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Irs Form 1040a 2012

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Irs Form 1040a 2012

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

Additional forms and schedules for filing Form 1040

Form 1040-A, U.S. Individual Income Tax Return
Shorter version of Form 1040 allows you to report limited types of income and to claim certain adjustments. You cannot itemize deductions if you file Form 1040-A
Related: Instructions for Form 1040-A

Form 1040-ES, Estimated Tax for Individuals
Figure and pay your estimated tax on income that is not subject to withholding (for example, earnings from self-employment, interest, dividends, rents, alimony, etc.)
Related: Instructions for Form 1040-ES

Form 1040-EZ, Income Tax Return for Single and Joint Filers With No Dependents
Simplest individual income tax return form to fill out. If you file Form 1040EZ, you cannot itemize deductions or claim any adjustments to income or tax credits (other than the earned income credit).
Related: Inst 1040-EZ

Need help choosing the right 1040 for your situation? Use the Interactive Tax Assistant (ITA) or read Which Form - 1040, 1040A, or 1040EZ?

Form 2848, Power of Attorney and Declaration of Representative
Use Form 2848 to authorize an individual to represent you before the IRS.
Related: Instructions for Form 2848

Form 8821, Tax Information Authorization
Authorizes any individual, corporation, firm, organization, or partnership you designate to inspect and/or receive your confidential information for the type of tax and the years or periods listed on the form.

Form 8949, Sales and Other Dispositions of Capital Assets
Reconcile amounts that were reported to you and the IRS on Form 1099-B or 1099-S (or substitute statement) with the amounts you report on your return.
Related: Instructions for Form 8949

Form 9465, Installment Agreement Request
Request monthly payments through an installment agreement if you're not financially able to pay your tax debt immediately. 
Related: Instructions for Form 9465  Online Payment Agreement Application

Form 990, Return of Organization Exempt From Income Tax
Used by tax-exempt organizations, nonexempt charitable trusts, and section 527 political organizations to provide the IRS with the information required by section 6033.
Related: Instructions for Form 990  Schedules for Form 990

Form SS-4, Application for Employer Identification Number (EIN)
Apply for an Employer Identification Number. An EIN is a nine-digit number assigned to employers, sole proprietors, corporations, partnerships, estates, trusts, certain individuals, and other entities for tax filing and reporting purposes.
Related: Instructions for Form SS-4  Apply for an EIN online

Form W-2, Wage and Tax Statement (Info copy only)
Employers must complete, file with the Social Security Administration, and furnish to their employees Form W-2 showing the wages paid and taxes withheld for the year for each employee.
Related: Instructions for Form W-2 and W-3  Order Employer Returns Online

Form W-4, Employee's Withholding Allowance Certificate
Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. Consider completing a new Form W-4 each year and when your personal or financial situation changes.
Related: Withholding Calculator

Form W-9, Request for Taxpayer Identification Number (TIN) and Certification
Provide your correct TIN to the person who is required to file an information return with the IRS to report, for example, income paid to you, real estate transactions, mortgage interest you paid, acquisition or abandonment of secured property, cancellation of debt, or contributions you made to an IRA.
Related: Instructions for the Requestor of Form W-9

Publication 15 (Circular E), Employer's Tax Guide
Explains your tax responsibilities as an employer. It also includes tax tables that you need to figure the taxes to withhold from each employee.
Related: Read Pub 15 Online

Publication 17, Your Federal Income Tax
Explains the general rules for filing a federal income tax return. It supplements the information contained in your tax form instruction booklet. It explains the tax law to make sure you pay only the tax you owe and no more.
Related: Read Pub 17 Online

Publication 502, Medical and Dental Expenses
Explains the itemized deduction for medical and dental expenses that you claim on Schedule A (Form 1040).
Related: Read Pub 502 Online

Publication 590, Individual Retirement Arrangements (IRAs)
Explains individual retirement arrangements (IRAs). An IRA is a personal savings plan that gives you tax advantages for setting aside money for retirement.
Related: Read Pub 590 Online

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Page Last Reviewed or Updated: 29-Jan-2014

