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Irs Form 1040ez 2010

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Irs Form 1040ez 2010

Irs form 1040ez 2010 35. Irs form 1040ez 2010   Education Credits Table of Contents Introduction Useful Items - You may want to see: Who Can Claim an Education Credit Qualified Education ExpensesNo Double Benefit Allowed Adjustments to Qualified Education Expenses Introduction For 2013, there are two tax credits available to persons who pay expenses for higher (postsecondary) education. Irs form 1040ez 2010 They are: The American opportunity credit, and The lifetime learning credit. Irs form 1040ez 2010 The chapter will present an overview of these education credits. Irs form 1040ez 2010 To get the detailed information you will need to claim either of the credits, and for examples illustrating that information, see chapters 2 and 3 of Publication 970. Irs form 1040ez 2010 Can you claim more than one education credit this year?   For each student, you can choose for any year only one of the credits. Irs form 1040ez 2010 For example, if you choose to take the American opportunity credit for a child on your 2013 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2013. Irs form 1040ez 2010   If you are eligible to claim the American opportunity credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both. Irs form 1040ez 2010   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity and the lifetime learning credits on a per-student, per-year basis. Irs form 1040ez 2010 This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Irs form 1040ez 2010 Table 35-1. Irs form 1040ez 2010 Comparison of Education Credits Caution. Irs form 1040ez 2010 You can claim both the American opportunity credit and the lifetime learning credit on the same return—but not for the same student. Irs form 1040ez 2010   American Opportunity Credit Lifetime Learning Credit Maximum credit Up to $2,500 credit per eligible student Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly;  $90,000 if single, head of household, or qualifying widow(er) $127,000 if married filing jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable Credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) the Hope credit was claimed) Available for an unlimited number of years Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period beginning during the tax year Available for one or more courses Felony drug conviction At the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Felony drug convictions do not make the student ineligible Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Differences between the American opportunity and lifetime learning credits. Irs form 1040ez 2010   There are several differences between these two credits. Irs form 1040ez 2010 These differences are summarized in Table 35-1, later. Irs form 1040ez 2010 Useful Items - You may want to see: Publication 970 Tax Benefits for Education Form (and Instructions) 8863 Education Credits (American Opportunity and Lifetime Learning Credits) Who Can Claim an Education Credit You may be able to claim an education credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. Irs form 1040ez 2010 The credits are based on the amount of qualified education expenses paid for the student in 2013 for academic periods beginning in 2013 and in the first 3 months of 2014. Irs form 1040ez 2010 For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 education credit(s). Irs form 1040ez 2010 Academic period. Irs form 1040ez 2010   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Irs form 1040ez 2010 In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Irs form 1040ez 2010 Eligible educational institution. Irs form 1040ez 2010   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Irs form 1040ez 2010 S. Irs form 1040ez 2010 Department of Education. Irs form 1040ez 2010 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Irs form 1040ez 2010 The educational institution should be able to tell you if it is an eligible educational institution. Irs form 1040ez 2010   Certain educational institutions located outside the United States also participate in the U. Irs form 1040ez 2010 S. Irs form 1040ez 2010 Department of Education's Federal Student Aid (FSA) programs. Irs form 1040ez 2010 Who can claim a dependent's expenses. Irs form 1040ez 2010   If an exemption is allowed as a deduction for any person who claims the student as a dependent, all qualified education expenses of the student are treated as having been paid by that person. Irs form 1040ez 2010 Therefore, only that person can claim an education credit for the student. Irs form 1040ez 2010 If a student is not claimed as a dependent on another person's tax return, only the student can claim a credit. Irs form 1040ez 2010 Expenses paid by a third party. Irs form 1040ez 2010   Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. Irs form 1040ez 2010 However, qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Irs form 1040ez 2010 Therefore, you are treated as having paid expenses that were paid by the third party. Irs form 1040ez 2010 For more information and an example see Who Can Claim a Dependent's Expenses in Pub. Irs form 1040ez 2010 970, chapter 2 or 3. Irs form 1040ez 2010 Who cannot claim a credit. Irs form 1040ez 2010   You cannot take an education credit if any of the following apply. Irs form 1040ez 2010 You are claimed as a dependent on another person's tax return, such as your parent's return. Irs form 1040ez 2010 Your filing status is married filing separately. Irs form 1040ez 2010 You (or your spouse) were a nonresident alien for any part of 2013 and did not elect to be treated as a resident alien for tax purposes. Irs form 1040ez 2010 Your MAGI is one of the following. Irs form 1040ez 2010 American opportunity credit: $180,000 or more if married filing jointly, or $90,000 or more if single, head of household, or qualifying widow(er). Irs form 1040ez 2010 Lifetime learning credit: $127,000 or more if married filing jointly, or $63,000 or more if single, head of household, or qualifying widow(er) . Irs form 1040ez 2010   Generally, your MAGI is the amount on your Form 1040, line 38, or Form 1040A, line 22. Irs form 1040ez 2010 However, if you are filing Form 2555, Form 2555–EZ, or Form 4563, or are excluding income from Puerto RIco, add to the amount on your Form 1040, line 38, or Form 1040A, line 22, the amount of income you excluded. Irs form 1040ez 2010 For details, see Pub. Irs form 1040ez 2010 970. Irs form 1040ez 2010    Figure 35-A may be helpful in determining if you can claim an education credit on your tax return. Irs form 1040ez 2010 The American opportunity credit will always be greater than or equal to the lifetime learning credit for any student who is eligible for both credits. Irs form 1040ez 2010 However, if any of the conditions for the American opportunity credit, listed in Table 35-1 earlier, are not met for any student, you cannot take the American opportunity credit for that student. Irs form 1040ez 2010 You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. Irs form 1040ez 2010 See Pub. Irs form 1040ez 2010 970 for information on other education benefits. Irs form 1040ez 2010 Qualified Education Expenses Generally, qualified education expenses are amounts paid in 2013 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution. Irs form 1040ez 2010 It does not matter whether the expenses were paid in cash, by check, by credit or debit card, or with borrowed funds. Irs form 1040ez 2010 For course-related books, supplies, and equipment, only certain expenses qualify. Irs form 1040ez 2010 American opportunity credit: Qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. Irs form 1040ez 2010 Lifetime learning credit: Qualified education expenses include amounts for books, supplies, and equipment only if required to be paid to the institution as a condition of enrollment or attendance. Irs form 1040ez 2010 Qualified education expenses include nonacademic fees, such as student activity fees, athletic fees, or other expenses unrelated to the academic course of instruction, only if the fee must be paid