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Taxact2012 Index Symbols 28% rate gain, Collectibles (28% rate) gain. Taxact2012 , Figuring 28% rate gain (line 11). Taxact2012 A Adjustments to income, defined, Adjustment to income. Taxact2012 Age 65 or older dependents, Both Earned and Unearned Income Aliens Individual taxpayer identification number (ITIN), Reminders Standard deduction, Standard Deduction of Zero Alternative minimum tax (AMT), Other Filing Requirements, Alternative minimum tax. Taxact2012 , Alternative Minimum Tax Assistance (see Tax help) B Blind dependents, filing requirements, Both Earned and Unearned Income C Capital gain distributions, Capital gain distributions. Taxact2012 Capital losses, Capital loss. Taxact2012 Child's earnings, Child's earnings. Taxact2012 Child's expenses, Child's expenses. Taxact2012 Child's return Responsibility for, Should a Return Be Filed Even If Not Required?, Child's expenses. Taxact2012 Child's unearned income Tax on, Renewing an exemption from withholding. Taxact2012 Church, wages from, Other Filing Requirements Credits, reduced, Reduced deductions or credits. Taxact2012 D Deductible investment interest, Deductible investment interest. Taxact2012 Deductions, Deductions you cannot take. Taxact2012 Deductions, reduced, Reduced deductions or credits. Taxact2012 Dependents Exemption for, Standard Deduction of Zero Own exemption, Standard Deduction of Zero Social security numbers (SSNs) of, Reminders Divorced parents, reporting child's unearned income, Parents are divorced. Taxact2012 E Earned income, Earned Income Only, Both Earned and Unearned Income Education credit, recaptured, Other Filing Requirements Election to include child's income on parent's return, Parent's Election To Report Child's Interest and Dividends, How to make the election. Taxact2012 , Estimated tax, penalty, Penalty for underpayment of estimated tax. Taxact2012 Exemption Own exemption — dependent, Dependent's Own Exemption Exemption from withholding, Claiming exemption from withholding. Taxact2012 Extension of time to file, Extension of time to file. Taxact2012 F Figures (see Tables and figures) Figuring child's income, Penalty for underpayment of estimated tax. Taxact2012 Filing requirements, Part 1. Taxact2012 Rules for All Dependents, Should a Return Be Filed Even If Not Required? Form 1040 Schedule A, Directly connected. Taxact2012 Schedule J, Using Schedule J (Form 1040), for line 9 tax. Taxact2012 , Using Schedule J for line 15 tax. Taxact2012 Form 1040A Filled in example, Form 1099-DIV, Collectibles (28% rate) gain. Taxact2012 Form 2555, Child files Form 2555 or 2555-EZ. Taxact2012 , Parent files Form 2555 or 2555-EZ. Taxact2012 , Child files Form 2555 or 2555-EZ. Taxact2012 , Child files Form 2555 or 2555-EZ. Taxact2012 , Child files Form 2555 or 2555-EZ. Taxact2012 , Child files Form 2555 or 2555-EZ. Taxact2012 Form 2555-EZ, Child files Form 2555 or 2555-EZ. Taxact2012 , Parent files Form 2555 or 2555-EZ. Taxact2012 , Child files Form 2555 or 2555-EZ. Taxact2012 , Child files Form 2555 or 2555-EZ. Taxact2012 , Child files Form 2555 or 2555-EZ. Taxact2012 , Child files Form 2555 or 2555-EZ. Taxact2012 Form 2848, Designated as representative. Taxact2012 , How to request. Taxact2012 Form 6251, Alternative minimum tax. Taxact2012 , Limit on exemption amount (AMT). Taxact2012 Form 8615, Providing Parental Information (Form 8615, Lines A–C), Line 18 (Tax) Filled in example, Form 8814, How to make the election. Taxact2012 , Figuring Child's Income, Figuring Additional Tax Form W-4, Claiming exemption from withholding. Taxact2012 Free tax services, Free help with your tax return. Taxact2012 G Gift, income from property received as, Income from property received as a gift. Taxact2012 H Help (see Tax help) I Individual taxpayer identification numbers (ITINs), Reminders Investment interest, Deductible investment interest. Taxact2012 IRS notice sent to child, IRS notice. Taxact2012 Itemized deductions Directly connected, Directly connected. Taxact2012 J Joint return of parents, Which Parent's Return To Use L Life insurance, Other Filing Requirements Limit on exemption amount (AMT) Alternative Minimum Tax — Limit on exemption amount, Limit on exemption amount (AMT). Taxact2012 M Married parents filing separately, Parents are married. Taxact2012 Medicare tax, Other Filing Requirements Missing children, photographs of, Reminders N Net capital gain, Net capital gain. Taxact2012 Net unearned income, Line 5 (Net Unearned Income) P Parents Election (see Election to include child's income on parent's return) Which parent's return to use, Which Parent's Return To Use Penalty, estimated tax, Penalty for underpayment of estimated tax. Taxact2012 Publications (see Tax help) Q Qualified dividends, Qualified dividends. Taxact2012 , Qualified dividends. Taxact2012 R Recapture taxes, Other Filing Requirements Remarried custodial parent, reporting child's unearned income, Custodial parent remarried. Taxact2012 Remarried widowed parent, reporting child's unearned income, Widowed parent remarried. Taxact2012 Returns Filing even if not required, Should a Return Be Filed Even If Not Required? Parent's election to include child's income (see Election to include child's income on parent's return) Responsibility for child's return, Responsibility for Child's Return, Child's expenses. Taxact2012 Signing child's return, Signing the child's return. Taxact2012 Who must file, Filing Requirements, Should a Return Be Filed Even If Not Required? S Schedule D Tax Worksheet, Using the Schedule D Tax Worksheet for line 9 tax. Taxact2012 , Figuring 28% rate gain (line 11). Taxact2012 , Using the Schedule D Tax Worksheet for line 15 tax. Taxact2012 Section 1202 gain, Section 1202 gain. Taxact2012 Self-employed, filing requirements, Other Filing Requirements Separated parents, reporting child's unearned income, Parents not living together. Taxact2012 Signing child's return, Signing the child's return. Taxact2012 Social security numbers (SSNs) of dependents, Reminders Social security tax, Other Filing Requirements Standard deduction, Standard Deduction, Standard Deduction of Zero Worksheet for dependents (Worksheet 1), Worksheet 1. Taxact2012 Zero, Standard Deduction of Zero T Tables and figures Determining whether Form 8615 is required (Figure 2), Election to include child's income on parent's return (Figure 1), Filing requirements for dependents (Table 1), Table 1. Taxact2012 2013 Filing Requirements for Dependents Tax help, How to request. Taxact2012 , How To Get Tax Help Tax on child's unearned income, Renewing an exemption from withholding. Taxact2012 Age requirement, Certain January 1 birthdays. Taxact2012 Figured on Form 8615, Tax for Certain Children Who Have Unearned Income Third party designee, Third party designee. Taxact2012 Tips not reported to employer, Other Filing Requirements Trust income, Trust income. Taxact2012 TTY/TDD information, How To Get Tax Help U Unearned income, Unearned Income Only, Both Earned and Unearned Income Defined, Unearned income defined. Taxact2012 Election to include child's income on parent's return (see Election to include child's income on parent's return) Tax on, Part 2. Taxact2012 Tax on Unearned Income of Certain Children Unrecaptured section 1250 gain, Unrecaptured section 1250 gain. Taxact2012 , Figuring unrecaptured section 1250 gain (line 11). Taxact2012 W Withholding, Withholding From Wages Worksheets Dependent's filing requirement, Both Earned and Unearned Income Form 8615 alternate worksheet, Line 1 (Unearned Income) Qualified dividends and capital gain tax, Line 9 (Tax on Parent's Taxable Income Plus Children's Net Unearned Income) Schedule D Tax, Figuring 28% rate gain (line 11). Taxact2012 Standard deduction worksheet for dependents (Worksheet 1), Worksheet 1. Taxact2012 Unrecaptured section 1250 gain, Figuring unrecaptured section 1250 gain (line 11). Taxact2012 Prev  Up     Home   More Online Publications
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Taxact2012 3. Taxact2012   Farm Income Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Schedule F (Form 1040) Sales of Farm ProductsSchedule F. Taxact2012 Form 4797. Taxact2012 Sales Caused by Weather-Related Conditions Rents (Including Crop Shares)Crop Shares Agricultural Program PaymentsCommodity Credit Corporation (CCC) Loans Conservation Reserve Program (CRP) Crop Insurance and Crop Disaster Payments Feed Assistance and Payments Cost-Sharing Exclusion (Improvements) Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 Tobacco Quota Buyout Program Payments Other Payments Payment to More Than One Person Income From CooperativesPatronage Dividends Per-Unit Retain Certificates Cancellation of DebtGeneral Rule Exceptions Exclusions Income From Other SourcesSod. Taxact2012 Granting the right to remove deposits. Taxact2012 Income Averaging for FarmersElected Farm Income (EFI) How To Figure the Tax Effect on Other Tax Determinations Tax for Certain Children Who Have Unearned Income Alternative Minimum Tax (AMT) Schedule J Introduction You may receive income from many sources. Taxact2012 You must report the income from all the different sources on your tax return, unless it is excluded by law. Taxact2012 Where you report the income on your tax return depends on its source. Taxact2012 This chapter discusses farm income you report on Schedule F (Form 1040), Profit or Loss From Farming. Taxact2012 For information on where to report other income, see the Instructions for Form 1040, U. Taxact2012 S. Taxact2012 Individual Income Tax Return. Taxact2012 Accounting method. Taxact2012   The rules discussed in this chapter assume you use the cash method of accounting. Taxact2012 Under the cash method, you