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Filing 1040nr Online

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Filing 1040nr Online

Filing 1040nr online Part Six -   Figuring Your Taxes and Credits The eight chapters in this part explain how to figure your tax and how to figure the tax of certain children who have more than $2,000 of unearned income. Filing 1040nr online They also discuss tax credits that, unlike deductions, are subtracted directly from your tax and reduce your tax dollar for dollar. Filing 1040nr online Chapter 36 discusses the earned income credit. Filing 1040nr online Chapter 37 discusses a wide variety of other credits, such as the adoption credit. Filing 1040nr online Table of Contents 30. Filing 1040nr online   How To Figure Your TaxIntroduction Figuring Your Tax Alternative Minimum Tax (AMT) Tax Figured by IRSFiling the Return 31. Filing 1040nr online   Tax on Unearned Income of Certain ChildrenWhat's New Introduction Useful Items - You may want to see: Which Parent's Return To UseParents Who Do Not File a Joint Return Parent's Election To Report Child's Interest and DividendsEffect of Making the Election Figuring Child's Income Figuring Additional Tax Tax for Certain Children Who Have Unearned IncomeProviding Parental Information (Form 8615, lines A–C) Step 1. Filing 1040nr online Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. Filing 1040nr online Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. Filing 1040nr online Figuring the Child's Tax (Form 8615, Part III) 32. Filing 1040nr online   Child and Dependent Care CreditReminders Introduction Useful Items - You may want to see: Tests To Claim the CreditQualifying Person Test Earned Income Test Work-Related Expense Test Joint Return Test Provider Identification Test How To Figure the CreditFiguring Total Work-Related Expenses Earned Income Limit Dollar Limit Amount of Credit How To Claim the CreditTax credit not refundable. Filing 1040nr online Employment Taxes for Household Employers 33. Filing 1040nr online   Credit for the Elderly or the DisabledIntroduction Useful Items - You may want to see: Are You Eligible for the Credit?Qualified Individual Income Limits How to Claim the CreditCredit Figured for You Credit Figured by You 34. Filing 1040nr online   Child Tax CreditIntroduction Useful Items - You may want to see: Qualifying Child Amount of CreditLimits on the Credit Claiming the Credit Additional Child Tax Credit Completing Schedule 8812 (Form 1040A or 1040)Part I Parts II–IV 35. Filing 1040nr online   Education CreditsIntroduction Useful Items - You may want to see: Who Can Claim an Education Credit Qualified Education ExpensesNo Double Benefit Allowed Adjustments to Qualified Education Expenses 36. Filing 1040nr online   Earned Income Credit (EIC)What's New Reminders Introduction Useful Items - You may want to see: Do You Qualify for the Credit?If Improper Claim Made in Prior Year Part A. Filing 1040nr online Rules for EveryoneRule 1. Filing 1040nr online Your AGI Must Be Less Than: Rule 2. Filing 1040nr online You Must Have a Valid Social Security Number (SSN) Rule 3. Filing 1040nr online Your Filing Status Cannot Be Married Filing Separately Rule 4. Filing 1040nr online You Must Be a U. Filing 1040nr online S. Filing 1040nr online Citizen or Resident Alien All Year Rule 5. Filing 1040nr online You Cannot File Form 2555 or Form 2555-EZ Rule 6. Filing 1040nr online Your Investment Income Must Be $3,300 or Less Rule 7. Filing 1040nr online You Must Have Earned Income Part B. Filing 1040nr online Rules If You Have a Qualifying ChildRule 8. Filing 1040nr online Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Rule 9. Filing 1040nr online Your Qualifying Child Cannot Be Used By More Than One Person To Claim the EIC Rule 10. Filing 1040nr online You Cannot Be a Qualifying Child of Another Taxpayer Part C. Filing 1040nr online Rules If You Do Not Have a Qualifying ChildRule 11. Filing 1040nr online You Must Be at Least Age 25 but Under Age 65 Rule 12. Filing 1040nr online You Cannot Be the Dependent of Another Person Rule 13. Filing 1040nr online You Cannot Be a Qualifying Child of Another Taxpayer Rule 14. Filing 1040nr online You Must Have Lived in the United States More Than Half of the Year Part D. Filing 1040nr online Figuring and Claiming the EICRule 15. Filing 1040nr online Your Earned Income Must Be Less Than: IRS Will Figure the EIC for You How To Figure the EIC Yourself ExamplesExample 1. Filing 1040nr online John and Janet Smith (Form 1040A) Example 2. Filing 1040nr online Kelly Green (Form 1040EZ) 37. Filing 1040nr online   Other CreditsWhat's New Introduction Useful Items - You may want to see: Nonrefundable CreditsAdoption Credit Alternative Motor Vehicle Credit Alternative Fuel Vehicle Refueling Property Credit Credit to Holders of Tax Credit Bonds Foreign Tax Credit Mortgage Interest Credit Nonrefundable Credit for Prior Year Minimum Tax Plug-in Electric Drive Motor Vehicle Credit Residential Energy Credits Retirement Savings Contributions Credit (Saver's Credit) Refundable CreditsCredit for Tax on Undistributed Capital Gain Health Coverage Tax Credit Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld Prev  Up  Next   Home   More Online Publications
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The Filing 1040nr Online

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