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Tax Planning Us File Your Own Taxes

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Tax Planning Us File Your Own Taxes

Tax planning us file your own taxes 8. Tax planning us file your own taxes   Gains and Losses Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesDetermining Gain or Loss Like-Kind Exchanges Transfer to Spouse Ordinary or Capital Gain or LossCapital Assets Noncapital Assets Hedging (Commodity Futures) Livestock Converted Wetland and Highly Erodible Cropland Timber Sale of a Farm Foreclosure or Repossession Abandonment Introduction This chapter explains how to figure, and report on your tax return, your gain or loss on the disposition of your property or debt and whether such gain or loss is ordinary or capital. Tax planning us file your own taxes Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. Tax planning us file your own taxes Dispositions discussed in this chapter include sales, exchanges, foreclosures, repossessions, canceled debts, hedging transactions, and elections to treat cutting of timber as a sale or exchange. Tax planning us file your own taxes Topics - This chapter discusses: Sales and exchanges Ordinary or capital gain or loss Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 523 Selling Your Home 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 908 Bankruptcy Tax Guide Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8949 Sales and Other Dispositions of Capital Assets See chapter 16 for information about getting publications and forms. Tax planning us file your own taxes Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. Tax planning us file your own taxes This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. Tax planning us file your own taxes A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Tax planning us file your own taxes An exchange is a transfer of property for other property or services. Tax planning us file your own taxes Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. Tax planning us file your own taxes If the amount you realize from a sale or exchange of property is more than its adjusted basis, you will have a gain. Tax planning us file your own taxes If the adjusted basis of the property is more than the amount you realize, you will have a loss. Tax planning us file your own taxes Basis and adjusted basis. Tax planning us file your own taxes   The basis of property you buy is usually its cost. Tax planning us file your own taxes The adjusted basis of property is basis plus certain additions and minus certain deductions. Tax planning us file your own taxes See chapter 6 for more information about basis and adjusted basis. Tax planning us file your own taxes Amount realized. Tax planning us file your own taxes   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (FMV) (defined in chapter 6) of all property or services you receive. Tax planning us file your own taxes The amount you realize also includes any of your liabilities assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Tax planning us file your own taxes   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. Tax planning us file your own taxes Amount recognized. Tax planning us file your own taxes   Your gain or loss realized from a sale or exchange of certain property is usually a recognized gain or loss for tax purposes. Tax planning us file your own taxes A recognized gain is a gain you must include in gross income and report on your income tax return. Tax planning us file your own taxes A recognized loss is a loss you deduct from gross income. Tax planning us file your own taxes However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. Tax planning us file your own taxes See Like-Kind Exchanges next. Tax planning us file your own taxes Also, a loss from the disposition of property held for personal use is not deductible. Tax planning us file your own taxes Like-Kind Exchanges Certain exchanges of property are not taxable. Tax planning us file your own taxes This means any gain from the exchange is not recognized, and any loss cannot be deducted. Tax planning us file your own taxes Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Tax planning us file your own taxes The exchange of property for the same kind of property is the most common type of nontaxable exchange. Tax planning us file your own taxes To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. Tax planning us file your own taxes Qualifying property. Tax planning us file your own taxes Like-kind property. Tax planning us file your own taxes These two requirements are discussed later. Tax planning us file your own taxes Multiple-party transactions. Tax planning us file your own taxes   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. Tax planning us file your own taxes Any part of these multiple-party transactions can qualify as a like-kind exchange if it meets all the requirements described in this section. Tax planning us file your own taxes Receipt of title from third party. Tax planning us file your own taxes   If you receive property in a like-kind exchange and the other party who transfers the property to you does not give you the title, but a third party does, you can still treat this transaction as a like-kind exchange if it meets all the requirements. Tax planning us file your own taxes Basis of property received. Tax planning us file your own taxes   If you receive property in a like-kind exchange, the basis of the property will be the same as the basis of the property you gave up. Tax planning us file your own taxes See chapter 6 for more information. Tax planning us file your own taxes Money paid. Tax planning us file your own taxes   If, in addition to giving up like-kind property, you pay money in a like-kind exchange, you still have no recognized gain or loss. Tax planning us file your own taxes The basis of the property received is the basis of the property given up, increased by the money paid. Tax planning us file your own taxes Example. Tax planning us file your own taxes You traded an old tractor with an adjusted basis of $15,000 for a new one. Tax planning us file your own taxes The new tractor costs $300,000. Tax planning us file your own taxes You were allowed $80,000 for the old tractor and paid $220,000 cash. Tax planning us file your own taxes You have no recognized gain or loss on the transaction regardless of the adjusted basis of your old tractor and the basis of the new tractor is $235,000, the adjusted basis of the old tractor plus the cash paid ($15,000 + $220,000). Tax planning us file your own taxes If you had sold the old tractor to a third party for $80,000 and bought a new one, you would have a recognized gain or loss on the sale of your old tractor equal to the difference between the amount realized and the adjusted basis of the old tractor. Tax planning us file your own taxes In this case, the taxable gain would be $65,000 ($80,000 − $15,000) and the basis of the new tractor would be $300,000. Tax planning us file your own taxes Reporting the exchange. Tax planning us file your own taxes   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. Tax planning us file your own taxes The Instructions for Form 8824 explain how to report the details of the exchange. Tax planning us file your own taxes   If you have any recognized gain because you received money or unlike property, report it on Schedule D (Form 1040) or Form 4797, whichever applies. Tax planning us file your own taxes You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. Tax planning us file your own taxes See chapter 9 for more information. Tax planning us file your own taxes Qualifying property. Tax planning us file your own taxes   In a like-kind exchange, both the property you give up and the property you receive must be held by you for investment or for productive use in your trade or business. Tax planning us file your own taxes Machinery, buildings, land, trucks, breeding livestock, rental houses, and certain mutual ditch, reservoir, or irrigation company stock are examples of property that may qualify. Tax planning us file your own taxes Nonqualifying property. Tax planning us file your own taxes   The rules for like-kind exchanges do not apply to exchanges of the following property. Tax planning us file your own taxes Property you use for personal purposes, such as your home and family car. Tax planning us file your own taxes Stock in trade or other property held primarily for sale, such as crops and produce. Tax planning us file your own taxes Stocks, bonds, or notes. Tax planning us file your own taxes However, see Qualifying property above. Tax planning us file your own taxes Other securities or evidences of indebtedness, such as accounts receivable. Tax planning us file your own taxes Partnership interests. Tax planning us file your own taxes However, you may have a nontaxable exchange under other rules. Tax planning us file your own taxes See Other Nontaxable Exchanges in chapter 1 of Publication 544. Tax planning us file your own taxes Like-kind property. Tax planning us file your own taxes   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. Tax planning us file your own taxes Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Tax planning us file your own taxes Generally, real property exchanged for real property qualifies as an exchange of like-kind property. Tax planning us file your own taxes For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. Tax planning us file your own taxes   An exchange of a tractor for a new tractor is an exchange of like-kind property, and so is an exchange of timber land for crop acreage. Tax planning us file your own taxes An exchange of a tractor for acreage, however, is not an exchange of like-kind property. Tax planning us file your own taxes The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. Tax planning us file your own taxes For example, the exchange of a bull for a cow is not a like-kind exchange. Tax planning us file your own taxes An exchange of the assets of a business for the assets of a similar business cannot be treated as an exchange of one property for another property. Tax planning us file your own taxes    Note. Tax planning us file your own taxes Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. Tax planning us file your own taxes Personal property. Tax planning us file your own taxes   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. Tax planning us file your own taxes Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. Tax planning us file your own taxes Property classified in any General Asset Class may not be classified within a Product Class. Tax planning us file your own taxes Assets that are not in the same class will qualify as like-kind property if they are of the same nature or character. Tax planning us file your own taxes General Asset Classes. Tax planning us file your own taxes   General Asset Classes describe the types of property frequently used in many businesses. Tax planning us file your own taxes They include, but are not limited to, the following property. Tax planning us file your own taxes Office furniture, fixtures, and equipment (asset class 00. Tax planning us file your own taxes 11). Tax planning us file your own taxes Information systems, such as computers and peripheral equipment (asset class 00. Tax planning us file your own taxes 12). Tax planning us file your own taxes Data handling equipment except computers (asset class 00. Tax planning us file your own taxes 13). Tax planning us file your own taxes Automobiles and taxis (asset class 00. Tax planning us file your own taxes 22). Tax planning us file your own taxes Light general purpose trucks (asset class 00. Tax planning us file your own taxes 241). Tax planning us file your own taxes Heavy general purpose trucks (asset class 00. Tax planning us file your own taxes 242). Tax planning us file your own taxes Tractor units for use over-the-road (asset class 00. Tax planning us file your own taxes 26). Tax planning us file your own taxes Trailers and trailer-mounted containers (asset class 00. Tax planning us file your own taxes 27). Tax planning us file your own taxes Industrial steam and electric generation and/or distribution systems (asset class 00. Tax planning us file your own taxes 4). Tax planning us file your own taxes Product Classes. Tax planning us file