generally include an item of income in gross income in the year you receive it. Taxact2012 See Cash Method in chapter 2. Taxact2012   If you use an accrual method of accounting, different rules may apply to your situation. Taxact2012 See Accrual Method in chapter 2. Taxact2012 Topics - This chapter discusses: Schedule F Sales of farm products Rents (including crop shares) Agricultural program payments Income from cooperatives Cancellation of debt Income from other sources Income averaging for farmers Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 550 Investment Income and Expenses 908 Bankruptcy Tax Guide 925 Passive Activity and At-Risk Rules 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness Sch E (Form 1040) Supplemental Income and Loss Sch J (Form 1040) Income Averaging for Farmers and Fishermen 1099-G Certain Government Payments 1099-PATR Taxable Distributions Received From Cooperatives 4797 Sales of Business Property 4835 Farm Rental Income and Expenses See chapter 16 for information about getting publications and forms. Taxact2012 Schedule F (Form 1040) Individuals, trusts, and partnerships report farm income on Schedule F (Form 1040), Profit or Loss From Farming. Taxact2012 Use this schedule to figure the net profit or loss from regular farming operations. Taxact2012 Income from farming reported on Schedule F includes amounts you receive from cultivating, operating, or managing a farm for gain or profit, either as owner or tenant. Taxact2012 This includes income from operating a stock, dairy, poultry, fish, fruit, or truck farm and income from operating a plantation, ranch, range, or orchard. Taxact2012 It also includes income from the sale of crop shares if you materially participate in producing the crop. Taxact2012 See Rents (Including Crop Shares) , later. Taxact2012 Income received from operating a nursery, which specializes in growing ornamental plants, is considered to be income from farming. Taxact2012 Income reported on Schedule F does not include gains or losses from sales or other dispositions of the following farm assets. Taxact2012 Land. Taxact2012 Depreciable farm equipment. Taxact2012 Buildings and structures. Taxact2012 Livestock held for draft, breeding, sport, or dairy purposes. Taxact2012 Gains and losses from most dispositions of farm assets are discussed in chapters 8 and 9. Taxact2012 Gains and losses from casualties, thefts, and condemnations are discussed in chapter 11. Taxact2012 Sales of Farm Products Where to report. Taxact2012    Table 3-1 shows where to report the sale of farm products on your tax return. Taxact2012 Schedule F. Taxact2012   Amounts received from the sales of products you raised on your farm for sale (or bought for resale), such as livestock, produce, or grains, are reported on Schedule F. Taxact2012 This includes money and the fair market value of any property or services you receive. Taxact2012 When you sell farm products bought for resale, your profit or loss is the difference between your selling price (money plus the fair market value of any property) and your basis in the item (usually the cost). Taxact2012 See chapter 6 for information on the basis of assets. Taxact2012 You generally report these amounts on Schedule F for the year you receive payment. Taxact2012 Example. Taxact2012 In 2012, you bought 20 feeder calves for $11,000 for resale. Taxact2012 You sold them in 2013 for $21,000. Taxact2012 You report the $21,000 sales price on Schedule F, line 1b, subtract your $11,000 basis on line 1d, and report the resulting $10,000 profit on line 1e. Taxact2012 Form 4797. Taxact2012   Sales of livestock held for draft, breeding, sport, or dairy purposes may result in ordinary or capital gains or losses, depending on the circumstances. Taxact2012 In either case, you should always report these sales on Form 4797 instead of Schedule F. Taxact2012 See Livestock under Ordinary or Capital Gain or Loss in chapter 8. Taxact2012 Animals you do not hold primarily for sale are considered business assets of your farm. Taxact2012 Table 3-1. Taxact2012 Where To Report Sales of Farm Products Item Sold Schedule F Form 4797 Farm products raised for sale X   Farm products bought for resale X   Farm assets not held primarily for sale, such as livestock held for draft, breeding, sport, or dairy purposes (bought or raised)   X Sale by agent. Taxact2012   If your agent sells your farm products, you have constructive receipt of the income when your agent receives payment and you must include the net proceeds from the sale in gross income for the year the agent receives payment. Taxact2012 This applies even if your agent pays you in a later year. Taxact2012 For a discussion on constructive receipt of income, see Cash Method under Accounting Methods in chapter 2. Taxact2012 Sales Caused by Weather-Related Conditions If you sell or exchange more livestock, including poultry, than you normally would in a year because of a drought, flood, or other weather-related condition, you may be able to postpone reporting the gain from the additional animals until the next year. Taxact2012 You must meet all the following conditions to qualify. Taxact2012 Your principal trade or business is farming. Taxact2012 You use the cash method of accounting. Taxact2012 You can show that, under your usual business practices, you would not have sold or exchanged the additional animals this year except for the weather-related condition. Taxact2012 The weather-related condition caused an area to be designated as eligible for assistance by the federal government. Taxact2012 Sales or exchanges made before an area became eligible for federal assistance qualify if the weather-related condition that caused the sale or exchange also caused the area to be designated as eligible for federal assistance. Taxact2012 The designation can be made by the President, the Department of Agriculture (or any of its agencies), or by other federal departments or agencies. Taxact2012 A weather-related sale or exchange of livestock (other than poultry) held for draft, breeding, or dairy purposes may be an involuntary conversion. Taxact2012 See Other Involuntary Conversions in chapter 11. Taxact2012 Usual business practice. Taxact2012   You must determine the number of animals you would have sold had you followed your usual business practice in the absence of the weather-related condition. Taxact2012 Do this by considering all the facts and circumstances, but do not take into account your sales in any earlier year for which you postponed the gain. Taxact2012 If you have not yet established a usual business practice, rely on the usual business practices of similarly situated farmers in your general region. Taxact2012 Connection with affected area. Taxact2012   The livestock does not have to be raised or sold in an area affected by a weather-related condition for the postponement to apply. Taxact2012 However, the sale must occur solely because of a weather-related condition that affected the water, grazing, or other requirements of the livestock. Taxact2012 This requirement generally will not be met if the costs of feed, water, or other requirements of the livestock affected by the weather-related condition are not substantial in relation to the total costs of holding the livestock. Taxact2012 Classes of livestock. Taxact2012   You must figure the amount to be postponed separately for each generic class of animals—for example, hogs, sheep, and cattle. Taxact2012 Do not separate animals into classes based on age, sex, or breed. Taxact2012 Amount to be postponed. Taxact2012   Follow these steps to figure the amount of gain to be postponed for each class of animals. Taxact2012 Divide the total income realized from the sale of all livestock in the class during the tax year by the total number of such livestock sold. Taxact2012 For this purpose, do not treat any postponed gain from the previous year as income received from the sale of livestock. Taxact2012 Multiply the result in (1) by the excess number of such livestock sold solely because of weather-related conditions. Taxact2012 Example. Taxact2012 You are a calendar year taxpayer and you normally sell 100 head of beef cattle a year. Taxact2012 As a result of drought, you sold 135 head during 2012. Taxact2012 You realized $70,200 from the sale. Taxact2012 On August 9, 2012, as a result of drought, the affected area was declared a disaster area eligible for federal assistance. Taxact2012 The income you can postpone until 2013 is $18,200 [($70,200 ÷ 135) × 35]. Taxact2012 How to postpone gain. Taxact2012   To postpone gain, attach a statement to your tax return for the year of the sale. Taxact2012 The statement must include your name and address and give the following information for each class of livestock for which you are postponing gain. Taxact2012 A statement that you are postponing gain under Internal Revenue Code (IRC) section 451(e). Taxact2012 Evidence of the weather-related conditions that forced the early sale or exchange of the livestock and the date, if known, on which an area was designated as eligible for assistance by the federal government because of weather-related conditions. Taxact2012 A statement explaining the relationship of the area affected by the weather-related condition to your early sale or exchange of the livestock. Taxact2012 The number of animals sold in each of the 3 preceding years. Taxact2012 The number of animals you would have sold in the tax year had you followed your normal business practice in the absence of weather-related conditions. Taxact2012 The total number of animals sold and the number sold because of weather-related conditions during the tax year. Taxact2012 A computation, as described above, of the