three-year period, the entire PRA Forbearance Amount is eventually reduced to zero. 

In connection with every HAMP modification of a loan that is not owned or guaranteed by Fannie Mae or Freddie Mac, to encourage participation in HAMP, the government provides incentives to the investor (that is, the holder of the loan), to the homeowner, and to the servicer. If a HAMP modification of such a mortgage loan includes a PRA principal reduction, the government makes additional incentive payments over three years to the investor. (These additional incentives are called “PRA investor incentive payments.”) The size of the PRA investor incentive payments depends not only on the amount of principal reduced but also on the loan-to-value ratio and the loan’s payment history before the HAMP modification. The PRA investor incentive payments range from 6% to 21% of the principal amount reduced.

For information on tax issues related to the Principal Reduction Alternative, see the questions and answers below.
 


Questions and Answers on Tax Issues Related to the Principal Reduction Alternative


Q1: If the government makes a PRA investor incentive payment to the holder of the mortgage loan, how is that payment analyzed for federal income tax purposes?

A1: The PRA investor incentive payment to the holder is treated as a payment on the loan by the government on behalf of the homeowner. 

Q2: Does a homeowner have income as a result of the government's having paid some of the homeowner’s mortgage loan by making a PRA investor incentive payment to the holder of the loan?

A2: No. This payment by the government on behalf of the homeowner is excludible from the homeowner’s income under the general welfare exclusion. Excluding this amount from the homeowner’s gross income is consistent with the treatment of Pay-for-Performance Success Payments, which are addressed in Revenue Ruling 2009–19

Q3: In a HAMP modification that includes a PRA principal reduction, the holder of the loan reduces the PRA Forbearance Amount by more than the PRA investor incentive payments (which are treated as payments on the loan on behalf of the homeowner). What federal income tax consequences for the homeowner result from that additional reduction by the holder?

A3: To the extent that the reduction in the PRA Forbearance Amount is more than the PRA investor incentive payments, the reduction is from the discharge of indebtedness. The full amount of this discharge of indebtedness is reported to the IRS and the homeowner on Form 1099–C, Cancellation of Debt, regardless of whether the homeowner may exclude any, or all, of it from gross income. See Questions 4 and 5 below for discussion of some exclusions that may apply.

Q4: Does the exclusion for qualified principal residence indebtedness apply to amounts discharged under a PRA principal reduction?

A4: The exclusion for qualified principal residence indebtedness may apply to a discharge of indebtedness under a PRA principal reduction if the amount discharged meets the criteria for qualified principal residence indebtedness. Under current law, this exclusion does not apply to discharges that occur after Dec. 31, 2013. For further discussion of the qualified principal residence exclusion, see the questions and answers on the The Mortgage Forgiveness Debt Relief Act and Debt Cancellation page.
 

Q5: Does the insolvency exclusion apply to amounts discharged under a PRA principal reduction?

A5: The insolvency exclusion may apply to a discharge of indebtedness under a PRA principal reduction to the extent that the taxpayer is insolvent when the discharge occurs. For further discussion of the insolvency exclusion, see page 4 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals).

 