your own taxes   Product Classes include property listed in a 6-digit product class in sectors 31 through 33 of the North American Industry Classification System (NAICS) of the Executive Office of the President, Office of Management and Budget, United States, (NAICS Manual). Tax planning us file your own taxes The latest version of the manual can be accessed at www. Tax planning us file your own taxes census. Tax planning us file your own taxes gov/eos/www/naics/. Tax planning us file your own taxes Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. Tax planning us file your own taxes ntis. Tax planning us file your own taxes gov/products/naics. Tax planning us file your own taxes aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. Tax planning us file your own taxes A CD-ROM version with search and retrieval software is also available from NTIS. Tax planning us file your own taxes    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. Tax planning us file your own taxes Partially nontaxable exchange. Tax planning us file your own taxes   If, in addition to like-kind property, you receive money or unlike property in an exchange on which you realize gain, you have a partially nontaxable exchange. Tax planning us file your own taxes You are taxed on the gain you realize, but only to the extent of the money and the FMV of the unlike property you receive. Tax planning us file your own taxes A loss is not deductible. Tax planning us file your own taxes Example 1. Tax planning us file your own taxes You trade farmland that cost $30,000 for $10,000 cash and other land to be used in farming with a FMV of $50,000. Tax planning us file your own taxes You have a realized gain of $30,000 ($50,000 FMV of new land + $10,000 cash − $30,000 basis of old farmland = $30,000 realized gain). Tax planning us file your own taxes However, only $10,000, the cash received, is recognized (included in income). Tax planning us file your own taxes Example 2. Tax planning us file your own taxes Assume the same facts as in Example 1, except that, instead of money, you received a tractor with a FMV of $10,000. Tax planning us file your own taxes Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). Tax planning us file your own taxes Example 3. Tax planning us file your own taxes Assume in Example 1 that the FMV of the land you received was only $15,000. Tax planning us file your own taxes Your $5,000 loss is not recognized. Tax planning us file your own taxes Unlike property given up. Tax planning us file your own taxes   If, in addition to like-kind property, you give up unlike property, you must recognize gain or loss on the unlike property you give up. Tax planning us file your own taxes The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. Tax planning us file your own taxes Like-kind exchanges between related persons. Tax planning us file your own taxes   Special rules apply to like-kind exchanges between related persons. Tax planning us file your own taxes These rules affect both direct and indirect exchanges. Tax planning us file your own taxes Under these rules, if either person disposes of the property within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Tax planning us file your own taxes The gain or loss on the original exchange must be recognized as of the date of the later disposition. Tax planning us file your own taxes The 2-year holding period begins on the date of the last transfer of property that was part of the like-kind exchange. Tax planning us file your own taxes Related persons. Tax planning us file your own taxes   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. Tax planning us file your own taxes ), you and a corporation in which you have more than 50% ownership, you and a partnership in which you directly or indirectly own more than a 50% interest of the capital or profits, and two partnerships in which you directly or indirectly own more than 50% of the capital interests or profits. Tax planning us file your own taxes   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. Tax planning us file your own taxes Example. Tax planning us file your own taxes You used a grey pickup truck in your farming business. Tax planning us file your own taxes Your sister used a red pickup truck in her landscaping business. Tax planning us file your own taxes In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. Tax planning us file your own taxes At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. Tax planning us file your own taxes The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. Tax planning us file your own taxes You realized a gain of $1,000 (the $7,200 FMV of the red pickup truck, minus the grey pickup truck's $6,000 adjusted basis, minus the $200 you paid). Tax planning us file your own taxes Your sister realized a gain of $6,200 (the $7,000 FMV of the grey pickup truck plus the $200 you paid, minus the $1,000 adjusted basis of the red pickup truck). Tax planning us file your own taxes However, because this was a like-kind exchange, you recognized no gain. Tax planning us file your own taxes Your basis in the red pickup truck was $6,200 (the $6,000 adjusted basis of the grey pickup truck plus the $200 you paid). Tax planning us file your own taxes She recognized gain only to the extent of the money she received, $200. Tax planning us file your own taxes Her basis in the grey pickup truck was $1,000 (the $1,000 adjusted basis of the red pickup truck minus the $200 received, plus the $200 gain recognized). Tax planning us file your own taxes In 2013, you sold the red pickup truck to a third party for $7,000. Tax planning us file your own taxes Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Tax planning us file your own taxes On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. Tax planning us file your own taxes You also report a loss on the sale as $200 (the adjusted basis of the red pickup truck, $7,200 (its $6,200 basis plus the $1,000 gain recognized), minus the $7,000 realized from the sale). Tax planning us file your own taxes In addition, your sister must report on her tax return for 2013 the $6,000 balance of her gain on the 2012 exchange. Tax planning us file your own taxes Her adjusted basis in the grey pickup truck is increased to $7,000 (its $1,000 basis plus the $6,000 gain recognized). Tax planning us file your own taxes Exceptions to the rules for related persons. Tax planning us file your own taxes   The following property dispositions are excluded from these rules. Tax planning us file your own taxes Dispositions due to the death of either related person. Tax planning us file your own taxes Involuntary conversions. Tax planning us file your own taxes Dispositions where it is established to the satisfaction of the IRS that neither the exchange nor the disposition has, as a main purpose, the avoidance of federal income tax. Tax planning us file your own taxes Multiple property exchanges. Tax planning us file your own taxes   Under the like-kind exchange rules, you must generally make a property-by-property comparison to figure your recognized gain and the basis of the property you receive in the exchange. Tax planning us file your own taxes However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. Tax planning us file your own taxes Transfer and receive properties in two or more exchange groups. Tax planning us file your own taxes Transfer or receive more than one property within a single exchange group. Tax planning us file your own taxes   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. Tax planning us file your own taxes Deferred exchange. Tax planning us file your own taxes   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. Tax planning us file your own taxes A deferred exchange is an exchange in which you transfer property you use in business or hold for investment and later receive like-kind property you will use in business or hold for investment. Tax planning us file your own taxes The property you receive is replacement property. Tax planning us file your own taxes The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. Tax planning us file your own taxes In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. Tax planning us file your own taxes   For more information see Deferred Exchanges in chapter 1 of Publication 544. Tax planning us file your own taxes Transfer to Spouse No gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or a former spouse if incident to divorce. Tax planning us file your own taxes This rule does not apply if the recipient is a nonresident alien. Tax planning us file your own taxes Nor does this rule apply to a transfer in trust to the extent the liabilities assumed and the liabilities on the property are more than the property's adjusted basis. Tax planning us file your own taxes Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is not considered a sale or exchange. Tax planning us file your own taxes The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Tax planning us file your own taxes This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its FMV at the time of transfer or any consideration paid by the recipient. Tax planning us file your own taxes This rule applies for determining loss as well as gain. Tax planning us file your own taxes Any gain recognized on a transfer in trust increases the basis. Tax planning us file your own taxes For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. Tax planning us file your own taxes Ordinary or Capital Gain or Loss Generally, you will have a capital gain or loss if you sell or exchange a capital asset (defined below). Tax planning us file your own taxes You may also have a capital gain if your section 1231 transactions result in a net gain. Tax planning us file your own taxes See Section 1231 Gains and Losses in  chapter 9. Tax planning us file your own taxes To figure your net capital gain or loss, you must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). Tax planning us file your own taxes Your net capital gains may be taxed at a lower tax rate than ordinary income. Tax planning us file your own taxes See Capital Gains Tax Rates , later. Tax planning us file your own taxes Your deduction for a net capital loss may be limited. Tax planning us file your own taxes See Treatment of Capital Losses , later. Tax planning us file your own taxes Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. Tax planning us file your own taxes The following items are examples of capital assets. Tax planning us file your own taxes A home owned and occupied by you and your family. Tax planning us file your own taxes Household furnishings. Tax planning us file your own taxes A car used for pleasure. Tax planning us file your own taxes If your car is used both for pleasure and for farm business, it is partly a capital asset and partly a noncapital asset, defined later. Tax planning us file your own taxes Stocks and bonds. Tax planning us file your own taxes However, there are special rules for gains on qualified small business stock. Tax planning us file your own taxes For more information on this subject, see Gains on Qualified Small Business Stock and Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. Tax planning us file your own taxes Personal-use property. Tax planning us file your own taxes   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. Tax planning us file your own taxes Loss from the sale or exchange of personal-use property is not deductible. Tax planning us file your own taxes You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Tax planning us file your own taxes For information on casualties and thefts, see chapter 11. Tax planning us file your own taxes Long and Short Term Where you report a capital gain or loss depends on how long you own the asset before you sell or exchange it. Tax planning us file your own taxes The time you own an asset before disposing of it is the holding period. Tax planning us file your own taxes If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. Tax planning us file your own taxes Report it in Part I of Schedule D (Form 1040). Tax planning us file your own taxes If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. Tax planning us file your own taxes Report it in Part II of Schedule D (Form 1040). Tax planning us file your own taxes Holding period. Tax planning us file your own taxes   