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Fillable 1040ez Form 2012

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Fillable 1040ez Form 2012

Fillable 1040ez form 2012 8. Fillable 1040ez form 2012   Gains and Losses Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesDetermining Gain or Loss Like-Kind Exchanges Transfer to Spouse Ordinary or Capital Gain or LossCapital Assets Noncapital Assets Hedging (Commodity Futures) Livestock Converted Wetland and Highly Erodible Cropland Timber Sale of a Farm Foreclosure or Repossession Abandonment Introduction This chapter explains how to figure, and report on your tax return, your gain or loss on the disposition of your property or debt and whether such gain or loss is ordinary or capital. Fillable 1040ez form 2012 Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. Fillable 1040ez form 2012 Dispositions discussed in this chapter include sales, exchanges, foreclosures, repossessions, canceled debts, hedging transactions, and elections to treat cutting of timber as a sale or exchange. Fillable 1040ez form 2012 Topics - This chapter discusses: Sales and exchanges Ordinary or capital gain or loss Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 523 Selling Your Home 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 908 Bankruptcy Tax Guide Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8949 Sales and Other Dispositions of Capital Assets See chapter 16 for information about getting publications and forms. Fillable 1040ez form 2012 Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. Fillable 1040ez form 2012 This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. Fillable 1040ez form 2012 A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Fillable 1040ez form 2012 An exchange is a transfer of property for other property or services. Fillable 1040ez form 2012 Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. Fillable 1040ez form 2012 If the amount you realize from a sale or exchange of property is more than its adjusted basis, you will have a gain. Fillable 1040ez form 2012 If the adjusted basis of the property is more than the amount you realize, you will have a loss. Fillable 1040ez form 2012 Basis and adjusted basis. Fillable 1040ez form 2012   The basis of property you buy is usually its cost. Fillable 1040ez form 2012 The adjusted basis of property is basis plus certain additions and minus certain deductions. Fillable 1040ez form 2012 See chapter 6 for more information about basis and adjusted basis. Fillable 1040ez form 2012 Amount realized. Fillable 1040ez form 2012   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (FMV) (defined in chapter 6) of all property or services you receive. Fillable 1040ez form 2012 The amount you realize also includes any of your liabilities assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Fillable 1040ez form 2012   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. Fillable 1040ez form 2012 Amount recognized. Fillable 1040ez form 2012   Your gain or loss realized from a sale or exchange of certain property is usually a recognized gain or loss for tax purposes. Fillable 1040ez form 2012 A recognized gain is a gain you must include in gross income and report on your income tax return. Fillable 1040ez form 2012 A recognized loss is a loss you deduct from gross income. Fillable 1040ez form 2012 However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. Fillable 1040ez form 2012 See Like-Kind Exchanges next. Fillable 1040ez form 2012 Also, a loss from the disposition of property held for personal use is not deductible. Fillable 1040ez form 2012 Like-Kind Exchanges Certain exchanges of property are not taxable. Fillable 1040ez form 2012 This means any gain from the exchange is not recognized, and any loss cannot be deducted. Fillable 1040ez form 2012 Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Fillable 1040ez form 2012 The exchange of property for the same kind of property is the most common type of nontaxable exchange. Fillable 1040ez form 2012 To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. Fillable 1040ez form 2012 Qualifying property. Fillable 1040ez form 2012 Like-kind property. Fillable 1040ez form 2012 These two requirements are discussed later. Fillable 1040ez form 2012 Multiple-party transactions. Fillable 1040ez form 2012   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. Fillable 1040ez form 2012 Any part of these multiple-party transactions can qualify as a like-kind exchange if it meets all the requirements described in this section. Fillable 1040ez form 2012 Receipt of title from third party. Fillable 