to the institution as a condition of enrollment or attendance. Irs form 1040ez 2010 However, fees for personal expenses (described below) are never qualified education expenses. Irs form 1040ez 2010 Qualified education expenses for either credit do not include amounts paid for: Personal expenses. Irs form 1040ez 2010 This means room and board, insurance, medical expenses (including student health fees), transportation, and other similar personal, living, or family expenses. Irs form 1040ez 2010 Any course or other education involving sports, games, or hobbies, or any noncredit course, unless such course or other education is part of the student's degree program or (for the lifetime learning credit only) helps the student acquire or improve job skills. Irs form 1040ez 2010 You should receive Form 1098–T, Tuition Statement, from the institution reporting either payments received in 2013 (box 1) or amounts billed in 2013 (box 2). Irs form 1040ez 2010 However, the amount in box 1 or 2 of Form 1098–T may be different from the amount you paid (or are treated as having paid). Irs form 1040ez 2010 In completing Form 8863, use only the amounts you actually paid (plus any amounts you are treated as having paid) in 2013, reduced as necessary, as described in Adjustments to Qualified Education Expenses , later. Irs form 1040ez 2010 Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. Irs form 1040ez 2010 Qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Irs form 1040ez 2010 If you or the student takes a deduction for higher education expenses, such as on Schedule A or C (Form 1040), you cannot use those expenses in your qualified education expenses when figuring your education credits. Irs form 1040ez 2010 Qualified education expenses for any academic period must be reduced by any tax-free educational assistance allocable to that academic period. Irs form 1040ez 2010 See Adjustments to Qualified Education Expenses, later. Irs form 1040ez 2010 Prepaid Expenses. Irs form 1040ez 2010   Qualified education expenses paid in 2013 for an academic period that begins in the first 3 months of 2014 can be used in figuring an education credit for 2013 only. Irs form 1040ez 2010 See Academic period , earlier. Irs form 1040ez 2010 For example, if you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Irs form 1040ez 2010    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Irs form 1040ez 2010 Paid with borrowed funds. Irs form 1040ez 2010   You can claim an education credit for qualified education expenses paid with the proceeds of a loan. Irs form 1040ez 2010 Use the expenses to figure the credit for the year in which the expenses are paid, not the year in which the loan is repaid. Irs form 1040ez 2010 Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. Irs form 1040ez 2010 Student withdraws from class(es). Irs form 1040ez 2010   You can claim an education credit for qualified education expenses not refunded when a student withdraws. Irs form 1040ez 2010 No Double Benefit Allowed You cannot do any of the following. Irs form 1040ez 2010 Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an education credit based on those same expenses. Irs form 1040ez 2010 Claim more than one education credit based on the same qualified education expenses. Irs form 1040ez 2010 Claim an education credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). Irs form 1040ez 2010 Claim an education credit based on qualified education expenses paid with educational assistance, such as a tax-free scholarship, grant, or employer-provided educational assistance. Irs form 1040ez 2010 See Adjustments to Qualified Education Expenses, next. Irs form 1040ez 2010 Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid in 2013 by or on behalf of that student under the following rules. Irs form 1040ez 2010 The result is the amount of adjusted qualified education expenses for each student. Irs form 1040ez 2010 Tax-free educational assistance. Irs form 1040ez 2010   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Irs form 1040ez 2010 See Academic period , earlier. Irs form 1040ez 2010      Tax-free educational assistance includes:    Tax-free parts of scholarships and fellowships (see chapter 12 of this publication and chapter 1 of Pub. Irs form 1040ez 2010 970), The tax-free part of Pell grants (see chapter 1 of Pub. Irs form 1040ez 2010 970), The tax-free part of employer-provided educational assistance (see Pub. Irs form 1040ez 2010 970), Veterans' educational assistance (see chapter 1 of Pub. Irs form 1040ez 2010 970), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Irs form 1040ez 2010 Generally, any scholarship or fellowship is treated as tax-free educational assistance. Irs form 1040ez 2010 However, a scholarship or fellowship is not treated as tax-free educational assistance to the extent the student includes it in gross income (if the student is required to file a tax return) for the year the scholarship or fellowship is received and either: The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. Irs form 1040ez 2010 970, chapter 1; or The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. Irs form 1040ez 2010 970, chapter 1. Irs form 1040ez 2010 You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year received. Irs form 1040ez 2010 For details, see Adjustments of Qualified Education Expenses, in chapters 2 and 3 of Pub. Irs form 1040ez 2010 970. Irs form 1040ez 2010 Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Irs form 1040ez 2010 This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Irs form 1040ez 2010 If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. Irs form 1040ez 2010 If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. Irs form 1040ez 2010 Refunds. Irs form 1040ez 2010   A refund of qualified education expenses may reduce qualified education expenses for the tax year or may require you to repay (recapture) the credit that you claimed in an earlier year. Irs form 1040ez 2010 Some tax-free educational assistance received after 2013 may be treated as a refund. Irs form 1040ez 2010 See Tax-free educational assistance, earlier. Irs form 1040ez 2010 Refunds received in 2013. Irs form 1040ez 2010   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses paid in 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Irs form 1040ez 2010 Refunds received after 2013 but before your income tax return is filed. Irs form 1040ez 2010   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received before you file your 2013 income tax return, reduce the amount of qualified education expenses for 2013 by the amount of the refund. Irs form 1040ez 2010 Refunds received after 2013 and after your income tax return is filed. Irs form 1040ez 2010   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received after you file your 2013 income tax return, you may need to repay some or all of the credit that you claimed. Irs form 1040ez 2010 See Credit recapture, next. Irs form 1040ez 2010 Credit recapture. Irs form 1040ez 2010    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Irs form 1040ez 2010 You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Irs form 1040ez 2010 You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). Irs form 1040ez 2010 Include that amount as an additional tax for the year the refund or tax-free assistance was received. Irs form 1040ez 2010 Example. Irs form 1040ez 2010    You paid $8,000 tuition and fees in December 2013 for your child's Spring semester beginning in January 2014. Irs form 1040ez 2010 You filed your 2013 tax return on February 3, 2014, and claimed a lifetime learning credit of $1,600 ($8,000 qualified education expense paid x . Irs form 1040ez 2010 20). Irs form 1040ez 2010 You claimed no other tax credits. Irs form 1040ez 2010 After you filed your return, your child withdrew from two courses and you received a refund of $1,400. Irs form 1040ez 2010 You must refigure your 2013 lifetime learning credit using $6,600 ($8,000 qualified education expenses − $1,400 refund). Irs form 1040ez 2010 The refigured credit is $1,320 and your tax liability increased by $280. Irs form 1040ez 2010 You must include the difference of $280 ($1,600 credit originally claimed − $1,320 refigured credit) as additional tax on your 2014 income tax return. Irs form 1040ez 2010 See the instructions for your 2014 income tax return to determine where to include this tax. Irs form 1040ez 2010 If you also pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Irs form 1040ez 2010 Amounts that do not reduce qualified education expenses. Irs form 1040ez 2010   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Irs form 1040ez 2010   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Irs form 1040ez 2010 The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Chapter 1 of Pub. Irs form 1040ez 2010 970. Irs form 1040ez 2010 The use of the money is not restricted. Irs form 1040ez 2010   For examples, see chapter 2 in Pub. Irs form 1040ez 2010 970. Irs form 1040ez 2010 Figure 35-A. Irs form 1040ez 2010 Can You Claim an Education Credit for 2013? This image is too large to be displayed in the current screen. Irs form 1040ez 2010 Please click the link to view the image. Irs form 1040ez 2010 Figure 35-A. Irs form 1040ez 2010 Can You Claim an Education Credit for 2013? Prev  Up  Next   Home   More Online Publications