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. Tax planning us file your own taxes The day you disposed of the property is part of your holding period. Tax planning us file your own taxes Example. Tax planning us file your own taxes If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Tax planning us file your own taxes If you sold the asset on June 19, 2013, your holding period is not longer than 1 year, but if you sold it on June 20, 2013, your holding period is longer than 1 year. Tax planning us file your own taxes Inherited property. Tax planning us file your own taxes   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Tax planning us file your own taxes This rule does not apply to livestock used in a farm business. Tax planning us file your own taxes See Holding period under Livestock , later. Tax planning us file your own taxes Nonbusiness bad debt. Tax planning us file your own taxes   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. Tax planning us file your own taxes See chapter 4 of Publication 550. Tax planning us file your own taxes Nontaxable exchange. Tax planning us file your own taxes   If you acquire an asset in exchange for another asset and your basis for the new asset is figured, in whole or in part, by using your basis in the old property, the holding period of the new property includes the holding period of the old property. Tax planning us file your own taxes That is, it begins on the same day as your holding period for the old property. Tax planning us file your own taxes Gift. Tax planning us file your own taxes   If you receive a gift of property and your basis in it is figured using the donor's basis, your holding period includes the donor's holding period. Tax planning us file your own taxes Real property. Tax planning us file your own taxes   To figure how long you held real property, start counting on the day after you received title to it or, if earlier, on the day after you took possession of it and assumed the burdens and privileges of ownership. Tax planning us file your own taxes   However, taking possession of real property under an option agreement is not enough to start the holding period. Tax planning us file your own taxes The holding period cannot start until there is an actual contract of sale. Tax planning us file your own taxes The holding period of the seller cannot end before that time. Tax planning us file your own taxes Figuring Net Gain or Loss The totals for short-term capital gains and losses and the totals for long-term capital gains and losses must be figured separately. Tax planning us file your own taxes Net short-term capital gain or loss. Tax planning us file your own taxes   Combine your short-term capital gains and losses. Tax planning us file your own taxes Do this by adding all of your short-term capital gains. Tax planning us file your own taxes Then add all of your short-term capital losses. Tax planning us file your own taxes Subtract the lesser total from the greater. Tax planning us file your own taxes The difference is your net short-term capital gain or loss. Tax planning us file your own taxes Net long-term capital gain or loss. Tax planning us file your own taxes   Follow the same steps to combine your long-term capital gains and losses. Tax planning us file your own taxes The result is your net long-term capital gain or loss. Tax planning us file your own taxes Net gain. Tax planning us file your own taxes   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Tax planning us file your own taxes However, part of your gain (but not more than your net capital gain) may be taxed at a lower rate than the rate of tax on your ordinary income. Tax planning us file your own taxes See Capital Gains Tax Rates , later. Tax planning us file your own taxes Net loss. Tax planning us file your own taxes   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Tax planning us file your own taxes But there are limits on how much loss you can deduct and when you can deduct it. Tax planning us file your own taxes See Treatment of Capital Losses next. Tax planning us file your own taxes Treatment of Capital Losses If your capital losses are more than your capital gains, you must claim the difference even if you do not have ordinary income to offset it. Tax planning us file your own taxes For taxpayers other than corporations, the yearly limit on the capital loss you can deduct is $3,000 ($1,500 if you are married and file a separate return). Tax planning us file your own taxes If your other income is low, you may not be able to use the full $3,000. Tax planning us file your own taxes The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). Tax planning us file your own taxes Capital loss carryover. Tax planning us file your own taxes   Generally, you have a capital loss carryover if either of the following situations applies to you. Tax planning us file your own taxes Your net loss on Schedule D (Form 1040), is more than the yearly limit. Tax planning us file your own taxes Your taxable income without your deduction for exemptions is less than zero. Tax planning us file your own taxes If either of these situations applies to you for 2013, see Capital Losses under Reporting Capital Gains and Losses in chapter 4 of Publication 550 to figure the amount you can carry over to 2014. Tax planning us file your own taxes    To figure your capital loss carryover from 2013 to 2014, you will need a copy of your 2013 Form 1040 and Schedule D (Form 1040). Tax planning us file your own taxes Capital Gains Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. Tax planning us file your own taxes These lower rates are called the maximum capital gains rates. Tax planning us file your own taxes The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. Tax planning us file your own taxes See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). Tax planning us file your own taxes Also see Publication 550. Tax planning us file your own taxes Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. Tax planning us file your own taxes A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). Tax planning us file your own taxes Property held for sale in the ordinary course of your farm business. Tax planning us file your own taxes   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. Tax planning us file your own taxes Gain or loss from sales or other dispositions of this property is reported on Schedule F (Form 1040) (not on Schedule D (Form 1040) or Form 4797). Tax planning us file your own taxes The treatment of this property is discussed in chapter 3. Tax planning us file your own taxes Land and depreciable properties. Tax planning us file your own taxes   Land and depreciable property you use in farming are not capital assets. Tax planning us file your own taxes Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. Tax planning us file your own taxes However, your gains and losses from sales and exchanges of your farmland and depreciable properties must be considered together with certain other transactions to determine whether the gains and losses are treated as capital or ordinary gains and losses. Tax planning us file your own taxes The sales of these business assets are reported on Form 4797. Tax planning us file your own taxes See chapter 9 for more information. Tax planning us file your own taxes Hedging (Commodity Futures) Hedging transactions are transactions that you enter into in the normal course of business primarily to manage the risk of interest rate or price changes, or currency fluctuations, with respect to borrowings, ordinary property, or ordinary obligations. Tax planning us file your own taxes Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. Tax planning us file your own taxes A commodity futures contract is a standardized, exchange-traded contract for the sale or purchase of a fixed amount of a commodity at a future date for a fixed price. Tax planning us file your own taxes The holder of an option on a futures contract has the right (but not the obligation) for a specified period of time to enter into a futures contract to buy or sell at a particular price. Tax planning us file your own taxes A forward contract is generally similar to a futures contract except that the terms are not standardized and the contract is not exchange traded. Tax planning us file your own taxes Businesses may enter into commodity futures contracts or forward contracts and may acquire options on commodity futures contracts as either of the following. Tax planning us file your own taxes Hedging transactions. Tax planning us file your own taxes Transactions that are not hedging transactions. Tax planning us file your own taxes Futures transactions with exchange-traded commodity futures contracts that are not hedging transactions, generally, result in capital gain or loss and are subject to the mark-to-market rules discussed in Publication 550. Tax planning us file your own taxes There is a limit on the amount of capital losses you can deduct each year. Tax planning us file your own taxes Hedging transactions are not subject to the mark-to-market rules. Tax planning us file your own taxes If, as a farmer-producer, to protect yourself from the risk of unfavorable price fluctuations, you enter into commodity forward contracts, futures contracts, or options on futures contracts and the contracts cover an amount of the commodity within your range of production, the transactions are generally considered hedging transactions. Tax planning us file your own taxes They can take place at any time you have the commodity under production, have it on hand for sale, or reasonably expect to have it on hand. Tax planning us file your own taxes The gain or loss on the termination of these hedges is generally ordinary gain or loss. Tax planning us file your own taxes Farmers who file their income tax returns on the cash method report any profit or loss on the hedging transaction on Schedule F, line 8. Tax planning us file your own taxes Gains or losses from hedging transactions that hedge supplies of a type regularly used or consumed in the ordinary course of your trade or business may be ordinary gains or losses. Tax planning us file your own taxes Examples include fuel and feed. Tax planning us file your own taxes If you have numerous transactions in the commodity futures market during the year, you must be able to show which transactions are hedging transactions. Tax planning us file your own taxes Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. Tax planning us file your own taxes It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. Tax planning us file your own taxes Retain the identification of each hedging transaction with your books and records. Tax planning us file your own taxes Also, identify the item(s) or aggregate risk that is being hedged in your records. Tax planning us file your own taxes Although the identification of the hedging transaction must be made before the end of the day it was entered into, you have 35 days after entering into the transaction to identify the hedged item(s) or risk. Tax planning us file your own taxes For more information on the tax treatment of futures and options contracts, see Commodity Futures and Section 1256 Contracts Marked to Market in Publication 550. Tax planning us file your own taxes Accounting methods for hedging transactions. Tax planning us file your own taxes   The accounting method you use for a hedging transaction must clearly reflect income. Tax planning us file your own taxes This means that your accounting method must reasonably match the timing of income, deduction, gain, or loss from a hedging transaction with the timing of income, deduction, gain, or loss from the item or items being hedged. Tax planning us file your own taxes There are requirements and limits on the method you can use for certain hedging transactions. Tax planning us file your own taxes See Regulations section 1. Tax planning us file your own taxes 446-4(e) for those requirements and limits. Tax planning us file your own taxes   Hedging transactions must be accounted for under the rules stated above unless the transaction is subject to mark-to-market accounting under section 475 or you use an accounting method other than the following methods. Tax planning us file your own taxes Cash method. Tax planning us file your own taxes Farm-price method. Tax planning us file your own