The Irs Form 1040a 2012

Irs form 1040a 2012 Publication 504 - Main Content Table of Contents Filing StatusUnmarried persons. Irs form 1040a 2012 Married persons. Irs form 1040a 2012 Same-sex marriage. Irs form 1040a 2012 Exception. Irs form 1040a 2012 Married Filing Jointly Married Filing Separately Head of Household ExemptionsPersonal Exemptions Exemptions for Dependents Phaseout of Exemptions AlimonyInvalid decree. Irs form 1040a 2012 Amended instrument. Irs form 1040a 2012 General Rules Instruments Executed After 1984 Instruments Executed Before 1985 Qualified Domestic Relations OrderRollovers. Irs form 1040a 2012 Individual Retirement Arrangements Property SettlementsTransfer Between Spouses Gift Tax on Property Settlements Sale of Jointly-Owned Property Costs of Getting a Divorce Tax Withholding and Estimated Tax Community PropertyCommunity Income Alimony (Community Income) How To Get Tax Help Filing Status Your filing status is used in determining whether you must file a return, your standard deduction, and the correct tax. Irs form 1040a 2012 It may also be used in determining whether you can claim certain other deductions and credits. Irs form 1040a 2012 The filing status you can choose depends partly on your marital status on the last day of your tax year. Irs form 1040a 2012 Marital status. Irs form 1040a 2012   If you are unmarried, your filing status is single or, if you meet certain requirements, head of household or qualifying widow(er). Irs form 1040a 2012 If you are married, your filing status is either married filing a joint return or married filing a separate return. Irs form 1040a 2012 For information about the single and qualifying widow(er) filing statuses, see Publication 501. Irs form 1040a 2012 Unmarried persons. Irs form 1040a 2012   You are unmarried for the whole year if either of the following applies. Irs form 1040a 2012 You have obtained a final decree of divorce or separate maintenance by the last day of your tax year. Irs form 1040a 2012 You must follow your state law to determine if you are divorced or legally separated. Irs form 1040a 2012 Exception. Irs form 1040a 2012 If you and your spouse obtain a divorce in one year for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intend to remarry each other and do so in the next tax year, you and your spouse must file as married individuals. Irs form 1040a 2012 You have obtained a decree of annulment, which holds that no valid marriage ever existed. Irs form 1040a 2012 You must file amended returns (Form 1040X, Amended U. Irs form 1040a 2012 S. Irs form 1040a 2012 Individual Income Tax Return) for all tax years affected by the annulment that are not closed by the statute of limitations. Irs form 1040a 2012 The statute of limitations generally does not end until 3 years (including extensions) after the date you file your original return or within 2 years after the date you pay the tax. Irs form 1040a 2012 On the amended return you will change your filing status to single or, if you meet certain requirements, head of household. Irs form 1040a 2012 Married persons. Irs form 1040a 2012   You are married for the whole year if you are separated but you have not obtained a final decree of divorce or separate maintenance by the last day of your tax year. Irs form 1040a 2012 An interlocutory decree is not a final decree. Irs form 1040a 2012 Same-sex marriage. Irs form 1040a 2012   For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. Irs form 1040a 2012 The term "spouse" includes an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law. Irs form 1040a 2012 However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not considered a marriage under state (or foreign) law are not considered married for federal tax purposes. Irs form 1040a 2012 For more details, see Publication 501. Irs form 1040a 2012 Exception. Irs form 1040a 2012   If you live apart from your spouse, under certain circumstances, you may be considered unmarried and can file as head of household. Irs form 1040a 2012 See Head of Household , later. Irs form 1040a 2012 Married Filing Jointly If you are married, you and your spouse can choose to file a joint return. Irs form 1040a 2012 If you file jointly, you both must include all your income, exemptions, deductions, and credits on that return. Irs form 1040a 2012 You can file a joint return even if one of you had no income or deductions. Irs form 1040a 2012 If both you and your spouse have income, you should usually figure your tax on both a joint return and separate returns (using the filing status of married filing separately) to see which gives the two of you the lower combined tax. Irs form 1040a 2012 Nonresident alien. Irs form 1040a 2012   To file a joint return, at least one of you must be a U. Irs form 1040a 2012 S. Irs form 1040a 2012 citizen or resident alien at the end of the tax year. Irs form 1040a 2012 If either of you was a nonresident alien at any time during the tax year, you can file a joint return only if you agree to treat the nonresident spouse as a resident of the United States. Irs form 1040a 2012 This means that your combined worldwide incomes are subject to U. Irs form 1040a 2012 S. Irs form 1040a 2012 income tax. Irs form 1040a 2012 These rules are explained in Publication 519, U. Irs form 1040a 2012 S. Irs form 1040a 2012 Tax Guide for Aliens. Irs form 1040a 2012 Signing a joint return. Irs form 1040a 2012   Both you and your spouse generally must sign the return, or it will not be considered a joint return. Irs form 1040a 2012 Joint and individual liability. Irs form 1040a 2012   Both you and your spouse may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. Irs form 1040a 2012 This means that one spouse may be held liable for all the tax due even if all the income was earned by the other spouse. Irs form 1040a 2012 Divorced taxpayers. Irs form 1040a 2012   If you are divorced, you are jointly and individually responsible for any tax, interest, and penalties due on a joint return for a tax year ending before your divorce. Irs form 1040a 2012 This responsibility applies even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns. Irs form 1040a 2012 Relief from joint liability. Irs form 1040a 2012   In some cases, a spouse may be relieved of the tax, interest, and penalties on a joint return. Irs form 1040a 2012 You can ask for relief no matter how small the liability. Irs form 1040a 2012   There are three types of relief available. Irs form 1040a 2012 Innocent spouse relief. Irs form 1040a 2012 Separation of liability, which applies to joint filers who are divorced, widowed, legally separated, or who have not lived together for the 12 months ending on the date election of this relief is filed. Irs form 1040a 2012 Equitable relief. Irs form 1040a 2012   Married persons who live in community property states, but who did not file joint returns, may also qualify for relief from liability arising from community property law or for equitable relief. Irs form 1040a 2012 See Relief from liability arising from community property law , later, under Community Property. Irs form 1040a 2012    Each kind of relief has different requirements. Irs form 1040a 2012 You must file Form 8857 to request relief under any of these categories. Irs form 1040a 2012 Publication 971 explains these kinds of relief and who may qualify for them. Irs form 1040a 2012 You can also find information on our website at IRS. Irs form 1040a 2012 gov. Irs form 1040a 2012 Tax refund applied to spouse's debts. Irs form 1040a 2012   The overpayment shown on your joint return may be used to pay the past-due amount of your spouse's debts. Irs form 1040a 2012 This includes your spouse's federal tax, state income tax, child or spousal support payments, or a federal nontax debt, such as a student loan. Irs form 1040a 2012 You can get a refund of your share of the overpayment if you qualify as an injured spouse. Irs form 1040a 2012 Injured spouse. Irs form 1040a 2012   You are an injured spouse if you file a joint return and all or part of your share of the overpayment was, or is expected to be, applied against your spouse's past-due debts. Irs form 1040a 2012 An injured spouse can get a refund for his or her share of the overpayment that would otherwise be used to pay the past-due amount. Irs form 1040a 2012   To be considered an injured spouse, you must: Have made and reported tax payments (such as federal income tax withheld from wages or estimated tax payments), or claimed a refundable tax credit, such as the earned income credit or additional child tax credit on the joint return, and Not be legally obligated to pay the past-due amount. Irs form 1040a 2012 Note. Irs form 1040a 2012 If the injured spouse's permanent home is in a community property state, then the injured spouse must only meet (2). Irs form 1040a 2012 For more information, see Publication 555. Irs form 1040a 2012    Refunds that involve community property states must be divided according to local law. Irs form 1040a 2012 If you live in a community property state in which all community property is subject to the debts of either spouse, your entire refund is generally used to pay those debts. Irs form 1040a 2012   If you are an injured spouse, you must file Form 8379 to have your portion of the overpayment refunded to you. Irs form 1040a 2012 Follow the instructions for the form. Irs form 1040a 2012   If you have not filed your joint return and you know that your joint refund will be offset, file Form 8379 with your return. Irs form 1040a 2012 You should receive your refund within 14 weeks from the date the paper return is filed or within 11 weeks from the date the return is filed electronically. Irs form 1040a 2012   If you filed your joint return and your joint refund was offset, file Form 8379 by itself. Irs form 1040a 2012 When filed after offset, it can take up to 8 weeks to receive your refund. Irs form 1040a 2012 Do not attach the previously filed tax return, but do include copies of all Forms W-2, Wage and Tax Statement, and W-2G, Certain Gambling Winnings, for both spouses and any Forms 1099 that show income tax withheld. Irs form 1040a 2012    An injured spouse claim is different from an innocent spouse relief request. Irs form 1040a 2012 An injured spouse uses Form 8379 to request an allocation of the tax overpayment attributed to each spouse. Irs form 1040a 2012 An innocent spouse uses Form 8857 to request relief from joint liability for tax, interest, and penalties on a joint return for items of the other spouse (or former spouse) that were incorrectly reported on or omitted from the joint return. Irs