Page Last Reviewed or Updated: 06-Feb-2014

The Income Tax 2012 Forms

Income tax 2012 forms 4. Income tax 2012 forms   Farm Business Expenses Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible ExpensesReasonable allocation. Income tax 2012 forms Prepaid Farm Supplies Prepaid Livestock Feed Labor Hired Repairs and Maintenance Interest Breeding Fees Fertilizer and Lime Taxes Insurance Rent and Leasing Depreciation Business Use of Your Home Truck and Car Expenses Travel Expenses Marketing Quota Penalties Tenant House Expenses Items Purchased for Resale Other Expenses Domestic Production Activities Deduction Capital ExpensesForestation and reforestation costs. Income tax 2012 forms Nondeductible ExpensesPersonal, Living, and Family Expenses Other Nondeductible Items Losses From Operating a FarmAt-Risk Limits Passive Activity Limits Excess Farm Loss Limit Not-for-Profit FarmingUsing the presumption later. Income tax 2012 forms Category 1. Income tax 2012 forms Category 2. Income tax 2012 forms Category 3. Income tax 2012 forms What's New for 2013 Standard mileage rate. Income tax 2012 forms  For 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 56. Income tax 2012 forms 5 cents. Income tax 2012 forms See Truck and Car Expenses , later. Income tax 2012 forms Simplified method for business use of home deduction. Income tax 2012 forms  The IRS now provides a simplified method to determine your expenses for business use of your home. Income tax 2012 forms For more information, see Schedule C (Form 1040), Part II, and its instructions. Income tax 2012 forms Introduction You can generally deduct the current costs of operating your farm. Income tax 2012 forms Current costs are expenses you do not have to capitalize or include in inventory costs. Income tax 2012 forms However, your deduction for the cost of livestock feed and certain other supplies may be limited. Income tax 2012 forms If you have an operating loss, you may not be able to deduct all of it. Income tax 2012 forms Topics - This chapter discusses: Deductible expenses Domestic production activities deduction Capital expenses Nondeductible expenses Losses from operating a farm Not-for-profit farming Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch F (Form 1040) Profit or Loss From Farming 1045 Application for Tentative Refund 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit 8903 Domestic Production Activities Deduction See chapter 16 for information about getting publications and forms. Income tax 2012 forms Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. Income tax 2012 forms “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. Income tax 2012 forms Schedule F, Part II, lists some common farm expenses that are typically deductible. Income tax 2012 forms This chapter discusses many of these expenses, as well as others not listed on Schedule F. Income tax 2012 forms Reimbursed expenses. Income tax 2012 forms   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. Income tax 2012 forms If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. Income tax 2012 forms See Refund or reimbursement under Income From Other Sources in chapter 3. Income tax 2012 forms Personal and business expenses. Income tax 2012 forms   Some expenses you pay during the tax year may be part personal and part business. Income tax 2012 forms These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. Income tax 2012 forms   You must allocate these mixed expenses between their business and personal parts. Income tax 2012 forms Generally, the personal part of these expenses is not deductible. Income tax 2012 forms The business portion of the expenses is deductible on Schedule F. Income tax 2012 forms Example. Income tax 2012 forms You paid $1,500 for electricity during the tax year. Income tax 2012 forms You used 1/3 of the electricity for personal purposes and 2/3 for farming. Income tax 2012 forms Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. Income tax 2012 forms Reasonable allocation. Income tax 2012 forms   It is not always easy to determine the business and nonbusiness parts of an expense. Income tax 2012 forms There is no method of allocation that applies to all mixed expenses. Income tax 2012 forms Any reasonable allocation is acceptable. Income tax 2012 forms What is reasonable depends on the circumstances in each case. Income tax 2012 forms Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. Income tax 2012 forms Feed, seed, fertilizer, and similar farm supplies not used or consumed during the year, but not including farm supplies that you would have consumed during the year if not for a fire, storm, flood, other casualty, disease, or drought. Income tax 2012 forms Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. Income tax 2012 forms However, include only the amount that would be deductible in the following year if you had capitalized the cost and deducted it ratably over the lesser of 12 months or the useful life of the poultry. Income tax 2012 forms Poultry bought for resale and not resold during the year. Income tax 2012 forms Deduction limit. Income tax 2012 forms   If you use the cash method of accounting to report your income and expenses, your deduction for prepaid farm supplies in the year you pay for them may be limited to 50% of your other deductible farm expenses for the year (all Schedule F deductions except prepaid farm supplies). Income tax 2012 forms This limit does not apply if you meet one of the exceptions described later. Income tax 2012 forms See Chapter 2 for a discussion of the cash method of accounting. Income tax 2012 forms   If the limit applies, you can deduct the excess cost of farm supplies other than poultry in the year you use or consume the supplies. Income tax 2012 forms The excess cost of poultry bought for use (or for both use and resale) in your farm business is deductible in the year following the year you pay for it. Income tax 2012 forms The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. Income tax 2012 forms Example. Income tax 2012 forms You may not qualify for the exception described next. Income tax 2012 forms During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. Income tax 2012 forms Your total prepaid farm supplies expense for 2013 is $5,500. Income tax 2012 forms Your other deductible farm expenses totaled $10,000 for 2013. Income tax 2012 forms Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. Income tax 2012 forms The excess prepaid farm supplies expense of $500 ($5,500 − $5,000) is deductible in a later tax year when you use or consume the supplies. Income tax 2012 forms Exceptions. Income tax 2012 forms   This limit on the deduction for prepaid farm supplies expense does not apply if you are a farm-related taxpayer and either of the following apply. Income tax 2012 forms Your prepaid farm supplies expense is more than 50% of your other deductible farm expenses because of a change in business operations caused by unusual circumstances. Income tax 2012 forms Your total prepaid farm supplies expense for the preceding 3 tax years is less than 50% of your total other deductible farm expenses for those 3 tax years. Income tax 2012 forms   You are a farm-related taxpayer if any of the following tests apply. Income tax 2012 forms Your main home is on a farm. Income tax 2012 forms Your principal business is farming. Income tax 2012 forms A member of your family meets (1) or (2). Income tax 2012 forms For this purpose, your family includes your brothers and sisters, half-brothers and half-sisters, spouse, parents, grandparents, children, grandchildren, and aunts and uncles and their children. Income tax 2012 forms    Whether or not the deduction limit for prepaid farm supplies applies, your expenses for prepaid livestock feed may be subject to the rules for advance payment of livestock feed, discussed next. Income tax 2012 forms Prepaid Livestock Feed If you report your income and expenses under the cash method of accounting, you cannot deduct in the year paid the cost of feed your livestock will consume in a later year unless you meet all the following tests. Income tax 2012 forms The payment is for the purchase of feed rather than a deposit. Income tax 2012 forms The prepayment has a business purpose and is not merely for tax avoidance. Income tax 2012 forms Deducting the prepayment does not result in a material distortion of your income. Income tax 2012 forms If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. Income tax 2012 forms If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. Income tax 2012 forms This rule does not apply to the purchase of commodity futures contracts. Income tax 2012 forms Payment for the purchase of feed. Income tax 2012 forms   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. Income tax 2012 forms It is for the purchase of feed if you can show you made it under a binding commitment to accept delivery of a specific quantity of feed at a fixed price and you are not entitled, by contract or business custom, to a refund or repurchase. Income tax 2012 forms   The following are some factors that show a payment is a deposit rather than for the purchase of feed. Income tax 2012 forms The absence of specific quantity terms. Income tax 2012 forms The right to a refund of any unapplied payment credit at the end of the contract. Income tax 2012 forms The seller's treatment of the payment as a deposit. Income tax 2012 forms The right to substitute other goods or products for those specified in the contract. Income tax 2012 forms   A provision permitting substitution of ingredients to vary the particular feed mix to meet your livestock's current diet requirements will not suggest a deposit. Income tax 2012 forms Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. Income tax 2012 