income to be postponed for each class of livestock. Taxact2012   Generally, you must file the statement and the return by the due date of the return, including extensions. Taxact2012 However, for sales or exchanges treated as an involuntary conversion from weather-related sales of livestock in an area eligible for federal assistance (discussed in chapter 11), you can file this statement at any time during the replacement period. Taxact2012 For other sales or exchanges, if you timely filed your return for the year without postponing gain, you can still postpone gain by filing an amended return within 6 months of the due date of the return (excluding extensions). Taxact2012 Attach the statement to the amended return and write “Filed pursuant to section 301. Taxact2012 9100-2” at the top of the amended return. Taxact2012 File the amended return at the same address you filed the original return. Taxact2012 Once you have filed the statement, you can cancel your postponement of gain only with the approval of the IRS. Taxact2012 Rents (Including Crop Shares) The rent you receive for the use of your farmland is generally rental income, not farm income. Taxact2012 However, if you materially participate in farming operations on the land, the rent is farm income. Taxact2012 See Landlord Participation in Farming in chapter 12. Taxact2012 Pasture income and rental. Taxact2012   If you pasture someone else's livestock and take care of them for a fee, the income is from your farming business. Taxact2012 You must enter it as Other income on Schedule F. Taxact2012 If you simply rent your pasture for a flat cash amount without providing services, report the income as rent on Part I of Schedule E (Form 1040), Supplemental Income and Loss. Taxact2012 Crop Shares You must include rent you receive in the form of crop shares in income in the year you convert the shares to money or the equivalent of money. Taxact2012 It does not matter whether you use the cash method of accounting or an accrual method of accounting. Taxact2012 If you materially participate in operating a farm from which you receive rent in the form of crop shares or livestock, the rental income is included in self-employment income. Taxact2012 See Landlord Participation in Farming in chapter 12. Taxact2012 Report the rental income on Schedule F. Taxact2012 If you do not materially participate in operating the farm, report this income on Form 4835 and carry the net income or loss to Schedule E (Form 1040). Taxact2012 The income is not included in self-employment income. Taxact2012 Crop shares you use to feed livestock. Taxact2012   Crop shares you receive as a landlord and feed to your livestock are considered converted to money when fed to the livestock. Taxact2012 You must include the fair market value of the crop shares in income at that time. Taxact2012 You are entitled to a business expense deduction for the livestock feed in the same amount and at the same time you include the fair market value of the crop share as rental income. Taxact2012 Although these two transactions cancel each other for figuring adjusted gross income on Form 1040, they may be necessary to figure your self-employment tax. Taxact2012 See  chapter 12. Taxact2012 Crop shares you give to others (gift). Taxact2012   Crop shares you receive as a landlord and give to others are considered converted to money when you make the gift. Taxact2012 You must report the fair market value of the crop share as income, even though someone else receives payment for the crop share. Taxact2012 Example. Taxact2012 A tenant farmed part of your land under a crop-share arrangement. Taxact2012 The tenant harvested and delivered the crop in your name to an elevator company. Taxact2012 Before selling any of the crop, you instructed the elevator company to cancel your warehouse receipt and make out new warehouse receipts in equal amounts of the crop in the names of your children. Taxact2012 They sell their crop shares in the following year and the elevator company makes payments directly to your children. Taxact2012 In this situation, you are considered to have received rental income and then made a gift of that income. Taxact2012 You must include the fair market value of the crop shares in your income for the tax year you gave the crop shares to your children. Taxact2012 Crop share loss. Taxact2012   If you are involved in a rental or crop-share lease arrangement, any loss from these activities may be subject to the limits under the passive loss rules. Taxact2012 See Publication 925 for information on these rules. Taxact2012 Agricultural Program Payments You must include in income most government payments, such as those for approved conservation practices, direct payments, and counter-cyclical payments, whether you receive them in cash, materials, services, or commodity certificates. Taxact2012 However, you can exclude from income some payments you receive under certain cost-sharing conservation programs. Taxact2012 See Cost-Sharing Exclusion (Improvements) , later. Taxact2012 Report the agricultural program payment on the appropriate line of Schedule F, Part I. Taxact2012 Report the full amount even if you return a government check for cancellation, refund any of the payment you receive, or the government collects all or part of the payment from you by reducing the amount of some other payment or Commodity Credit Corporation (CCC) loan. Taxact2012 However, you can deduct the amount you refund or return or that reduces some other payment or loan to you. Taxact2012 Claim the deduction on Schedule F for the year of repayment or reduction. Taxact2012 Commodity Credit Corporation (CCC) Loans Generally, you do not report loans you receive as income. Taxact2012 However, if you pledge part or all of your production to secure a CCC loan, you can treat the loan as if it were a sale of the crop and report the loan proceeds as income in the year you receive them. Taxact2012 You do not need approval from the IRS to adopt this method of reporting CCC loans. Taxact2012 Once you report a CCC loan as income for the year received, you generally must report all CCC loans in that year and later years in the same way. Taxact2012 However, you can obtain for your tax year an automatic consent to change your method of accounting for loans received from the CCC, from including the loan amount in gross income for the tax year in which the loan is received to treating the loan amount as a loan. Taxact2012 For more information, see Part I of the Instructions for Form 3115 and Revenue Procedure 2008-52. Taxact2012 Revenue Procedure 2008-52, 2008-36 I. Taxact2012 R. Taxact2012 B. Taxact2012 587, is available at  www. Taxact2012 irs. Taxact2012 gov/irb/2008-36_IRB/ar09. Taxact2012 html. Taxact2012 You can request income tax withholding from CCC loan payments you receive. Taxact2012 Use Form W-4V, Voluntary Withholding Request. Taxact2012 See chapter 16 for information about ordering the form. Taxact2012 To elect to report a CCC loan as income, include the loan proceeds as income on Schedule F, line 7a, for the year you receive it. Taxact2012 Attach a statement to your return showing the details of the loan. Taxact2012 You must file the statement and the return by the due date of the return, including extensions. Taxact2012 If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Taxact2012 Attach the statement to the amended return and write “Filed pursuant to section 301. Taxact2012 9100-2” at the top of the return. Taxact2012 File the amended return at the same address you filed the original return. Taxact2012 When you make this election, the amount you report as income becomes your basis in the commodity. Taxact2012 See chapter 6 for information on the basis of assets. Taxact2012 If you later repay the loan, redeem the pledged commodity, and sell it, you report as income at the time of sale the sale proceeds minus your basis in the commodity. Taxact2012 If the sale proceeds are less than your basis in the commodity, you can report the difference as a loss on Schedule F. Taxact2012 If you forfeit the pledged crops to the CCC in full payment of the loan, the forfeiture is treated for tax purposes as a sale of the crops. Taxact2012 If you did not report the loan proceeds as income for the year you received them, you must include them in your income for the year of the forfeiture. Taxact2012 Form 1099-A. Taxact2012   If you forfeit pledged crops to the CCC in full payment of a loan, you may receive a Form 1099-A, Acquisition or Abandonment of Secured Property. Taxact2012 “CCC” should be shown in box 6. Taxact2012 The amount of any CCC loan outstanding when you forfeited your commodity should also be indicated on the form. Taxact2012 Market Gain Under the CCC nonrecourse marketing assistance loan program, your repayment amount for a loan secured by your pledge of an eligible commodity is generally based on the lower of the loan rate or the prevailing world market price for the commodity on the date of repayment. Taxact2012 If you repay the loan when the world price is lower, the difference between that repayment amount and the original loan amount is market gain. Taxact2012 Whether you use cash or CCC certificates to repay the loan, you will receive a Form 1099-G showing the market gain you realized. Taxact2012 Market gain should be reported as follows. Taxact2012 If you elected to include the CCC loan in income in the year you received it, do not include the market gain in income. Taxact2012 However, adjust the basis of the commodity for the amount of the market gain. Taxact2012 If you did not include the CCC loan in income in the year received, include the market gain in your income. Taxact2012 The following examples show how