form 1040a 2012 For information on innocent spouses, see Relief from joint liability, earlier. Irs form 1040a 2012 Married Filing Separately If you and your spouse file separate returns, you should each report only your own income, exemptions, deductions, and credits on your individual return. Irs form 1040a 2012 You can file a separate return even if only one of you had income. Irs form 1040a 2012 For information on exemptions you can claim on your separate return, see Exemptions , later. Irs form 1040a 2012 Community or separate income. Irs form 1040a 2012   If you live in a community property state and file a separate return, your income may be separate income or community income for income tax purposes. Irs form 1040a 2012 For more information, see Community Income under Community Property, later. Irs form 1040a 2012 Separate liability. Irs form 1040a 2012   If you and your spouse file separately, you each are responsible only for the tax due on your own return. Irs form 1040a 2012 Itemized deductions. Irs form 1040a 2012   If you and your spouse file separate returns and one of you itemizes deductions, the other spouse cannot use the standard deduction and should also itemize deductions. Irs form 1040a 2012 Table 1. Irs form 1040a 2012 Itemized Deductions on Separate Returns This table shows itemized deductions you can claim on your married filing separate return whether you paid the expenses separately with your own funds or jointly with your spouse. Irs form 1040a 2012  Caution: If you live in a community property state, these rules do not apply. Irs form 1040a 2012 See Community Property. Irs form 1040a 2012 IF you paid . Irs form 1040a 2012 . Irs form 1040a 2012 . Irs form 1040a 2012 AND you . Irs form 1040a 2012 . Irs form 1040a 2012 . Irs form 1040a 2012 THEN you can deduct on your separate federal return. Irs form 1040a 2012 . Irs form 1040a 2012 . Irs form 1040a 2012   medical expenses   paid with funds deposited in a joint checking account in which you and your spouse have an equal interest     half of the total medical expenses, subject to certain limits, unless you can show that you alone paid the expenses. Irs form 1040a 2012     state income tax   file a separate state income tax return     the state income tax you alone paid during the year. Irs form 1040a 2012         file a joint state income tax return and you and your spouse are jointly and individually liable for the full amount of the state income tax     the state income tax you alone paid during the year. Irs form 1040a 2012         file a joint state income tax return and you  are liable for only your own share of state  income tax     the smaller of: the state income tax you alone paid during the year, or the total state income tax you and your spouse paid during the year multiplied by the following fraction. Irs form 1040a 2012 The numerator is your gross income and the denominator  is your combined gross income. Irs form 1040a 2012     property tax   paid the tax on property held as tenants by the entirety     the property tax you alone paid. Irs form 1040a 2012     mortgage interest   paid the interest on a qualified home1 held  as tenants by the entirety     the mortgage interest you alone paid. Irs form 1040a 2012     casualty loss   have a casualty loss on a home you own  as tenants by the entirety     half of the loss, subject to the deduction limits. Irs form 1040a 2012 Neither spouse may report the total casualty loss. Irs form 1040a 2012 1 For more information on a qualified home and deductible mortgage interest, see Publication 936, Home Mortgage Interest Deduction. Irs form 1040a 2012 Dividing itemized deductions. Irs form 1040a 2012   You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse. Irs form 1040a 2012 See Table 1, later. Irs form 1040a 2012 Separate returns may give you a higher tax. Irs form 1040a 2012   Some married couples file separate returns because each wants to be responsible only for his or her own tax. Irs form 1040a 2012 There is no joint liability. Irs form 1040a 2012 But in almost all instances, if you file separate returns, you will pay more combined federal tax than you would with a joint return. Irs form 1040a 2012 This is because the following special rules apply if you file a separate return. Irs form 1040a 2012 Your tax rate generally will be higher than it would be on a joint return. Irs form 1040a 2012 Your exemption amount for figuring the alternative minimum tax will be half of that allowed a joint return filer. Irs form 1040a 2012 You cannot take the credit for child and dependent care expenses in most cases. Irs form 1040a 2012 You cannot take the earned income credit. Irs form 1040a 2012 You cannot take the exclusion or credit for adoption expenses in most cases. Irs form 1040a 2012 You cannot take the credit for higher education expenses (American opportunity and lifetime learning credits), the deduction for student loan interest, or the tuition and fees deduction. Irs form 1040a 2012 You cannot exclude the interest from qualified savings bonds that you used for higher education expenses. Irs form 1040a 2012 If you lived with your spouse at any time during the tax year: You cannot claim the credit for the elderly or the disabled, and You will have to include in income more (up to 85%) of any social security or equivalent railroad retirement benefits you received. Irs form 1040a 2012 Your income limits that reduce the child tax credit, the retirement savings contributions credit, itemized deductions, and the deduction for personal exemptions are half of the limits for a joint return filer. Irs form 1040a 2012 Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return). Irs form 1040a 2012 Your basic standard deduction, if allowable, is half of that allowed a joint return filer. Irs form 1040a 2012 See Itemized deductions , earlier. Irs form 1040a 2012 Joint return after separate returns. Irs form 1040a 2012   If either you or your spouse (or both of you) file a separate return, you generally can change to a joint return within 3 years from the due date (not including extensions) of the separate return or returns. Irs form 1040a 2012 This applies to a return either of you filed claiming married filing separately, single, or head of household filing status. Irs form 1040a 2012 Use Form 1040X to change your filing status. Irs form 1040a 2012 Separate returns after joint return. Irs form 1040a 2012   After the due date of your return, you and your spouse cannot file separate returns if you previously filed a joint return. Irs form 1040a 2012 Exception. Irs form 1040a 2012   A personal representative for a decedent can change from a joint return elected by the surviving spouse to a separate return for the decedent. Irs form 1040a 2012 The personal representative has 1 year from the due date (including extensions) of the joint return to make the change. Irs form 1040a 2012 Head of Household Filing as head of household has the following advantages. Irs form 1040a 2012 You can claim the standard deduction even if your spouse files a separate return and itemizes deductions. Irs form 1040a 2012 Your standard deduction is higher than is allowed if you claim a filing status of single or married filing separately. Irs form 1040a 2012 Your tax rate usually will be lower than it is if you claim a filing status of single or married filing separately. Irs form 1040a 2012 You may be able to claim certain credits (such as the dependent care credit and the earned income credit) you cannot claim if your filing status is married filing separately. Irs form 1040a 2012 Income limits that reduce your child tax credit, retirement savings contributions credit, itemized deductions, and the deduction for personal exemptions are higher than the income limits if you claim a filing status of married filing separately. Irs form 1040a 2012 Requirements. Irs form 1040a 2012   You may be able to file as head of household if you meet all the following requirements. Irs form 1040a 2012 You are unmarried or “considered unmarried” on the last day of the year. Irs form 1040a 2012 You paid more than half the cost of keeping up a home for the year. Irs form 1040a 2012 A “qualifying person” lived with you in the home for more than half the year (except for temporary absences, such as school). Irs form 1040a 2012 However, if the “qualifying person” is your dependent parent, he or she does not have to live with you. Irs form 1040a 2012 See Special rule for parent , later, under Qualifying person. Irs form 1040a 2012 Considered unmarried. Irs form 1040a 2012   You are considered unmarried on the last day of the tax year if you meet all the following tests. Irs form 1040a 2012 You file a separate return. Irs form 1040a 2012 A separate return includes a return claiming married filing separately, single, or head of household filing status. Irs form 1040a 2012 You paid more than half the cost of keeping up your home for the tax year. Irs form 1040a 2012 Your spouse did not live in your home during the last 6 months of the tax year. Irs form 1040a 2012 Your spouse is considered to live in your home even if he or she is temporarily absent due to special circumstances. Irs form 1040a 2012 See Temporary absences , later. Irs form 1040a 2012 Your home was the main home of your child, stepchild, or foster child for more than half the year. Irs form 1040a 2012 (See Qualifying person , later, for rules applying to a child's birth, death, or temporary absence during the year. Irs form 1040a 2012 ) You must be able to claim an exemption for the child. Irs form 1040a 2012 However, you meet this test if you cannot claim the exemption only because the noncustodial parent can claim the child using the rule described later in Special rule for divorced or separated parents (or parents who live apart) under Exemptions for Dependents. Irs form 1040a 2012 The general rules for claiming an exemption for a dependent are shown later in Table 3. Irs form 1040a 2012    If you were considered married for part of the year and lived in a community property state (one of the states listed later under Community Property), special rules may apply in determining your income and expenses. Irs form 1040a 2012 See Publication 555 for more information. Irs form 1040a 2012 Nonresident alien spouse. Irs form 1040a 2012   If your spouse was a nonresident alien at any time during the tax year, and you have not chosen to treat your spouse as a resident alien, you are considered unmarried for head of household purposes. Irs form 1040a 2012 However, your spouse is not a qualifying person for head of