forms Business purpose. Income tax 2012 forms   The prepayment has a business purpose only if you have a reasonable expectation of receiving some business benefit from prepaying the cost of livestock feed. Income tax 2012 forms The following are some examples of business benefits. Income tax 2012 forms Fixing maximum prices and securing an assured feed supply. Income tax 2012 forms Securing preferential treatment in anticipation of a feed shortage. Income tax 2012 forms   Other factors considered in determining the existence of a business purpose are whether the prepayment was a condition imposed by the seller and whether that condition was meaningful. Income tax 2012 forms No material distortion of income. Income tax 2012 forms   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. Income tax 2012 forms Your customary business practice in conducting your livestock operations. Income tax 2012 forms The expense in relation to past purchases. Income tax 2012 forms The time of year you made the purchase. Income tax 2012 forms The expense in relation to your income for the year. Income tax 2012 forms Labor Hired You can deduct reasonable wages paid for regular farm labor, piecework, contract labor, and other forms of labor hired to perform your farming operations. Income tax 2012 forms You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. Income tax 2012 forms The cost of boarding farm labor is a deductible labor cost. Income tax 2012 forms Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. Income tax 2012 forms If you must withhold social security, Medicare, and income taxes from your employees' cash wages, you can still deduct the full amount of wages before withholding. Income tax 2012 forms See chapter 13 for more information on employment taxes. Income tax 2012 forms Also, deduct the employer's share of the social security and Medicare taxes you must pay on your employees' wages as a farm business expense on Schedule F, line 29. Income tax 2012 forms See Taxes , later. Income tax 2012 forms Property for services. Income tax 2012 forms   If you transfer property to an employee in payment for services, you can deduct as wages paid the fair market value of the property on the date of transfer. Income tax 2012 forms If the employee pays you anything for the property, deduct as wages the fair market value of the property minus the payment by the employee for the property. Income tax 2012 forms   Treat the wages deducted as an amount received for the property. Income tax 2012 forms You may have a gain or loss to report if the property's adjusted basis on the date of transfer is different from its fair market value. Income tax 2012 forms Any gain or loss has the same character the exchanged property had in your hands. Income tax 2012 forms For more information, see chapter 8. Income tax 2012 forms Child as an employee. Income tax 2012 forms   You can deduct reasonable wages or other compensation you pay to your child for doing farmwork if a true employer-employee relationship exists between you and your child. Income tax 2012 forms Include these wages in the child's income. Income tax 2012 forms The child may have to file an income tax return. Income tax 2012 forms These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. Income tax 2012 forms For more information, see Family Employees in chapter 13. Income tax 2012 forms    A Form W-2, Wage and Tax Statement, should be issued to the child employee. Income tax 2012 forms   The fact that your child spends the wages to buy clothes or other necessities you normally furnish does not prevent you from deducting your child's wages as a farm expense. Income tax 2012 forms The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. Income tax 2012 forms Spouse as an employee. Income tax 2012 forms   You can deduct reasonable wages or other compensation you pay to your spouse if a true employer-employee relationship exists between you and your spouse. Income tax 2012 forms Wages you pay to your spouse are subject to social security and Medicare taxes. Income tax 2012 forms For more information, see Family Employees in chapter 13. Income tax 2012 forms Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. Income tax 2012 forms However, those wages may be subject to the employment taxes discussed in chapter 13. Income tax 2012 forms Household workers. Income tax 2012 forms   Do not deduct amounts paid to persons engaged in household work, except to the extent their services are used in boarding or otherwise caring for farm laborers. Income tax 2012 forms Construction labor. Income tax 2012 forms   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. Income tax 2012 forms These wages are part of the cost of the building or other improvement. Income tax 2012 forms You must capitalize them. Income tax 2012 forms Maintaining your home. Income tax 2012 forms   If your farm employee spends time maintaining or repairing your home, the wages and employment taxes you pay for that work are nondeductible personal expenses. Income tax 2012 forms For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. Income tax 2012 forms The employee devotes the remaining time to work on your farm. Income tax 2012 forms You cannot deduct 5% of the wages and employment taxes you pay for that employee. Income tax 2012 forms Employment Credits Reduce your deduction for wages by the amount of any employment credits you claim such as the work opportunity credit for qualified tax-exempt organizations hiring qualified veterans (Form 5884-C). Income tax 2012 forms Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. Income tax 2012 forms Common items of repair and maintenance are repainting, replacing shingles and supports on farm buildings, and periodic or routine maintenance of trucks, tractors, and other farm machinery. Income tax 2012 forms However, repairs to, or overhauls of, depreciable property that substantially prolong the life of the property, increase its value, or adapt it to a different use are capital expenses. Income tax 2012 forms For example, if you repair the barn roof, the cost is deductible. Income tax 2012 forms But if you replace the roof, it is a capital expense. Income tax 2012 forms For more information, see Capital Expenses , later. Income tax 2012 forms Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. Income tax 2012 forms Cash method. Income tax 2012 forms   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. Income tax 2012 forms You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. Income tax 2012 forms You can, however, deduct the interest when you start making payments on the new loan. Income tax 2012 forms For more information, see Cash Method in chapter 2. Income tax 2012 forms Prepaid interest. Income tax 2012 forms   Under the cash method, you generally cannot deduct any interest paid before the year it is due. Income tax 2012 forms Interest paid in advance may be deducted only in the tax year in which it is due. Income tax 2012 forms Accrual method. Income tax 2012 forms   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. Income tax 2012 forms However, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. Income tax 2012 forms For more information, see Accrual Method in chapter 2. Income tax 2012 forms Allocation of interest. Income tax 2012 forms   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. Income tax 2012 forms Allocate the interest to the following categories. Income tax 2012 forms Trade or business interest. Income tax 2012 forms Passive activity interest. Income tax 2012 forms Investment interest. Income tax 2012 forms Portfolio interest. Income tax 2012 forms Personal interest. Income tax 2012 forms   You generally allocate interest on a loan the same way you allocate the loan proceeds. Income tax 2012 forms You allocate loan proceeds by tracing disbursements to specific uses. Income tax 2012 forms The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. Income tax 2012 forms Secured loan. Income tax 2012 forms   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. Income tax 2012 forms Example. Income tax 2012 forms You secure a loan with property used in your farming business. Income tax 2012 forms You use the loan proceeds to buy a car for personal use. Income tax 2012 forms You must allocate interest expense on the loan to personal use (purchase of the car) even though the loan is secured by farm business property. Income tax 2012 forms If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. Income tax 2012 forms The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. Income tax 2012 forms However, you can choose to treat the loan as not secured by your home. Income tax 2012 forms For more information, see Publication 936. Income tax 2012 forms Allocation period. Income tax 2012 forms   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. Income tax 2012 forms The date the loan is repaid. Income tax 2012 forms The date the loan is reallocated to another use. Income tax 2012 forms More information. Income tax 2012 forms   For more information on interest, see chapter 4 in Publication 535. Income tax 2012 forms Breeding Fees You can deduct breeding fees as a farm business expense. Income tax 2012 forms However, if you use an accrual method of accounting, you must capitalize breeding fees and allocate them to the cost basis of the calf, foal, etc. Income tax 2012 forms For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. Income tax 2012 forms Fertilizer and Lime You can deduct in the year paid or incurred the cost of fertilizer, lime, and other materials applied to farmland to enrich, neutralize, or condition it if the benefits last a year or less. Income tax 2012 forms You can also deduct the cost of applying these materials in the year you pay or