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Filing Taxes Online 1040ez

Filing taxes online 1040ez 4. Filing taxes online 1040ez   Detailed Examples Table of Contents These examples use actual forms to help you prepare your income tax return. Filing taxes online 1040ez However, the information shown on the filled-in forms is not from any actual person or scenario. Filing taxes online 1040ez Example 1—Mortgage loan modification. Filing taxes online 1040ez    In 2007, Nancy Oak bought a main home for $435,000. Filing taxes online 1040ez Nancy took out a $420,000 mortgage loan to buy the home and made a down payment of $15,000. Filing taxes online 1040ez The loan was secured by the home. Filing taxes online 1040ez The mortgage loan was a recourse debt, meaning that Nancy was personally liable for the debt. Filing taxes online 1040ez In 2008, Nancy took out a second mortgage loan (also a recourse debt) in the amount of $30,000 that was used to substantially improve her kitchen. Filing taxes online 1040ez    In 2011, when the outstanding principal of the first and second mortgage loans was $440,000, Nancy refinanced the two recourse loans into one recourse loan in the amount of $475,000. Filing taxes online 1040ez The FMV of Nancy's home at the time of the refinancing was $500,000. Filing taxes online 1040ez Nancy used the additional $35,000 debt ($475,000 new mortgage loan minus $440,000 outstanding principal of Nancy's first and second mortgage loans immediately before the refinancing) to pay off personal credit cards and to pay college tuition for her son. Filing taxes online 1040ez After the refinancing, Nancy has qualified principal residence indebtedness in the amount of $440,000 because the refinanced debt is qualified principal residence indebtedness only to the extent the amount of debt is not more than the old mortgage principal just before the refinancing. Filing taxes online 1040ez   In 2013, Nancy was unable to make her mortgage loan payments. Filing taxes online 1040ez On August 31, 2013, when the outstanding balance of her refinanced mortgage loan was still $475,000 and the FMV of the property was $425,000, Nancy's bank agreed to a loan modification (a “workout”) that resulted in a $40,000 reduction in the principal balance of her loan. Filing taxes online 1040ez Nancy was neither insolvent nor in bankruptcy at the time of the loan modification. Filing taxes online 1040ez   Nancy received a 2013 Form 1099-C from her bank in January 2014 showing canceled debt of $40,000 in box 2. Filing taxes online 1040ez Identifiable event code "F" appears in box 6. Filing taxes online 1040ez This box shows the reason the creditor has filed Form 1099-C. Filing taxes online 1040ez To determine if she must include the canceled debt in her income, Nancy must determine whether she meets any of the exceptions or exclusions that apply to canceled debts. Filing taxes online 1040ez Nancy determines that the only exception or exclusion that applies to her is the qualified principal residence indebtedness exclusion. Filing taxes online 1040ez   Next, Nancy determines the amount, if any, of the $40,000 of canceled debt that was qualified principal residence indebtedness. Filing taxes online 1040ez Although Nancy has $440,000 of qualified principal residence indebtedness, part of her loan ($35,000) was not qualified principal residence indebtedness because it was used to pay off personal credit cards and college tuition for her son. Filing taxes online 1040ez Applying the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent the amount canceled is more than the amount of the debt (immediately before the cancellation) that is not qualified principal residence indebtedness. Filing taxes online 1040ez Thus, Nancy can exclude only $5,000 of the canceled debt as qualified principal residence indebtedness ($40,000 amount canceled minus $35,000 nonqualified debt). Filing taxes online 1040ez   Because Nancy does not meet any other exception or exclusion, she checks only the box on line 1e of Form 982 and enters $5,000 on line 2. Filing taxes online 1040ez Nancy must also enter $5,000 on line 10b and reduce the basis of her main home by the $5,000 she excluded from income, bringing the adjusted basis in her home to $460,000 ($435,000 purchase price plus $30,000 substantial improvement minus $5,000). Filing taxes online 1040ez Nancy must also include the $35,000 nonqualified debt portion in income on Form 1040, line 21. Filing taxes online 1040ez You can see Nancy's Form 1099-C and a portion of her Form 1040 below. Filing taxes online 1040ez Nancy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Filing taxes online 1040ez Please click the link to view the image. Filing taxes online 1040ez Form 1099-C, Cancellation of Debt Nancy's 2013 Form 1040 This image is too large to be