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The Irs Form 1040ez 2010

Irs form 1040ez 2010 8. Irs form 1040ez 2010   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 1040ez 2010 Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. Irs form 1040ez 2010 This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. Irs form 1040ez 2010 A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Irs form 1040ez 2010 An exchange is a transfer of property for other property or services. Irs form 1040ez 2010 Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. Irs form 1040ez 2010 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 1040ez 2010 If the adjusted basis of the property is more than the amount you realize, you will have a loss. Irs form 1040ez 2010 Basis and adjusted basis. Irs form 1040ez 2010   The basis of property you buy is usually its cost. Irs form 1040ez 2010 The adjusted basis of property is basis plus certain additions and minus certain deductions. Irs form 1040ez 2010 See chapter 6 for more information about basis and adjusted basis. Irs form 1040ez 2010 Amount realized. Irs form 1040ez 2010   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 1040ez 2010 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 1040ez 2010   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. Irs form 1040ez 2010 Amount recognized. Irs form 1040ez 2010   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 1040ez 2010 A recognized gain is a gain you must include in gross income and report on your income tax return. Irs form 1040ez 2010 A recognized loss is a loss you deduct from gross income. Irs form 1040ez 2010 However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. Irs form 1040ez 2010 See Like-Kind Exchanges next. Irs form 1040ez 2010 Also, a loss from the disposition of property held for personal use is not deductible. Irs form 1040ez 2010 Like-Kind Exchanges Certain exchanges of property are not taxable. Irs form 1040ez 2010 This means any gain from the exchange is not recognized, and any loss cannot be deducted. Irs form 1040ez 2010 Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Irs form 1040ez 2010 The exchange of property for the same kind of property is the most common type of nontaxable exchange. Irs form 1040ez 2010 To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. Irs form 1040ez 2010 Qualifying property. Irs form 1040ez 2010 Like-kind property. Irs form 1040ez 2010 These two requirements are discussed later. Irs form 1040ez 2010 Multiple-party transactions. Irs form 1040ez 2010   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. Irs form 1040ez 2010 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 1040ez 2010 Receipt of title from third party. Irs form 1040ez 2010   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 1040ez 2010 Basis of property received. Irs form 1040ez 2010   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 1040ez 2010 See chapter 6 for more information. Irs form 1040ez 2010 Money paid. Irs form 1040ez 2010   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 1040ez 2010 The basis of the property received is the basis of the property given up, increased by the money paid. Irs form 1040ez 2010 Example. Irs form 1040ez 2010 You traded an old tractor with an adjusted basis of $15,000 for a new one. Irs form 1040ez 2010 The new tractor costs $300,000. Irs form 1040ez 2010 You were allowed $80,000 for the old tractor and paid $220,000 cash. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 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 1040ez 2010 Reporting the exchange. Irs form 1040ez 2010   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. Irs form 1040ez 2010 The Instructions for Form 8824 explain how to report the details of the exchange. Irs form 1040ez 2010   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 1040ez 2010 You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. Irs form 1040ez 2010 See chapter 9 for more information. Irs form 1040ez 2010 Qualifying property. Irs form 1040ez 2010   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 1040ez 2010 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 1040ez 2010 Nonqualifying property. Irs form 1040ez 2010   The rules for like-kind exchanges do not apply to exchanges of the following property. Irs form 1040ez 2010 Property you use for personal purposes, such as your home and family car. Irs form 1040ez 2010 Stock in trade or other property held primarily for sale, such as crops and produce. Irs form 1040ez 2010 Stocks, bonds, or notes. Irs form 1040ez 2010 However, see Qualifying property above. Irs form 1040ez 2010 Other securities or evidences of indebtedness, such as accounts receivable. Irs form 1040ez 2010 Partnership interests. Irs form 1040ez 2010 However, you may have a nontaxable exchange under other rules. Irs form 1040ez 2010 See Other Nontaxable Exchanges in chapter 1 of Publication 544. Irs form 1040ez 2010 Like-kind property. Irs form 1040ez 2010   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. Irs form 1040ez 2010 Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Irs form 1040ez 2010 Generally, real property exchanged for real property qualifies as an exchange of like-kind property. Irs form 1040ez 2010 For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. Irs form 1040ez 2010   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 1040ez 2010 An exchange of a tractor for acreage, however, is not an exchange of like-kind property. Irs form 1040ez 2010 The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. Irs form 1040ez 2010 For example, the exchange of a bull for a cow is not a like-kind exchange. Irs form 1040ez 2010 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 1040ez 2010    Note. Irs form 1040ez 2010 Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. Irs form 1040ez 2010 Personal property. Irs form 1040ez 2010   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. Irs form 1040ez 2010 Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. Irs form 1040ez 2010 Property classified in any General Asset Class may not be classified within a Product Class. Irs form 1040ez 2010 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 1040ez 2010 General Asset Classes. Irs form 1040ez 2010   General Asset Classes describe the types of property frequently used in many businesses. Irs form 1040ez 2010 They include, but are not limited to, the following property. Irs form 1040ez 2010 Office furniture, fixtures, and equipment (asset class 00. Irs form 1040ez 2010 11). Irs form 1040ez 2010 Information systems, such as computers and peripheral equipment (asset class 00. Irs form 1040ez 2010 12). Irs form 1040ez 2010 Data handling equipment except computers (asset class 00. Irs form 1040ez 2010 13). Irs form 1040ez 2010 Automobiles and taxis (asset class 00. Irs form 1040ez 2010 22). Irs form 1040ez 2010 Light general purpose trucks (asset class 00. Irs form 1040ez 2010 