taxes Unit-livestock-price method. Tax planning us file your own taxes   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. Tax planning us file your own taxes   Your books and records must describe the accounting method used for each type of hedging transaction. Tax planning us file your own taxes They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. Tax planning us file your own taxes You must make the additional identification no more than 35 days after entering into the hedging transaction. Tax planning us file your own taxes Example of a hedging transaction. Tax planning us file your own taxes   You file your income tax returns on the cash method. Tax planning us file your own taxes On July 2 you anticipate a yield of 50,000 bushels of corn this year. Tax planning us file your own taxes The December futures price is $5. Tax planning us file your own taxes 75 a bushel, but there are indications that by harvest time the price will drop. Tax planning us file your own taxes To protect yourself against a drop in the price, you enter into the following hedging transaction. Tax planning us file your own taxes You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. Tax planning us file your own taxes 75 a bushel. Tax planning us file your own taxes   The price did not drop as anticipated but rose to $6 a bushel. Tax planning us file your own taxes In November, you sell your crop at a local elevator for $6 a bushel. Tax planning us file your own taxes You also close out your futures position by buying ten December contracts for $6 a bushel. Tax planning us file your own taxes You paid a broker's commission of $1,400 ($70 per contract) for the complete in and out position in the futures market. Tax planning us file your own taxes   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. Tax planning us file your own taxes Your loss on the hedge is 25 cents a bushel. Tax planning us file your own taxes In effect, the net selling price of your corn is $5. Tax planning us file your own taxes 75 a bushel. Tax planning us file your own taxes   Report the results of your futures transactions and your sale of corn separately on Schedule F. Tax planning us file your own taxes See the instructions for the 2013 Schedule F (Form 1040). Tax planning us file your own taxes   The loss on your futures transactions is $13,900, figured as follows. Tax planning us file your own taxes July 2 - Sold December corn futures (50,000 bu. Tax planning us file your own taxes @$5. Tax planning us file your own taxes 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Tax planning us file your own taxes @$6 plus $1,400 broker's commission) 301,400 Futures loss ($13,900) This loss is reported as a negative figure on Schedule F, Part I, line 8, as other income. Tax planning us file your own taxes   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. Tax planning us file your own taxes × $6). Tax planning us file your own taxes Report it on Schedule F, Part I, line 2, as income from sales of products you raised. Tax planning us file your own taxes   Assume you were right and the price went down 25 cents a bushel. Tax planning us file your own taxes In effect, you would still net $5. Tax planning us file your own taxes 75 a bushel, figured as follows. Tax planning us file your own taxes Sold cash corn, per bushel $5. Tax planning us file your own taxes 50 Gain on hedge, per bushel . Tax planning us file your own taxes 25 Net price, per bushel $5. Tax planning us file your own taxes 75       The gain on your futures transactions would have been $11,100, figured as follows. Tax planning us file your own taxes July 2 - Sold December corn futures (50,000 bu. Tax planning us file your own taxes @$5. Tax planning us file your own taxes 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Tax planning us file your own taxes @$5. Tax planning us file your own taxes 50 plus $1,400 broker's commission) 276,400 Futures gain $11,100 The $11,100 is reported on Schedule F, Part I, line 8, as other income. Tax planning us file your own taxes   The proceeds from the sale of your corn at the local elevator, $275,000, are reported on Schedule F, Part I, line 2, as income from sales of products you raised. Tax planning us file your own taxes Livestock This part discusses the sale or exchange of livestock used in your farm business. Tax planning us file your own taxes Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. Tax planning us file your own taxes However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. Tax planning us file your own taxes See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. Tax planning us file your own taxes The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. Tax planning us file your own taxes The sale of this livestock is reported on Schedule F. Tax planning us file your own taxes See chapter 3. Tax planning us file your own taxes Also, special rules apply to sales or exchanges caused by weather-related conditions. Tax planning us file your own taxes See chapter 3. Tax planning us file your own taxes Holding period. Tax planning us file your own taxes   The sale or exchange of livestock used in your farm business (defined below) qualifies as a section 1231 transaction if you held the livestock for 12 months or more (24 months or more for horses and cattle). Tax planning us file your own taxes Livestock. Tax planning us file your own taxes   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. Tax planning us file your own taxes Also, for section 1231 transactions, livestock does not include chickens, turkeys, pigeons, geese, emus, ostriches, rheas, or other birds, fish, frogs, reptiles, etc. Tax planning us file your own taxes Livestock used in farm business. Tax planning us file your own taxes   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. Tax planning us file your own taxes The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. Tax planning us file your own taxes An animal is not held for draft, breeding, dairy, or sporting purposes merely because it is suitable for that purpose, or because it is held for sale to other persons for use by them for that purpose. Tax planning us file your own taxes However, a draft, breeding, or sporting purpose may be present if an animal is disposed of within a reasonable time after it is prevented from its intended use or made undesirable as a result of an accident, disease, drought, or unfitness of the animal. Tax planning us file your own taxes Example 1. Tax planning us file your own taxes You discover an animal that you intend to use for breeding purposes is sterile. Tax planning us file your own taxes You dispose of it within a reasonable time. Tax planning us file your own taxes This animal was held for breeding purposes. Tax planning us file your own taxes Example 2. Tax planning us file your own taxes You retire and sell your entire herd, including young animals that you would have used for breeding or dairy purposes had you remained in business. Tax planning us file your own taxes These young animals were held for breeding or dairy purposes. Tax planning us file your own taxes Also, if you sell young animals to reduce your breeding or dairy herd because of drought, these animals are treated as having been held for breeding or dairy purposes. Tax planning us file your own taxes See Sales Caused by Weather-Related Conditions in chapter 3. Tax planning us file your own taxes Example 3. Tax planning us file your own taxes You are in the business of raising hogs for slaughter. Tax planning us file your own taxes Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. Tax planning us file your own taxes You sell the brood sows after obtaining the litter. Tax planning us file your own taxes Even though you hold these brood sows for ultimate sale to customers in the ordinary course of your business, they are considered to be held for breeding purposes. Tax planning us file your own taxes Example 4. Tax planning us file your own taxes You are in the business of raising registered cattle for sale to others for use as breeding cattle. Tax planning us file your own taxes The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. Tax planning us file your own taxes Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. Tax planning us file your own taxes Such use does not demonstrate that you are holding the cattle for breeding purposes. Tax planning us file your own taxes However, those cattle you held as additions or replacements to your own breeding herd to produce calves are considered to be held for breeding purposes, even though they may not actually have produced calves. Tax planning us file your own taxes The same applies to hog and sheep breeders. Tax planning us file your own taxes Example 5. Tax planning us file your own taxes You breed, raise, and train horses for racing purposes. Tax planning us file your own taxes Every year you cull horses from your racing stable. Tax planning us file your own taxes In 2013, you decided that to prevent your racing stable from getting too large to be effectively operated, you must cull six horses that had been raced at public tracks in 2012. Tax planning us file your own taxes These horses are all considered held for sporting purposes. Tax planning us file your own taxes Figuring gain or loss on the cash method. Tax planning us file your own taxes   Farmers or ranchers who use the cash method of accounting figure their gain or loss on the sale of livestock used in their farming business as follows. Tax planning us file your own taxes Raised livestock. Tax planning us file your own taxes   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. Tax planning us file your own taxes Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. Tax planning us file your own taxes The basis of the animal sold is zero if the costs of raising it were deducted during the years the animal was being raised. Tax planning us file your own taxes However, see Uniform Capitalization Rules in chapter 6. Tax planning us file your own taxes Purchased livestock. Tax planning us file your own taxes   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. Tax planning us file your own taxes Example. Tax planning us file your own taxes A farmer sold a breeding cow on January 8, 2013, for $1,250. Tax planning us file your own taxes Expenses of the sale were $125. Tax planning us file your own taxes The cow was bought July 2, 2009, for $1,300. Tax planning us file your own taxes Depreciation (not less than the amount allowable) was $867. Tax planning us file your own taxes Gross sales price $1,250 Cost (basis) $1,300   Minus: Depreciation deduction 867   Unrecovered cost (adjusted basis) $ 433   Expense of sale 125 558 Gain realized $ 692 Converted Wetland and Highly Erodible Cropland Special rules apply to dispositions of land converted to farming use after March 1, 1986. Tax planning us file your own taxes Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. Tax planning us file your own taxes Any loss on the disposition of such property is treated as a long-term capital loss. Tax planning us file your own taxes Converted wetland. Tax planning us file your own taxes   This is generally land that was drained or filled to make the production of agricultural commodities possible. Tax planning us file your own taxes It includes converted wetland held by the person who originally converted it or held by any other person who used the converted wetland at any time after conversion for farming. Tax planning us file your own taxes   A wetland (before conversion) is land that meets all the following conditions. Tax planning us file your own taxes It is mostly soil that, in its undrained condition, is saturated, flooded, or ponded long enough during a growing season to develop an oxygen-deficient state that supports the growth and regeneration of plants growing in water. Tax planning us file your own taxes It is saturated by surface or groundwater at a frequency and duration sufficient to support mostly plants that are adapted for life in saturated soil. Tax planning us file your own taxes It supports, under normal circumstances, mostly plants that grow in saturated soil. Tax planning us file your own taxes Highly erodible cropland. Tax planning us file your own taxes   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. Tax planning us file your own taxes Generally, highly