incur it. Income tax 2012 forms However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. Income tax 2012 forms If the benefits of the fertilizer, lime, or other materials last substantially more than one year, you generally capitalize their cost and deduct a part each year the benefits last. Income tax 2012 forms However, you can choose to deduct these expenses in the year paid or incurred. Income tax 2012 forms If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. Income tax 2012 forms If you sell farmland on which fertilizer or lime has been applied and if the selling price of the land includes part or all of the cost of the fertilizer or lime, you report the sale amount attributable to the fertilizer or lime as ordinary income. Income tax 2012 forms Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. Income tax 2012 forms It does not include land you have never used previously for producing crops or sustaining livestock. Income tax 2012 forms You cannot deduct initial land preparation costs. Income tax 2012 forms (See Capital Expenses , later. Income tax 2012 forms ) Include government payments you receive for lime or fertilizer in income. Income tax 2012 forms See Fertilizer and Lime under Agricultural Program Payments in chapter 3. Income tax 2012 forms Taxes You can deduct as a farm business expense the real estate and personal property taxes on farm business assets, such as farm equipment, animals, farmland, and farm buildings. Income tax 2012 forms You also can deduct the social security and Medicare taxes you pay to match the amount withheld from the wages of farm employees and any federal unemployment tax you pay. Income tax 2012 forms For information on employment taxes, see chapter 13. Income tax 2012 forms Allocation of taxes. Income tax 2012 forms   The taxes on the part of your farm you use as your home (including the furnishings and surrounding land not used for farming) are nonbusiness taxes. Income tax 2012 forms You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). Income tax 2012 forms To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. Income tax 2012 forms The allocation can be done from the assessed valuations. Income tax 2012 forms If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. Income tax 2012 forms State and local general sales taxes. Income tax 2012 forms   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. Income tax 2012 forms Include state and local general sales taxes imposed on the purchase of assets for use in your farm business as part of the cost you depreciate. Income tax 2012 forms Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. Income tax 2012 forms State and federal income taxes. Income tax 2012 forms   Individuals cannot deduct state and federal income taxes as farm business expenses. Income tax 2012 forms Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Income tax 2012 forms However, you cannot deduct federal income tax. Income tax 2012 forms Highway use tax. Income tax 2012 forms   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. Income tax 2012 forms For information on the tax itself, including information on vehicles subject to the tax, see the Instructions for Form 2290, Heavy Highway Vehicle Use Tax Return. Income tax 2012 forms Self-employment tax deduction. Income tax 2012 forms   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. Income tax 2012 forms For more information, see chapter 12. Income tax 2012 forms Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. Income tax 2012 forms This includes premiums you pay for the following types of insurance. Income tax 2012 forms Fire, storm, crop, theft, liability, and other insurance on farm business assets. Income tax 2012 forms Health and accident insurance on your farm employees. Income tax 2012 forms Workers' compensation insurance set by state law that covers any claims for job-related bodily injuries or diseases suffered by employees on your farm, regardless of fault. Income tax 2012 forms Business interruption insurance. Income tax 2012 forms State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). Income tax 2012 forms Insurance to secure a loan. Income tax 2012 forms   If you take out a policy on your life or on the life of another person with a financial interest in your farm business to get or protect a business loan, you cannot deduct the premiums as a business expense. Income tax 2012 forms In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. Income tax 2012 forms Advance premiums. Income tax 2012 forms   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. Income tax 2012 forms Example. Income tax 2012 forms On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. Income tax 2012 forms The policy will cover a period of 3 years beginning on July 1, 2013. Income tax 2012 forms Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. Income tax 2012 forms Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. Income tax 2012 forms In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). Income tax 2012 forms Deduct the remaining $500 in 2016. Income tax 2012 forms Had the policy been effective on January 1, 2013, the deductible expense would have been $1,000 for each of the years 2013, 2014, and 2015, based on one-third of the premium used each year. Income tax 2012 forms Business interruption insurance. Income tax 2012 forms   Use and occupancy and business interruption insurance premiums are deductible as a business expense. Income tax 2012 forms This insurance pays for lost profits if your business is shut down due to a fire or other cause. Income tax 2012 forms Report any proceeds in full on Schedule F, Part I. Income tax 2012 forms Self-employed health insurance deduction. Income tax 2012 forms   If you are self-employed, you can deduct as an adjustment to income on Form 1040 your payments for medical, dental, and qualified long-term care insurance coverage for yourself, your spouse, and your dependents when figuring your adjusted gross income on your Form 1040. Income tax 2012 forms Effective March 30, 2010, the insurance can also cover any child of yours under age 27 at the end of 2013, even if the child was not your dependent. Income tax 2012 forms Generally, this deduction cannot be more than the net profit from the business under which the plan was established. Income tax 2012 forms   If you or your spouse is also an employee of another person, you cannot take the deduction for any month in which you are eligible to participate in a subsidized health plan maintained by your employer or your spouse's employer. Income tax 2012 forms   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. Income tax 2012 forms Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. Income tax 2012 forms   For more information, see Deductible Premiums in Publication 535, chapter 6. Income tax 2012 forms Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. Income tax 2012 forms However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. Income tax 2012 forms Advance payments. Income tax 2012 forms   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. Income tax 2012 forms Farm home. Income tax 2012 forms   If you rent a farm, do not deduct the part of the rental expense that represents the fair rental value of the farm home in which you live. Income tax 2012 forms Lease or Purchase If you lease a farm building or equipment, you must determine whether or not the agreement must be treated as a conditional sales contract rather than a lease. Income tax 2012 forms If the agreement is treated as a conditional sales contract, the payments under the agreement (so far as they do not represent interest or other charges) are payments for the purchase of the property. Income tax 2012 forms Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. Income tax 2012 forms Conditional sales contract. Income tax 2012 forms   Whether an agreement is a conditional sales contract depends on the intent of the parties. Income tax 2012 forms Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. Income tax 2012 forms No single test, or special combination of tests, always applies. Income tax 2012 forms However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. Income tax 2012 forms The agreement applies part of each payment toward an equity interest you will receive. Income tax 2012 forms You get title to the property after you make a stated amount of required payments. Income tax 2012 forms The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. Income tax 2012 forms You pay much more than the current fair rental value of the property. Income tax 2012 forms You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. Income tax 2012 forms Determine this value when you make the agreement. Income tax 2012 forms You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. Income tax 2012 forms The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. Income tax 2012 forms Example. Income tax 2012 forms You lease new farm equipment from a dealer who both sells and leases. Income tax 2012 forms The agreement includes an option to purchase the equipment for a specified price. Income tax 2012 forms The lease payments and the specified option price equal the sales price of the equipment plus interest. Income tax 2012 forms Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. Income tax 2012 forms For federal income tax purposes, the agreement is a conditional sales contract. Income tax 2012 forms You cannot deduct any of the lease payments as rent. Income tax 2012 forms You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. Income tax 2012 forms Motor vehicle leases. Income tax 2012 forms   Special rules apply to lease agreements that have a terminal rental adjustment clause. Income tax 2012 forms In general, this is a