241). Irs form 1040ez 2010 Heavy general purpose trucks (asset class 00. Irs form 1040ez 2010 242). Irs form 1040ez 2010 Tractor units for use over-the-road (asset class 00. Irs form 1040ez 2010 26). Irs form 1040ez 2010 Trailers and trailer-mounted containers (asset class 00. Irs form 1040ez 2010 27). Irs form 1040ez 2010 Industrial steam and electric generation and/or distribution systems (asset class 00. Irs form 1040ez 2010 4). Irs form 1040ez 2010 Product Classes. Irs form 1040ez 2010   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 1040ez 2010 The latest version of the manual can be accessed at www. Irs form 1040ez 2010 census. Irs form 1040ez 2010 gov/eos/www/naics/. Irs form 1040ez 2010 Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. Irs form 1040ez 2010 ntis. Irs form 1040ez 2010 gov/products/naics. Irs form 1040ez 2010 aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. Irs form 1040ez 2010 A CD-ROM version with search and retrieval software is also available from NTIS. Irs form 1040ez 2010    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. Irs form 1040ez 2010 Partially nontaxable exchange. Irs form 1040ez 2010   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 1040ez 2010 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 1040ez 2010 A loss is not deductible. Irs form 1040ez 2010 Example 1. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 However, only $10,000, the cash received, is recognized (included in income). Irs form 1040ez 2010 Example 2. Irs form 1040ez 2010 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 1040ez 2010 Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). Irs form 1040ez 2010 Example 3. Irs form 1040ez 2010 Assume in Example 1 that the FMV of the land you received was only $15,000. Irs form 1040ez 2010 Your $5,000 loss is not recognized. Irs form 1040ez 2010 Unlike property given up. Irs form 1040ez 2010   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 1040ez 2010 The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. Irs form 1040ez 2010 Like-kind exchanges between related persons. Irs form 1040ez 2010   Special rules apply to like-kind exchanges between related persons. Irs form 1040ez 2010 These rules affect both direct and indirect exchanges. Irs form 1040ez 2010 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 1040ez 2010 The gain or loss on the original exchange must be recognized as of the date of the later disposition. Irs form 1040ez 2010 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 1040ez 2010 Related persons. Irs form 1040ez 2010   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. Irs form 1040ez 2010 ), 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 1040ez 2010   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. Irs form 1040ez 2010 Example. Irs form 1040ez 2010 You used a grey pickup truck in your farming business. Irs form 1040ez 2010 Your sister used a red pickup truck in her landscaping business. Irs form 1040ez 2010 In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. Irs form 1040ez 2010 At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. Irs form 1040ez 2010 The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 However, because this was a like-kind exchange, you recognized no gain. Irs form 1040ez 2010 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 1040ez 2010 She recognized gain only to the extent of the money she received, $200. Irs form 1040ez 2010 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 1040ez 2010 In 2013, you sold the red pickup truck to a third party for $7,000. Irs form 1040ez 2010 Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Irs form 1040ez 2010 On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 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 1040ez 2010 Exceptions to the rules for related persons. Irs form 1040ez 2010   The following property dispositions are excluded from these rules. Irs form 1040ez 2010 Dispositions due to the death of either related person. Irs form 1040ez 2010 Involuntary conversions. Irs form 1040ez 2010 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 1040ez 2010 Multiple property exchanges. Irs form 1040ez 2010   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 1040ez 2010 However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. Irs form 1040ez 2010 Transfer and receive properties in two or more exchange groups. Irs form 1040ez 2010 Transfer or receive more than one property within a single exchange group. Irs form 1040ez 2010   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. Irs form 1040ez 2010 Deferred exchange. Irs form 1040ez 2010   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. Irs form 1040ez 2010 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 1040ez 2010 The property you receive is replacement property. Irs form 1040ez 2010 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 1040ez 2010 In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. Irs form 1040ez 2010   For more information see Deferred Exchanges in chapter 1 of Publication 544. Irs form 1040ez 2010 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 1040ez 2010 This rule does not apply if the recipient is a nonresident alien. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Irs form 1040ez 2010 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 1040ez 2010 This rule applies for determining loss as well as gain. Irs form 1040ez 2010 Any gain recognized on a transfer in trust increases the basis. Irs form 1040ez 2010 For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. Irs form 1040ez 2010 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 1040ez 2010 You may also have a capital gain if your section 1231 transactions result in a net gain. Irs form 1040ez 2010 See Section 1231 Gains and Losses in  chapter 9. Irs form 1040ez 2010 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 1040ez 2010 Your net capital gains may be taxed at a lower tax rate than ordinary income. Irs form 1040ez 2010 See Capital Gains Tax Rates , later. Irs form 1040ez 2010 Your deduction for a net capital loss may be limited. Irs form 1040ez 2010 See Treatment of Capital Losses , later. Irs form 1040ez 2010 Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. Irs form 1040ez 2010 The following items are examples of capital assets. Irs form 1040ez 2010 A home owned and occupied by you and your family. Irs form 1040ez 2010 Household furnishings. Irs form 1040ez 2010 A car used for pleasure. Irs form 1040ez 2010 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 1040ez 2010 Stocks and bonds. Irs form 1040ez 2010 However, there are special rules for gains on qualified small business stock. Irs form 1040ez 2010 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 1040ez 2010 Personal-use property. Irs form 1040ez 2010   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. Irs form 1040ez 2010 Loss from the sale or exchange of personal-use property is not deductible. Irs form 1040ez 2010 You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Irs form 1040ez 2010 For information on casualties and thefts, see chapter 11. Irs form 1040ez 2010 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 1040ez 2010 The time you own an asset before disposing of it is the holding period. Irs form 1040ez 2010 If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. Irs form 1040ez 2010 Report it in Part I of Schedule D (Form 1040). Irs form 1040ez 2010 If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. Irs form 1040ez 2010 Report it in Part II of Schedule D (Form 1040). Irs form 1040ez 2010 Holding period. Irs form 1040ez 2010   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. Irs form 1040ez 2010 The day you disposed of the property is part of your holding period. Irs form 1040ez 2010 Example. Irs form 1040ez 2010 If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Irs form 1040ez 2010 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 1040ez 2010 Inherited property. Irs form 1040ez 2010   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 1040ez 2010 This rule does not apply to livestock used in a farm business. Irs