displayed in the current screen. Filing taxes online 1040ez Please click the link to view the image. Filing taxes online 1040ez Form 1040, U. Filing taxes online 1040ez S. Filing taxes online 1040ez Individual Income Tax Nancy's Form 982 This image is too large to be displayed in the current screen. Filing taxes online 1040ez Please click the link to view the image. Filing taxes online 1040ez Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)              Example 2—Mortgage loan foreclosure. Filing taxes online 1040ez    In 2005, John and Mary Elm bought a main home for $335,000. Filing taxes online 1040ez John and Mary took out a $320,000 mortgage loan to buy the home and made a down payment of $15,000. Filing taxes online 1040ez The loan was secured by the home and is a recourse debt, meaning John and Mary are personally liable for the debt. Filing taxes online 1040ez   John and Mary became unable to make their mortgage loan payments and on March 1, 2013, when the outstanding balance of the mortgage loan was $315,000 and the FMV of the property was $290,000, the bank foreclosed on the property and simultaneously canceled the remaining mortgage debt. Filing taxes online 1040ez Immediately before the foreclosure, John and Mary's only other assets and liabilities were a checking account with a balance of $6,000, retirement savings of $13,000, and credit card debt of $5,500. Filing taxes online 1040ez   John and Mary received a 2013 Form 1099-C showing canceled debt of $25,000 in box 2 ($315,000 outstanding balance minus $290,000 FMV) and an FMV of $290,000 in box 7. Filing taxes online 1040ez Identifiable event code "D" appears in box 6. Filing taxes online 1040ez This box shows the reason the creditor has filed Form 1099-C. Filing taxes online 1040ez In order to determine if John and Mary must include the canceled debt in income, they must first determine whether they meet any of the exceptions or exclusions that apply to canceled debts. Filing taxes online 1040ez In this example, John and Mary meet both the insolvency and qualified principal residence indebtedness exclusions. Filing taxes online 1040ez Their sample Form 1099-C is shown on this page. Filing taxes online 1040ez   John and Mary complete the insolvency worksheet and determine that they were insolvent immediately before the cancellation because at that time their liabilities exceeded the FMV of their assets by $11,500 ($320,500 total liabilities minus $309,000 FMV of total assets). Filing taxes online 1040ez However, because the entire debt canceled is qualified principal residence indebtedness, the insolvency exclusion only applies if John and Mary elect to apply the insolvency exclusion instead of the qualified principal residence exclusion. Filing taxes online 1040ez   John and Mary do not elect to apply the insolvency exclusion instead of the qualified principal residence exclusion because under the insolvency exclusion their exclusion would be limited to the amount by which they were insolvent ($11,500). Filing taxes online 1040ez Instead, John and Mary check box 1e of Form 982 to exclude the canceled debt under the qualified principal residence exclusion. Filing taxes online 1040ez Under the qualified principal residence exclusion, the amount that John and Mary can exclude is not limited because their qualified principal residence indebtedness is not more than $2 million and no portion of the loan was nonqualified debt. Filing taxes online 1040ez As a result, John and Mary enter the full $25,000 of canceled debt on line 2 of Form 982. Filing taxes online 1040ez Because John and Mary no longer own the home due to the foreclosure, John and Mary have no remaining basis in the home at the time of the debt cancellation. Filing taxes online 1040ez Thus, John and Mary leave line 10b of Form 982 blank. Filing taxes online 1040ez   John and Mary must also determine whether they have a gain or loss from the foreclosure. Filing taxes online 1040ez John and Mary complete Table 1-1 (shown below) and find that they have a $45,000 loss from the foreclosure. Filing taxes online 1040ez Because this loss relates to their home, it is a nondeductible loss. Filing taxes online 1040ez   John and Mary's Form 1099-C, Insolvency Worksheet, and Form 982 follow. Filing taxes online 1040ez John and Mary's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Filing taxes online 1040ez Please click the link to view the image. Filing taxes online 1040ez Form 1099-C, Cancellation of Debt Table 1-1. Filing taxes online 1040ez Worksheet for Foreclosures and Repossessions (for John and Mary Elm) Part 1. Filing taxes online 1040ez Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Filing taxes online 1040ez Otherwise, go to Part 2. Filing taxes online 1040ez 1. Filing taxes online 1040ez Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $315,000. Filing