1040ez form 2012   If you receive property in a like-kind exchange and the other party who transfers the property to you does not give you the title, but a third party does, you can still treat this transaction as a like-kind exchange if it meets all the requirements. Fillable 1040ez form 2012 Basis of property received. Fillable 1040ez form 2012   If you receive property in a like-kind exchange, the basis of the property will be the same as the basis of the property you gave up. Fillable 1040ez form 2012 See chapter 6 for more information. Fillable 1040ez form 2012 Money paid. Fillable 1040ez form 2012   If, in addition to giving up like-kind property, you pay money in a like-kind exchange, you still have no recognized gain or loss. Fillable 1040ez form 2012 The basis of the property received is the basis of the property given up, increased by the money paid. Fillable 1040ez form 2012 Example. Fillable 1040ez form 2012 You traded an old tractor with an adjusted basis of $15,000 for a new one. Fillable 1040ez form 2012 The new tractor costs $300,000. Fillable 1040ez form 2012 You were allowed $80,000 for the old tractor and paid $220,000 cash. Fillable 1040ez form 2012 You have no recognized gain or loss on the transaction regardless of the adjusted basis of your old tractor and the basis of the new tractor is $235,000, the adjusted basis of the old tractor plus the cash paid ($15,000 + $220,000). Fillable 1040ez form 2012 If you had sold the old tractor to a third party for $80,000 and bought a new one, you would have a recognized gain or loss on the sale of your old tractor equal to the difference between the amount realized and the adjusted basis of the old tractor. Fillable 1040ez form 2012 In this case, the taxable gain would be $65,000 ($80,000 − $15,000) and the basis of the new tractor would be $300,000. Fillable 1040ez form 2012 Reporting the exchange. Fillable 1040ez form 2012   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. Fillable 1040ez form 2012 The Instructions for Form 8824 explain how to report the details of the exchange. Fillable 1040ez form 2012   If you have any recognized gain because you received money or unlike property, report it on Schedule D (Form 1040) or Form 4797, whichever applies. Fillable 1040ez form 2012 You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. Fillable 1040ez form 2012 See chapter 9 for more information. Fillable 1040ez form 2012 Qualifying property. Fillable 1040ez form 2012   In a like-kind exchange, both the property you give up and the property you receive must be held by you for investment or for productive use in your trade or business. Fillable 1040ez form 2012 Machinery, buildings, land, trucks, breeding livestock, rental houses, and certain mutual ditch, reservoir, or irrigation company stock are examples of property that may qualify. Fillable 1040ez form 2012 Nonqualifying property. Fillable 1040ez form 2012   The rules for like-kind exchanges do not apply to exchanges of the following property. Fillable 1040ez form 2012 Property you use for personal purposes, such as your home and family car. Fillable 1040ez form 2012 Stock in trade or other property held primarily for sale, such as crops and produce. Fillable 1040ez form 2012 Stocks, bonds, or notes. Fillable 1040ez form 2012 However, see Qualifying property above. Fillable 1040ez form 2012 Other securities or evidences of indebtedness, such as accounts receivable. Fillable 1040ez form 2012 Partnership interests. Fillable 1040ez form 2012 However, you may have a nontaxable exchange under other rules. Fillable 1040ez form 2012 See Other Nontaxable Exchanges in chapter 1 of Publication 544. Fillable 1040ez form 2012 Like-kind property. Fillable 1040ez form 2012   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. Fillable 1040ez form 2012 Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Fillable 1040ez form 2012 Generally, real property exchanged for real property qualifies as an exchange of like-kind property. Fillable 1040ez form 2012 For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. Fillable 1040ez form 2012   An exchange of a tractor for a new tractor is an exchange of like-kind property, and so is an exchange of timber land for crop acreage. Fillable 1040ez form 2012 An exchange of a tractor for acreage, however, is not an exchange of like-kind property. Fillable 1040ez form 2012 The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. Fillable 1040ez form 2012 For example, the exchange of a bull for a cow is not a like-kind exchange. Fillable 1040ez form 2012 An exchange of the assets of a business for the assets of a similar business