clause that provides for a rental price adjustment based on the amount the lessor is able to sell the vehicle for at the end of the lease. Income tax 2012 forms If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. Income tax 2012 forms For more information, see Internal Revenue Code (IRC) section 7701(h). Income tax 2012 forms Leveraged leases. Income tax 2012 forms   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). Income tax 2012 forms For more information, see Publication 535, chapter 3, and Revenue Procedure 2001-28, which begins on page 1156 of Internal Revenue Bulletin 2001-19 at www. Income tax 2012 forms irs. Income tax 2012 forms gov/pub/irs-irbs/irb01-19. Income tax 2012 forms pdf. Income tax 2012 forms Depreciation If property you acquire to use in your farm business is expected to last more than one year, you generally cannot deduct the entire cost in the year you acquire it. Income tax 2012 forms You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. Income tax 2012 forms However, you can choose to deduct part or all of the cost of certain qualifying property, up to a limit, as a section 179 deduction in the year you place it in service. Income tax 2012 forms Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. Income tax 2012 forms Business Use of Your Home You can deduct expenses for the business use of your home if you use part of your home exclusively and regularly: As the principal place of business for any trade or business in which you engage, As a place to meet or deal with patients, clients, or customers in the normal course of your trade or business, or In connection with your trade or business, if you are using a separate structure that is not attached to your home. Income tax 2012 forms Your home office will qualify as your principal place of business for deducting expenses for its use if you meet both of the following requirements. Income tax 2012 forms You use it exclusively and regularly for the administrative or management activities of your trade or business. Income tax 2012 forms You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Income tax 2012 forms If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. Income tax 2012 forms The IRS now provides a simplified method to determine your expenses for business use of your home. Income tax 2012 forms For more information, see Schedule C (Form 1040), Part II, and its instructions. Income tax 2012 forms Deduction limit. Income tax 2012 forms   If your gross income from farming equals or exceeds your total farm expenses (including expenses for the business use of your home), you can deduct all your farm expenses. Income tax 2012 forms But if your gross income from farming is less than your total farm expenses, your deduction for certain expenses for the use of your home in your farming business is limited. Income tax 2012 forms   Your deduction for otherwise nondeductible expenses, such as utilities, insurance, and depreciation (with depreciation taken last), cannot be more than the gross income from farming minus the following expenses. Income tax 2012 forms The business part of expenses you could deduct even if you did not use your home for business (such as deductible mortgage interest, real estate taxes, and casualty and theft losses). Income tax 2012 forms Farm expenses other than expenses that relate to the use of your home. Income tax 2012 forms If you are self-employed, do not include your deduction for half of your self-employment tax. Income tax 2012 forms   Deductions over the current year's limit can be carried over to your next tax year. Income tax 2012 forms They are subject to the deduction limit for the next tax year. Income tax 2012 forms More information. Income tax 2012 forms   See Publication 587 for more information on deducting expenses for the business use of your home. Income tax 2012 forms Telephone expense. Income tax 2012 forms   You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. Income tax 2012 forms However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for your farm business, are deductible business expenses. Income tax 2012 forms Cell phone charges for calls relating to your farm business are deductible. Income tax 2012 forms If the cell phone you use for your farm business is part of a family cell phone plan, you must allocate and deduct only the portion of the charges attributable to farm business calls. Income tax 2012 forms Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. Income tax 2012 forms Only expenses for business use are deductible. Income tax 2012 forms These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). Income tax 2012 forms Standard mileage rate. Income tax 2012 forms   Instead of using actual costs, under certain conditions you can use the standard mileage rate. Income tax 2012 forms The standard mileage rate for each mile of business use is 56. Income tax 2012 forms 5 cents in 2013. Income tax 2012 forms You can use the standard mileage rate for a car or a light truck, such as a van, pickup, or panel truck, you own or lease. Income tax 2012 forms   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. Income tax 2012 forms You are not using five or more vehicles at the same time if you alternate using the vehicles (you use them at different times) for business. Income tax 2012 forms Example. Income tax 2012 forms Maureen owns a car and four pickup trucks that are used in her farm business. Income tax 2012 forms Her farm employees use the trucks and she uses the car for business. Income tax 2012 forms Maureen cannot use the standard mileage rate for the car or the trucks. Income tax 2012 forms This is because all five vehicles are used in Maureen's farm business at the same time. Income tax 2012 forms She must use actual expenses for all vehicles. Income tax 2012 forms Business use percentage. Income tax 2012 forms   You can claim 75% of the use of a car or light truck as business use without any records if you used the vehicle during most of the normal business day directly in connection with the business of farming. Income tax 2012 forms You choose this method of substantiating business use the first year the vehicle is placed in service. Income tax 2012 forms Once you make this choice, you may not change to another method later. Income tax 2012 forms The following are uses directly connected with the business of farming. Income tax 2012 forms Cultivating land. Income tax 2012 forms Raising or harvesting any agricultural or horticultural commodity. Income tax 2012 forms Raising, shearing, feeding, caring for, training, and managing animals. Income tax 2012 forms Driving to the feed or supply store. Income tax 2012 forms   If you keep records and they show that your business use was more than 75%, you may be able to claim more. Income tax 2012 forms See Recordkeeping requirements under Travel Expenses , below. Income tax 2012 forms More information. Income tax 2012 forms   For more information on deductible truck and car expenses, see Publication 463, chapter 4. Income tax 2012 forms If you pay your employees for the use of their truck or car in your farm business, see Reimbursements to employees under Travel Expenses next. Income tax 2012 forms Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. Income tax 2012 forms You cannot deduct lavish or extravagant expenses. Income tax 2012 forms Usually, the location of your farm business is considered your home for tax purposes. Income tax 2012 forms You are traveling away from home if: Your duties require you to be absent from your farm substantially longer than an ordinary work day, and You need to get sleep or rest to meet the demands of your work while away from home. Income tax 2012 forms If you meet these requirements and can prove the time, place, and business purpose of your travel, you can deduct your ordinary and necessary travel expenses. Income tax 2012 forms The following are some types of deductible travel expenses. Income tax 2012 forms Air, rail, bus, and car transportation; Meals and lodging; Dry cleaning and laundry; Telephone and fax; Transportation between your hotel and your temporary work or business meeting location; and Tips for any of the above expenses. Income tax 2012 forms Meals. Income tax 2012 forms   You ordinarily can deduct only 50% of your business-related meals expenses. Income tax 2012 forms You can deduct the cost of your meals while traveling on business only if your business trip is overnight or long enough to require you to stop for sleep or rest to properly perform your duties. Income tax 2012 forms You cannot deduct any of the cost of meals if it is not necessary for you to rest, unless you meet the rules for business entertainment. Income tax 2012 forms For information on entertainment expenses, see Publication 463, chapter 2. Income tax 2012 forms   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. Income tax 2012 forms You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. Income tax 2012 forms    Recordkeeping requirements. Income tax 2012 forms You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. Income tax 2012 forms Estimates or approximations do not qualify as proof of an expense. Income tax 2012 forms   You should keep an account book or similar record, supported by adequate documentary evidence, such as receipts, that together support each element of an expense. Income tax 2012 forms Generally, it is best to record the expense and get documentation of it at the time you pay it. Income tax 2012 forms   If you choose to deduct a standard meal allowance rather than the actual expense, you do not have to keep records to prove amounts spent for meals and incidental items. Income tax 2012 forms However, you must still keep records to prove the actual amount of other travel