to report market gain. Taxact2012 Example 1. Taxact2012 Mike Green is a cotton farmer. Taxact2012 He uses the cash method of accounting and files his tax return on a calendar year basis. Taxact2012 He has deducted all expenses incurred in producing the cotton and has a zero basis in the commodity. Taxact2012 In 2012, Mike pledged 1,000 pounds of cotton as collateral for a CCC loan of $2,000 (a loan rate of $2. Taxact2012 00 per pound). Taxact2012 In 2013, he repaid the loan and redeemed the cotton for $1,500 when the world price was $1. Taxact2012 50 per pound (lower than the loan amount). Taxact2012 Later in 2013, he sold the cotton for $2,500. Taxact2012 The market gain on the redemption was $. Taxact2012 50 ($2. Taxact2012 00 – $1. Taxact2012 50) per pound. Taxact2012 Mike realized total market gain of $500 ($. Taxact2012 50 x 1,000 pounds). Taxact2012 How he reports this market gain and figures his gain or loss from the sale of the cotton depends on whether he included CCC loans in income in 2012. Taxact2012 Included CCC loan. Taxact2012   Mike reported the $2,000 CCC loan as income for 2012 on Schedule F, line 1b, so he is treated as if he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when he redeemed it. Taxact2012 The $500 market gain is not recognized on the redemption. Taxact2012 He reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. Taxact2012   Mike's basis in the cotton after he redeemed it was $1,500, which is the redemption (repurchase) price paid for the cotton. Taxact2012 His gain from the sale is $1,000 ($2,500 – $1,500). Taxact2012 He reports the $1,000 gain as income for 2013 on Schedule F, line 1b. Taxact2012 Excluded CCC loan. Taxact2012   Mike has income of $500 from market gain in 2013. Taxact2012 He reports it on Schedule F, lines 4a and 4b. Taxact2012 His basis in the cotton is zero, so his gain from its sale is $2,500. Taxact2012 He reports the $2,500 gain as income for 2013 on Schedule F, line 1b. Taxact2012 Example 2. Taxact2012 The facts are the same as in Example 1 except that, instead of selling the cotton for $2,500 after redeeming it, Mike entered into an option-to-purchase contract with a cotton buyer before redeeming the cotton. Taxact2012 Under that contract, Mike authorized the cotton buyer to pay the CCC loan on Mike's behalf. Taxact2012 In 2013, the cotton buyer repaid the loan for $1,500 and immediately exercised his option, buying the cotton for $1,500. Taxact2012 How Mike reports the $500 market gain on the redemption of the cotton and figures his gain or loss from its sale depends on whether he included CCC loans in income in 2012. Taxact2012 Included CCC loan. Taxact2012   As in Example 1, Mike is treated as though he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when the cotton buyer redeemed it for him. Taxact2012 The $500 market gain is not recognized on the redemption. Taxact2012 Mike reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. Taxact2012   Also, as in Example 1, Mike's basis in the cotton when the cotton buyer redeemed it for him was $1,500. Taxact2012 Mike has no gain or loss on its sale to the cotton buyer for that amount. Taxact2012 Excluded CCC loan. Taxact2012   As in Example 1, Mike has income of $500 from market gain in 2013. Taxact2012 He reports it on Schedule F, lines 4a and 4b. Taxact2012 His basis in the cotton is zero, so his gain from its sale is $1,500. Taxact2012 He reports the $1,500 gain as income for 2013 on Schedule F, line 1b. Taxact2012 Conservation Reserve Program (CRP) Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a long-term contract with the USDA, agreeing to convert to a less intensive use of that cropland. Taxact2012 You must include the annual rental payments and any one-time incentive payment you receive under the program on Schedule F, lines 4a and 4b. Taxact2012 Cost-share payments you receive may qualify for the cost-sharing exclusion. Taxact2012 See Cost-Sharing Exclusion (Improvements) , later. Taxact2012 CRP payments are reported to you on Form 1099-G. Taxact2012 Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. Taxact2012 See the instructions for Schedule SE (Form 1040). Taxact2012 Crop Insurance and Crop Disaster Payments You must include in income any crop insurance proceeds you receive as the result of physical crop damage or reduction of crop revenue, or both. Taxact2012 You generally include them in the year you receive them. Taxact2012 Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops, because of drought, flood, or any other natural disaster. Taxact2012 You can request income tax withholding from crop disaster payments you receive from the federal government. Taxact2012 Use Form W-4V, Voluntary Withholding Request. Taxact2012 See chapter 16 for information about ordering the form. Taxact2012 Election to postpone reporting until the following year. Taxact2012   You can postpone reporting some or all crop insurance proceeds as income until the year following the year the physical damage occurred if you meet all the following conditions. Taxact2012 You use the cash method of accounting. Taxact2012 You receive the crop insurance proceeds in the same tax year the crops are damaged. Taxact2012 You can show that under your normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred. Taxact2012   Deferral is not permitted for proceeds received from revenue insurance policies. Taxact2012   To postpone reporting some or all crop insurance proceeds received in 2013, report the amount you received on Schedule F, line 6a, but do not include it as a taxable amount on line 6b. Taxact2012 Check the box on line 8c and attach a statement to your tax return. Taxact2012 The statement must include your name and address and contain the following information. Taxact2012 A statement that you are making an election under IRC section 451(d) and Regulations section 1. Taxact2012 451-6. Taxact2012 The specific crop or crops physically destroyed or damaged. Taxact2012 A statement that under your normal business practice you would have included income from some or all of the destroyed or damaged crops in gross income for a tax year following the year the crops were destroyed or damaged. Taxact2012 The cause of the physical destruction or damage and the date or dates it occurred. Taxact2012 The total payments you received from insurance carriers, itemized for each specific crop, and the date you received each payment. Taxact2012 The name of each insurance carrier from whom you received payments. Taxact2012   One election covers all crops representing a single trade or business. Taxact2012 If you have more than one farming business, make a separate election for each one. Taxact2012 For example, if you operate two separate farms on which you grow different crops and you keep separate books for each farm, you should make two separate elections to postpone reporting insurance proceeds you receive for crops grown on each of your farms. Taxact2012   An election is binding for the year unless the IRS approves your request to change it. Taxact2012 To request IRS approval to change your election, write to the IRS at the following address giving your name, address, identification number, the year you made the election, and your reasons for wanting to change it. Taxact2012 Ogden Submission Processing Center P. Taxact2012 O. Taxact2012 Box 9941 Ogden, UT 84409 Feed Assistance and Payments The Disaster Assistance Act of 1988 authorizes programs to provide feed assistance, reimbursement payments, and other benefits to qualifying livestock producers if the Secretary of Agriculture determines that, because of a natural disaster, a livestock emergency exists. Taxact2012 These programs include partial reimbursement for the cost of purchased feed and for certain transportation expenses. Taxact2012 They also include the donation or sale at a below-market price of feed owned by the Commodity Credit Corporation. Taxact2012 Include in income: The market value of donated feed, The difference between the market value and the price you paid for feed you buy at below-market prices, and Any cost reimbursement you receive. Taxact2012 You must include these benefits in income in the year you receive them. Taxact2012 You cannot postpone reporting them under the rules explained earlier for weather-related sales of livestock or crop insurance proceeds. Taxact2012 Report the benefits on Schedule F, Part I, as agricultural program payments. Taxact2012 You can usually take a current deduction for the same amount as a feed expense. Taxact2012 Cost-Sharing Exclusion (Improvements) You can exclude from your income part or all of a payment you receive under certain federal or state cost-sharing conservation, reclamation, and restoration programs. Taxact2012 A payment is any economic benefit you get as a result of an improvement. Taxact2012 However, this exclusion applies only to that part of a payment that meets all three of the following tests. Taxact2012 It was for a capital expense. Taxact2012 You cannot exclude any part of a payment for an expense you can deduct in the year you pay or incur it. Taxact2012 You must include the payment for a deductible expense in income, and you can take any offsetting deduction. Taxact2012 See chapter 5 for information on deducting soil and water conservation expenses. Taxact2012 It does not substantially increase your annual income from the property for which it is made. Taxact2012 An increase in annual income is substantial if it is more than the greater of the following amounts. Taxact2012 10% of the average annual income derived from the affected property before receiving the improvement. Taxact2012 $2. Taxact2012 50 times the number of affected acres. Taxact2012 The Secretary