cannot be treated as an exchange of one property for another property. Fillable 1040ez form 2012    Note. Fillable 1040ez form 2012 Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. Fillable 1040ez form 2012 Personal property. Fillable 1040ez form 2012   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. Fillable 1040ez form 2012 Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. Fillable 1040ez form 2012 Property classified in any General Asset Class may not be classified within a Product Class. Fillable 1040ez form 2012 Assets that are not in the same class will qualify as like-kind property if they are of the same nature or character. Fillable 1040ez form 2012 General Asset Classes. Fillable 1040ez form 2012   General Asset Classes describe the types of property frequently used in many businesses. Fillable 1040ez form 2012 They include, but are not limited to, the following property. Fillable 1040ez form 2012 Office furniture, fixtures, and equipment (asset class 00. Fillable 1040ez form 2012 11). Fillable 1040ez form 2012 Information systems, such as computers and peripheral equipment (asset class 00. Fillable 1040ez form 2012 12). Fillable 1040ez form 2012 Data handling equipment except computers (asset class 00. Fillable 1040ez form 2012 13). Fillable 1040ez form 2012 Automobiles and taxis (asset class 00. Fillable 1040ez form 2012 22). Fillable 1040ez form 2012 Light general purpose trucks (asset class 00. Fillable 1040ez form 2012 241). Fillable 1040ez form 2012 Heavy general purpose trucks (asset class 00. Fillable 1040ez form 2012 242). Fillable 1040ez form 2012 Tractor units for use over-the-road (asset class 00. Fillable 1040ez form 2012 26). Fillable 1040ez form 2012 Trailers and trailer-mounted containers (asset class 00. Fillable 1040ez form 2012 27). Fillable 1040ez form 2012 Industrial steam and electric generation and/or distribution systems (asset class 00. Fillable 1040ez form 2012 4). Fillable 1040ez form 2012 Product Classes. Fillable 1040ez form 2012   Product Classes include property listed in a 6-digit product class in sectors 31 through 33 of the North American Industry Classification System (NAICS) of the Executive Office of the President, Office of Management and Budget, United States, (NAICS Manual). Fillable 1040ez form 2012 The latest version of the manual can be accessed at www. Fillable 1040ez form 2012 census. Fillable 1040ez form 2012 gov/eos/www/naics/. Fillable 1040ez form 2012 Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. Fillable 1040ez form 2012 ntis. Fillable 1040ez form 2012 gov/products/naics. Fillable 1040ez form 2012 aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. Fillable 1040ez form 2012 A CD-ROM version with search and retrieval software is also available from NTIS. Fillable 1040ez form 2012    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. Fillable 1040ez form 2012 Partially nontaxable exchange. Fillable 1040ez form 2012   If, in addition to like-kind property, you receive money or unlike property in an exchange on which you realize gain, you have a partially nontaxable exchange. Fillable 1040ez form 2012 You are taxed on the gain you realize, but only to the extent of the money and the FMV of the unlike property you receive. Fillable 1040ez form 2012 A loss is not deductible. Fillable 1040ez form 2012 Example 1. Fillable 1040ez form 2012 You trade farmland that cost $30,000 for $10,000 cash and other land to be used in farming with a FMV of $50,000. Fillable 1040ez form 2012 You have a realized gain of $30,000 ($50,000 FMV of new land + $10,000 cash − $30,000 basis of old farmland = $30,000 realized gain). Fillable 1040ez form 2012 However, only $10,000, the cash received, is recognized (included in income). Fillable 1040ez form 2012 Example 2. Fillable 1040ez form 2012 Assume the same facts as in Example 1, except that, instead of money, you received a tractor with a FMV of $10,000. Fillable 1040ez form 2012 Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). Fillable 1040ez form 2012 Example 3. Fillable 1040ez form 2012 Assume in Example 1 that the FMV of the land you received was only $15,000. Fillable 1040ez form 2012 Your $5,000 loss is not recognized. Fillable 1040ez form 2012 Unlike property given up. Fillable 1040ez form 2012   If, in addition to like-kind property, you give up unlike property, you must recognize gain or loss on the unlike property you give up. Fillable 1040ez form 2012 The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. Fillable 1040ez form 2012 Like-kind exchanges between related persons. Fillable 1040ez form 2012   Special rules apply to like-kind