expenses, and the time, place, and business purpose of your travel. Income tax 2012 forms More information. Income tax 2012 forms   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. Income tax 2012 forms Reimbursements to employees. Income tax 2012 forms   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. Income tax 2012 forms Employees may be reimbursed under an accountable or nonaccountable plan. Income tax 2012 forms Under an accountable plan, the employee must provide evidence of expenses. Income tax 2012 forms Under a nonaccountable plan, no evidence of expenses is required. Income tax 2012 forms If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. Income tax 2012 forms If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. Income tax 2012 forms For more information, see Publication 535, chapter 11. Income tax 2012 forms Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. Income tax 2012 forms However, if you do not pay the penalty, but instead the purchaser of your crop deducts it from the payment to you, include in gross income only the amount you received. Income tax 2012 forms Do not take a separate deduction for the penalty. Income tax 2012 forms Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. Income tax 2012 forms These costs include repairs, utilities, insurance, and depreciation. Income tax 2012 forms The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. Income tax 2012 forms Items Purchased for Resale If you use the cash method of accounting, you ordinarily deduct the cost of livestock and other items purchased for resale only in the year of sale. Income tax 2012 forms You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. Income tax 2012 forms However, see Chickens, seeds, and young plants , below. Income tax 2012 forms Example. Income tax 2012 forms You use the cash method of accounting. Income tax 2012 forms In 2013, you buy 50 steers you will sell in 2014. Income tax 2012 forms You cannot deduct the cost of the steers on your 2013 tax return. Income tax 2012 forms You deduct their cost on your 2014 Schedule F, Part I. Income tax 2012 forms Chickens, seeds, and young plants. Income tax 2012 forms   If you are a cash method farmer, you can deduct the cost of hens and baby chicks bought for commercial egg production, or for raising and resale, as an expense on Schedule F, Part I, in the year paid if you do it consistently and it does not distort income. Income tax 2012 forms You also can deduct the cost of seeds and young plants bought for further development and cultivation before sale as an expense on Schedule F, Part I, when paid if you do this consistently and you do not figure your income on the crop method. Income tax 2012 forms However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. Income tax 2012 forms   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. Income tax 2012 forms You cannot also deduct the cost from the selling price. Income tax 2012 forms   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. Income tax 2012 forms Deduct the cost of these seeds and plants through depletion allowances. Income tax 2012 forms For more information, see Depletion in chapter 7. Income tax 2012 forms   The cost of chickens and plants used as food for your family is never deductible. Income tax 2012 forms   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. Income tax 2012 forms These rules are discussed in chapter 6. Income tax 2012 forms Example. Income tax 2012 forms You use the cash method of accounting. Income tax 2012 forms In 2013, you buy 500 baby chicks to raise for resale in 2014. Income tax 2012 forms You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. Income tax 2012 forms Unless you previously adopted the method of deducting these costs in the year you sell the chickens or the harvested crops, you can deduct the cost of both the baby chicks and the seed wheat in 2013. Income tax 2012 forms Election to use crop method. Income tax 2012 forms   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. Income tax 2012 forms You must get IRS approval to use the crop method. Income tax 2012 forms If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. Income tax 2012 forms For more information, see Crop method under Special Methods of Accounting in chapter 2. Income tax 2012 forms Choosing a method. Income tax 2012 forms   You can adopt either the crop method or the cash method for deducting the cost in the first year you buy egg-laying hens, pullets, chicks, or seeds and young plants. Income tax 2012 forms   Although you must use the same method for egg-laying hens, pullets, and chicks, you can use a different method for seeds and young plants. Income tax 2012 forms Once you use a particular method for any of these items, use it for those items until you get IRS approval to change your method. Income tax 2012 forms For more information, see Change in Accounting Method in chapter 2. Income tax 2012 forms Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. Income tax 2012 forms These expenses must be for business purposes and  (1) paid, if you use the cash method of accounting, or (2) incurred, if you use an accrual method of accounting. Income tax 2012 forms Accounting fees. Income tax 2012 forms Advertising. Income tax 2012 forms Business travel and meals. Income tax 2012 forms Commissions. Income tax 2012 forms Consultant fees. Income tax 2012 forms Crop scouting expenses. Income tax 2012 forms Dues to cooperatives. Income tax 2012 forms Educational expenses (to maintain and improve farming skills). Income tax 2012 forms Farm-related attorney fees. Income tax 2012 forms Farm magazines. Income tax 2012 forms Ginning. Income tax 2012 forms Insect sprays and dusts. Income tax 2012 forms Litter and bedding. Income tax 2012 forms Livestock fees. Income tax 2012 forms Marketing fees. Income tax 2012 forms Milk assessment. Income tax 2012 forms Recordkeeping expenses. Income tax 2012 forms Service charges. Income tax 2012 forms Small tools expected to last one year or less. Income tax 2012 forms Stamps and stationery. Income tax 2012 forms Subscriptions to professional, technical, and trade journals that deal with farming. Income tax 2012 forms Tying material and containers. Income tax 2012 forms Loan expenses. Income tax 2012 forms   You prorate and deduct loan expenses, such as legal fees and commissions, you pay to get a farm loan over the term of the loan. Income tax 2012 forms Tax preparation fees. Income tax 2012 forms   You can deduct as a farm business expense on Schedule F the cost of preparing that part of your tax return relating to your farm business. Income tax 2012 forms You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. Income tax 2012 forms   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. Income tax 2012 forms Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. Income tax 2012 forms You can deduct 9% of the lesser of your qualified production activities income or your taxable income (adjusted gross income for individuals) for the tax year. Income tax 2012 forms Your deduction is limited to 50% of the Form W-2 wages you paid for the tax year that are properly allocable to domestic production gross receipts. Income tax 2012 forms For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. Income tax 2012 forms Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. Income tax 2012 forms Income from cooperatives. Income tax 2012 forms   If you receive a patronage dividend or qualified per-unit retain allocation from a cooperative which is engaged in the manufacturing, production, growth, or extraction in whole or in significant part of any agricultural or horticultural product or in the marketing of agricultural or horticultural products, your income from the cooperative can give rise to a domestic production activities deduction. Income tax 2012 forms This deduction amount is reported on Form 1099-PATR, box 6. Income tax 2012 forms In order for you to qualify for the deduction, the cooperative is required to send you a written notice designating your portion of the domestic production activities deduction. Income tax 2012 forms More information. Income tax 2012 forms   For more information on the domestic production activities deduction, see the Instructions for Form 8903. Income tax 2012 forms Capital Expenses A capital expense is a payment, or a debt incurred, for the acquisition, improvement, or restoration of an asset that is expected to last more than one year. Income tax 2012 forms You include the expense in the basis of the asset. Income tax 2012 forms Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. Income tax 2012 forms See chapters 2  and 6. Income tax 2012 forms Capital expenses are generally not deductible, but they may be depreciable. Income tax 2012 forms However, you can elect to deduct certain capital expenses, such as the following. Income tax 2012 forms The cost of fertilizer, lime, etc. Income tax 2012 forms (See Fertilizer and Lime under Deductible Expenses , earlier. Income tax 2012 forms ) Soil and water conservation expenses. Income tax 2012 forms (See chapter 5. Income tax 2012 forms ) The cost of property that qualifies for a deduction under section 179. Income tax 2012 forms (See chapter 7. Income tax 2012 forms ) Business start-up costs. Income tax 2012 forms (See Business start-up and organizational costs , later. Income tax 2012 forms ) Forestation and reforestation costs. Income tax 2012 forms (See Forestation and reforestation costs , later. Income tax 2012 forms ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. Income tax 2012 forms Land and buildings. Income tax 2012 forms Additions, alterations, and improvements to buildings, etc. Income tax 2012 forms Cars and trucks. Income tax 2012 forms Equipment and