form 1040ez 2010 See Holding period under Livestock , later. Irs form 1040ez 2010 Nonbusiness bad debt. Irs form 1040ez 2010   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. Irs form 1040ez 2010 See chapter 4 of Publication 550. Irs form 1040ez 2010 Nontaxable exchange. Irs form 1040ez 2010   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 1040ez 2010 That is, it begins on the same day as your holding period for the old property. Irs form 1040ez 2010 Gift. Irs form 1040ez 2010   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 1040ez 2010 Real property. Irs form 1040ez 2010   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 1040ez 2010   However, taking possession of real property under an option agreement is not enough to start the holding period. Irs form 1040ez 2010 The holding period cannot start until there is an actual contract of sale. Irs form 1040ez 2010 The holding period of the seller cannot end before that time. Irs form 1040ez 2010 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 1040ez 2010 Net short-term capital gain or loss. Irs form 1040ez 2010   Combine your short-term capital gains and losses. Irs form 1040ez 2010 Do this by adding all of your short-term capital gains. Irs form 1040ez 2010 Then add all of your short-term capital losses. Irs form 1040ez 2010 Subtract the lesser total from the greater. Irs form 1040ez 2010 The difference is your net short-term capital gain or loss. Irs form 1040ez 2010 Net long-term capital gain or loss. Irs form 1040ez 2010   Follow the same steps to combine your long-term capital gains and losses. Irs form 1040ez 2010 The result is your net long-term capital gain or loss. Irs form 1040ez 2010 Net gain. Irs form 1040ez 2010   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Irs form 1040ez 2010 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 1040ez 2010 See Capital Gains Tax Rates , later. Irs form 1040ez 2010 Net loss. Irs form 1040ez 2010   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Irs form 1040ez 2010 But there are limits on how much loss you can deduct and when you can deduct it. Irs form 1040ez 2010 See Treatment of Capital Losses next. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 If your other income is low, you may not be able to use the full $3,000. Irs form 1040ez 2010 The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). Irs form 1040ez 2010 Capital loss carryover. Irs form 1040ez 2010   Generally, you have a capital loss carryover if either of the following situations applies to you. Irs form 1040ez 2010 Your net loss on Schedule D (Form 1040), is more than the yearly limit. Irs form 1040ez 2010 Your taxable income without your deduction for exemptions is less than zero. Irs form 1040ez 2010 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 1040ez 2010    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 1040ez 2010 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 1040ez 2010 These lower rates are called the maximum capital gains rates. Irs form 1040ez 2010 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 1040ez 2010 See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). Irs form 1040ez 2010 Also see Publication 550. Irs form 1040ez 2010 Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. Irs form 1040ez 2010 A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). Irs form 1040ez 2010 Property held for sale in the ordinary course of your farm business. Irs form 1040ez 2010   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. Irs form 1040ez 2010 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 1040ez 2010 The treatment of this property is discussed in chapter 3. Irs form 1040ez 2010 Land and depreciable properties. Irs form 1040ez 2010   Land and depreciable property you use in farming are not capital assets. Irs form 1040ez 2010 Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. Irs form 1040ez 2010 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 1040ez 2010 The sales of these business assets are reported on Form 4797. Irs form 1040ez 2010 See chapter 9 for more information. Irs form 1040ez 2010 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 1040ez 2010 Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 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 1040ez 2010 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 1040ez 2010 Hedging transactions. Irs form 1040ez 2010 Transactions that are not hedging transactions. Irs form 1040ez 2010 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 1040ez 2010 There is a limit on the amount of capital losses you can deduct each year. Irs form 1040ez 2010 Hedging transactions are not subject to the mark-to-market rules. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 The gain or loss on the termination of these hedges is generally ordinary gain or loss. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 Examples include fuel and feed. Irs form 1040ez 2010 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 1040ez 2010 Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. Irs form 1040ez 2010 It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. Irs form 1040ez 2010 Retain the identification of each hedging transaction with your books and records. Irs form 1040ez 2010 Also, identify the item(s) or aggregate risk that is being hedged in your records. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 Accounting methods for hedging transactions. Irs form 1040ez 2010   The accounting method you use for a hedging transaction must clearly reflect income. Irs form 1040ez 2010 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 1040ez 2010 There are requirements and limits on the method you can use for certain hedging transactions. Irs form 1040ez 2010 See Regulations section 1. Irs form 1040ez 2010 446-4(e) for those requirements and limits. Irs form 1040ez 2010   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 1040ez 2010 Cash method. Irs form 1040ez 2010 Farm-price method. Irs form 1040ez 2010 Unit-livestock-price method. Irs form 1040ez 2010   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. Irs form 1040ez 2010   Your books and records must describe the accounting method used for each type of hedging transaction. Irs form 1040ez 2010 They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. Irs form 1040ez 2010 You must make the additional identification no more than 35 days after entering into the hedging transaction. Irs form 1040ez 2010 Example of a hedging transaction. Irs form 1040ez 2010   You file your income tax returns on the cash method. Irs form 1040ez 2010 On July 2 you anticipate a yield of 50,000 bushels of corn this year. Irs form 1040ez 2010 The December futures price is $5. Irs form 1040ez 2010 75 a bushel, but there are indications that by harvest time the price will drop. Irs form 1040ez 2010 To protect yourself against a drop in the price, you enter into the following hedging transaction. Irs form 1040ez 2010 You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. Irs form 1040ez 2010 75 a bushel. Irs form 1040ez 2010   The price did not drop as anticipated but rose to $6 a bushel. Irs form 1040ez 2010 In November, you sell your crop at a local elevator for $6 a bushel. Irs form 1040ez 2010 You also close out your futures position by buying ten December contracts for $6 a bushel. Irs form 1040ez 2010 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 1040ez 2010   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. Irs form 1040ez 2010 Your loss on the hedge is 25 cents a bushel. Irs form 1040ez 2010 In effect, the net selling price of your corn is $5. Irs form 1040ez 2010 75 a bushel. Irs form 1040ez 2010   Report the results of your futures transactions and your sale of corn separately on Schedule F. Irs form 1040ez 2010 See the instructions for the 2013 Schedule F (Form 1040). Irs form 1040ez 2010   The loss on your futures transactions is $13,900, figured as follows. Irs form 1040ez 2010 July 2 - Sold December corn futures (50,000 bu. Irs form 1040ez 2010 @$5. Irs form 1040ez 2010 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Irs form 1040ez 2010 @$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 1040ez 2010   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. Irs form 1040ez 2010 × $6). Irs form 1040ez 2010 Report it on Schedule F, Part I, line 2, as income from sales of products you raised. Irs form 1040ez 2010   Assume you were right and the price went down 25 cents a bushel. Irs form 1040ez 2010 In effect, you would still net $5. Irs form 1040ez 2010 75 a bushel, figured as follows. Irs form 1040ez 2010 Sold cash corn, per bushel $5. Irs form 1040ez 2010 50 Gain on hedge, per bushel . Irs form 1040ez 2010 25 Net price, per bushel $5. Irs form 1040ez 2010 75       The gain on your futures transactions would have been $11,100, figured as follows. Irs form 1040ez 2010 July 2 - Sold December corn futures (50,000 bu. Irs form 1040ez 2010 @$5. Irs form 1040ez 2010 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Irs form 1040ez 2010 @$5. Irs form 1040ez 2010 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 1040ez 2010   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 1040ez 2010 Livestock This part discusses the sale or exchange of livestock used in your farm business. Irs form 1040ez 2010 Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. Irs form 1040ez 2010 However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. Irs form 1040ez 2010 See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. Irs form 1040ez 2010 The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. Irs form 1040ez 2010 The sale of this livestock is reported on Schedule F. Irs form 1040ez 2010 See chapter 3. Irs form 1040ez 2010 Also, special rules apply to sales or exchanges caused by weather-related conditions. Irs form 1040ez 2010 See chapter 3. Irs form 1040ez 2010 Holding period. Irs form 1040ez 2010   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 1040ez 2010 Livestock. Irs form 1040ez 2010   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. Irs form 1040ez 2010 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 1040ez 2010 Livestock used in farm business. Irs form 1040ez 2010   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. Irs form 1040ez 2010 The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 Example 1. Irs form 1040ez 2010 You discover an animal that you intend to use for breeding purposes is sterile. Irs form 1040ez 2010 You dispose of it within a reasonable time. Irs form 1040ez 2010 This animal was held for breeding purposes. Irs form 1040ez 2010 Example 2. Irs form 1040ez 2010 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 1040ez 2010 These young animals were held for breeding or dairy purposes. Irs form 1040ez 2010 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 1040ez 2010 See Sales Caused by Weather-Related Conditions in chapter 3. Irs form 1040ez 2010 Example 3. Irs form 1040ez 2010 You are in the business of raising hogs for slaughter. Irs form 1040ez 2010 Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. Irs form 1040ez 2010 You sell the brood sows after obtaining the litter. Irs form 1040ez 2010 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 1040ez 2010 Example 4. Irs form 1040ez 2010 You are in the business of raising registered cattle for sale to others for use as breeding cattle. Irs form 1040ez 2010 The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. Irs form 1040ez 2010 Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. Irs form 1040ez 2010 Such use does not demonstrate that you are holding the cattle for breeding purposes. Irs form 1040ez 2010 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 1040ez 2010 The same applies to hog and sheep breeders. Irs form 1040ez 2010 Example 5. Irs form 1040ez 2010 You breed, raise, and train horses for racing purposes. Irs form 1040ez 2010 Every year you cull horses from your racing stable. Irs form 1040ez 2010 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 1040ez 2010 These horses are all considered held for sporting purposes. Irs form 1040ez 2010 Figuring gain or loss on the cash method. Irs form 1040ez 2010   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 1040ez 2010 Raised livestock. Irs form 1040ez 2010   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. Irs form 1040ez 2010 Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. Irs form 1040ez 2010 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 1040ez 2010 However, see Uniform Capitalization Rules in chapter 6. Irs form 1040ez 2010 Purchased livestock. Irs form 1040ez 2010   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. Irs form 1040ez 2010 Example. Irs form 1040ez 2010 A farmer sold a breeding cow on January 8, 2013, for $1,250. Irs form 1040ez 2010 Expenses of the sale were $125. Irs form 1040ez 2010 The cow was bought July 2, 2009, for $1,300. Irs form 1040ez 2010 Depreciation (not less than the amount allowable) was $867. Irs form 1040ez 2010 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 1040ez 2010 Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. Irs form 1040ez 2010 Any loss on the disposition of such property is treated as a long-term capital loss. Irs form 1040ez 2010 Converted wetland. Irs form 1040ez 2010   This is generally land that was drained or filled to make the production of agricultural commodities possible. Irs form 1040ez 2010 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 1040ez 2010   A wetland (before conversion) is land that meets all the following conditions. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 It supports, under normal circumstances, mostly plants that grow in saturated soil. Irs form 1040ez 2010 Highly erodible cropland. Irs form 1040ez 2010   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 Successor. Irs form 1040ez 2010   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 1040ez 2010 Timber Standing timber you held as investment property is a capital asset. Irs form 1040ez 2010 Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. Irs form 1040ez 2010 If you held the timber primarily for sale to customers, it is not a capital asset. Irs form 1040ez 2010 Gain or loss on its sale is ordinary business income or loss. Irs form 1040ez 2010 It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). Irs form 1040ez 2010 See the Instructions for Schedule F (Form 1040). Irs form 1040ez 2010 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 1040ez 2010 Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. Irs form 1040ez 2010 , are ordinary farm income and expenses reported on Schedule F. Irs form 1040ez 2010 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 1040ez 2010 Timber considered cut. Irs form 1040ez 2010   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 1040ez 2010 This is true whether the timber is cut under contract or whether you cut it yourself. Irs form 1040ez 2010 Christmas trees. Irs form 1040ez 2010   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 1040ez 2010 They qualify for both rules discussed below. Irs form 1040ez 2010 Election to treat cutting as a sale or exchange. Irs form 1040ez 2010   Under the general rule, the cutting of timber results in no gain or loss. Irs form 1040ez 2010 It is not until a sale or exchange occurs that gain or loss is realized. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 Any later sale results in ordinary business income or loss. Irs form 1040ez 2010 See the example below. Irs form 1040ez 2010   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 1040ez 2010 Making the election. Irs form 1040ez 2010   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 1040ez 2010 You do not have to make the election in the first year you cut the timber. Irs form 1040ez 2010 You can make it in any year to which the election would apply. Irs form 1040ez 2010 If the timber is partnership property, the election is made on the partnership return. Irs form 1040ez 2010 This election cannot be made on an amended return. Irs form 1040ez 2010   Once you have made the election, it remains in effect for all later years unless you revoke it. Irs form 1040ez 2010 Election under section 631(a) may be revoked. Irs form 1040ez 2010   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 1040ez 2010 The prior election (and revocation) is disregarded for purposes of making a subsequent election. Irs form 1040ez 2010 See Form T (Timber), Forest Activities Schedule, for more information. Irs form 1040ez 2010 Gain or loss. Irs form 1040ez 2010   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 1040ez 2010   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 1040ez 2010 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 1040ez 2010 611-3. Irs form 1040ez 2010   Depletion of timber is discussed in chapter 7. Irs form 1040ez 2010 Example. Irs form 1040ez 2010   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Irs form 1040ez 2010 It had an adjusted basis for depletion of $40 per MBF. Irs form 1040ez 2010 You are a calendar year taxpayer. Irs form 1040ez 2010 On January 1, 2013, the timber had a FMV of $350 per MBF. Irs form 1040ez 2010 It was cut in April for sale. Irs form 1040ez 2010 On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Irs form 1040ez 2010 You report the difference between the FMV and your adjusted basis for depletion as a gain. Irs form 1040ez 2010 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 1040ez 2010 You figure your gain as follows. Irs form 1040ez 2010 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 1040ez 2010 Outright sales of timber. Irs form 1040ez 2010   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 1040ez 2010 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 1040ez 2010 Cutting contract. Irs form 1040ez 2010   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 1040ez 2010 You are the owner of the timber. Irs form 1040ez 2010 You held the timber longer than 1 year before its disposal. Irs form 1040ez 2010 You kept an economic interest in the timber. Irs form 1040ez 2010   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 1040ez 2010   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 1040ez 2010 Include this amount on Form 4797 along with your other section 1231 gains or losses. Irs form 1040ez 2010 Date of disposal. Irs form 1040ez 2010   The date of disposal is the date the timber is cut. Irs form 1040ez 2010 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 1040ez 2010   This election applies only to figure the holding period of the timber. Irs form 1040ez 2010 It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Irs form 1040ez 2010   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 1040ez 2010 The statement must identify the advance payments subject to the election and the contract under which they were made. Irs form 1040ez 2010   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 1040ez 2010 Attach the statement to the amended return and write “Filed pursuant to section 301. Irs form 1040ez 2010 9100-2” at the top of the statement. Irs form 1040ez 2010 File the amended return at the same address the original return was filed. Irs form 1040ez 2010 Owner. Irs form 1040ez 2010   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 1040ez 2010 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 1040ez 2010 Tree stumps. Irs form 1040ez 2010   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 1040ez 2010 Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Irs form 1040ez 2010 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 1040ez 2010 Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Irs form 1040ez 2010   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Irs form 1040ez 2010 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 1040ez 2010 If you have a gain from the sale, you may be allowed to exclude the gain on your home. Irs form 1040ez 2010 For more information, see Publication 523, Selling Your Home. Irs form 1040ez 2010 The gain on the sale of your business property is taxable. Irs form 1040ez 2010 A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. Irs form 1040ez 2010 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 1040ez 2010 See chapter 9. Irs form 1040ez 2010 Losses from personal-use property, other than casualty or theft losses, are not deductible. Irs form 1040ez 2010 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 1040ez 2010 See chapter 10 for information about installment sales. Irs form 1040ez 2010 When you sell your farm, the gain or loss on each asset is figured separately. Irs form 1040ez 2010 The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. Irs form 1040ez 2010 Each of the assets sold must be classified as one of the following. Irs form 1040ez 2010 Capital asset held 1 year or less. Irs form 1040ez 2010 Capital asset held longer than 1 year. Irs form 1040ez 2010 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 1040ez 2010 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 1040ez 2010 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 1040ez 2010 Allocation of consideration paid for a farm. Irs form 1040ez 2010   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. Irs form 1040ez 2010 The residual method is required only if the group of assets sold constitutes a trade or business. Irs form 1040ez 2010 This method determines gain or loss from the transfer of each asset. Irs form 1040ez 2010 It also determines the buyer's basis in the business assets. Irs form 1040ez 2010 For more information, see Sale of a Business in chapter 2 of Publication 544. Irs form 1040ez 2010 Property used in farm operation. Irs form 1040ez 2010   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 1040ez 2010 Recognized gains and losses on business property must be reported on your return for the year of the sale. Irs form 1040ez 2010 If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). Irs form 1040ez 2010 Example. Irs form 1040ez 2010 You sell your farm, including your main home, which you have owned since December 2001. Irs form 1040ez 2010 You realize gain on the sale as follows. Irs form 1040ez 2010   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 1040ez 2010 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 1040ez 2010 Treat the balance as section 1231 gain. Irs form 1040ez 2010 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 1040ez 2010 Partial sale. Irs form 1040ez 2010   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 1040ez 2010 You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. Irs form 1040ez 2010 For a detailed discussion on installment sales, see Publication 544. Irs form 1040ez 2010 Adjusted basis of the part sold. Irs form 1040ez 2010   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 1040ez 2010 , on the part sold. Irs form 1040ez 2010 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 1040ez 2010 Example. Irs form 1040ez 2010 You bought a 600-acre farm for $700,000. Irs form 1040ez 2010 The farm included land and buildings. Irs form 1040ez 2010 The purchase contract designated $600,000 of the purchase price to the land. Irs form 1040ez 2010 You later sold 60 acres of land on which you had installed a fence. Irs form 1040ez 2010 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 1040ez 2010 Use this amount to determine your gain or loss on the sale of the 60 acres. Irs form 1040ez 2010 Assessed values for local property taxes. Irs form 1040ez 2010   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 1040ez 2010 Example. Irs form 1040ez 2010 Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. Irs form 1040ez 2010 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 1040ez 2010 The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. Irs form 1040ez 2010 Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. Irs form 1040ez 2010 The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). Irs form 1040ez 2010 Sale of your home. Irs form 1040ez 2010   Your home is a capital asset and not property used in the trade or business of farming. Irs form 1040ez 2010 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 1040ez 2010 Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. Irs form 1040ez 2010   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 1040ez 2010 For more information on basis, see chapter 6. Irs form 1040ez 2010 More information. Irs form 1040ez 2010   For more information