household purposes. Irs form 1040a 2012 You must have another qualifying person and meet the other requirements to file as head of household. Irs form 1040a 2012 Keeping up a home. Irs form 1040a 2012   You are keeping up a home only if you pay more than half the cost of its upkeep for the year. Irs form 1040a 2012 This includes rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home. Irs form 1040a 2012 This does not include the cost of clothing, education, medical treatment, vacations, life insurance, or transportation for any member of the household. Irs form 1040a 2012 Qualifying person. Irs form 1040a 2012    Table 2, later, shows who can be a qualifying person. Irs form 1040a 2012 Any person not described in Table 2 is not a qualifying person. Irs form 1040a 2012   Generally, the qualifying person must live with you for more than half of the year. Irs form 1040a 2012 Table 2. Irs form 1040a 2012 Who Is a Qualifying Person Qualifying You To File as Head of Household?1 Caution. Irs form 1040a 2012 See the text of this publication for the other requirements you must meet to claim head of household filing status. Irs form 1040a 2012 IF the person is your . Irs form 1040a 2012 . Irs form 1040a 2012 . Irs form 1040a 2012 AND . Irs form 1040a 2012 . Irs form 1040a 2012 . Irs form 1040a 2012 THEN that person is . Irs form 1040a 2012 . Irs form 1040a 2012 . Irs form 1040a 2012   qualifying child (such as a son, daughter, or grandchild who lived with you more than half the year and meets certain other tests)2 he or she is single a qualifying person, whether or not you can claim an exemption for the person. Irs form 1040a 2012     he or she is married and you can claim an exemption for him or her a qualifying person. Irs form 1040a 2012     he or she is married and you cannot claim an exemption for him or her not a qualifying person. Irs form 1040a 2012 3     qualifying relative4 who is your father or mother you can claim an exemption for him or her5 a qualifying person. Irs form 1040a 2012 6     you cannot claim an exemption for him or her not a qualifying person. Irs form 1040a 2012     qualifying relative4 other than your father or mother (such as a grandparent, brother, or sister who meets certain tests) he or she lived with you more than half the year, and he or she is related to you in one of the ways listed under Relatives who do not have to live with you in Publication 501 and you can claim an exemption for him or her5 a qualifying person. Irs form 1040a 2012     he or she did not live with you more than half the year not a qualifying person. Irs form 1040a 2012     he or she is not related to you in one of the ways listed under Relatives who do not have to live with you in Publication 501 and is your qualifying relative only because he or she lived with you all year as a member of your household not a qualifying person. Irs form 1040a 2012     you cannot claim an exemption for him or her not a qualifying person. Irs form 1040a 2012   1 A person cannot qualify more than one taxpayer to use the head of household filing status for the year. Irs form 1040a 2012 2 See Table 3, later, for the tests that must be met to be a qualifying child. Irs form 1040a 2012 Note. Irs form 1040a 2012 If you are a noncustodial parent, the term “qualifying child” for head of household filing status does not include a child who is your qualifying child for exemption purposes only because of the rules described under Children of Divorced or Separated Parents (or Parents Who Live Apart) under Exemptions for Dependents, later. Irs form 1040a 2012 If you are the custodial parent and those rules apply, the child is generally your qualifying child for head of household filing status even though the child is not a qualifying child for whom you can claim an exemption. Irs form 1040a 2012 3 This person is a qualifying person if the only reason you cannot claim the exemption is that you can be claimed as a dependent on someone else's return. Irs form 1040a 2012 4 See Table 3, later, for the tests that must be met to be a qualifying relative. Irs form 1040a 2012 5 If you can claim an exemption for a person only because of a multiple support agreement, that person is not a qualifying person. Irs form 1040a 2012 See Multiple Support Agreement in Publication 501. Irs form 1040a 2012 6 See Special rule for parent . Irs form 1040a 2012 Special rule for parent. Irs form 1040a 2012   If your qualifying person is your father or mother, you may be eligible to file as head of household even if your father or mother does not live with you. Irs form 1040a 2012 However, you must be able to claim an exemption for your father or mother. Irs form 1040a 2012 Also, you must pay more than half the cost of keeping up a home that was the main home for the entire year for your father or mother. Irs form 1040a 2012 You are keeping up a main home for your father or mother if you pay more than half the cost of keeping your parent in a rest home or home for the elderly. Irs form 1040a 2012 Death or birth. Irs form 1040a 2012   If the person for whom you kept up a home was born or died in 2013, you still may be able to file as head of household. Irs form 1040a 2012 If the person is your qualifying child, the child must have lived with you for more than half the part of the year he or she was alive. Irs form 1040a 2012 If the person is anyone else, see Publication 501. Irs form 1040a 2012 Temporary absences. Irs form 1040a 2012   You and your qualifying person are considered to live together even if one or both of you are temporarily absent from your home due to special circumstances such as illness, education, business, vacation, or military service. Irs form 1040a 2012 It must be reasonable to assume that the absent person will return to the home after the temporary absence. Irs form 1040a 2012 You must continue to keep up the home during the absence. Irs form 1040a 2012 Kidnapped child. Irs form 1040a 2012   You may be eligible to file as head of household even if the child who is your qualifying person has been kidnapped. Irs form 1040a 2012 You can claim head of household filing status if all the following statements are true. Irs form 1040a 2012 The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. Irs form 1040a 2012 In the year of the kidnapping, the child lived with you for more than half the part of the year before the kidnapping. Irs form 1040a 2012 You would have qualified for head of household filing status if the child had not been kidnapped. Irs form 1040a 2012   This treatment applies for all years until the earlier of: The year the child is returned, The year there is a determination that the child is dead, or The year the child would have reached age 18. Irs form 1040a 2012 More information. Irs form 1040a 2012   For more information on filing as head of household, see Publication 501. Irs form 1040a 2012 Exemptions You can deduct $3,900 for each exemption you claim in 2013. Irs form 1040a 2012 However, if your adjusted gross income is more than $150,000, see Phaseout of Exemptions , later. Irs form 1040a 2012 There are two types of exemptions: personal exemptions and exemptions for dependents. Irs form 1040a 2012 If you are entitled to claim an exemption for a dependent (such as your child), that dependent cannot claim his or her personal exemption on his or her own tax return. Irs form 1040a 2012 Personal Exemptions You can claim your own exemption unless someone else can claim it. Irs form 1040a 2012 If you are married, you may be able to take an exemption for your spouse. Irs form 1040a 2012 These are called personal exemptions. Irs form 1040a 2012 Exemption for Your Spouse Your spouse is never considered your dependent. Irs form 1040a 2012 Joint return. Irs form 1040a 2012   On a joint return, you can claim one exemption for yourself and one for your spouse. Irs form 1040a 2012   If your spouse had any gross income, you can claim his or her exemption only if you file a joint return. Irs form 1040a 2012 Separate return. Irs form 1040a 2012   If you file a separate return, you can take an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer. Irs form 1040a 2012 If your spouse is the dependent of another taxpayer, you cannot claim an exemption for your spouse even if the other taxpayer does not actually claim your spouse's exemption. Irs form 1040a 2012 Alimony paid. Irs form 1040a 2012   If you paid alimony to your spouse, you cannot take an exemption for your spouse. Irs form 1040a 2012 This is because alimony is gross income to the spouse who received it. Irs form 1040a 2012 Divorced or separated spouse. Irs form 1040a 2012   If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse's exemption. Irs form 1040a 2012 This rule applies even if you provided all of your former spouse's support. Irs form 1040a 2012 Exemptions for Dependents You are allowed one exemption for each person you can claim as a dependent. Irs form 1040a 2012 You can claim an exemption for a dependent even if your dependent files a return. Irs form 1040a 2012 The term “dependent” means: A qualifying child, or A qualifying relative. Irs form 1040a 2012 Table 3 shows the tests that must be met to be either a qualifying child or qualifying relative, plus the additional requirements for claiming an exemption for a dependent. Irs form 1040a 2012 For detailed information, see Publication 501. Irs form 1040a 2012   Dependent not allowed a personal exemption. Irs form 1040a 2012 If you can claim an exemption for your dependent, the dependent cannot claim his or her own exemption on his or her own tax return. Irs form 1040a 2012 This is true even if you do not claim the dependent's exemption on your return. Irs form 1040a 2012 It is also true if the decedent's exemption on your return is reduced or eliminated under the phaseout rule described under Phaseout of Exemptions, later. Irs form 1040a 2012 Table 3. Irs form 1040a 2012 Overview of the Rules for Claiming an Exemption for a Dependent Caution. Irs form 1040a 2012 This table is only an overview of the rules. Irs form 1040a 2012 For details, see Publication 501. Irs form 1040a 2012 • You cannot claim any dependents if you, or your spouse if filing jointly, could be claimed as a dependent by another taxpayer. Irs form 1040a 2012 • You cannot claim a married person who files a joint return as a dependent unless that joint return is only a claim for refund and there would be no tax liability for either spouse on separate returns. Irs form 1040a 2012 • You cannot claim a person as a dependent unless that person is a U. Irs form 1040a 2012 S. Irs form 1040a 2012 