taxes online 1040ez 00 2. Filing taxes online 1040ez Enter the fair market value of the transferred property $290,000. Filing taxes online 1040ez 00 3. Filing taxes online 1040ez Ordinary income from the cancellation of debt upon foreclosure or repossession. Filing taxes online 1040ez * Subtract line 2 from line 1. Filing taxes online 1040ez If less than zero, enter zero. Filing taxes online 1040ez Next, go to Part 2 $ 25,000. Filing taxes online 1040ez 00 Part 2. Filing taxes online 1040ez Gain or loss from foreclosure or repossession. Filing taxes online 1040ez   4. Filing taxes online 1040ez Enter the smaller of line 1 or line 2. Filing taxes online 1040ez If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property $290,000. Filing taxes online 1040ez 00 5. Filing taxes online 1040ez Enter any proceeds you received from the foreclosure sale   6. Filing taxes online 1040ez Add line 4 and line 5 $290,000. Filing taxes online 1040ez 00 7. Filing taxes online 1040ez Enter the adjusted basis of the transferred property $335,000. Filing taxes online 1040ez 00 8. Filing taxes online 1040ez Gain or loss from foreclosure or repossession. Filing taxes online 1040ez Subtract line 7 from line 6 ($ 45,000. Filing taxes online 1040ez 00) * The income may not be taxable. Filing taxes online 1040ez See chapter 1 for more details. Filing taxes online 1040ez Insolvency Worksheet—John and Mary Elm Date debt was canceled (mm/dd/yy) 03/01/13 Part I. Filing taxes online 1040ez Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. Filing taxes online 1040ez Credit card debt $ 5,500 2. Filing taxes online 1040ez Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 315,000 3. Filing taxes online 1040ez Car and other vehicle loans $ 4. Filing taxes online 1040ez Medical bills owed $ 5. Filing taxes online 1040ez Student loans $ 6. Filing taxes online 1040ez Accrued or past-due mortgage interest $ 7. Filing taxes online 1040ez Accrued or past-due real estate taxes $ 8. Filing taxes online 1040ez Accrued or past-due utilities (water, gas, electric) $ 9. Filing taxes online 1040ez Accrued or past-due child care costs $ 10. Filing taxes online 1040ez Federal or state income taxes remaining due (for prior tax years) $ 11. Filing taxes online 1040ez Judgments $ 12. Filing taxes online 1040ez Business debts (including those owed as a sole proprietor or partner) $ 13. Filing taxes online 1040ez Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. Filing taxes online 1040ez Other liabilities (debts) not included above $ 15. Filing taxes online 1040ez Total liabilities immediately before the cancellation. Filing taxes online 1040ez Add lines 1 through 14. Filing taxes online 1040ez $ 320,500 Part II. Filing taxes online 1040ez Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. Filing taxes online 1040ez Cash and bank account balances $ 6,000 17. Filing taxes online 1040ez Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 290,000 18. Filing taxes online 1040ez Cars and other vehicles $ 19. Filing taxes online 1040ez Computers $ 20. Filing taxes online 1040ez Household goods and furnishings (for example, appliances, electronics, furniture, etc. Filing taxes online 1040ez ) $ 21. Filing taxes online 1040ez Tools $ 22. Filing taxes online 1040ez Jewelry $ 23. Filing taxes online 1040ez Clothing $ 24. Filing taxes online 1040ez Books $ 25. Filing taxes online 1040ez Stocks and bonds $ 26. Filing taxes online 1040ez Investments in coins, stamps, paintings, or other collectibles $ 27. Filing taxes online 1040ez Firearms, sports, photographic, and other hobby equipment $ 28. Filing taxes online 1040ez Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 13,000 29. Filing taxes online 1040ez Interest in a pension plan $ 30. Filing taxes online 1040ez Interest in education accounts $ 31. Filing taxes online 1040ez Cash value of life insurance $ 32. Filing taxes online 1040ez Security deposits with landlords, utilities, and others $ 33. Filing taxes online 1040ez Interests in partnerships $ 34. Filing taxes online 1040ez Value of investment in a business $ 35. Filing taxes online 1040ez Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. Filing taxes online 1040ez Other assets not included above $ 37. Filing taxes online 1040ez FMV of total assets immediately before the cancellation. Filing taxes online 1040ez Add lines 16 through 36. Filing taxes online 1040ez $ 309,000 Part III. Filing taxes online 1040ez Insolvency 38. Filing taxes online 1040ez Amount of Insolvency. Filing taxes online 1040ez Subtract line 37 from line 15. Filing taxes online 1040ez If zero or less, you are not insolvent. Filing taxes online 1040ez $ 11,500 John and Mary's Form 982 This image is too large to be displayed in the current screen. Filing taxes online 1040ez Please click the