on selling your home, see Publication 523. Irs form 1040ez 2010 Gain from condemnation. Irs form 1040ez 2010   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 1040ez 2010 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 1040ez 2010 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 1040ez 2010 The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Irs form 1040ez 2010 This is true even if you voluntarily return the property to the lender. Irs form 1040ez 2010 You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. Irs form 1040ez 2010 Buyer's (borrower's) gain or loss. Irs form 1040ez 2010   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 1040ez 2010 The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Irs form 1040ez 2010 See Determining Gain or Loss , earlier. Irs form 1040ez 2010 Worksheet 8-1. Irs form 1040ez 2010 Worksheet for Foreclosures andRepossessions Part 1. Irs form 1040ez 2010 Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Irs form 1040ez 2010 Complete this part only if you were personally liable for the debt. Irs form 1040ez 2010 Otherwise, go to Part 2. Irs form 1040ez 2010   1. Irs form 1040ez 2010 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 1040ez 2010 Enter the Fair Market Value of the transferred property   3. Irs form 1040ez 2010 Ordinary income from cancellation of debt upon foreclosure or repossession. Irs form 1040ez 2010 * Subtract line 2 from line 1. Irs form 1040ez 2010 If zero or less, enter -0-   Part 2. Irs form 1040ez 2010 Figure your gain or loss from foreclosure or repossession. Irs form 1040ez 2010   4. Irs form 1040ez 2010 If you completed Part 1, enter the smaller of line 1 or line 2. Irs form 1040ez 2010 If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. Irs form 1040ez 2010 Enter any proceeds you received from the foreclosure sale   6. Irs form 1040ez 2010 Add lines 4 and 5   7. Irs form 1040ez 2010 Enter the adjusted basis of the transferred property   8. Irs form 1040ez 2010 Gain or loss from foreclosure or repossession. Irs form 1040ez 2010 Subtract line 7  from line 6   * The income may not be taxable. Irs form 1040ez 2010 See Cancellation of debt . Irs form 1040ez 2010    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. Irs form 1040ez 2010 Amount realized on a nonrecourse debt. Irs form 1040ez 2010   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 1040ez 2010 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 1040ez 2010 Example 1. Irs form 1040ez 2010 Ann paid $200,000 for land used in her farming business. Irs form 1040ez 2010 She paid $15,000 down and borrowed the remaining $185,000 from a bank. Irs form 1040ez 2010 Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. Irs form 1040ez 2010 The bank foreclosed on the loan 2 years after Ann stopped making payments. Irs form 1040ez 2010 When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. Irs form 1040ez 2010 The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. Irs form 1040ez 2010 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 1040ez 2010 She has a $20,000 deductible loss. Irs form 1040ez 2010 Example 2. Irs form 1040ez 2010 Assume the same facts as in Example 1 except the FMV of the land was $210,000. Irs form 1040ez 2010 The result is the same. Irs form 1040ez 2010 The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. Irs form 1040ez 2010 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 1040ez 2010 Amount realized on a recourse debt. Irs form 1040ez 2010   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 1040ez 2010   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 1040ez 2010 The amount realized does not include the canceled debt that is your income from cancellation of debt. Irs form 1040ez 2010 See Cancellation of debt , later. Irs form 1040ez 2010 Example 3. Irs form 1040ez 2010 Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). Irs form 1040ez 2010 In this case, the amount she realizes is $170,000. Irs form 1040ez 2010 This is the canceled debt ($180,000) up to the FMV of the land ($170,000). Irs form 1040ez 2010 Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). Irs form 1040ez 2010 She has a $30,000 deductible loss, which she figures on Form 4797, Part I. Irs form 1040ez 2010 She is also treated as receiving ordinary income from cancellation of debt. Irs form 1040ez 2010 That income is $10,000 ($180,000 − $170,000). Irs form 1040ez 2010 This is the part of the canceled debt not included in the amount realized. Irs form 1040ez 2010 She reports this as other income on Schedule F, line 8. Irs form 1040ez 2010 Seller's (lender's) gain or loss on repossession. Irs form 1040ez 2010   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 1040ez 2010 For more information, see Repossession in Publication 537, Installment Sales. Irs form 1040ez 2010 Cancellation of debt. Irs form 1040ez 2010   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 1040ez 2010 This income is separate from any gain or loss realized from the foreclosure or repossession. Irs form 1040ez 2010 Report the income from cancellation of a business debt on Schedule F, line 8. Irs form 1040ez 2010 Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Irs form 1040ez 2010    You can use Worksheet 8-1 to figure your income from cancellation of debt. Irs form 1040ez 2010   However, income from cancellation of debt is not taxed if any of the following apply. Irs form 1040ez 2010 The cancellation is intended as a gift. Irs form 1040ez 2010 The debt is qualified farm debt (see chapter 3). Irs form 1040ez 2010 The debt is qualified real property business debt (see chapter 5 of Publication 334). Irs form 1040ez 2010 You are insolvent or bankrupt (see  chapter 3). Irs form 1040ez 2010 The debt is qualified principal residence indebtedness (see chapter 3). Irs form 1040ez 2010   Use Form 982 to report the income exclusion. Irs form 1040ez 2010 Abandonment The abandonment of property is a disposition of property. Irs form 1040ez 2010 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 1040ez 2010 Business or investment property. Irs form 1040ez 2010   Loss from abandonment of business or investment property is deductible as a loss. Irs form 1040ez 2010 Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Irs form 1040ez 2010 If your adjusted basis is more than the amount you realize (if any), then you have a loss. Irs form 1040ez 2010 If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Irs form 1040ez 2010 This rule also applies to leasehold improvements the lessor made for the lessee. Irs form 1040ez 2010 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 1040ez 2010   If the abandoned property is secured by debt, special rules apply. Irs form 1040ez 2010 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 1040ez 2010 For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Irs form 1040ez 2010 The abandonment loss is deducted in the tax year in which the loss is sustained. Irs form 1040ez 2010 Report the loss on Form 4797, Part II, line 10. Irs form 1040ez 2010 Personal-use property. Irs form 1040ez 2010   You cannot deduct any loss from abandonment of your home or other property held for personal use. Irs form 1040ez 2010 Canceled debt. Irs form 1040ez 2010   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 1040ez 2010 This income is separate from any loss realized from abandonment of the property. Irs form 1040ez 2010 Report income from cancellation of a debt related to a business or rental activity as business or rental income. Irs form 1040ez 2010 Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Irs form 1040ez 2010   However, income from cancellation of debt is not taxed in certain circumstances. Irs form 1040ez 2010 See Cancellation of debt earlier under Foreclosure or Repossession . Irs form 1040ez 2010 Forms 1099-A and 1099-C. Irs form 1040ez 2010   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 1040ez 2010 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 1040ez 2010 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 1040ez 2010 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 1040ez 2010 Prev  Up  Next   Home   More Online Publications