erodible cropland is land currently classified by the Department of Agriculture as Class IV, VI, VII, or VIII under its classification system. Tax planning us file your own taxes Highly erodible cropland also includes land that would have an excessive average annual erosion rate in relation to the soil loss tolerance level, as determined by the Department of Agriculture. Tax planning us file your own taxes Successor. Tax planning us file your own taxes   Converted wetland or highly erodible cropland is also land held by any person whose basis in the land is figured by reference to the adjusted basis of a person in whose hands the property was converted wetland or highly erodible cropland. Tax planning us file your own taxes Timber Standing timber you held as investment property is a capital asset. Tax planning us file your own taxes Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. Tax planning us file your own taxes If you held the timber primarily for sale to customers, it is not a capital asset. Tax planning us file your own taxes Gain or loss on its sale is ordinary business income or loss. Tax planning us file your own taxes It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). Tax planning us file your own taxes See the Instructions for Schedule F (Form 1040). Tax planning us file your own taxes Farmers who cut timber on their land and sell it as logs, firewood, or pulpwood usually have no cost or other basis for that timber. Tax planning us file your own taxes Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. Tax planning us file your own taxes , are ordinary farm income and expenses reported on Schedule F. Tax planning us file your own taxes Different rules apply if you owned the timber longer than 1 year and elect to treat timber cutting as a sale or exchange or you enter into a cutting contract, discussed below. Tax planning us file your own taxes Timber considered cut. Tax planning us file your own taxes   Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Tax planning us file your own taxes This is true whether the timber is cut under contract or whether you cut it yourself. Tax planning us file your own taxes Christmas trees. Tax planning us file your own taxes   Evergreen trees, such as Christmas trees, that are more than 6 years old when severed from their roots and sold for ornamental purposes are included in the term timber. Tax planning us file your own taxes They qualify for both rules discussed below. Tax planning us file your own taxes Election to treat cutting as a sale or exchange. Tax planning us file your own taxes   Under the general rule, the cutting of timber results in no gain or loss. Tax planning us file your own taxes It is not until a sale or exchange occurs that gain or loss is realized. Tax planning us file your own taxes But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year it is cut. Tax planning us file your own taxes Even though the cut timber is not actually sold or exchanged, you report your gain or loss on the cutting for the year the timber is cut. Tax planning us file your own taxes Any later sale results in ordinary business income or loss. Tax planning us file your own taxes See the example below. Tax planning us file your own taxes   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or use in your trade or business. Tax planning us file your own taxes Making the election. Tax planning us file your own taxes   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of your gain or loss. Tax planning us file your own taxes You do not have to make the election in the first year you cut the timber. Tax planning us file your own taxes You can make it in any year to which the election would apply. Tax planning us file your own taxes If the timber is partnership property, the election is made on the partnership return. Tax planning us file your own taxes This election cannot be made on an amended return. Tax planning us file your own taxes   Once you have made the election, it remains in effect for all later years unless you revoke it. Tax planning us file your own taxes Election under section 631(a) may be revoked. Tax planning us file your own taxes   If you previously elected for any tax year ending before October 23, 2004, to treat the cutting of timber as a sale or exchange under section 631(a), you may revoke this election without the consent of the IRS for any tax year ending after October 22, 2004. Tax planning us file your own taxes The prior election (and revocation) is disregarded for purposes of making a subsequent election. Tax planning us file your own taxes See Form T (Timber), Forest Activities Schedule, for more information. Tax planning us file your own taxes Gain or loss. Tax planning us file your own taxes   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its FMV on the first day of your tax year in which it is cut. Tax planning us file your own taxes   Your adjusted basis for depletion of cut timber is based on the number of units (board feet, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. Tax planning us file your own taxes Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 and Regulations section 1. Tax planning us file your own taxes 611-3. Tax planning us file your own taxes   Depletion of timber is discussed in chapter 7. Tax planning us file your own taxes Example. Tax planning us file your own taxes   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Tax planning us file your own taxes It had an adjusted basis for depletion of $40 per MBF. Tax planning us file your own taxes You are a calendar year taxpayer. Tax planning us file your own taxes On January 1, 2013, the timber had a FMV of $350 per MBF. Tax planning us file your own taxes It was cut in April for sale. Tax planning us file your own taxes On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Tax planning us file your own taxes You report the difference between the FMV and your adjusted basis for depletion as a gain. Tax planning us file your own taxes This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as a capital gain or as ordinary gain. Tax planning us file your own taxes You figure your gain as follows. Tax planning us file your own taxes FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000   The FMV becomes your basis in the cut timber, and a later sale of the cut timber, including any by-product or tree tops, will result in ordinary business income or loss. Tax planning us file your own taxes Outright sales of timber. Tax planning us file your own taxes   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined later). Tax planning us file your own taxes However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see Date of disposal below). Tax planning us file your own taxes Cutting contract. Tax planning us file your own taxes   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Tax planning us file your own taxes You are the owner of the timber. Tax planning us file your own taxes You held the timber longer than 1 year before its disposal. Tax planning us file your own taxes You kept an economic interest in the timber. Tax planning us file your own taxes   You have kept an economic interest in standing timber if, under the cutting contract, the expected return on your investment is conditioned on the cutting of the timber. Tax planning us file your own taxes   The difference between the amount realized from the disposal of the timber and its adjusted basis for depletion is treated as gain or loss on its sale. Tax planning us file your own taxes Include this amount on Form 4797 along with your other section 1231 gains or losses. Tax planning us file your own taxes Date of disposal. Tax planning us file your own taxes   The date of disposal is the date the timber is cut. Tax planning us file your own taxes However, for outright sales by landowners or if you receive payment under the contract before the timber is cut, you can elect to treat the date of payment as the date of disposal. Tax planning us file your own taxes   This election applies only to figure the holding period of the timber. Tax planning us file your own taxes It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Tax planning us file your own taxes   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Tax planning us file your own taxes The statement must identify the advance payments subject to the election and the contract under which they were made. Tax planning us file your own taxes   If you timely filed your return for the year you received payment without making the election, you can still make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). Tax planning us file your own taxes Attach the statement to the amended return and write “Filed pursuant to section 301. Tax planning us file your own taxes 9100-2” at the top of the statement. Tax planning us file your own taxes File the amended return at the same address the original return was filed. Tax planning us file your own taxes Owner. Tax planning us file your own taxes   An owner is any person who owns an interest in the timber, including a sublessor and the holder of a contract to cut the timber. Tax planning us file your own taxes You own an interest in timber if you have the right to cut it for sale on your own account or for use in your business. Tax planning us file your own taxes Tree stumps. Tax planning us file your own taxes   Tree stumps are a capital asset if they are on land held by an investor who is not in the timber or stump business as a buyer, seller, or processor. Tax planning us file your own taxes Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Tax planning us file your own taxes However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Tax planning us file your own taxes Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Tax planning us file your own taxes   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Tax planning us file your own taxes Sale of a Farm The sale of your farm will usually involve the sale of both nonbusiness property (your home) and business property (the land and buildings used in the farm operation and perhaps machinery and livestock). Tax planning us file your own taxes If you have a gain from the sale, you may be allowed to exclude the gain on your home. Tax planning us file your own taxes For more information, see Publication 523, Selling Your Home. Tax planning us file your own taxes The gain on the sale of your business property is taxable. Tax planning us file your own taxes A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. Tax planning us file your own taxes Your taxable gain or loss on the sale of property used in your farm business is taxed under the rules for section 1231 transactions. Tax planning us file your own taxes See chapter 9. Tax planning us file your own taxes Losses from personal-use property, other than casualty or theft losses, are not deductible. Tax planning us file your own taxes If you receive payments for your farm in installments, your gain is taxed over the period of years the payments are received, unless you elect not to use the installment method of reporting the gain. Tax planning us file your own taxes See chapter 10 for information about installment sales. Tax planning us file your own taxes When you sell your farm, the gain or loss on each asset is figured separately. Tax planning us file your own taxes The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. Tax planning us file your own taxes Each of the assets sold must be classified as one of the following. Tax planning us file your own taxes Capital asset held 1 year or less. Tax planning us file your own taxes Capital asset held longer than 1 year. Tax planning us file your own taxes Property (including real estate) used in your business and held 1 year or less (including draft, breeding, dairy, and sporting animals held less than the holding periods discussed earlier under Livestock ). Tax planning us file your own taxes Property (including real estate) used in your business and held longer than 1 year (including only draft, breeding, dairy, and sporting animals held for the holding periods discussed earlier). Tax planning us file your own taxes Property held primarily for sale or which is of the kind that would be included in inventory if on hand at the end of your tax year. Tax planning us file your own taxes Allocation of consideration paid for a