machinery. Income tax 2012 forms Fences. Income tax 2012 forms Draft, breeding, sport, and dairy livestock. Income tax 2012 forms Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. Income tax 2012 forms Water wells, including drilling and equipping costs. Income tax 2012 forms Land preparation costs, such as: Clearing land for farming, Leveling and conditioning land, Purchasing and planting trees, Building irrigation canals and ditches, Laying irrigation pipes, Installing drain tile, Modifying channels or streams, Constructing earthen, masonry, or concrete tanks, reservoirs, or dams, and Building roads. Income tax 2012 forms Business start-up and organizational costs. Income tax 2012 forms   You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. Income tax 2012 forms The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Income tax 2012 forms Any remaining costs must be amortized. Income tax 2012 forms See chapter 7. Income tax 2012 forms   You elect to deduct start-up or organizational costs by claiming the deduction on the income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Income tax 2012 forms However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Income tax 2012 forms Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Income tax 2012 forms 9100-2” at the top of the amended return. Income tax 2012 forms File the amended return at the same address you filed the original return. Income tax 2012 forms The election applies when figuring taxable income for the current tax year and all subsequent years. Income tax 2012 forms   You can choose to forgo the election by clearly electing to capitalize your start-up or organizational costs on an income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Income tax 2012 forms For more information about start-up and organizational costs, see chapter 7. Income tax 2012 forms Crop production expenses. Income tax 2012 forms   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. Income tax 2012 forms However, except for certain taxpayers required to use an accrual method of accounting, the capitalization rules do not apply to plants with a preproductive period of 2 years or less. Income tax 2012 forms For more information, see Uniform Capitalization Rules in chapter 6. Income tax 2012 forms Timber. Income tax 2012 forms   Capitalize the cost of acquiring timber. Income tax 2012 forms Do not include the cost of land in the cost of the timber. Income tax 2012 forms You must generally capitalize direct costs incurred in reforestation. Income tax 2012 forms However, you can elect to deduct some forestation and reforestation costs. Income tax 2012 forms See Forestation and reforestation costs next. Income tax 2012 forms Reforestation costs include the following. Income tax 2012 forms Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. Income tax 2012 forms The cost of seed or seedlings. Income tax 2012 forms Labor and tool expenses. Income tax 2012 forms Depreciation on equipment used in planting or seeding. Income tax 2012 forms Costs incurred in replanting to replace lost seedlings. Income tax 2012 forms You can choose to capitalize certain indirect reforestation costs. Income tax 2012 forms   These capitalized amounts are your basis for the timber. Income tax 2012 forms Recover your basis when you sell the timber or take depletion allowances when you cut the timber. Income tax 2012 forms See Depletion in chapter 7. Income tax 2012 forms Forestation and reforestation costs. Income tax 2012 forms   You can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. Income tax 2012 forms Any remaining costs can be amortized over an 84-month period. Income tax 2012 forms See chapter 7. Income tax 2012 forms If you make an election to deduct or amortize qualifying reforestation costs, you should create and maintain separate timber accounts for each qualified timber property. Income tax 2012 forms The accounts should include all reforestation treatments and the dates they were applied. Income tax 2012 forms Any qualified timber property that is subject to the deduction or amortization election cannot be included in any other timber account for which depletion is allowed. Income tax 2012 forms The timber account should be maintained until the timber is disposed of. Income tax 2012 forms For more information, see Notice 2006-47, 2006-20 I. Income tax 2012 forms R. Income tax 2012 forms B. Income tax 2012 forms 892, available at  www. Income tax 2012 forms irs. Income tax 2012 forms gov/irb/2006-20_IRB/ar11. Income tax 2012 forms html. Income tax 2012 forms   You elect to deduct forestation and reforestation costs by claiming the deduction on the income tax return filed by the due date (including extensions) for the tax year in which the expenses were paid or incurred. Income tax 2012 forms If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. Income tax 2012 forms If you are not filing Form T (Timber), attach a statement to your return with the following information. Income tax 2012 forms The unique stand identification numbers. Income tax 2012 forms The total number of acres reforested during the tax year. Income tax 2012 forms The nature of the reforestation treatments. Income tax 2012 forms The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. Income tax 2012 forms   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Income tax 2012 forms Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Income tax 2012 forms 9100-2” at the top of the amended return. Income tax 2012 forms File the amended return at the same address you filed the original return. Income tax 2012 forms    For more information about forestation and reforestation costs, see chapter 7. Income tax 2012 forms    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. Income tax 2012 forms You can view this publication on the Internet at  www. Income tax 2012 forms fs. Income tax 2012 forms fed. Income tax 2012 forms us/publications. Income tax 2012 forms Christmas tree cultivation. Income tax 2012 forms   If you are in the business of planting and cultivating Christmas trees to sell when they are more than 6 years old, capitalize expenses incurred for planting and stump culture and add them to the basis of the standing trees. Income tax 2012 forms Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. Income tax 2012 forms For more information, see Timber Depletion under Depletion in chapter 7. Income tax 2012 forms   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. Income tax 2012 forms Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. Income tax 2012 forms   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. Income tax 2012 forms If the improvements do not have a determinable useful life, add their cost to the basis of the land. Income tax 2012 forms The cost is recovered when you sell or otherwise dispose of it. Income tax 2012 forms If the improvements have a determinable useful life, recover their cost through depreciation. Income tax 2012 forms Capitalize the cost of equipment and other depreciable assets, such as culverts and fences, to the extent you do not use them in planting Christmas trees. Income tax 2012 forms Recover these costs through depreciation. Income tax 2012 forms Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. Income tax 2012 forms Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. Income tax 2012 forms These include rent and insurance premiums paid on property used as your home, life insurance premiums on yourself or your family, the cost of maintaining cars, trucks, or horses for personal use, allowances to minor children, attorneys' fees and legal expenses incurred in personal matters, and household expenses. Income tax 2012 forms Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. Income tax 2012 forms Other Nondeductible Items You cannot deduct the following items on your tax return. Income tax 2012 forms Loss of growing plants, produce, and crops. Income tax 2012 forms   Losses of plants, produce, and crops raised for sale are generally not deductible. Income tax 2012 forms However, you may have a deductible loss on plants with a preproductive period of more than 2 years. Income tax 2012 forms See chapter 11 for more information. Income tax 2012 forms Repayment of loans. Income tax 2012 forms   You cannot deduct the repayment of a loan. Income tax 2012 forms However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. Income tax 2012 forms See Interest , earlier. Income tax 2012 forms Estate, inheritance, legacy, succession, and gift taxes. Income tax 2012 forms   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. Income tax 2012 forms Loss of livestock. Income tax 2012 forms   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. Income tax 2012 forms Losses from sales or exchanges between related persons. Income tax 2012 forms   You cannot deduct losses from sales or exchanges of property between you and certain related persons, including your spouse, brother, sister, ancestor, or lineal descendant. Income tax 2012 forms For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Income tax 2012 forms Cost of raising unharvested crops. Income tax 2012 forms   You cannot deduct the cost of raising unharvested crops sold with land owned more than one year if you sell both at the same time and to the same person. Income tax 2012 forms Add these costs to the basis of the land to determine the gain or loss on the sale. Income tax 2012 forms For more information, see Section 1231 Gains and Losses in chapter 9. Income tax 2012 forms Cost of unharvested crops bought with land. Income tax 2012 forms   Capitalize the purchase price of land, including the cost allocable to unharvested crops. Income tax 2012 forms You cannot deduct the cost of the crops at the time of purchase. Income tax 