citizen, U. Irs form 1040a 2012 S. Irs form 1040a 2012 resident alien, U. Irs form 1040a 2012 S. Irs form 1040a 2012 national, or a resident of Canada or Mexico. Irs form 1040a 2012 1 • You cannot claim a person as a dependent unless that person is your qualifying child or qualifying relative. Irs form 1040a 2012   Tests To Be a Qualifying Child   Tests To Be a Qualifying Relative 1. Irs form 1040a 2012     2. Irs form 1040a 2012       3. Irs form 1040a 2012    4. Irs form 1040a 2012    5. Irs form 1040a 2012    The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. Irs form 1040a 2012   The child must be (a) under age 19 at the end of the year and younger than you (or your spouse if filing jointly), (b) under age 24 at the end of the year, a student, and younger than you (or your spouse if filing jointly), or (c) any age if permanently and totally disabled. Irs form 1040a 2012   The child must have lived with you for more than half of the year. Irs form 1040a 2012 2   The child must not have provided more than half of his or her own support for the year. Irs form 1040a 2012   The child is not filing a joint return for the year (unless that joint return is filed only as a claim for refund of withheld income tax or estimated tax paid). Irs form 1040a 2012   1. Irs form 1040a 2012    2. Irs form 1040a 2012       3. Irs form 1040a 2012    4. Irs form 1040a 2012 The person cannot be your qualifying child or the qualifying child of anyone else. Irs form 1040a 2012   The person either (a) must be related to you in one of the ways listed under Relatives who do not have to live with you in Publication 501 or (b) must live with you all year as a member of your household 2 (and your relationship must not violate local law). Irs form 1040a 2012   The person's gross income for the year must be less than $3,900. Irs form 1040a 2012 3   You must provide more than half of the person's total support for the year. Irs form 1040a 2012 4 If the child meets the rules to be a qualifying child of more than one person, only one person can actually treat the child as a qualifying child. Irs form 1040a 2012 See Special Rule for Qualifying Child of More Than One Person , later, to find out which person is the person entitled to claim the child as a qualifying child. Irs form 1040a 2012     1 Exception exists for certain adopted children. Irs form 1040a 2012 2 Exceptions exist for temporary absences, children who were born or died during the year, children of divorced or separated parents (or parents who live apart), and kidnapped children. Irs form 1040a 2012 3 Exception exists for persons who are disabled and have income from a sheltered workshop. Irs form 1040a 2012 4 Exceptions exist for multiple support agreements, children of divorced or separated parents (or parents who live apart), and kidnapped children. Irs form 1040a 2012 See Publication 501. Irs form 1040a 2012 You may be entitled to a child tax credit for each qualifying child who was under age 17 at the end of the year if you claimed an exemption for that child. Irs form 1040a 2012 For more information, see the instructions for your tax return if you file Form 1040A or 1040. Irs form 1040a 2012 Children of Divorced or Separated Parents (or Parents Who Live Apart) In most cases, because of the residency test (see item 3 under Tests To Be a Qualifying Child in Table 3), a child of divorced or separated parents is the qualifying child of the custodial parent. Irs form 1040a 2012 However, the child will be treated as the qualifying child of the noncustodial parent if the special rule (discussed next) applies. Irs form 1040a 2012 Special rule for divorced or separated parents (or parents who live apart). Irs form 1040a 2012   A child will be treated as the qualifying child of his or her noncustodial parent if all four of the following statements are true. Irs form 1040a 2012 The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all times during the last 6 months of the year, whether or not they are or were married. Irs form 1040a 2012 The child received over half of his or her support for the year from the parents. Irs form 1040a 2012 The child is in the custody of one or both parents for more than half of the year. Irs form 1040a 2012 Either of the following applies. Irs form 1040a 2012 The custodial parent signs a written declaration, discussed later, that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches this written declaration to his or her return. Irs form 1040a 2012 (If the decree or agreement went into effect after 1984, see Divorce decree or separation agreement that went into effect after 1984 and before 2009 , later. Irs form 1040a 2012 A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 states that the noncustodial parent can claim the child as a dependent, the decree or agreement was not changed after 1984 to say the noncustodial parent cannot claim the child as a dependent, and the noncustodial parent provides at least $600 for the child's support during 2013. Irs form 1040a 2012 See Child support under pre-1985 agreement , later. Irs form 1040a 2012 Custodial parent and noncustodial parent. Irs form 1040a 2012   The custodial parent is the parent with whom the child lived for the greater number of nights during the year. Irs form 1040a 2012 The other parent is the noncustodial parent. Irs form 1040a 2012   If the parents divorced or separated during the year and the child lived with both parents before the separation, the custodial parent is the one with whom the child lived for the greater number of nights during the rest of the year. Irs form 1040a 2012   A child is treated as living with a parent for a night if the child sleeps: At that parent's home, whether or not the parent is present, or In the company of the parent, when the child does not sleep at a parent's home (for example, the parent and child are on vacation together). Irs form 1040a 2012 Equal number of nights. Irs form 1040a 2012   If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income. Irs form 1040a 2012 December 31. Irs form 1040a 2012   The night of December 31 is treated as part of the year in which it begins. Irs form 1040a 2012 For example, December 31, 2013, is treated as part of 2013. Irs form 1040a 2012 Emancipated child. Irs form 1040a 2012   If a child is emancipated under state law, the child is treated as not living with either parent. Irs form 1040a 2012 See Examples 5 and 6 . Irs form 1040a 2012 Absences. Irs form 1040a 2012    If a child was not with either parent on a particular night (because, for example, the child was staying at a friend's house), the child is treated as living with the parent with whom the child normally would have lived for that night, except for the absence. Irs form 1040a 2012 But if it cannot be determined with which parent the child normally would have lived or if the child would not have lived with either parent that night, the child is treated as not living with either parent that night. Irs form 1040a 2012 Parent works at night. Irs form 1040a 2012   If, due to a parent's nighttime work schedule, a child lives for a greater number of days but not nights with the parent who works at night, that parent is treated as the custodial parent. Irs form 1040a 2012 On a school day, the child is treated as living at the primary residence registered with the school. Irs form 1040a 2012 Example 1 – child lived with one parent greater number of nights. Irs form 1040a 2012 You and your child’s other parent are divorced. Irs form 1040a 2012 In 2013, your child lived with you 210 nights and with the other parent 156 nights. Irs form 1040a 2012 You are the custodial parent. Irs form 1040a 2012 Example 2 – child is away at camp. Irs form 1040a 2012 In 2013, your daughter lives with each parent for alternate weeks. Irs form 1040a 2012 In the summer, she spends 6 weeks at summer camp. Irs form 1040a 2012 During the time she is at camp, she is treated as living with you for 3 weeks and with her other parent, your ex-spouse, for 3 weeks because this is how long she would have lived with each parent if she had not attended summer camp. Irs form 1040a 2012 Example 3 – child lived same number of days with each parent. Irs form 1040a 2012 Your son lived with you 180 nights during the year and lived the same number of nights with his other parent, your ex-spouse. Irs form 1040a 2012 Your adjusted gross income is $40,000. Irs form 1040a 2012 Your ex-spouse's adjusted gross income is $25,000. Irs form 1040a 2012 You are treated as your son's custodial parent because you have the higher adjusted gross income. Irs form 1040a 2012 Example 4 – child is at parent’s home but with other parent. Irs form 1040a 2012 Your son normally lives with you during the week and with his other parent, your ex-spouse, every other weekend. Irs form 1040a 2012 You become ill and are hospitalized. Irs form 1040a 2012 The other parent lives in your home with your son for 10 consecutive days while you are in the hospital. Irs form 1040a 2012 Your son is treated as living with you during this 10-day period because he was living in your home. Irs form 1040a 2012 Example 5 – child emancipated in May. Irs form 1040a 2012 When your son turned age 18 in May 2013, he became emancipated under the law of the state where he lives. Irs form 1040a 2012 As a result, he is not considered in the custody of his parents for more than half of the year. Irs form 1040a 2012 The special rule for children of divorced or separated parents (or parents who live apart) does not apply. Irs form 1040a 2012 Example 6 – child emancipated in August. Irs form 1040a 2012 Your daughter lives with you from January 1, 2013, until May 31, 2013, and lives with her other parent, your ex-spouse, from June 1, 2013, through the end of the year. Irs form 1040a 2012 She turns 18 and is emancipated under state law on August 1, 2013. Irs form 1040a 2012 Because she is treated as not living with either parent beginning on August 1, she is treated as living with you the greater number of nights in 2013. Irs form 1040a 2012 You are the custodial parent. Irs form 1040a 2012 Written declaration. Irs form 1040a 2012    The custodial parent must use either Form 8332 or a similar statement (containing the same information required by the form) to make the written declaration to release the exemption to the noncustodial parent. Irs form 1040a 2012 The noncustodial parent must attach a copy of the form or statement to his or her tax return. Irs form 1040a 2012   The exemption can be released for 1 year, for a number of specified years (for example, alternate years), or for all