farm. Tax planning us file your own taxes   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. Tax planning us file your own taxes The residual method is required only if the group of assets sold constitutes a trade or business. Tax planning us file your own taxes This method determines gain or loss from the transfer of each asset. Tax planning us file your own taxes It also determines the buyer's basis in the business assets. Tax planning us file your own taxes For more information, see Sale of a Business in chapter 2 of Publication 544. Tax planning us file your own taxes Property used in farm operation. Tax planning us file your own taxes   The rules for excluding the gain on the sale of your home, described later under Sale of your home , do not apply to the property used for your farming business. Tax planning us file your own taxes Recognized gains and losses on business property must be reported on your return for the year of the sale. Tax planning us file your own taxes If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). Tax planning us file your own taxes Example. Tax planning us file your own taxes You sell your farm, including your main home, which you have owned since December 2001. Tax planning us file your own taxes You realize gain on the sale as follows. Tax planning us file your own taxes   Farm   Farm   With Home Without   Home Only Home Selling price $382,000 $158,000 $224,000 Cost (or other basis) 240,000 110,000 130,000 Gain $142,000 $48,000 $94,000 You must report the $94,000 gain from the sale of the property used in your farm business. Tax planning us file your own taxes All or a part of that gain may have to be reported as ordinary income from the recapture of depreciation or soil and water conservation expenses. Tax planning us file your own taxes Treat the balance as section 1231 gain. Tax planning us file your own taxes The $48,000 gain from the sale of your home is not taxable as long as you meet the requirements explained later under Sale of your home . Tax planning us file your own taxes Partial sale. Tax planning us file your own taxes   If you sell only part of your farm, you must report any recognized gain or loss on the sale of that part on your tax return for the year of the sale. Tax planning us file your own taxes You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. Tax planning us file your own taxes For a detailed discussion on installment sales, see Publication 544. Tax planning us file your own taxes Adjusted basis of the part sold. Tax planning us file your own taxes   This is the properly allocated part of your original cost or other basis of the entire farm plus or minus necessary adjustments for improvements, depreciation, etc. Tax planning us file your own taxes , on the part sold. Tax planning us file your own taxes If your home is on the farm, you must properly adjust the basis to exclude those costs from your farm asset costs, as discussed below under Sale of your home . Tax planning us file your own taxes Example. Tax planning us file your own taxes You bought a 600-acre farm for $700,000. Tax planning us file your own taxes The farm included land and buildings. Tax planning us file your own taxes The purchase contract designated $600,000 of the purchase price to the land. Tax planning us file your own taxes You later sold 60 acres of land on which you had installed a fence. Tax planning us file your own taxes Your adjusted basis for the part of your farm sold is $60,000 (1/10 of $600,000), plus any unrecovered cost (cost not depreciated) of the fence on the 60 acres at the time of sale. Tax planning us file your own taxes Use this amount to determine your gain or loss on the sale of the 60 acres. Tax planning us file your own taxes Assessed values for local property taxes. Tax planning us file your own taxes   If you paid a flat sum for the entire farm and no other facts are available for properly allocating your original cost or other basis between the land and the buildings, you can use the assessed values for local property taxes for the year of purchase to allocate the costs. Tax planning us file your own taxes Example. Tax planning us file your own taxes Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. Tax planning us file your own taxes However, in the year of purchase, local taxes on the entire property were based on assessed valuations of $420,000 for land and $140,000 for improvements, or a total of $560,000. Tax planning us file your own taxes The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. Tax planning us file your own taxes Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. Tax planning us file your own taxes The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). Tax planning us file your own taxes Sale of your home. Tax planning us file your own taxes   Your home is a capital asset and not property used in the trade or business of farming. Tax planning us file your own taxes If you sell a farm that includes a house you and your family occupy, you must determine the part of the selling price and the part of the cost or other basis allocable to your home. Tax planning us file your own taxes Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. Tax planning us file your own taxes   If you use part of your home for business, you must make an appropriate adjustment to the basis for depreciation allowed or allowable. Tax planning us file your own taxes For more information on basis, see chapter 6. Tax planning us file your own taxes More information. Tax planning us file your own taxes   For more information on selling your home, see Publication 523. Tax planning us file your own taxes Gain from condemnation. Tax planning us file your own taxes   If you have a gain from a condemnation or sale under threat of condemnation, you may use the preceding rules for excluding the gain, rather than the rules discussed under Postponing Gain in chapter 11. Tax planning us file your own taxes However, any gain that cannot be excluded (because it is more than the limit) may be postponed under the rules discussed under Postponing Gain in chapter 11. Tax planning us file your own taxes Foreclosure or Repossession If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Tax planning us file your own taxes The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Tax planning us file your own taxes This is true even if you voluntarily return the property to the lender. Tax planning us file your own taxes You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. Tax planning us file your own taxes Buyer's (borrower's) gain or loss. Tax planning us file your own taxes   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Tax planning us file your own taxes The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Tax planning us file your own taxes See Determining Gain or Loss , earlier. Tax planning us file your own taxes Worksheet 8-1. Tax planning us file your own taxes Worksheet for Foreclosures andRepossessions Part 1. Tax planning us file your own taxes Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Tax planning us file your own taxes Complete this part only if you were personally liable for the debt. Tax planning us file your own taxes Otherwise, go to Part 2. Tax planning us file your own taxes   1. Tax planning us file your own taxes Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable after the transfer of property   2. Tax planning us file your own taxes Enter the Fair Market Value of the transferred property   3. Tax planning us file your own taxes Ordinary income from cancellation of debt upon foreclosure or repossession. Tax planning us file your own taxes * Subtract line 2 from line 1. Tax planning us file your own taxes If zero or less, enter -0-   Part 2. Tax planning us file your own taxes Figure your gain or loss from foreclosure or repossession. Tax planning us file your own taxes   4. Tax planning us file your own taxes If you completed Part 1, enter the smaller of line 1 or line 2. Tax planning us file your own taxes If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. Tax planning us file your own taxes Enter any proceeds you received from the foreclosure sale   6. Tax planning us file your own taxes Add lines 4 and 5   7. Tax planning us file your own taxes Enter the adjusted basis of the transferred property   8. Tax planning us file your own taxes Gain or loss from foreclosure or repossession. Tax planning us file your own taxes Subtract line 7  from line 6   * The income may not be taxable. Tax planning us file your own taxes See Cancellation of debt . Tax planning us file your own taxes    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. Tax planning us file your own taxes Amount realized on a nonrecourse debt. Tax planning us file your own taxes   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full amount of the debt canceled by the transfer. Tax planning us file your own taxes The full canceled debt is included in the amount realized even if the fair market value of the property is less than the canceled debt. Tax planning us file your own taxes Example 1. Tax planning us file your own taxes Ann paid $200,000 for land used in her farming business. Tax planning us file your own taxes She paid $15,000 down and borrowed the remaining $185,000 from a bank. Tax planning us file your own taxes Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. Tax planning us file your own taxes The bank foreclosed on the loan 2 years after Ann stopped making payments. Tax planning us file your own taxes When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. Tax planning us file your own taxes The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. Tax planning us file your own taxes She figures her gain or loss on Form 4797, Part I, by comparing the amount realized ($180,000) with her adjusted basis ($200,000). Tax planning us file your own taxes She has a $20,000 deductible loss. Tax planning us file your own taxes Example 2. Tax planning us file your own taxes Assume the same facts as in Example 1 except the FMV of the land was $210,000. Tax planning us file your own taxes The result is the same. Tax planning us file your own taxes The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. Tax planning us file your own taxes Because her adjusted basis is $200,000, she has a deductible loss of $20,000, which she reports on Form 4797, Part I. Tax planning us file your own taxes Amount realized on a recourse debt. Tax planning us file your own taxes   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Tax planning us file your own taxes   You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Tax planning us file your own taxes The amount realized does not include the canceled debt that is your income from cancellation of debt. Tax planning us file your own taxes See Cancellation of debt , later. Tax planning us file your own taxes Example 3. Tax planning us file your own taxes Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). Tax planning us file your own taxes In this case, the amount she realizes is $170,000. Tax planning us file your own taxes This is the canceled debt ($180,000) up to the FMV of the land ($170,000). Tax planning us file your own taxes Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). Tax planning us file your own taxes She has a $30,000 deductible loss, which she figures on Form 4797, Part I. Tax planning us file your own taxes She is also treated as receiving ordinary income from cancellation of debt. Tax planning us file your own taxes That income is $10,000 ($180,000 − $170,000). Tax planning us file your own taxes This is the part of the canceled debt not included in the amount realized. Tax planning us file your own taxes She reports this as other income on Schedule F, line 8. Tax planning us file your own taxes Seller's (lender's) gain or loss on repossession. Tax planning us file your own taxes   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Tax planning us file your own taxes For more information, see Repossession in Publication 537, Installment Sales. Tax planning us file your own taxes Cancellation of debt. Tax planning us file your own taxes   If property that is repossessed or foreclosed upon secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the FMV of the property. Tax planning us file your own taxes This income is separate from any gain or loss realized