link to view the image. Filing taxes online 1040ez Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)          Example 3—Mortgage loan foreclosure with debt exceeding $2 million limit. Filing taxes online 1040ez    In 2011, Kathy and Frank Willow got married and entered into a contract with Hive Construction Corporation to build a house for $3,000,000 to be used as their main home. Filing taxes online 1040ez Kathy and Frank made a $400,000 down payment and took out a $2,600,000 mortgage to finance the remaining cost of the house. Filing taxes online 1040ez Kathy and Frank are personally liable for the mortgage loan, which is secured by the home. Filing taxes online 1040ez   In November 2013, when the outstanding principal balance on the mortgage loan was $2,500,000, the FMV of the property fell to $1,750,000 and Kathy and Frank abandoned the property by permanently moving out. Filing taxes online 1040ez The lender foreclosed on the property and, on December 5, 2013, sold the property to another buyer for $1,750,000. Filing taxes online 1040ez On December 26, 2013, the lender canceled the remaining debt. Filing taxes online 1040ez Kathy and Frank have no tax attributes other than basis of personal-use property. Filing taxes online 1040ez   The lender issued a 2013 Form 1099-C to Kathy and Frank showing canceled debt of $750,000 in box 2 (the remaining balance on the $2,500,000 mortgage debt after application of the foreclosure sale proceeds) and $1,750,000 in box 7 (FMV of the property). Filing taxes online 1040ez Identifiable event code "D" appears in box 6. Filing taxes online 1040ez This box shows the reason the creditor has filed Form 1099-C. Filing taxes online 1040ez Although Kathy and Frank abandoned the property, the lender did not need to also file a Form 1099-A because the lender canceled the debt in connection with the foreclosure in the same calendar year. Filing taxes online 1040ez Kathy and Frank are filing a joint return for 2013. Filing taxes online 1040ez   Because the foreclosure occurred prior to the debt cancellation, Kathy and Frank first calculate their gain or loss from the foreclosure using Table 1-1. Filing taxes online 1040ez Because Kathy and Frank remained personally liable for the $750,000 debt remaining after the foreclosure ($2,500,000 outstanding debt immediately before the foreclosure minus $1,750,000 satisfied through the sale of the home), Kathy and Frank enter $1,750,000 on line 1 of Table 1-1 ($2,500,000 outstanding debt immediately before the foreclosure minus the $750,000 for which they remained liable). Filing taxes online 1040ez Completing Table 1-1, Kathy and Frank find that they have no ordinary income from the cancellation of debt upon foreclosure and that they have a $1,250,000 loss. Filing taxes online 1040ez Because this loss relates to their home, it is a nondeductible loss. Filing taxes online 1040ez   Because the lender later canceled the remaining amount of the debt, Kathy and Frank must also determine whether that canceled debt is taxable. Filing taxes online 1040ez Immediately before the cancellation, Kathy and Frank had $15,000 in a savings account, household furnishings with an FMV of $17,000, a car with an FMV of $10,000, and $18,000 in credit card debt. Filing taxes online 1040ez Kathy and Frank also had the $750,000 remaining balance on the mortgage loan at that time. Filing taxes online 1040ez The household furnishings originally cost $30,000. Filing taxes online 1040ez The car had been fully paid off (so there was no related outstanding debt) and was originally purchased for $16,000. Filing taxes online 1040ez Kathy and Frank had no adjustments to the cost basis of the car. Filing taxes online 1040ez Kathy and Frank had no other assets or liabilities at the time of the cancellation. Filing taxes online 1040ez Kathy and Frank complete the insolvency worksheet to calculate that they were insolvent to the extent of $726,000 immediately before the cancellation ($768,000 of total liabilities minus $42,000 FMV of total assets). Filing taxes online 1040ez   At the beginning of 2014, Kathy and Frank had $9,000 in their savings account and $15,000 in credit card debt. Filing taxes online 1040ez Kathy and Frank also owned the same car at that time (still with an FMV of $10,000 and basis of $16,000) and the same household furnishings (still with an FMV of $17,000 and a basis of $30,000). Filing taxes online 1040ez Kathy and Frank had no other assets or liabilities at that time. Filing taxes online 1040ez Kathy and Frank no longer own the home because the lender foreclosed on it in 2013. Filing taxes online 1040ez   Because the canceled debt is qualified principal residence indebtedness, the insolvency exclusion does not apply unless Kathy and Frank elect to apply the insolvency exclusion instead of the qualified