future years, as specified in the declaration. Irs form 1040a 2012 Divorce decree or separation agreement that went into effect after 1984 and before 2009. Irs form 1040a 2012   If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. Irs form 1040a 2012 To be able to do this, the decree or agreement must state all three of the following. Irs form 1040a 2012 The noncustodial parent can claim the child as a dependent without regard to any condition, such as payment of support. Irs form 1040a 2012 The custodial parent will not claim the child as a dependent for the year. Irs form 1040a 2012 The years for which the noncustodial parent, rather than the custodial parent, can claim the child as a dependent. Irs form 1040a 2012   The noncustodial parent must attach all of the following pages of the decree or agreement to his or her return. Irs form 1040a 2012 The cover page (write the other parent's social security number on this page). Irs form 1040a 2012 The pages that include all of the information identified in items (1) through (3) above. Irs form 1040a 2012 The signature page with the other parent's signature and the date of the agreement. Irs form 1040a 2012 Post-2008 divorce decree or separation agreement. Irs form 1040a 2012   If the decree or agreement went into effect after 2008, a noncustodial parent claiming an exemption for a child cannot attach pages from a divorce decree or separation agreement instead of Form 8332. Irs form 1040a 2012 The custodial parent must sign either a Form 8332 or a similar statement. Irs form 1040a 2012 The only purpose of this statement must be to release the custodial parent's claim to the child's exemption. Irs form 1040a 2012 The noncustodial parent must attach a copy to his or her return. Irs form 1040a 2012 The form or statement must release the custodial parent's claim to the child without any conditions. Irs form 1040a 2012 For example, the release must not depend on the noncustodial parent paying support. Irs form 1040a 2012    The noncustodial parent must attach the required information even if it was filed with a return in an earlier year. Irs form 1040a 2012 Revocation of release of claim to an exemption. Irs form 1040a 2012   The custodial parent can revoke a release of claim to exemption that he or she previously released to the noncustodial parent on Form 8332 or a similar statement. Irs form 1040a 2012 In order for the revocation to be effective for 2013, the custodial parent must have given (or made reasonable efforts to give) written notice of the revocation to the noncustodial parent in 2012 or earlier. Irs form 1040a 2012 The custodial parent can use Part III of Form 8332 for this purpose and must attach a copy of the revocation to his or her return for each tax year he or she claims the child as a dependent as a result of the revocation. Irs form 1040a 2012 Remarried parent. Irs form 1040a 2012   If you remarry, the support provided by your new spouse is treated as provided by you. Irs form 1040a 2012 Child support under pre-1985 agreement. Irs form 1040a 2012   All child support payments actually received from the noncustodial parent under a pre-1985 agreement are considered used for the support of the child, even if such amounts are not actually spent for child support. Irs form 1040a 2012 Example. Irs form 1040a 2012 Under a pre-1985 agreement, the noncustodial parent provides $1,200 for the child's support. Irs form 1040a 2012 This amount is considered support provided by the noncustodial parent even if the $1,200 was actually spent on things other than support. Irs form 1040a 2012 Parents who never married. Irs form 1040a 2012   The special rule for divorced or separated parents also applies to parents who never married and lived apart at all times during the last 6 months of the year. Irs form 1040a 2012 Alimony. Irs form 1040a 2012   Payments to your spouse that are includible in his or her gross income as either alimony, separate maintenance payments, or similar payments from an estate or trust, are not treated as a payment for the support of a dependent. Irs form 1040a 2012 Special Rule for Qualifying Child of More Than One Person If your qualifying child is not a qualifying child of anyone else, this special rule does not apply to you and you do not need to read about it. Irs form 1040a 2012 This is also true if your qualifying child is not a qualifying child of anyone else except your spouse with whom you file a joint return. Irs form 1040a 2012 If a child is treated as the qualifying child of the noncustodial parent under the Special rule for divorced or separated parents (or parents who live apart), earlier, see Applying this special rule to divorced or separated parents (or parents who live apart), later. Irs form 1040a 2012 Sometimes, a child meets the relationship, age, residency, support, and joint return tests to be a qualifying child of more than one person. Irs form 1040a 2012 (For a description of these tests, see list items 1 through 5 under Tests To Be a Qualifying Child in Table 3). Irs form 1040a 2012 Although the child meets the conditions to be a qualifying child of each of these persons, only one person can actually use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). Irs form 1040a 2012 The exemption for the child. Irs form 1040a 2012 The child tax credit. Irs form 1040a 2012 Head of household filing status. Irs form 1040a 2012 The credit for child and dependent care expenses. Irs form 1040a 2012 The exclusion from income for dependent care benefits. Irs form 1040a 2012 The earned income credit. Irs form 1040a 2012 The other person cannot take any of these benefits based on this qualifying child. Irs form 1040a 2012 In other words, you and the other person cannot agree to divide these tax benefits between you. Irs form 1040a 2012 The other person cannot take any of these tax benefits unless he or she has a different qualifying child. Irs form 1040a 2012 Tiebreaker rules. Irs form 1040a 2012   To determine which person can treat the child as a qualifying child to claim these six tax benefits, the following tiebreaker rules apply. Irs form 1040a 2012 If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. Irs form 1040a 2012 If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. Irs form 1040a 2012 If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. Irs form 1040a 2012 If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. Irs form 1040a 2012 If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. Irs form 1040a 2012 If the child's parents file a joint return with each other, this rule can be applied by dividing the parents' total AGI evenly between them; see Publication 501 for details. Irs form 1040a 2012   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. Irs form 1040a 2012 Example 1—separated parents. Irs form 1040a 2012 You, your husband, and your 10-year-old son lived together until August 1, 2013, when your husband moved out of the household. Irs form 1040a 2012 In August and September, your son lived with you. Irs form 1040a 2012 For the rest of the year, your son lived with your husband, the boy's father. Irs form 1040a 2012 Your son is a qualifying child of both you and your husband because your son lived with each of you for more than half the year and because he met the relationship, age, support, and joint return tests for both of you. Irs form 1040a 2012 At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the special rule for divorced or separated parents (or parents who live apart) does not apply. Irs form 1040a 2012 You and your husband will file separate returns. Irs form 1040a 2012 Your husband agrees to let you treat your son as a qualifying child. Irs form 1040a 2012 This means, if your husband does not claim your son as a qualifying child, you can claim your son as a dependent and treat him as a qualifying child for the child tax credit and exclusion for dependent care benefits, if you qualify for each of those tax benefits. Irs form 1040a 2012 However, you cannot claim head of household filing status because you and your husband did not live apart the last 6 months of the year. Irs form 1040a 2012 And, as a result of your filing status being married filing separately, you cannot claim the earned income credit or the credit for child and dependent care expenses. Irs form 1040a 2012 Example 2—separated parents claim same child. Irs form 1040a 2012 The facts are the same as in Example 1 except that you and your husband both claim your son as a qualifying child. Irs form 1040a 2012 In this case, only your husband will be allowed to treat your son as a qualifying child. Irs form 1040a 2012 This is because, during 2013, the boy lived with him longer than with you. Irs form 1040a 2012 If you claimed an exemption, the child tax credit, or the exclusion for dependent care benefits for your son, the IRS will disallow your claim to all these tax benefits, unless you have another qualifying child. Irs form 1040a 2012 In addition, because you and your husband did not live apart the last 6 months of the year, your husband cannot claim head of household filing status. Irs form 1040a 2012 And, as a result of his filing status being married filing separately, he cannot claim the earned income credit or the credit for child and dependent care expenses. Irs form 1040a 2012 Applying this special rule to divorced or separated parents (or parents who live apart). Irs form 1040a 2012   If a child is treated as the qualifying child of the noncustodial parent under the special rule for divorced or separated parents (or parents who live apart) described earlier, only the noncustodial parent can claim an exemption and the child tax credit for the child. Irs form 1040a 2012 However, the noncustodial parent cannot claim the child as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, and the earned income credit. Irs form 1040a 2012 Only the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for those four tax benefits. Irs form 1040a 2012 If the child is the qualifying child of more than one person for those tax benefits, the tiebreaker rules determine which person can treat the child as a qualifying child. Irs form 1040a 2012 Example 1. Irs form 1040a 2012 You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. Irs form 1040a 2012 Your AGI is $10,000. Irs form 1040a 2012 Your mother's AGI is $25,000. Irs form 1040a 2012 Your son's father does not live with you or your son. Irs form 1040a 2012 Under the rules for children of divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child if he meets all the requirements to do so. Irs form 1040a 