exchanges between related persons. Fillable 1040ez form 2012 These rules affect both direct and indirect exchanges. Fillable 1040ez form 2012 Under these rules, if either person disposes of the property within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Fillable 1040ez form 2012 The gain or loss on the original exchange must be recognized as of the date of the later disposition. Fillable 1040ez form 2012 The 2-year holding period begins on the date of the last transfer of property that was part of the like-kind exchange. Fillable 1040ez form 2012 Related persons. Fillable 1040ez form 2012   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. Fillable 1040ez form 2012 ), you and a corporation in which you have more than 50% ownership, you and a partnership in which you directly or indirectly own more than a 50% interest of the capital or profits, and two partnerships in which you directly or indirectly own more than 50% of the capital interests or profits. Fillable 1040ez form 2012   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. Fillable 1040ez form 2012 Example. Fillable 1040ez form 2012 You used a grey pickup truck in your farming business. Fillable 1040ez form 2012 Your sister used a red pickup truck in her landscaping business. Fillable 1040ez form 2012 In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. Fillable 1040ez form 2012 At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. Fillable 1040ez form 2012 The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. Fillable 1040ez form 2012 You realized a gain of $1,000 (the $7,200 FMV of the red pickup truck, minus the grey pickup truck's $6,000 adjusted basis, minus the $200 you paid). Fillable 1040ez form 2012 Your sister realized a gain of $6,200 (the $7,000 FMV of the grey pickup truck plus the $200 you paid, minus the $1,000 adjusted basis of the red pickup truck). Fillable 1040ez form 2012 However, because this was a like-kind exchange, you recognized no gain. Fillable 1040ez form 2012 Your basis in the red pickup truck was $6,200 (the $6,000 adjusted basis of the grey pickup truck plus the $200 you paid). Fillable 1040ez form 2012 She recognized gain only to the extent of the money she received, $200. Fillable 1040ez form 2012 Her basis in the grey pickup truck was $1,000 (the $1,000 adjusted basis of the red pickup truck minus the $200 received, plus the $200 gain recognized). Fillable 1040ez form 2012 In 2013, you sold the red pickup truck to a third party for $7,000. Fillable 1040ez form 2012 Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Fillable 1040ez form 2012 On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. Fillable 1040ez form 2012 You also report a loss on the sale as $200 (the adjusted basis of the red pickup truck, $7,200 (its $6,200 basis plus the $1,000 gain recognized), minus the $7,000 realized from the sale). Fillable 1040ez form 2012 In addition, your sister must report on her tax return for 2013 the $6,000 balance of her gain on the 2012 exchange. Fillable 1040ez form 2012 Her adjusted basis in the grey pickup truck is increased to $7,000 (its $1,000 basis plus the $6,000 gain recognized). Fillable 1040ez form 2012 Exceptions to the rules for related persons. Fillable 1040ez form 2012   The following property dispositions are excluded from these rules. Fillable 1040ez form 2012 Dispositions due to the death of either related person. Fillable 1040ez form 2012 Involuntary conversions. Fillable 1040ez form 2012 Dispositions where it is established to the satisfaction of the IRS that neither the exchange nor the disposition has, as a main purpose, the avoidance of federal income tax. Fillable 1040ez form 2012 Multiple property exchanges. Fillable 1040ez form 2012   Under the like-kind exchange rules, you must generally make a property-by-property comparison to figure your recognized gain and the basis of the property you receive in the exchange. Fillable 1040ez form 2012 However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. Fillable 1040ez form 2012 Transfer and receive properties in two or more exchange groups. Fillable 1040ez form 2012 Transfer or receive more than one property within a single exchange group. Fillable 1040ez form 2012   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. Fillable 1040ez form 2012 Deferred exchange. Fillable 1040ez form 2012   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. Fillable 1040ez form 2012 A deferred exchange is an exchange in which you transfer property you use in business or hold for investment and later receive like-kind property you will use in business or hold for investment. Fillable 