principal residence indebtedness exclusion. Filing taxes online 1040ez The maximum amount that Kathy and Frank can treat as qualified principal residence indebtedness is $2,000,000. Filing taxes online 1040ez The remaining $500,000 ($2,500,000 outstanding mortgage loan minus $2,000,000 limit on qualified principal residence indebtedness) is not qualified principal residence indebtedness. Filing taxes online 1040ez Because only a part of the loan is qualified principal residence indebtedness, Kathy and Frank must apply the ordering rule to the canceled debt. Filing taxes online 1040ez Under the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent that the amount canceled ($750,000) exceeds the amount of the loan (immediately before the cancellation) that is not qualified principal residence indebtedness ($500,000). Filing taxes online 1040ez This means that Kathy and Frank can only exclude $250,000 ($750,000 amount canceled minus $500,000 nonqualified debt) under the qualified principal residence indebtedness exclusion. Filing taxes online 1040ez   Kathy and Frank do not elect to have the insolvency exclusion apply instead of the qualified principal residence exclusion. Filing taxes online 1040ez Nonetheless, they can still apply the insolvency exclusion to the $500,000 nonqualified debt because it is not qualified principal residence indebtedness. Filing taxes online 1040ez Kathy and Frank can exclude the remaining $500,000 canceled debt under the insolvency exclusion because they were insolvent immediately before the cancellation to the extent of $726,000. Filing taxes online 1040ez Thus, Kathy and Frank check the boxes on lines 1b and 1e of Form 982 and enter $750,000 on line 2 ($250,000 excluded under the qualified principal residence indebtedness exclusion plus $500,000 excluded under the insolvency exclusion). Filing taxes online 1040ez   Next, Kathy and Frank reduce their tax attributes using Part II of Form 982. Filing taxes online 1040ez Because Kathy and Frank no longer own the home due to the foreclosure, Kathy and Frank have no remaining basis in the home at the time of the debt cancellation. Filing taxes online 1040ez Thus, Kathy and Frank leave line 10b of Form 982 blank. Filing taxes online 1040ez However, Kathy and Frank are also excluding nonqualified debt under the insolvency exclusion. Filing taxes online 1040ez As a result, Kathy and Frank must reduce the basis of property they own based on the amount of canceled debt they are excluding from income under the insolvency rules. Filing taxes online 1040ez Because Kathy and Frank have no tax attributes other than basis of personal-use property to reduce, Kathy and Frank figure the amount they must include on line 10a of Form 982 by taking the smallest of: The $46,000 bases of their personal-use property held at the beginning of 2014 ($16,000 basis in the car plus $30,000 basis in household furnishings), The $500,000 of the nonbusiness debt (other than qualified principal residence indebtedness) that they are excluding from income on line 2 of Form 982, or The $43,000 excess of the total bases of the property and the amount of money they held immediately after the cancellation over their total liabilities immediately after the cancellation ($15,000 in savings account plus $30,000 basis in household furnishings plus $16,000 adjusted basis in car minus $18,000 credit card debt). Filing taxes online 1040ez Kathy and Frank enter $43,000 on Form 982, line 10a and reduce their bases in the car and the household furnishings in proportion to the total adjusted bases in all their property. Filing taxes online 1040ez Kathy and Frank reduce the basis in the car by $14,956. Filing taxes online 1040ez 52 ($43,000 x $16,000/$46,000). Filing taxes online 1040ez And they reduce the basis in the household furnishings by $28,043. Filing taxes online 1040ez 48 ($43,000 x $30,000/$46,000). Filing taxes online 1040ez   Following are Kathy and Frank's sample forms and worksheets. Filing taxes online 1040ez Frank and Kathy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Filing taxes online 1040ez Please click the link to view the image. Filing taxes online 1040ez Form 1099-C, Cancellation of Debt Table 1-1. Filing taxes online 1040ez Worksheet for Foreclosures and Repossessions (for Frank and Kathy Willow) Part 1. Filing taxes online 1040ez Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Filing taxes online 1040ez Otherwise, go to Part 2. Filing taxes online 1040ez 1. Filing taxes online 1040ez Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $1,750,000. Filing taxes online 1040ez 00 2. Filing taxes online 1040ez Enter the fair market value of the transferred property $1,750,000. Filing taxes online 1040ez 00 3. Filing taxes online 1040ez Ordinary income from the cancellation of debt upon foreclosure or