2012 Because of this, you cannot claim an exemption or the child tax credit for your son. Irs form 1040a 2012 However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the earned income credit. Irs form 1040a 2012 You and your mother did not have any child care expenses or dependent care benefits, but the boy is a qualifying child of both you and your mother for head of household filing status and the earned income credit because he meets the relationship, age, residency, support, and joint return tests for both you and your mother. Irs form 1040a 2012 (Note: The support test does not apply for the earned income credit. Irs form 1040a 2012 ) However, you agree to let your mother claim your son. Irs form 1040a 2012 This means she can claim him for head of household filing status and the earned income credit if she qualifies for each and if you do not claim him as a qualifying child for the earned income credit. Irs form 1040a 2012 (You cannot claim head of household filing status because your mother paid the entire cost of keeping up the home. Irs form 1040a 2012 ) Example 2. Irs form 1040a 2012 The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. Irs form 1040a 2012 Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. Irs form 1040a 2012 Example 3. Irs form 1040a 2012 The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the earned income credit. Irs form 1040a 2012 Your mother also claims him as a qualifying child for head of household filing status. Irs form 1040a 2012 You, as the child's parent, will be the only one allowed to claim your son as a qualifying child for the earned income credit. Irs form 1040a 2012 The IRS will disallow your mother's claim to the earned income credit and head of household filing status unless she has another qualifying child. Irs form 1040a 2012 Phaseout of Exemptions The amount you can claim as a deduction for exemptions is reduced once your adjusted gross income (AGI) goes above a certain level for your filing status. Irs form 1040a 2012 These levels are as follows:    Filing Status AGI Level That Reduces Exemption Amount Married filing separately $150,000 Single 250,000 Head of household 275,000 Married filing jointly 300,000 Qualifying widow(er) 300,000 You must reduce the dollar amount of your exemptions by 2% for each $2,500, or part of $2,500 ($1,250 if you are married filing separately), that your AGI exceeds the amount shown above for your filing status. Irs form 1040a 2012 If your AGI exceeds the amount shown above by more than $122,500 ($61,250 if married filing separately), the amount of your deduction for exemptions is reduced to zero. Irs form 1040a 2012 If your AGI exceeds the level for your filing status, use the Deduction for Exemptions Worksheet found in the instructions for Form 1040 or Form 1040NR to figure the amount of your deduction for exemptions. Irs form 1040a 2012 Alimony Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. Irs form 1040a 2012 It does not include voluntary payments that are not made under a divorce or separation instrument. Irs form 1040a 2012 Alimony is deductible by the payer and must be included in the spouse's or former spouse's income. Irs form 1040a 2012 Although this discussion is generally written for the payer of the alimony, the recipient can use the information to determine whether an amount received is alimony. Irs form 1040a 2012 To be alimony, a payment must meet certain requirements. Irs form 1040a 2012 There are some differences between the requirements that apply to payments under instruments executed after 1984 and to payments under instruments executed before 1985. Irs form 1040a 2012 The general requirements that apply to payments regardless of when the divorce or separation instrument was executed and the specific requirements that apply to post-1984 instruments (and, in certain cases, some pre-1985 instruments) are discussed in this publication. Irs form 1040a 2012 See, Instruments Executed Before 1985 , later, if you are looking for information on where to find the specific requirements that apply to pre-1985 instruments. Irs form 1040a 2012 Spouse or former spouse. Irs form 1040a 2012   Unless otherwise stated, the term “spouse” includes former spouse. Irs form 1040a 2012 Divorce or separation instrument. Irs form 1040a 2012   The term “divorce or separation instrument” means: A decree of divorce or separate maintenance or a written instrument incident to that decree, A written separation agreement, or A decree or any type of court order requiring a spouse to make payments for the support or maintenance of the other spouse. Irs form 1040a 2012 This includes a temporary decree, an interlocutory (not final) decree, and a decree of alimony pendente lite (while awaiting action on the final decree or agreement). Irs form 1040a 2012 Invalid decree. Irs form 1040a 2012   Payments under a divorce decree can be alimony even if the decree's validity is in question. Irs form 1040a 2012 A divorce decree is valid for tax purposes until a court having proper jurisdiction holds it invalid. Irs form 1040a 2012 Amended instrument. Irs form 1040a 2012   An amendment to a divorce decree may change the nature of your payments. Irs form 1040a 2012 Amendments are not ordinarily retroactive for federal tax purposes. Irs form 1040a 2012 However, a retroactive amendment to a divorce decree correcting a clerical error to reflect the original intent of the court will generally be effective retroactively for federal tax purposes. Irs form 1040a 2012 Example 1. Irs form 1040a 2012 A court order retroactively corrected a mathematical error under your divorce decree to express the original intent to spread the payments over more than 10 years. Irs form 1040a 2012 This change also is effective retroactively for federal tax purposes. Irs form 1040a 2012 Example 2. Irs form 1040a 2012 Your original divorce decree did not fix any part of the payment as child support. Irs form 1040a 2012 To reflect the true intention of the court, a court order retroactively corrected the error by designating a part of the payment as child support. Irs form 1040a 2012 The amended order is effective retroactively for federal tax purposes. Irs form 1040a 2012 Deducting alimony paid. Irs form 1040a 2012   You can deduct alimony you paid, whether or not you itemize deductions on your return. Irs form 1040a 2012 You must file Form 1040. Irs form 1040a 2012 You cannot use Form 1040A, 1040EZ, or 1040NR. Irs form 1040a 2012 Enter the amount of alimony you paid on Form 1040, line 31a. Irs form 1040a 2012 In the space provided on line 31b, enter your spouse's social security number (SSN) or IRS individual taxpayer identification number (ITIN). Irs form 1040a 2012 If you paid alimony to more than one person, enter the SSN or ITIN of one of the recipients. Irs form 1040a 2012 Show the SSN or ITIN and amount paid to each other recipient on an attached statement. Irs form 1040a 2012 Enter your total payments on line 31a. Irs form 1040a 2012 If you do not provide your spouse's SSN or ITIN, you may have to pay a $50 penalty and your deduction may be disallowed. Irs form 1040a 2012 Reporting alimony received. Irs form 1040a 2012   Report alimony you received as income on Form 1040, line 11, or on Schedule NEC (Form 1040NR), line 12. Irs form 1040a 2012 You cannot use Form 1040A, 1040EZ, or 1040NR-EZ. Irs form 1040a 2012    You must give the person who paid the alimony your SSN or ITIN. Irs form 1040a 2012 If you do not, you may have to pay a $50 penalty. Irs form 1040a 2012 Withholding on nonresident aliens. Irs form 1040a 2012   If you are a U. Irs form 1040a 2012 S. Irs form 1040a 2012 citizen or resident alien and you pay alimony to a nonresident alien spouse, you may have to withhold income tax at a rate of 30% on each payment. Irs form 1040a 2012 However, many tax treaties provide for an exemption from withholding for alimony payments. Irs form 1040a 2012 For more information, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. Irs form 1040a 2012 General Rules The following rules apply to alimony regardless of when the divorce or separation instrument was executed. Irs form 1040a 2012 Payments not alimony. Irs form 1040a 2012   Not all payments under a divorce or separation instrument are alimony. Irs form 1040a 2012 Alimony does not include: Child support, Noncash property settlements, Payments that are your spouse's part of community income, as explained later under Community Property , Payments to keep up the payer's property, or Use of the payer's property. Irs form 1040a 2012 Example. Irs form 1040a 2012 Under your written separation agreement, your spouse lives rent-free in a home you own and you must pay the mortgage, real estate taxes, insurance, repairs, and utilities for the home. Irs form 1040a 2012 Because you own the home and the debts are yours, your payments for the mortgage, real estate taxes, insurance, and repairs are not alimony. Irs form 1040a 2012 Neither is the value of your spouse's use of the home. Irs form 1040a 2012 If they otherwise qualify, you can deduct the payments for utilities as alimony. Irs form 1040a 2012 Your spouse must report them as income. Irs form 1040a 2012 If you itemize deductions, you can deduct the real estate taxes and, if the home is a qualified home, you can also include the interest on the mortgage in figuring your deductible interest. Irs form 1040a 2012 However, if your spouse owned the home, see Example 2 under Payments to a third party, later. Irs form 1040a 2012 If you owned the home jointly with your spouse, see Table 4. Irs form 1040a 2012 For more information on a qualified home and deductible mortgage interest, see Publication 936, Home Mortgage Interest Deduction. Irs form 1040a 2012 Child support. Irs form 1040a 2012   To determine whether a payment is child support, see the discussion under Instruments Executed After 1984 , later. Irs form 1040a 2012 If your divorce or separation agreement was executed before 1985, see the 2004 revision of Publication 504 available at www. Irs form 1040a 2012 irs. Irs form 1040a 2012 gov/formspubs. Irs form 1040a 2012 Underpayment. Irs form 1040a 2012   If both alimony and child support payments are called for by your divorce or separation instrument, and you pay less than the total required, the payments apply first to child support and then to alimony. Irs form 1040a 2012 Example. Irs form 1040a 2012 Your divorce decree calls for you to pay your former spouse $200 a month ($2,400 ($200 x 12) a year) as child support and $150 a month ($1,800 ($150 x 12) a year) as alimony. Irs form 1040a 2012 If you