2012 forms However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. Income tax 2012 forms Cost related to gifts. Income tax 2012 forms   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. Income tax 2012 forms The costs are not deductible in the year of the gift or any later year. Income tax 2012 forms For example, you cannot deduct the cost of raising cattle or the cost of planting and raising unharvested wheat on parcels of land given as a gift to your children. Income tax 2012 forms Club dues and membership fees. Income tax 2012 forms   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. Income tax 2012 forms This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Income tax 2012 forms Exception. Income tax 2012 forms   The following organizations will not be treated as a club organized for business, pleasure, recreation, or other social purposes, unless one of its main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities. Income tax 2012 forms Boards of trade. Income tax 2012 forms Business leagues. Income tax 2012 forms Chambers of commerce. Income tax 2012 forms Civic or public service organizations. Income tax 2012 forms Professional associations. Income tax 2012 forms Trade associations. Income tax 2012 forms Real estate boards. Income tax 2012 forms Fines and penalties. Income tax 2012 forms   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. Income tax 2012 forms Losses From Operating a Farm If your deductible farm expenses are more than your farm income, you have a loss from the operation of your farm. Income tax 2012 forms The amount of the loss you can deduct when figuring your taxable income may be limited. Income tax 2012 forms To figure your deductible loss, you must apply the following limits. Income tax 2012 forms The at-risk limits. Income tax 2012 forms The passive activity limits. Income tax 2012 forms The following discussions explain these limits. Income tax 2012 forms If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. Income tax 2012 forms See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Income tax 2012 forms If you do not carry on your farming activity to make a profit, your loss deduction may be limited by the not-for-profit rules. Income tax 2012 forms See Not-for-Profit Farming, later. Income tax 2012 forms At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. Income tax 2012 forms These rules limit the losses you can deduct when figuring your taxable income. Income tax 2012 forms The deductible loss from an activity is limited to the amount you have at risk in the activity. Income tax 2012 forms You are at risk in any activity for: The money and adjusted basis of property you contribute to the activity, and Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. Income tax 2012 forms You are not at risk, however, for amounts you borrow for use in a farming activity from a person who has an interest in the activity (other than as a creditor) or a person related to someone (other than you) having such an interest. Income tax 2012 forms For more information, see Publication 925. Income tax 2012 forms Passive Activity Limits A passive activity is generally any activity involving the conduct of any trade or business in which you do not materially participate. Income tax 2012 forms Generally, a rental activity is a passive activity. Income tax 2012 forms If you have a passive activity, special rules limit the loss you can deduct in the tax year. Income tax 2012 forms You generally can deduct losses from passive activities only up to income from passive activities. Income tax 2012 forms Credits are similarly limited. Income tax 2012 forms For more information, see Publication 925. Income tax 2012 forms Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. Income tax 2012 forms This limit applies to any farming businesses, other than a C corporation, that received a direct or counter-cyclical payment (or any payment in lieu of such payments) under title I of the Food, Conservation, and Energy Act of 2008, or from a Commodity Credit Corporation loan. Income tax 2012 forms Your farming losses are limited to the greater of: $300,000 ($150,000 for a married person filing a separate return), or The total net farm income for the prior five tax years. Income tax 2012 forms Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. Income tax 2012 forms Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. Income tax 2012 forms For more details, see IRC section 461(j). Income tax 2012 forms Excess farm loss. Income tax 2012 forms   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). Income tax 2012 forms This loss can be determined by taking the excess of: The total deductions for the tax year from your farming businesses, over The total gross income or gain for the tax year from your farming businesses, plus the greater of: $300,000 ($150,000 for a married person filing a separate return), or The excess (if any) of the total gross income or gain from your farming businesses for the prior five tax years over the total deductions from your farming businesses for the prior five tax years. Income tax 2012 forms   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. Income tax 2012 forms Not-for-Profit Farming If you operate a farm for profit, you can deduct all the ordinary and necessary expenses of carrying on the business of farming on Schedule F. Income tax 2012 forms However, if you do not carry on your farming activity, or other activity you engage or invest in, to make a profit, you report the income from the activity on Form 1040, line 21, and you can deduct expenses of carrying on the activity only if you itemize your deductions on Schedule A (Form 1040). Income tax 2012 forms Also, there is a limit on the deductions you can take. Income tax 2012 forms You cannot use a loss from that activity to offset income from other activities. Income tax 2012 forms Activities you do as a hobby, or mainly for sport or recreation, come under this limit. Income tax 2012 forms An investment activity intended only to produce tax losses for the investors also comes under this limit. Income tax 2012 forms The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Income tax 2012 forms It does not apply to corporations other than S corporations. Income tax 2012 forms In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. Income tax 2012 forms No one factor alone is decisive. Income tax 2012 forms Among the factors to consider are whether: You operate your farm in a businesslike manner; The time and effort you spend on farming indicate you intend to make it profitable; You depend on income from farming for your livelihood; Your losses are due to circumstances beyond your control or are normal in the start-up phase of farming; You change your methods of operation in an attempt to improve profitability; You, or your advisors, have the knowledge needed to carry on the farming activity as a successful business; You were successful in making a profit in similar activities in the past; You make a profit from farming in some years and the amount of profit you make; and You can expect to make a future profit from the appreciation of the assets used in the farming activity. Income tax 2012 forms Presumption of profit. Income tax 2012 forms   Your farming or other activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Income tax 2012 forms Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. Income tax 2012 forms The activity must be substantially the same for each year within this period. Income tax 2012 forms You have a profit when the gross income from an activity is more than the deductions for it. Income tax 2012 forms   If a taxpayer dies before the end of the 5-year (or 7-year) period, the period ends on the date of the taxpayer's death. Income tax 2012 forms   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. Income tax 2012 forms This means the limits discussed here do not apply. Income tax 2012 forms You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. Income tax 2012 forms You can rely on this presumption in every case, unless the IRS shows it is not valid. Income tax 2012 forms   If you fail the 3- (or 2-) years-of-profit test, you still may be considered to operate your farm for profit by considering the factors listed earlier. Income tax 2012 forms Using the presumption later. Income tax 2012 forms   If you are starting out in farming and do not have 3 (or 2) years showing a profit, you may want to take advantage of this presumption later, after you have had the 5 (or 7) years of experience allowed by the test. Income tax 2012 forms   You can choose to do this by filing Form 5213. Income tax 2012 forms Filing this form postpones any determination that your farming activity is not carried on for profit until 5 (or 7) years have passed since you first started farming. Income tax 2012 forms You must file Form 5213 within 3 years after the due date of your return for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving a written notice from the IRS proposing to disallow deductions attributable to the activity. Income tax 2012 forms   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. Income tax 2012 forms Accordingly, it will not limit your deductions. Income tax 2012 forms Rather, you will gain time to earn a profit in 3 (or 2) out of the first 5 (or 7) years you carry on the farming activity. Income tax 2012 forms If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Income tax 2012 forms If you do not have 3 (or 2) years of profit (and cannot otherwise show that you operated your farm for profit), the limit applies retroactively to any year in the 5-year (or 7-year) period with a loss. Income tax 2012 forms   Filing Form 5213 automatically extends the period of limitations on any year