from the foreclosure or repossession. Tax planning us file your own taxes Report the income from cancellation of a business debt on Schedule F, line 8. Tax planning us file your own taxes Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Tax planning us file your own taxes    You can use Worksheet 8-1 to figure your income from cancellation of debt. Tax planning us file your own taxes   However, income from cancellation of debt is not taxed if any of the following apply. Tax planning us file your own taxes The cancellation is intended as a gift. Tax planning us file your own taxes The debt is qualified farm debt (see chapter 3). Tax planning us file your own taxes The debt is qualified real property business debt (see chapter 5 of Publication 334). Tax planning us file your own taxes You are insolvent or bankrupt (see  chapter 3). Tax planning us file your own taxes The debt is qualified principal residence indebtedness (see chapter 3). Tax planning us file your own taxes   Use Form 982 to report the income exclusion. Tax planning us file your own taxes Abandonment The abandonment of property is a disposition of property. Tax planning us file your own taxes You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership, but without passing it on to anyone else. Tax planning us file your own taxes Business or investment property. Tax planning us file your own taxes   Loss from abandonment of business or investment property is deductible as a loss. Tax planning us file your own taxes Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Tax planning us file your own taxes If your adjusted basis is more than the amount you realize (if any), then you have a loss. Tax planning us file your own taxes If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Tax planning us file your own taxes This rule also applies to leasehold improvements the lessor made for the lessee. Tax planning us file your own taxes However, if the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed earlier under Foreclosure or Repossession . Tax planning us file your own taxes   If the abandoned property is secured by debt, special rules apply. Tax planning us file your own taxes The tax consequences of abandonment of property that secures a debt depend on whether you are personally liable for the debt (recourse debt) or were not personally liable for the debt (nonrecourse debt). Tax planning us file your own taxes For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Tax planning us file your own taxes The abandonment loss is deducted in the tax year in which the loss is sustained. Tax planning us file your own taxes Report the loss on Form 4797, Part II, line 10. Tax planning us file your own taxes Personal-use property. Tax planning us file your own taxes   You cannot deduct any loss from abandonment of your home or other property held for personal use. Tax planning us file your own taxes Canceled debt. Tax planning us file your own taxes   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. Tax planning us file your own taxes This income is separate from any loss realized from abandonment of the property. Tax planning us file your own taxes Report income from cancellation of a debt related to a business or rental activity as business or rental income. Tax planning us file your own taxes Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Tax planning us file your own taxes   However, income from cancellation of debt is not taxed in certain circumstances. Tax planning us file your own taxes See Cancellation of debt earlier under Foreclosure or Repossession . Tax planning us file your own taxes Forms 1099-A and 1099-C. Tax planning us file your own taxes   A lender who acquires an interest in your property in a foreclosure, repossession, or abandonment should send you Form 1099-A showing the information you need to figure your loss from the foreclosure, repossession, or abandonment. Tax planning us file your own taxes However, if the lender cancels part of your debt and the lender must file Form 1099-C, the lender may include the information about the foreclosure, repossession, or abandonment on that form instead of Form 1099-A. Tax planning us file your own taxes The lender must file Form 1099-C and send you a copy if the canceled debt is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Tax planning us file your own taxes For foreclosures, repossessions, abandonments of property, and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Tax planning us file your own taxes Prev  Up  Next   Home   More Online Publications
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Tax planning us file your own taxes 11. Tax planning us file your own taxes   Departing Aliens and the Sailing or Departure Permit Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Aliens Not Required To Obtain Sailing or Departure Permits Aliens Required To Obtain Sailing or Departure PermitsGetting a Sailing or Departure Permit Forms To File Paying Taxes and Obtaining Refunds Bond To Ensure Payment Filing Annual U. Tax planning us file your own taxes S. Tax planning us file your own taxes Income Tax Returns Introduction Before leaving the United States, all aliens (except those listed under Aliens Not Required To Obtain Sailing or Departure Permits must obtain a certificate of compliance. Tax planning us file your own taxes This document, also popularly known as the sailing permit or departure permit, is part of the income tax form you must file before leaving. Tax planning us file your own taxes You will receive a sailing or departure permit after filing a Form 1040-C or Form 2063. Tax planning us file your own taxes These forms are discussed in this chapter. Tax planning us file your own taxes To find out if you need a sailing or departure permit, first read Aliens Not Required To Obtain Sailing or Departure Permits . Tax planning us file your own taxes If you do not fall into one of the categories in that discussion, you must obtain a sailing or departure permit. Tax planning us file your own taxes Read Aliens Required To Obtain Sailing or Departure Permits . Tax planning us file your own taxes Topics - This chapter discusses: Who needs a sailing permit, How to get a sailing permit, and Forms you file to get a sailing permit. Tax planning us file your own taxes Useful Items - You may want to see: Form (and Instructions) 1040-C U. Tax planning us file your own taxes S. Tax planning us file your own taxes Departing Alien Income Tax Return 2063 U. Tax planning us file your own taxes S. Tax planning us file your own taxes Departing Alien Income Tax Statement See chapter 12 for information about getting these forms. Tax planning us file your own taxes Aliens Not Required To Obtain Sailing or Departure Permits If you are included in one of the following categories, you do not have to get a sailing or departure permit before leaving the United States. Tax planning us file your own taxes If you are in one of these categories and do not have to get a sailing or departure permit, you must be able to support your claim for exemption with proper identification or give the authority for the exemption. Tax planning us file your own taxes Category 1. Tax planning us file your own taxes   Representatives of foreign governments with diplomatic passports, whether accredited to the United States or other countries, members of their households, and servants accompanying them. Tax planning us file your own taxes Servants who are leaving, but not with a person with a diplomatic passport, must get a sailing or departure permit. Tax planning us file your own taxes However, they can get a sailing or departure permit on Form 2063 without examination of their income tax liability by presenting a letter from the chief of their diplomatic mission certifying that: Their name appears on the “White List” (a list of employees of diplomatic missions), and They do not owe to the United States any income tax, and will not owe any tax up to and including the intended date of departure. Tax planning us file your own taxes   The statement must be presented to an IRS office. Tax planning us file your own taxes Category 2. Tax planning us file your own taxes    Employees of international organizations and foreign governments (other than diplomatic representatives exempt under category 1) and members of their households: Whose compensation for official services is exempt from U. Tax planning us file your own taxes S. Tax planning us file your own taxes tax under U. Tax planning us file your own taxes S. Tax planning us file your own taxes tax laws (described in chapter 10), and Who receive no other income from U. Tax planning us file your own taxes S. Tax planning us file your own taxes sources. Tax planning us file your own taxes If you are an alien in category (1) or (2), above, who filed the waiver under section 247(b) of the Immigration and Nationality Act, you must get a sailing or departure permit. Tax planning us file your own taxes This is true even if your income is exempt from U. Tax planning us file your own taxes S. Tax planning us file your own taxes tax because of an income tax treaty, consular agreement, or international agreement. Tax planning us file your own taxes Category 3. Tax planning us file your own taxes   Alien students, industrial trainees, and exchange visitors, including their spouses and children, who enter on an “F-1,” “F-2,” “H-3,” “H-4,” “J-1,” “J-2,” or “Q” visa only and who receive no income from U. Tax planning us file your own taxes S. Tax planning us file your own taxes sources while in the United States under those visas other than: Allowances to cover expenses incident to study or training in the United States, such as expenses for travel, maintenance, and tuition, The value of any services or food and lodging connected with this study or training, Income from employment authorized by the U. Tax planning us file your own taxes S. Tax planning us file your own taxes Citizenship and Immigration Services (USCIS), or Interest income on deposits that is not effectively connected with a U. Tax planning us file your own taxes S. Tax planning us file your own taxes trade or business. Tax planning us file your own taxes (See Interest Income in chapter 3. Tax planning us file your own taxes ) Category 4. Tax planning us file your own taxes   Alien students, including their spouses and children, who enter on an “M-1” or “M-2” visa only and who receive no income from U. Tax planning us file your own taxes S. Tax planning us file your own taxes sources while in the United States under those visas, other than: Income from employment authorized by the U. Tax planning us file your own taxes S. Tax planning us file your own taxes Citizenship and Immigration Services (USCIS) or Interest income on deposits that is not effectively connected with a U. Tax planning us file your own taxes S. Tax planning us file your own taxes trade or business. Tax planning us file your own taxes (See Interest Income in chapter 3. Tax planning us file your own taxes ) Category 5. Tax planning us file your own taxes   Certain other aliens temporarily in the United States who have received no taxable income during the tax year up to and including the date of departure or during the preceding tax year. Tax planning us file your own taxes If the IRS has reason to believe that an alien has received income subject to tax and that the collection of income tax is jeopardized by departure, it may then require the alien to obtain a sailing or departure permit. Tax planning us file your own taxes Aliens in this category are: Alien military trainees who enter the United States for training under the sponsorship of the Department of Defense and who leave the United States on official military travel orders, Alien visitors for business on a “B-1” visa, or on both a “B-1” visa and a “B-2” visa, who do not remain in the United States or a U. Tax planning us file your own taxes S. Tax planning us file your own taxes possession for more than 90 days during the tax year, Alien visitors for pleasure on a “B-2” visa, Aliens in transit through the United States or any of its possessions on a “C-1” visa, or under a contract, such as a bond agreement, between a transportation line and the Attorney General, and Aliens who enter the United States on a border-crossing identification card or for whom passports, visas, and border-crossing