of Agriculture certified that the payment was primarily made for conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. Taxact2012 Qualifying programs. Taxact2012   If the three tests listed above are met, you can exclude part or all of the payments from the following programs. Taxact2012 The rural clean water program authorized by the Federal Water Pollution Control Act. Taxact2012 The rural abandoned mine program authorized by the Surface Mining Control and Reclamation Act of 1977. Taxact2012 The water bank program authorized by the Water Bank Act. Taxact2012 The emergency conservation measures program authorized by title IV of the Agricultural Credit Act of 1978. Taxact2012 The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act. Taxact2012 The great plains conservation program authorized by the Soil Conservation and Domestic Policy Act. Taxact2012 The resource conservation and development program authorized by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation and Domestic Allotment Act. Taxact2012 Certain small watershed programs, listed later. Taxact2012 Any program of a state, possession of the United States, a political subdivision of any of these, or of the District of Columbia under which payments are made to individuals primarily for conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. Taxact2012 Several state programs have been approved. Taxact2012 For information about the status of those programs, contact the state offices of the Farm Service Agency (FSA) and the Natural Resources and Conservation Service (NRCS). Taxact2012 Small watershed programs. Taxact2012   If the three tests listed earlier are met, you can exclude part or all of the payments you receive under the following programs for improvements made in connection with a watershed. Taxact2012 The programs under the Watershed Protection and Flood Prevention Act. Taxact2012 The flood prevention projects under the Flood Control Act of 1944. Taxact2012 The Emergency Watershed Protection Program under the Flood Control Act of 1950. Taxact2012 Certain programs under the Colorado River Basin Salinity Control Act. Taxact2012 The Wetlands Reserve Program authorized by the Food Security Act of 1985, the Federal Agriculture Improvement and Reform Act of 1996 and the Farm Security and Rural Investment Act of 2002. Taxact2012 The Environmental Quality Incentives Program (EQIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. Taxact2012 The Wildlife Habitat Incentives Program (WHIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. Taxact2012 The Soil and Water Conservation Assistance Program authorized by the Agricultural Risk Protection Act of 2000. Taxact2012 The Agricultural Management Assistance Program authorized by the Agricultural Risk Protection Act of 2000. Taxact2012 The Conservation Reserve Program authorized by the Food Security Act of 1985 and the Federal Agriculture Improvement and Reform Act of 1996. Taxact2012 The Forest Land Enhancement Program authorized under the Farm Security and Rural Investment Act of 2002. Taxact2012 The Conservation Security Program authorized by the Food Security Act of 1985. Taxact2012 The Forest Health Protection Program (FHPP) authorized by the Cooperative Forestry Assistance Act of 1978. Taxact2012 Income realized. Taxact2012   The gross income you realize upon getting an improvement under these cost-sharing programs is the value of the improvement reduced by the sum of the excludable portion and your share of the cost of the improvement (if any). Taxact2012 Value of the improvement. Taxact2012   You determine the value of the improvement by multiplying its fair market value (defined in chapter 6) by a fraction. Taxact2012 The numerator of the fraction is the total cost of the improvement (all amounts paid either by you or by the government for the improvement) reduced by the sum of the following items. Taxact2012 Any government payments under a program not listed earlier. Taxact2012 Any part of a government payment under a program listed earlier that the Secretary of Agriculture has not certified as primarily for conservation. Taxact2012 Any government payment to you for rent or for your services. Taxact2012 The denominator of the fraction is the total cost of the improvement. Taxact2012 Excludable portion. Taxact2012   The excludable portion is the present fair market value of the right to receive annual income from the affected acreage of the greater of the following amounts. Taxact2012 10% of the prior average annual income from the affected acreage. Taxact2012 The prior average annual income is the average of the gross receipts from the affected acreage for the last 3 tax years before the tax year in which you started to install the improvement. Taxact2012 $2. Taxact2012 50 times the number of affected acres. Taxact2012 The calculation of present fair market value of the right to receive annual income is too complex to discuss in this publication. Taxact2012 You may need to consult your tax advisor for assistance. Taxact2012 Example. Taxact2012 One hundred acres of your land was reclaimed under a rural abandoned mine program contract with the Natural Resources Conservation Service of the USDA. Taxact2012 The total cost of the improvement was $500,000. Taxact2012 The USDA paid $490,000. Taxact2012 You paid $10,000. Taxact2012 The value of the cost-sharing improvement is $15,000. Taxact2012 The present fair market value of the right to receive the annual income described in (1) above is $1,380, and the present fair market value of the right to receive the annual income described in (2) is $1,550. Taxact2012 The excludable portion is the greater amount, $1,550. Taxact2012 You figure the amount to include in gross income as follows: Value of cost-sharing improvement $15,000 Minus: Your share $10,000     Excludable portion 1,550 11,550 Amount included in income $ 3,450 Effects of the exclusion. Taxact2012   When you figure the basis of property you acquire or improve using cost-sharing payments excluded from income, subtract the excluded payments from your capital costs. Taxact2012 Any payment excluded from income is not part of your basis. Taxact2012 In the example above, the increase in basis is $500,000 – $490,000 + $3,450 = $13,450. Taxact2012   In addition, you cannot take depreciation, amortization, or depletion deductions for the part of the cost of the property for which you receive cost-sharing payments you exclude from income. Taxact2012 How to report the exclusion. Taxact2012   Attach a statement to your tax return (or amended return) for the tax year you receive the last government payment for the improvement. Taxact2012 The statement must include the following information. Taxact2012 The dollar amount of the cost funded by the government payment. Taxact2012 The value of the improvement. Taxact2012 The amount you are excluding. Taxact2012   Report the total cost-sharing payments you receive on Schedule F, line 4a, and the taxable amount on line 4b. Taxact2012 Recapture. Taxact2012   If you dispose of the property within 20 years after you received the excluded payments, you must treat as ordinary income part or all of the cost-sharing payments you excluded. Taxact2012 In the above example, if the 100 acres were sold within 20 years of the exclusion for a gain of $2,000, $1,550 of that amount would be included in ordinary income. Taxact2012 You must report the recapture on Form 4797. Taxact2012 See Section 1255 property under Other Gains in chapter 9. Taxact2012 Electing not to exclude payments. Taxact2012   You can elect not to exclude all or part of any payments you receive under these programs. Taxact2012 If you make this election for all of these payments, none of the above restrictions and rules apply. Taxact2012 You must make this election by the due date, including extensions, for filing your return. Taxact2012 In the example above, an election not to exclude payments results in $5,000 included in income and a $15,000 increase in basis. Taxact2012 If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Taxact2012 Write “Filed pursuant to section 301. Taxact2012 9100-2” at the top of the amended return and file it at the same address you filed the original return. Taxact2012 Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 The Farm Security and Rural Investment Act of 2002 created two new types of payments—direct and counter-cyclical payments. Taxact2012 You must include these payments on Schedule F, lines 4a and 4b. Taxact2012 The Food, Conservation, and Energy Act of 2008 provides for direct and counter-cyclical payments (DCP) as well as Average Crop Revenue Election (ACRE) payments. Taxact2012 You must include these payments on Schedule F, lines 6a and 6b. Taxact2012 The American Taxpayer Relief Act of 2012, enacted on January 2, 2013, amends the Food, Conservation, and Energy Act of 2008 and provided a one-year extension for these payments. Taxact2012 Tobacco Quota Buyout Program Payments The Fair and Equitable Tobacco Reform Act of 2004, title VI of the American Jobs Creation Act of 2004, terminated the tobacco marketing quota program and the tobacco price support program. Taxact2012 As a result, the USDA offered to enter into contracts with eligible tobacco quota holders and growers to provide compensation for the lost value of the quotas and related price support. Taxact2012 If you are an eligible tobacco quota holder, your contract entitles you to receive total payments of $7 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. Taxact2012 If you are an eligible tobacco grower, your contract entitles you to receive total payments of up to $3 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. Taxact2012 Tobacco Quota Holders