repossession. Filing taxes online 1040ez * Subtract line 2 from line 1. Filing taxes online 1040ez If less than zero, enter zero. Filing taxes online 1040ez Next, go to Part 2 $0. Filing taxes online 1040ez 00 Part 2. Filing taxes online 1040ez Gain or loss from foreclosure or repossession. Filing taxes online 1040ez   4. Filing taxes online 1040ez Enter the smaller of line 1 or line 2. Filing taxes online 1040ez If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property. Filing taxes online 1040ez $1,750,000. Filing taxes online 1040ez 00 5. Filing taxes online 1040ez Enter any proceeds you received from the foreclosure sale   6. Filing taxes online 1040ez Add line 4 and line 5 $1,750,000. Filing taxes online 1040ez 00 7. Filing taxes online 1040ez Enter the adjusted basis of the transferred property $3,000,000. Filing taxes online 1040ez 00 8. Filing taxes online 1040ez Gain or loss from foreclosure or repossession. Filing taxes online 1040ez Subtract line 7 from line 6 ($1,250,000. Filing taxes online 1040ez 00) * The income may not be taxable. Filing taxes online 1040ez See chapter 1 for more details. Filing taxes online 1040ez    Insolvency Worksheet—Frank and Kathy Willow Date debt was canceled (mm/dd/yy) 12/26/13 Part I. Filing taxes online 1040ez Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. Filing taxes online 1040ez Credit card debt $ 18,000 2. Filing taxes online 1040ez Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 750,000 3. Filing taxes online 1040ez Car and other vehicle loans $ 4. Filing taxes online 1040ez Medical bills owed $ 5. Filing taxes online 1040ez Student loans $ 6. Filing taxes online 1040ez Accrued or past-due mortgage interest $ 7. Filing taxes online 1040ez Accrued or past-due real estate taxes $ 8. Filing taxes online 1040ez Accrued or past-due utilities (water, gas, electric) $ 9. Filing taxes online 1040ez Accrued or past-due child care costs $ 10. Filing taxes online 1040ez Federal or state income taxes remaining due (for prior tax years) $ 11. Filing taxes online 1040ez Judgments $ 12. Filing taxes online 1040ez Business debts (including those owed as a sole proprietor or partner) $ 13. Filing taxes online 1040ez Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. Filing taxes online 1040ez Other liabilities (debts) not included above $ 15. Filing taxes online 1040ez Total liabilities immediately before the cancellation. Filing taxes online 1040ez Add lines 1 through 14. Filing taxes online 1040ez $ 768,000 Part II. Filing taxes online 1040ez Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. Filing taxes online 1040ez Cash and bank account balances $ 15,000 17. Filing taxes online 1040ez Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 18. Filing taxes online 1040ez Cars and other vehicles $ 10,000 19. Filing taxes online 1040ez Computers $ 20. Filing taxes online 1040ez Household goods and furnishings (for example, appliances, electronics, furniture, etc. Filing taxes online 1040ez ) $ 17,000 21. Filing taxes online 1040ez Tools $ 22. Filing taxes online 1040ez Jewelry $ 23. Filing taxes online 1040ez Clothing $ 24. Filing taxes online 1040ez Books $ 25. Filing taxes online 1040ez Stocks and bonds $ 26. Filing taxes online 1040ez Investments in coins, stamps, paintings, or other collectibles $ 27. Filing taxes online 1040ez Firearms, sports, photographic, and other hobby equipment $ 28. Filing taxes online 1040ez Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 29. Filing taxes online 1040ez Interest in a pension plan $ 30. Filing taxes online 1040ez Interest in education accounts $ 31. Filing taxes online 1040ez Cash value of life insurance $ 32. Filing taxes online 1040ez Security deposits with landlords, utilities, and others $ 33. Filing taxes online 1040ez Interests in partnerships $ 34. Filing taxes online 1040ez Value of investment in a business $ 35. Filing taxes online 1040ez Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. Filing taxes online 1040ez Other assets not included above $ 37. Filing taxes online 1040ez FMV of total assets immediately before the cancellation. Filing taxes online 1040ez Add lines 16 through 36. Filing taxes online 1040ez $ 42,000 Part III. Filing taxes online 1040ez Insolvency 38. Filing taxes online 1040ez Amount of Insolvency. Filing taxes online 1040ez Subtract line 37 from line 15. Filing taxes online 1040ez If zero or less, you are not insolvent. Filing taxes online 1040ez $ 726,000    Frank and Kathy's Form 982 This image is too large to be displayed in the current screen. Filing taxes online 1040ez Please click the link to view the image. Filing taxes online 1040ez Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Prev  Up  Next   Home   More Online Publications
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Understanding your CP259 Notice

