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2012 Income Tax Form

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2012 Income Tax Form

2012 income tax form Publication 501 - Introductory Material Table of Contents What's New Reminders IntroductionOrdering forms and publications. 2012 income tax form Tax questions. 2012 income tax form Useful Items - You may want to see: What's New Who must file. 2012 income tax form   In some cases, the amount of income you can receive before you must file a tax return has increased. 2012 income tax form Table 1 shows the filing requirements for most taxpayers. 2012 income tax form Exemption amount. 2012 income tax form  The amount you can deduct for each exemption has increased. 2012 income tax form It was $3,800 for 2012. 2012 income tax form It is $3,900 for 2013. 2012 income tax form Exemption phaseout. 2012 income tax form  You lose at least part of the benefit of your exemptions if your adjusted gross income is above a certain amount. 2012 income tax form For 2013, the phaseout begins at $150,000 for married individuals filing separate returns; $250,000 for single individuals; $275,000 for heads of household; and $300,000 for married individuals filing joint returns or qualifying widow(er)s. 2012 income tax form See Phaseout of Exemptions , later. 2012 income tax form Standard deduction increased. 2012 income tax form   The standard deduction for some taxpayers who do not itemize their deductions on Schedule A of Form 1040 is higher for 2013 than it was for 2012. 2012 income tax form The amount depends on your filing status. 2012 income tax form You can use the 2013 Standard Deduction Tables near the end of this publication to figure your standard deduction. 2012 income tax form Same-sex marriages. 2012 income tax form . 2012 income tax form  If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. 2012 income tax form See Same-sex marriage under Marital Status, later. 2012 income tax form If you meet certain requirements, you may be able to file amended returns to change your filing status for some earlier years. 2012 income tax form For details on filing amended returns, see Joint Return After Separate Returns . 2012 income tax form Reminders Future developments. 2012 income tax form  Information about any future developments affecting Publication 501 (such as legislation enacted after we release it) will be posted at www. 2012 income tax form irs. 2012 income tax form gov/pub501. 2012 income tax form Taxpayer identification number for aliens. 2012 income tax form   If you are a nonresident or resident alien and you do not have and are not eligible to get a social security number (SSN), you must apply for an individual taxpayer identification number (ITIN). 2012 income tax form Your spouse also may need an ITIN if he or she does not have and is not eligible to get an SSN. 2012 income tax form See Form W-7, Application for IRS Individual Taxpayer Identification Number. 2012 income tax form Also, see Social Security Numbers for Dependents , later. 2012 income tax form Photographs of missing children. 2012 income tax form   The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 2012 income tax form Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 2012 income tax form You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. 2012 income tax form Introduction This publication discusses some tax rules that affect every person who may have to file a federal income tax return. 2012 income tax form It answers some basic questions: who must file; who should file; what filing status to use; how many exemptions to claim; and the amount of the standard deduction. 2012 income tax form Who Must File explains who must file an income tax return. 2012 income tax form If you have little or no gross income, reading this section will help you decide if you have to file a return. 2012 income tax form Who Should File helps you decide if you should file a return, even if you are not required to do so. 2012 income tax form Filing Status helps you determine which filing status to use. 2012 income tax form Filing status is important in determining whether you must file a return and whether you may claim certain deductions and credits. 2012 income tax form It also helps determine your standard deduction and tax rate. 2012 income tax form Exemptions, which reduce your taxable income, are discussed in Exemptions . 2012 income tax form Exemptions for Dependents explains the difference between a qualifying child and a qualifying relative. 2012 income tax form Other topics include the social security number requirement for dependents, the rules for multiple support agreements, and the rules for divorced or separated parents. 2012 income tax form Phaseout of Exemptions explains how to determine whether you must reduce the dollar amount of exemptions you claim and, if so, the amount of the reduction. 2012 income tax form Standard Deduction gives the rules and dollar amounts for the standard deduction — a benefit for taxpayers who do not itemize their deductions. 2012 income tax form This section also discusses the standard deduction for taxpayers who are blind or age 65 or older, as well as special rules that limit the standard deduction available to dependents. 2012 income tax form In addition, this section helps you decide whether you would be better off taking the standard deduction or itemizing your deductions. 2012 income tax form How To Get Tax Help explains how to get tax help from the IRS. 2012 income tax form This publication is for U. 2012 income tax form S. 2012 income tax form citizens and resident aliens only. 2012 income tax form If you are a resident alien for the entire year, you must follow the same tax rules that apply to U. 2012 income tax form S. 2012 income tax form citizens. 2012 income tax form The rules to determine if you are a resident or nonresident alien are discussed in chapter 1 of Publication 519, U. 2012 income tax form S. 2012 income tax form Tax Guide for Aliens. 2012 income tax form Nonresident aliens. 2012 income tax form    If you were a nonresident alien at any time during the year, the rules and tax forms that apply to you may be different from those that apply to U. 2012 income tax form S. 2012 income tax form citizens. 2012 income tax form See Publication 519. 2012 income tax form Comments and suggestions. 2012 income tax form    We welcome your comments about this publication and your suggestions for future editions. 2012 income tax form   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 2012 income tax form NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. 2012 income tax form Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 2012 income tax form   You can send your comments from www. 2012 income tax form irs. 2012 income tax form gov/formspubs. 2012 income tax form Click on “More Information” and then on “Comment on Tax Forms and Publications. 2012 income tax form ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 2012 income tax form Ordering forms and publications. 2012 income tax form    Visit www. 2012 income tax form irs. 2012 income tax form gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. 2012 income tax form Internal Revenue Service 1201 N. 2012 income tax form Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 2012 income tax form    If you have a tax question, check the information available on IRS. 2012 income tax form gov or call 1-800-829-1040. 2012 income tax form We cannot answer tax questions sent to either of the above addresses. 2012 income tax form Useful Items - You may want to see: Publication 559 Survivors, Executors, and Administrators 929 Tax Rules for Children and Dependents Form (and Instructions) 1040X Amended U. 2012 income tax form S. 2012 income tax form Individual Income Tax Return 2848 Power of Attorney and Declaration of Representative 8332 Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent 8814 Parents' Election To Report Child's Interest and Dividends Prev  Up  Next   Home   More Online Publications
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The 2012 Income Tax Form

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