pay the full amount of $4,200 ($2,400 + $1,800) during the year, you can deduct $1,800 as alimony and your former spouse must report $1,800 as alimony received. Irs form 1040a 2012 If you pay only $3,600 during the year, $2,400 is child support. Irs form 1040a 2012 You can deduct only $1,200 ($3,600 – $2,400) as alimony and your former spouse must report $1,200 as alimony received. Irs form 1040a 2012 Payments to a third party. Irs form 1040a 2012   Cash payments, checks, or money orders to a third party on behalf of your spouse under the terms of your divorce or separation instrument can be alimony, if they otherwise qualify. Irs form 1040a 2012 These include payments for your spouse's medical expenses, housing costs (rent, utilities, etc. Irs form 1040a 2012 ), taxes, tuition, etc. Irs form 1040a 2012 The payments are treated as received by your spouse and then paid to the third party. Irs form 1040a 2012 Example 1. Irs form 1040a 2012 Under your divorce decree, you must pay your former spouse's medical and dental expenses. Irs form 1040a 2012 If the payments otherwise qualify, you can deduct them as alimony on your return. Irs form 1040a 2012 Your former spouse must report them as alimony received and can include them in figuring deductible medical expenses. Irs form 1040a 2012 Example 2. Irs form 1040a 2012 Under your separation agreement, you must pay the real estate taxes, mortgage payments, and insurance premiums on a home owned by your spouse. Irs form 1040a 2012 If they otherwise qualify, you can deduct the payments as alimony on your return, and your spouse must report them as alimony received. Irs form 1040a 2012 If itemizing deductions, your spouse can deduct the real estate taxes and, if the home is a qualified home, also include the interest on the mortgage in figuring deductible interest. Irs form 1040a 2012 However, if you owned the home, see the example under Payments not alimony , earlier. Irs form 1040a 2012 If you owned the home jointly with your spouse, see Table 4. Irs form 1040a 2012 Life insurance premiums. Irs form 1040a 2012   Alimony includes premiums you must pay under your divorce or separation instrument for insurance on your life to the extent your spouse owns the policy. Irs form 1040a 2012 Payments for jointly-owned home. Irs form 1040a 2012   If your divorce or separation instrument states that you must pay expenses for a home owned by you and your spouse or former spouse, some of your payments may be alimony. Irs form 1040a 2012 See Table 4. Irs form 1040a 2012   However, if your spouse owned the home, see Example 2 under Payments to a third party, earlier. Irs form 1040a 2012 If you owned the home, see the example under Payments not alimony , earlier. Irs form 1040a 2012 Table 4. Irs form 1040a 2012 Expenses for a Jointly-Owned Home Use the table below to find how much of your payment is alimony and how much you can claim as an itemized deduction. Irs form 1040a 2012 IF you must pay all of the . Irs form 1040a 2012 . Irs form 1040a 2012 . Irs form 1040a 2012 AND your home is . Irs form 1040a 2012 . Irs form 1040a 2012 . Irs form 1040a 2012 THEN you can deduct and your spouse (or former spouse) must include as alimony . Irs form 1040a 2012 . Irs form 1040a 2012 . Irs form 1040a 2012 AND you can claim as an itemized deduction . Irs form 1040a 2012 . Irs form 1040a 2012 . Irs form 1040a 2012   mortgage payments (principal and interest) jointly owned half of the total payments half of the interest as interest expense (if the home is a qualified home). Irs form 1040a 2012 1   real estate taxes and home insurance held as tenants in common half of the total payments half of the real estate taxes2 and none of the home insurance. Irs form 1040a 2012     held as tenants by the entirety or in joint tenancy none of the payments all of the real estate taxes and none of the home insurance. Irs form 1040a 2012 1 Your spouse (or former spouse) can deduct the other half of the interest if the home is a qualified home. Irs form 1040a 2012  2 Your spouse (or former spouse) can deduct the other half of the real estate taxes. Irs form 1040a 2012 Instruments Executed After 1984 The following rules for alimony apply to payments under divorce or separation instruments executed after 1984. Irs form 1040a 2012 Exception for instruments executed before 1985. Irs form 1040a 2012   There are two situations where the rules for instruments executed after 1984 apply to instruments executed before 1985. Irs form 1040a 2012 A divorce or separation instrument executed before 1985 and then modified after 1984 to specify that the after-1984 rules will apply. Irs form 1040a 2012 A temporary divorce or separation instrument executed before 1985 and incorporated into, or adopted by, a final decree executed after 1984 that: Changes the amount or period of payment, or Adds or deletes any contingency or condition. Irs form 1040a 2012   For the rules for alimony payments under pre-1985 instruments not meeting these exceptions, see the 2004 revision of Publication 504 available at www. Irs form 1040a 2012 irs. Irs form 1040a 2012 gov/formspubs. Irs form 1040a 2012 Example 1. Irs form 1040a 2012 In November 1984, you and your former spouse executed a written separation agreement. Irs form 1040a 2012 In February 1985, a decree of divorce was substituted for the written separation agreement. Irs form 1040a 2012 The decree of divorce did not change the terms for the alimony you pay your former spouse. Irs form 1040a 2012 The decree of divorce is treated as executed before 1985. Irs form 1040a 2012 Alimony payments under this decree are not subject to the rules for payments under instruments executed after 1984. Irs form 1040a 2012 Example 2. Irs form 1040a 2012 The facts are the same as in Example 1 except that the decree of divorce changed the amount of the alimony. Irs form 1040a 2012 In this example, the decree of divorce is not treated as executed before 1985. Irs form 1040a 2012 The alimony payments are subject to the rules for payments under instruments executed after 1984. Irs form 1040a 2012 Alimony Requirements A payment to or for a spouse under a divorce or separation instrument is alimony if the spouses do not file a joint return with each other and all the following requirements are met. Irs form 1040a 2012 The payment is in cash. Irs form 1040a 2012 The instrument does not designate the payment as not alimony. Irs form 1040a 2012 The spouses are not members of the same household at the time the payments are made. Irs form 1040a 2012 This requirement applies only if the spouses are legally separated under a decree of divorce or separate maintenance. Irs form 1040a 2012 There is no liability to make any payment (in cash or property) after the death of the recipient spouse. Irs form 1040a 2012 The payment is not treated as child support. Irs form 1040a 2012 Each of these requirements is discussed next. Irs form 1040a 2012 Cash payment requirement. Irs form 1040a 2012   Only cash payments, including checks and money orders, qualify as alimony. Irs form 1040a 2012 The following do not qualify as alimony. Irs form 1040a 2012 Transfers of services or property (including a debt instrument of a third party or an annuity contract). Irs form 1040a 2012 Execution of a debt instrument by the payer. Irs form 1040a 2012 The use of the payer's property. Irs form 1040a 2012 Payments to a third party. Irs form 1040a 2012   Cash payments to a third party under the terms of your divorce or separation instrument can qualify as cash payments to your spouse. Irs form 1040a 2012 See Payments to a third party under General Rules, earlier. Irs form 1040a 2012   Also, cash payments made to a third party at the written request of your spouse may qualify as alimony if all the following requirements are met. Irs form 1040a 2012 The payments are in lieu of payments of alimony directly to your spouse. Irs form 1040a 2012 The written request states that both spouses intend the payments to be treated as alimony. Irs form 1040a 2012 You receive the written request from your spouse before you file your return for the year you made the payments. Irs form 1040a 2012 Payments designated as not alimony. Irs form 1040a 2012   You and your spouse can designate that otherwise qualifying payments are not alimony. Irs form 1040a 2012 You do this by including a provision in your divorce or separation instrument that states the payments are not deductible as alimony by you and are excludable from your spouse's income. Irs form 1040a 2012 For this purpose, any instrument (written statement) signed by both of you that makes this designation and that refers to a previous written separation agreement is treated as a written separation agreement (and therefore a divorce or separation instrument). Irs form 1040a 2012 If you are subject to temporary support orders, the designation must be made in the original or a later temporary support order. Irs form 1040a 2012   Your spouse can exclude the payments from income only if he or she attaches a copy of the instrument designating them as not alimony to his or her return. Irs form 1040a 2012 The copy must be attached each year the designation applies. Irs form 1040a 2012 Spouses cannot be members of the same household. Irs form 1040a 2012   Payments to your spouse while you are members of the same household are not alimony if you are legally separated under a decree of divorce or separate maintenance. Irs form 1040a 2012 A home you formerly shared is considered one household, even if you physically separate yourselves in the home. Irs form 1040a 2012   You are not treated as members of the same household if one of you is preparing to leave the household and does leave no later than 1 month after the date of the payment. Irs form 1040a 2012 Exception. Irs form 1040a 2012   If you are not legally separated under a decree of divorce or separate maintenance, a payment under a written separation agreement, support decree, or other court order may qualify as alimony even if you are members of the same household when the payment is made. Irs form 1040a 2012 Liability for payments after death of recipient spouse. Irs form 1040a 2012   If any part of payments you make must continue to be made for any period after your spouse's death, that part of your payments is not alimony whether made before or after the death. Irs form 1040a 2012 If all of the payments would continue, then none of the payments made before or after the death are alimony. Irs form 1040a 2012   The divorce or separation instrument does not have to expressly state that the payments cease upon the