Contract payments you receive are considered proceeds from a sale of your tobacco quota as of the date on which you and the USDA enter into the contract. Taxact2012 Your taxable gain or loss is the total amount received for your quota reduced by any amount treated as interest (discussed below), over your adjusted basis. Taxact2012 The gain or loss is capital or ordinary depending on how you used the quota. Taxact2012 See Capital or ordinary gain or loss , later. Taxact2012 Report the entire gain on your income tax return for the tax year that includes the date you entered into the contract if you elect not to use the installment method. Taxact2012 Adjusted basis. Taxact2012   The adjusted basis of your quota is determined differently depending on how you obtained the quota. Taxact2012 The basis of a quota derived from an original grant by the federal government is zero. Taxact2012 The basis of a purchased quota is the purchase price. Taxact2012 The basis of a quota received as a gift is generally the same as the donor's basis. Taxact2012 However, under certain circumstances, the basis is increased by the amount of gift taxes paid. Taxact2012 If the basis is greater than the fair market value of the quota at the time of the gift, the basis for determining loss is the fair market value. Taxact2012 The basis of an inherited quota is generally the fair market value of the quota at the time of the decedent's death. Taxact2012 Reduction of basis. Taxact2012   You are required to reduce the basis of your tobacco quota by the following amounts. Taxact2012 Deductions you took for amortization, depletion, or depreciation. Taxact2012 Amounts you previously deducted as a loss because of a reduction in the number of pounds of tobacco allowable under the quota. Taxact2012 The entire cost of a purchased quota you deducted in an earlier year (which reduces your basis to zero). Taxact2012 Amount treated as interest. Taxact2012   You must reduce your tobacco quota buyout program payment by the amount treated as interest. Taxact2012 The interest is reportable as ordinary income. Taxact2012 If payments total $3,000 or less, your total quota buyout program payment does not include any amount treated as interest and you are not required to reduce the total payment you receive. Taxact2012   In all other cases, a portion of each payment may be treated as interest for federal tax purposes. Taxact2012 You may be required to reduce your total quota buyout program payment before you calculate your gain or loss. Taxact2012 For more information, see Notice 2005-57, 2005-32 I. Taxact2012 R. Taxact2012 B. Taxact2012 267, available at www. Taxact2012 irs. Taxact2012 gov/irb/2005-32_IRB/ar13. Taxact2012 html. Taxact2012 Installment method. Taxact2012   You may use the installment method to report a gain if you receive at least one payment after the close of your tax year. Taxact2012 Under the installment method, a portion of the gain is taken into account in each year in which a payment is received. Taxact2012 See chapter 10 for more information. Taxact2012 Capital or ordinary gain or loss. Taxact2012   Whether your gain or loss is ordinary or capital depends on how you used the quota. Taxact2012 Quota used in the trade or business of farming. Taxact2012   If you used the quota in the trade or business of farming and you held it for more than one year, you report the transaction as a section 1231 transaction on Form 4797. Taxact2012 See Section 1231 transactions in the Instructions for Form 4797 for detailed information on reporting section 1231 transactions. Taxact2012 Quota held for investment. Taxact2012   If you held the quota for investment purposes, any gain or loss is capital gain or loss. Taxact2012 The same result also applies if you held the quota for the production of income, though not connected with a trade or business. Taxact2012 Gain treated as ordinary income. Taxact2012   If you previously deducted any of the following items, some or all of the capital gain must be recharacterized and reported as ordinary income. Taxact2012 Any resulting capital gain is taxed as ordinary income up to the amount previously deducted. Taxact2012 The cost of acquiring a quota. Taxact2012 Amounts for amortization, depletion, or depreciation. Taxact2012 Amounts to reflect a reduction in the quota pounds. Taxact2012   You should include the ordinary income on your return for the tax year even if you use the installment method to report the remainder of the gain. Taxact2012 Self-employment income. Taxact2012   The tobacco quota buyout payments are not self-employment income. Taxact2012 Income averaging for farmers. Taxact2012   The gain or loss resulting from the quota payments does not qualify for income averaging. Taxact2012 A tobacco quota is considered an interest in land. Taxact2012 Income averaging is not available for gain or loss arising from the sale or other disposition of land. Taxact2012 Involuntary conversion. Taxact2012   The buyout of the tobacco quota is not an involuntary conversion. Taxact2012 Form 1099-S. Taxact2012   A tobacco quota is considered an interest in land, so the USDA will generally report the total amount you receive under a contract on Form 1099-S, Proceeds From Real Estate Transactions, if the amount is $600 or more. Taxact2012 The USDA will generally report any portion of a payment treated as interest of $600 or more to you on Form 1099-INT, Interest Income, for the year in which the payment is made. Taxact2012 Like-kind exchange of quota. Taxact2012   You may postpone reporting the gain or loss from tobacco quota buyout payments by entering into a like-kind exchange if you comply with the requirements of section 1031 and the regulations thereunder. Taxact2012 See Notice 2005-57 for more information. Taxact2012 Tobacco Growers Contract payments you receive are determined by reference to the amount of quota under which you produced (or planted) quota tobacco during the 2002, 2003, and 2004 tobacco marketing years and are prorated based on the number of years that you produced (or planted) quota tobacco during those years. Taxact2012 Taxation of payments to tobacco growers. Taxact2012   Payments to growers replace ordinary income that would have been earned had the tobacco marketing quota and price support programs continued. Taxact2012 Individuals will generally report the payments as an Agricultural program payment on Schedule F. Taxact2012 If you are a landowner who does not materially participate in the operation or management of the farm and are receiving the grower payment because your farm rental income is based on the tobacco grown by a tenant, the grower payment should be reported on Form 4835. Taxact2012 Self-employment income. Taxact2012   Payments to growers generally represent self-employment income. Taxact2012 If the grower is an individual carrying on a trade or business and deriving income (other than farm rental income properly reported on Form 4835) from that trade or business, the payments are net earnings from self-employment. Taxact2012 Income averaging for farmers. Taxact2012   Payments to growers who are individuals qualify for farm income averaging. Taxact2012 Form 1099-G. Taxact2012   If the amount received in a taxable year is $600 or more, the amount will generally be reported by the USDA on a Form 1099-G. Taxact2012 Other Payments You must include most other government program payments in income. Taxact2012 Fertilizer and Lime Include in income the value of fertilizer or lime you receive under a government program. Taxact2012 How to claim the offsetting deduction is explained under Fertilizer and Lime in chapter 4. Taxact2012 Improvements If government payments are based on improvements, such as a pollution control facility, you must include them in income. Taxact2012 You must also capitalize the full cost of the improvement. Taxact2012 Since you have included the payments in income, they do not reduce your basis. Taxact2012 However, see Cost-Sharing Exclusion (Improvements) , earlier, for additional information. Taxact2012 National Tobacco Growers' Settlement Trust Fund Payments If you are a producer, landowner, or tobacco quota owner who receives money from the National Tobacco Growers' Settlement Trust Fund, you must report those payments as income. Taxact2012 You should receive a Form 1099-MISC, Miscellaneous Income, that shows the payment amount. Taxact2012 If you produce a tobacco crop, report the payments as income from farming on your Schedule F. Taxact2012 If you are a landowner or tobacco quota owner who leases tobacco-related property but you do not produce the crop, report the payments as farm rental income on Form 4835. Taxact2012 Payment to More Than One Person The USDA reports program payments to the IRS. Taxact2012 It reports a program payment intended for more than one person as having been paid to the person whose identification number is on record for that payment (payee of record). Taxact2012 If you, as the payee of record, receive a program payment belonging to someone else, such as your landlord, the amount belonging to the other person is a nominee distribution. Taxact2012 You should file Form 1099-G to report the identity of the actual recipient to the IRS. Taxact2012 You should also give this information to the recipient. Taxact2012 You can avoid the inconvenience of unnecessary inquiries about the identity of the recipient if you file this form. Taxact2012 Report the total amount reported to you as the payee of record on Schedule F, line 4a or 6a. Taxact2012 However, do not report as a taxable amount on line 4b or 6b any amount belonging to someone else. Taxact2012 See chapter 16 for information about ordering Form 1099-G. Taxact2012 