We've sent you this notice because our records indicate you didn't file the required business tax return identified in the notice.

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Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).
 


What you need to do

  • File your required business return immediately.
    • If eligible, file your return electronically with all required schedules, using your e-file provider, or
    • File a paper return with all required schedules
  • Complete the Response form enclosed with your notice and mail it to us, using the enclosed envelope:
    • To explain why you are filing late.
    • To explain why you don’t think you need to file.
    • If you have already filed and it's been more than four weeks, or if you used a different name or Employer ID number (EIN) than shown on the notice when filing.
  • If you have filed within the last four weeks using the same name and EIN shown on the notice, you may disregard this notice.

You may want to...

  • Review Tax Information for Businesses which provides information regarding various business filing issues.
  • Review your records and ensure all returns are filed timely.

Answers to Common Questions

Why did I receive multiple CP 259 notices?
If your business hasn't filed tax returns, a notice will be generated and mailed for each tax form and tax period the IRS shows as delinquent.

I have never had employees and or filed this return previously so why did I receive a notice requesting me to file?
When you apply for an Employer Identification number, filing requirements are established requiring specific types of returns to be filed (e.g. Form 940, Employer's Annual Federal Unemployment Tax Return; Form 941, Employer's Quarterly Federal Tax Return; Form 1120, U.S. Corporation Income Tax Return, etc.). When the return is not filed, the IRS considers it to be delinquent and generates a notice requesting the return be filed.

Do I still need to file a tax return even if I had no employees or business activity during the tax period(s) in question?
If you had no employees or business activity during a tax period you are not required to file a return for that tax period. You still need to respond to this notice. If you made Federal Tax Deposits or other payments or credits for the tax period, you must file a signed return showing the payments to get a refund.


Tips for next year

File all required returns by the appropriate due date.


Understanding your notice

Reading your notice
Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

Notice CP259, Page 1

Notice CP259, Page 2

Notice CP259, Page 3

Notice CP259, Page 4

Page Last Reviewed or Updated: 28-Mar-2014

The Filing Taxes Online 1040ez

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