identification cards are not required, if they are: Visitors for pleasure, Visitors for business who do not remain in the United States or a U. Tax planning us file your own taxes S. Tax planning us file your own taxes possession for more than 90 days during the tax year, or In transit through the United States or any of its possessions. Tax planning us file your own taxes Category 6. Tax planning us file your own taxes   Alien residents of Canada or Mexico who frequently commute between that country and the United States for employment, and whose wages are subject to the withholding of U. Tax planning us file your own taxes S. Tax planning us file your own taxes tax. Tax planning us file your own taxes Aliens Required To Obtain Sailing or Departure Permits If you do not fall into one of the categories listed under Aliens Not Required To Obtain Sailing or Departure Permits, you must obtain a sailing or departure permit. Tax planning us file your own taxes To obtain a permit, file Form 1040-C or Form 2063 (whichever applies) with your local IRS office before you leave the United States. Tax planning us file your own taxes See Forms To File , later. Tax planning us file your own taxes You must also pay all the tax shown as due on Form 1040-C and any taxes due for past years. Tax planning us file your own taxes See Paying Taxes and Obtaining Refunds , later. Tax planning us file your own taxes Getting a Sailing or Departure Permit The following discussion covers when and where to get your sailing permit. Tax planning us file your own taxes Where to get a sailing or departure permit. Tax planning us file your own taxes   If you have been working in the United States, you should get the permit from an IRS office in the area of your employment, or you may obtain one from an IRS office in the area of your departure. Tax planning us file your own taxes When to get a sailing or departure permit. Tax planning us file your own taxes   You should get your sailing or departure permit at least 2 weeks before you plan to leave. Tax planning us file your own taxes You cannot apply earlier than 30 days before your planned departure date. Tax planning us file your own taxes Do not wait until the last minute in case there are unexpected problems. Tax planning us file your own taxes Papers to submit. Tax planning us file your own taxes   Getting your sailing or departure permit will go faster if you bring to the IRS office papers and documents related to your income and your stay in the United States. Tax planning us file your own taxes Bring the following records with you if they apply. Tax planning us file your own taxes Your passport and alien registration card or visa. Tax planning us file your own taxes Copies of your U. Tax planning us file your own taxes S. Tax planning us file your own taxes income tax returns filed for the past 2 years. Tax planning us file your own taxes If you were in the United States for less than 2 years, bring the income tax returns you filed for that period. Tax planning us file your own taxes Receipts for income taxes paid on these returns. Tax planning us file your own taxes Receipts, bank records, canceled checks, and other documents that prove your deductions, business expenses, and dependents claimed on your returns. Tax planning us file your own taxes A statement from each employer showing wages paid and tax withheld from January 1 of the current year to the date of departure if you were an employee. Tax planning us file your own taxes If you were self-employed, you must bring a statement of income and expenses up to the date you plan to leave. Tax planning us file your own taxes Proof of estimated tax payments for the past year and this year. Tax planning us file your own taxes Documents showing any gain or loss from the sale of personal property and/or real property, including capital assets and merchandise. Tax planning us file your own taxes Documents relating to scholarship or fellowship grants including: Verification of the grantor, source, and purpose of the grant. Tax planning us file your own taxes Copies of the application for, and approval of, the grant. Tax planning us file your own taxes A statement of the amount paid, and your duties and obligations under the grant. Tax planning us file your own taxes A list of any previous grants. Tax planning us file your own taxes Documents indicating you qualify for any special tax treaty benefits claimed. Tax planning us file your own taxes Document verifying your date of departure from the United States, such as an airline ticket. Tax planning us file your own taxes Document verifying your U. Tax planning us file your own taxes S. Tax planning us file your own taxes taxpayer identification number, such as a social security card or an IRS issued Notice CP 565 showing your individual taxpayer identification number (ITIN). Tax planning us file your own taxes Note. Tax planning us file your own taxes   If you are married and reside in a community property state, also bring the above-listed documents for your spouse. Tax planning us file your own taxes This applies whether or not your spouse requires a permit. Tax planning us file your own taxes Forms To File If you must get a sailing or departure permit, you must file Form 2063 or Form 1040-C. Tax planning us file your own taxes Employees in the IRS office can assist in filing these forms. Tax planning us file your own taxes Both forms have a “certificate of compliance” section. Tax planning us file your own taxes When the certificate of compliance is signed by an agent of the Field Assistance Area Director, it certifies that your U. Tax planning us file your own taxes S. Tax planning us file your own taxes tax obligations have been satisfied according to available information. Tax planning us file your own taxes Your Form 1040-C copy of the signed certificate, or the one detached from Form 2063, is your sailing or departure permit. Tax planning us file your own taxes Form 2063 This is a short form that asks for certain information but does not include a tax computation. Tax planning us file your own taxes The following departing aliens can get their sailing or departure permits by filing Form 2063. Tax planning us file your own taxes Aliens, whether resident or nonresident, who have had no taxable income for the tax year up to and including the date of departure and for the preceding year, if the period for filing the income tax return for that year has not expired. Tax planning us file your own taxes Resident aliens who have received taxable income during the tax year or preceding year and whose departure will not hinder the collection of any tax. Tax planning us file your own taxes However, if the IRS has information indicating that the aliens are leaving to avoid paying their income tax, they must file a Form 1040-C. Tax planning us file your own taxes Aliens in either of these categories who have not filed an income tax return or paid income tax for any tax year must file the return and pay the income tax before they can be issued a sailing or departure permit on Form 2063. Tax planning us file your own taxes The sailing or departure permit detached from Form 2063 can be used for all departures during the current year. Tax planning us file your own taxes However, the IRS may cancel the sailing or departure permit for any later departure if it believes the collection of income tax is jeopardized by that later departure. Tax planning us file your own taxes Form 1040-C If you must get a sailing or departure permit and you do not qualify to file Form 2063, you must file Form 1040-C. Tax planning us file your own taxes Ordinarily, all income received or reasonably expected to be received during the tax year up to and including the date of departure must be reported on Form 1040-C and the tax on it must be paid. Tax planning us file your own taxes When you pay any tax shown as due on the Form 1040-C, and you file all returns and pay all tax due for previous years, you will receive a sailing or departure permit. Tax planning us file your own taxes However, the IRS may permit you to furnish a bond guaranteeing payment instead of paying the taxes for certain years. Tax planning us file your own taxes See Bond To Ensure Payment , discussed later. Tax planning us file your own taxes The sailing or departure permit issued under the conditions in this paragraph is only for the specific departure for which it is issued. Tax planning us file your own taxes Returning to the United States. Tax planning us file your own taxes   If you furnish the IRS with information showing, to the satisfaction of the IRS, that you intend to return to the United States and that your departure does not jeopardize the collection of income tax, you can get a sailing or departure permit by filing Form 1040-C without having to pay the tax shown on it. Tax planning us file your own taxes You must, however, file all income tax returns that have not yet been filed as required, and pay all income tax that is due on these returns. Tax planning us file your own taxes   Your Form 1040-C must include all income received and reasonably expected to be received during the entire year of departure. Tax planning us file your own taxes The sailing or departure permit issued with this Form 1040-C can be used for all departures during the current year. Tax planning us file your own taxes However, the Service may cancel the sailing or departure permit for any later departure if the payment of income tax appears to be in jeopardy. Tax planning us file your own taxes Joint return on Form 1040-C. Tax planning us file your own taxes   Departing husbands and wives who are nonresident aliens cannot file joint returns. Tax planning us file your own taxes However, if both spouses are resident aliens, they can file a joint return on Form 1040-C if: Both spouses can reasonably be expected to qualify to file a joint return at the normal close of their tax year, and The tax years of the spouses end at the same time. Tax planning us file your own taxes Paying Taxes and Obtaining Refunds You must pay all tax shown as due on the Form 1040-C at the time of filing it, except when a bond is furnished, or the IRS is satisfied that your departure does not jeopardize the collection of income tax. Tax planning us file your own taxes You must also pay any taxes due for past years. Tax planning us file your own taxes If the tax computation on Form 1040-C results in an overpayment, there is no tax to pay at the time you file that return. Tax planning us file your own taxes However, the IRS cannot provide a refund at the time of departure. Tax planning us file your own taxes If you are due a refund, you must file either Form 1040NR or Form 1040NR-EZ at the end of the tax year. Tax planning us file your own taxes Bond To Ensure Payment Usually, you must pay the tax shown as due on Form 1040-C when you file it. Tax planning us file your own taxes However, if you pay all taxes due that you owe for prior years, you can furnish a bond guaranteeing payment instead of paying the income taxes shown as due on the Form 1040-C or the tax return for the preceding year if the period for filing that return has not expired. Tax planning us file your own taxes The bond must equal the tax due plus interest to the date of payment as figured by the IRS. Tax planning us file your own taxes Information about the form of bond and security on it can be obtained from your IRS office. Tax planning us file your own taxes Filing Annual U. Tax planning us file your own taxes S. Tax planning us file your own taxes Income Tax Returns Form 1040-C is not an annual U. Tax planning us file your own taxes S. Tax planning us file your own taxes income tax return. Tax planning us file your own taxes If an income tax return is required by law, that return must be filed even though a Form 1040-C has already been filed. Tax planning us file your own taxes Chapters 5 and 7 discuss filing an annual U. Tax planning us file your own taxes S. Tax planning us file your own taxes income tax return. Tax planning us file your own taxes The tax paid with Form 1040-C should be taken as a credit against the tax liability for the entire tax year on your annual U. Tax planning us file your own taxes S. Tax planning us file your own taxes income tax return. Tax planning us file your own taxes Prev  Up  Next   Home   More Online Publications