Income From Cooperatives If you buy farm supplies through a cooperative, you may receive income from the cooperative in the form of patronage dividends (refunds). Taxact2012 If you sell your farm products through a cooperative, you may receive either patronage dividends or a per-unit retain certificate, explained later, from the cooperative. Taxact2012 Form 1099-PATR. Taxact2012   The cooperative will report the income to you on Form 1099-PATR or a similar form and send a copy to the IRS. Taxact2012 Form 1099-PATR may also show an alternative minimum tax adjustment that you must include on Form 6251, Alternative Minimum Tax—Individuals, if you are required to file the form. Taxact2012 For information on the alternative minimum tax, see the Instructions for Form 6251. Taxact2012 Patronage Dividends You generally report patronage dividends as income on Schedule F, lines 3a and 3b, for the tax year you receive them. Taxact2012 They include the following items. Taxact2012 Money paid as a patronage dividend, including cash advances received (for example, from a marketing cooperative). Taxact2012 The stated dollar value of qualified written notices of allocation. Taxact2012 The fair market value of other property. Taxact2012 Do not report as income on line 3b any patronage dividends you receive from expenditures that were not deductible, such as buying personal or family items, capital assets, or depreciable property. Taxact2012 You must reduce the cost or other basis of these items by the amount of such patronage dividends received. Taxact2012 Personal items include fuel purchased for personal use, basic local telephone service, and personal long distance calls. Taxact2012 If you cannot determine what the dividend is for, report it as income on lines 3a and 3b. Taxact2012 Qualified written notice of allocation. Taxact2012   If you receive a qualified written notice of allocation as part of a patronage dividend, you must generally include its stated dollar value in your income on Schedule F, lines 3a and 3b, in the year you receive it. Taxact2012 A written notice of allocation is qualified if at least 20% of the patronage dividend is paid in money or by qualified check and either of the following conditions is met. Taxact2012 The notice must be redeemable in cash for at least 90 days after it is issued, and you must have received a written notice of your right of redemption at the same time as the written notice of allocation. Taxact2012 You must have agreed to include the stated dollar value in income in the year you receive the notice by doing one of the following. Taxact2012 Signing and giving a written agreement to the cooperative. Taxact2012 Getting or keeping membership in the cooperative after it adopted a bylaw providing that membership constitutes agreement. Taxact2012 The cooperative must notify you in writing of this bylaw and give you a copy. Taxact2012 Endorsing and cashing a qualified check paid as part of the same patronage dividend. Taxact2012 You must cash the check by the 90th day after the close of the payment period for the cooperative's tax year for which the patronage dividend was paid. Taxact2012 Qualified check. Taxact2012   A qualified check is any instrument that is redeemable in money and meets both of the following requirements. Taxact2012 It is part of a patronage dividend that also includes a qualified written notice of allocation for which you met condition 2(c), above. Taxact2012 It is imprinted with a statement that endorsing and cashing it constitutes the payee's consent to include in income the stated dollar value of any written notices of allocation paid as part of the same patronage dividend. Taxact2012 Loss on redemption. Taxact2012   You can deduct on Schedule F, Part II, any loss incurred on the redemption of a qualified written notice of allocation you received in the ordinary course of your farming business. Taxact2012 The loss is the difference between the stated dollar amount of the qualified written notice you included in income and the amount you received when you redeemed it. Taxact2012 Nonqualified notice of allocation. Taxact2012   Do not include the stated dollar value of any nonqualified notice of allocation in income when you receive it. Taxact2012 Your basis in the notice is zero. Taxact2012 You must include in income for the tax year of disposition any amount you receive from its sale, redemption, or other disposition. Taxact2012 Report that amount, up to the stated dollar value of the notice, on Schedule F, lines 3a and 3b. Taxact2012 However, do not include that amount in your income if the notice resulted from buying or selling capital assets or depreciable property or from buying personal items, as explained in the following discussions. Taxact2012   If the amount you receive is more than the stated dollar value of the notice, report the excess as the type of income it represents. Taxact2012 For example, if it represents interest income, report it on your return as interest. Taxact2012 Buying or selling capital assets or depreciable property. Taxact2012   Do not include in income patronage dividends from buying capital assets or depreciable property used in your business. Taxact2012 You must, however, reduce the basis of these assets by the dividends. Taxact2012 This reduction is taken into account as of the first day of the tax year in which the dividends are received. Taxact2012 If the dividends are more than your unrecovered basis, reduce the unrecovered basis to zero and include the difference on Schedule F, line 3a, for the tax year you receive them. Taxact2012   This rule and the exceptions explained below also apply to amounts you receive from the sale, redemption, or other disposition of a nonqualified notice of allocation that resulted from buying or selling capital assets or depreciable property. Taxact2012 Example. Taxact2012 On July 1, 2012, Mr. Taxact2012 Brown, a patron of a cooperative association, bought a machine for his dairy farm business from the association for $2,900. Taxact2012 The machine has a life of 7 years under MACRS (as provided in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946, Depreciation and Amortization). Taxact2012 Mr. Taxact2012 Brown files his return on a calendar year basis. Taxact2012 For 2012, he claimed a depreciation deduction of $311, using the 10. Taxact2012 71% depreciation rate from the 150% declining balance, half-year convention table (shown in Table A-14 in Appendix A of Publication 946). Taxact2012 On July 2, 2013, the cooperative association paid Mr. Taxact2012 Brown a $300 cash patronage dividend for buying the machine. Taxact2012 Mr. Taxact2012 Brown adjusts the basis of the machine and figures his depreciation deduction for 2013 (and later years) as follows. Taxact2012 Cost of machine on July 1, 2012 $2,900 Minus: 2012 depreciation $311     2013 cash dividend 300 611 Adjusted basis for  depreciation for 2013: $2,289 Depreciation rate: 1 ÷ 6½ (remaining recovery period as of 1/1/2012) = 15. Taxact2012 38% × 1. Taxact2012 5 = 23. Taxact2012 07% Depreciation deduction for 2013 ($2,289 × 23. Taxact2012 07%) $528 Exceptions. Taxact2012   If the dividends are for buying or selling capital assets or depreciable property you did not own at any time during the year you received the dividends, you must include them on Schedule F, lines 3a and 3b, unless one of the following rules applies. Taxact2012 If the dividends relate to a capital asset you held for more than 1 year for which a loss was or would have been deductible, treat them as gain from the sale or exchange of a capital asset held for more than 1 year. Taxact2012 If the dividends relate to a capital asset for which a loss was not or would not have been deductible, do not report them as income (ordinary or capital gain). Taxact2012   If the dividends are for selling capital assets or depreciable property during the year you received the dividends, treat them as an additional amount received on the sale. Taxact2012 Personal purchases. Taxact2012   Because you cannot deduct the cost of personal, living, or family items, such as supplies, equipment, or services not related to the production of farm income, you can omit from the taxable amount of patronage dividends on Schedule F, line 3b, any dividends from buying those items (and you must reduce the cost or other basis of those items by the amount of the dividends). Taxact2012 This rule also applies to amounts you receive from the sale, redemption, or other disposition of a nonqualified written notice of allocation resulting from these purchases. Taxact2012 Per-Unit Retain Certificates A per-unit retain certificate is any written notice that shows the stated dollar amount of a per-unit retain allocation made to you by the cooperative. Taxact2012 A per-unit retain allocation is an amount paid to patrons for products sold for them that is fixed without regard to the net earnings of the cooperative. Taxact2012 These allocations can be paid in money, other property, or qualified certificates. Taxact2012 Per-unit retain certificates issued by a cooperative generally receive the same tax treatment as patronage dividends, discussed earlier. Taxact2012 Qualified certificates. Taxact2012   Qualified per-unit retain certificates are those issued to patrons who have agreed to include the stated dollar amount of these certificates in income in the year of receipt. Taxact2012 The agreement may be made in writing or by getting or keeping membership in a cooperative whose bylaws or charter states that membership constitutes agreement. Taxact2012 If you receive qualified per-unit retain certificates, include the stated dollar amount of the certificates in income on Schedule F, lines 3a and 3b, for the tax year you receive them. Taxact2012 Nonqualified certificates. Taxact2012   Do not include the stated dollar value of a nonqualified per-unit retain certificate in income when you receive it. Taxact2012 Your basis in the certificate is zero. Taxact2012 You must include in income any amount you receive from its sale, redemption, or other disposition. Taxact2012 Report the amount you receive from the disposition as ordinary income on Schedule F, lines 3a and 3b, for the tax year of disposition. Taxact2012 Cancellation of Debt This section explains the general rule for including canceled debt in income and the exceptions to the general rule. Taxact2012 For more information on canceled debt, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Taxact2012 General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in gross income for tax purposes. Taxact2012 Discharge of qualified farm indebtedness (defined below) is one of the exceptions to the general rule. Taxact2012 It is excluded from taxable income (see Exclusions , later). Taxact2012 Report the canceled amount on Schedule F, line 8, if you incurred the debt in your farming business. Taxact2012 If the debt is a nonbusiness debt, report the canceled amount as other income on Form 1040, line 21. Taxact2012 Election to defer income from discharge of indebtedness. Taxact2012   You can elect to defer income from a discharge of business indebtedness that occurred after 2008 and before 2011. Taxact2012 Generally, if the election is made, the deferred income is included in gross income ratably over a 5-year period beginning in 2014 (for calendar year taxpayers) and the exclusions listed below do not apply. Taxact2012 See IRC section 108(i) and Publication 4681 for details. Taxact2012 Form 1099-C. Taxact2012   If a federal agency, financial institution, credit union, finance company, or credit card company cancels or forgives your debt of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. Taxact2012 The amount of debt canceled is shown in box 2. Taxact2012 Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Taxact2012 These exceptions apply before the exclusions discussed below. Taxact2012 Price reduced after purchase. Taxact2012   If your purchase of property was financed by the seller and the seller reduces the amount of the debt at a time when you are not insolvent and the reduction does not occur in a chapter 11 bankruptcy case, the amount of the debt reduction will be treated as a reduction in the purchase price of the property. Taxact2012 Reduce your basis in the property by the amount of the reduction in the debt. Taxact2012 The rules that apply to bankruptcy and insolvency are explained below under Exclusions . Taxact2012 Deductible debt. Taxact2012   You do not realize income from a canceled debt to the extent the payment of the debt would have been a deductible expense. Taxact2012 This exception applies before the price reduction exception discussed above and the bankruptcy and insolvency exclusions discussed next. Taxact2012 Example. Taxact2012 You get accounting services for your farm on credit. Taxact2012 Later, you have trouble paying your farm debts, but you are not bankrupt or insolvent. Taxact2012 Your accountant forgives part of the amount you owe for the accounting services. Taxact2012 How you treat the canceled debt depends on your method of accounting. Taxact2012 Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Taxact2012 Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Taxact2012 Exclusions Do not include canceled debt in income in the following situations. Taxact2012 The cancellation takes place in a bankruptcy case under title 11 of the U. Taxact2012 S. Taxact2012 Code. Taxact2012 The cancellation takes place when you are insolvent. Taxact2012 The canceled debt is a qualified farm debt. Taxact2012 The canceled debt is a qualified real property business debt (in the case of a taxpayer other than a C corporation). Taxact2012 See Publication 334, Tax Guide for Small Business, chapter 5. Taxact2012 The canceled debt is qualified principal residence indebtedness which is discharged after 2006 and before 2014. Taxact2012 The exclusions do not apply in the following situations: If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations (2), (3), (4), and (5) do not apply. Taxact2012 If a canceled debt is excluded from income because it takes place when you are insolvent, the exclusions in situations (3) and (4) do not apply to the extent you are insolvent. Taxact2012 If a canceled debt is excluded from income because it is qualified principal residence indebtedness, the exclusion in situation (2) does not apply unless you elect to apply situation (2) instead of the exclusion for qualified principal residence indebtedness. Taxact2012 See Form 982 , later, for information on how to claim an exclusion for a canceled debt. Taxact2012 Debt. Taxact2012   For this discussion, debt includes any debt for which you are liable or that attaches to property you hold. Taxact2012 Bankruptcy and Insolvency You can exclude a canceled debt from income if you are bankrupt or to the extent you are insolvent. Taxact2012 Bankruptcy. Taxact2012   A bankruptcy case is a case under title 11 of the U. Taxact2012 S. Taxact2012 Code if you are under the jurisdiction of the court and the cancellation of the debt is granted by the court or is the result of a plan approved by the court. Taxact2012   Do not include debt canceled in a bankruptcy case in your income in the year it is canceled. Taxact2012 Instead, you must use the amount canceled to reduce your tax attributes, explained below under Reduction of tax attributes . Taxact2012 Insolvency. Taxact2012   You are insolvent to the extent your liabilities are more than the fair market value of your assets immediately before the cancellation of debt. Taxact2012   You can exclude canceled debt from gross income up to the amount by which you are insolvent. Taxact2012 If the canceled debt is more than this amount and the debt qualifies, you can apply the rules for qualified farm debt or qualified real property business debt to the difference. Taxact2012 Otherwise, you include the difference in gross income. Taxact2012 Use the amount excluded because of insolvency to reduce any tax attributes, as explained below under Reduction of tax attributes . Taxact2012 You must reduce the tax attributes under the insolvency rules before applying the rules for qualified farm debt or for qualified real property business debt. Taxact2012 Example. Taxact2012 You had a $15,000 debt that was not qualified principal residence debt canceled outside of bankruptcy. Taxact2012 Immediately before the cancellation, your liabilities totaled $80,000 and your assets totaled $75,000. Taxact2012 Since your liabilities were more than your assets, you were insolvent to the extent of $5,000 ($80,000 − $75,000). Taxact2012 You can exclude this amount from income. Taxact2012 The remaining canceled debt ($10,000) may be subject to the qualified farm debt or qualified real property business debt rules. Taxact2012 If not, you must include it in income. Taxact2012 Reduction of tax attributes. Taxact2012   If you exclude canceled debt from income in a bankruptcy case or during insolvency, you must use the excluded debt to reduce certain tax attributes. Taxact2012 Order of reduction. Taxact2012   You must use the excluded canceled debt to reduce the following tax attributes in the order listed unless you elect to reduce the basis of depreciable property first, as explained later. Taxact2012 Net operating loss (NOL). Taxact2012 Reduce any NOL for the tax year of the debt cancellation, and then any NOL carryover to that year. Taxact2012 Reduce the NOL or NOL carryover one dollar for each dollar of excluded canceled debt. Taxact2012 General business credit carryover. Taxact2012 Reduce the credit carryover to or from the tax year of the debt cancellation. Taxact2012 Reduce the carryover 331/3 cents for each dollar of excluded canceled debt. Taxact2012 Minimum tax credit. Taxact2012 Reduce the minimum tax credit available at the beginning of the tax year following the tax year of the debt cancellation. Taxact2012 Reduce the credit 331/3 cents for each dollar of excluded canceled debt. Taxact2012 Capital loss. Taxact2012 Reduce any net capital loss for the tax year of the debt cancellation, and then any capital loss carryover to that year. Taxact2012 Reduce the capital loss or loss carryover one dollar for each dollar of excluded canceled debt. Taxact2012 Basis. Taxact2012 Reduce the basis of the property you hold at the beginning of the tax year following the tax year of the debt cancellation in the following order. Taxact2012 Real property (except inventory) used in your trade or business or held for investment that secured the canceled debt. Taxact2012 Personal property (except inventory and accounts and notes receivable) used in your trade or business or held for investment that secured the canceled debt. Taxact2012 Other property (except inventory and accounts and notes receivable) used in your trade or business or held for investment. Taxact2012 Inventory and accounts and notes receivable. Taxact2012 Other property. Taxact2012 Reduce the basis one dollar for each dollar of excluded canceled debt. Taxact2012 However, the reduction cannot be more than the total basis of property and the amount of money you hold immediately after the debt cancellation minus your total liabilities immediately after the cancellation. Taxact2012 For allocation rules that apply to basis reductions for multiple canceled debts, see Regulations section 1. Taxact2012 1017-1(b)(2). Taxact2012 Also see Electing to reduce the basis of depreciable property