1040ez form 2012 The property you receive is replacement property. Fillable 1040ez form 2012 The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. Fillable 1040ez form 2012 In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. Fillable 1040ez form 2012   For more information see Deferred Exchanges in chapter 1 of Publication 544. Fillable 1040ez form 2012 Transfer to Spouse No gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or a former spouse if incident to divorce. Fillable 1040ez form 2012 This rule does not apply if the recipient is a nonresident alien. Fillable 1040ez form 2012 Nor does this rule apply to a transfer in trust to the extent the liabilities assumed and the liabilities on the property are more than the property's adjusted basis. Fillable 1040ez form 2012 Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is not considered a sale or exchange. Fillable 1040ez form 2012 The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Fillable 1040ez form 2012 This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its FMV at the time of transfer or any consideration paid by the recipient. Fillable 1040ez form 2012 This rule applies for determining loss as well as gain. Fillable 1040ez form 2012 Any gain recognized on a transfer in trust increases the basis. Fillable 1040ez form 2012 For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. Fillable 1040ez form 2012 Ordinary or Capital Gain or Loss Generally, you will have a capital gain or loss if you sell or exchange a capital asset (defined below). Fillable 1040ez form 2012 You may also have a capital gain if your section 1231 transactions result in a net gain. Fillable 1040ez form 2012 See Section 1231 Gains and Losses in  chapter 9. Fillable 1040ez form 2012 To figure your net capital gain or loss, you must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). Fillable 1040ez form 2012 Your net capital gains may be taxed at a lower tax rate than ordinary income. Fillable 1040ez form 2012 See Capital Gains Tax Rates , later. Fillable 1040ez form 2012 Your deduction for a net capital loss may be limited. Fillable 1040ez form 2012 See Treatment of Capital Losses , later. Fillable 1040ez form 2012 Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. Fillable 1040ez form 2012 The following items are examples of capital assets. Fillable 1040ez form 2012 A home owned and occupied by you and your family. Fillable 1040ez form 2012 Household furnishings. Fillable 1040ez form 2012 A car used for pleasure. Fillable 1040ez form 2012 If your car is used both for pleasure and for farm business, it is partly a capital asset and partly a noncapital asset, defined later. Fillable 1040ez form 2012 Stocks and bonds. Fillable 1040ez form 2012 However, there are special rules for gains on qualified small business stock. Fillable 1040ez form 2012 For more information on this subject, see Gains on Qualified Small Business Stock and Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. Fillable 1040ez form 2012 Personal-use property. Fillable 1040ez form 2012   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. Fillable 1040ez form 2012 Loss from the sale or exchange of personal-use property is not deductible. Fillable 1040ez form 2012 You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Fillable 1040ez form 2012 For information on casualties and thefts, see chapter 11. Fillable 1040ez form 2012 Long and Short Term Where you report a capital gain or loss depends on how long you own the asset before you sell or exchange it. Fillable 1040ez form 2012 The time you own an asset before disposing of it is the holding period. Fillable 1040ez form 2012 If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. Fillable 1040ez form 2012 Report it in Part I of Schedule D (Form 1040). Fillable 1040ez form 2012 If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. Fillable 1040ez form 2012 Report it in Part II of Schedule D (Form 1040). Fillable 1040ez form 2012 Holding period. Fillable 1040ez form 2012   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. Fillable 1040ez form 2012 The day you disposed of the property is part of your holding period. Fillable 1040ez form 2012 Example. Fillable 1040ez form 2012 If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Fillable 1040ez form 2012 If you sold the asset on June 19, 2013, your holding period is not longer than 1 year, but if you sold it on June 20, 2013, your holding period is longer than 1 year. Fillable 1040ez form 2012 Inherited property. Fillable 1040ez form 2012   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Fillable 1040ez form 2012 This rule does not apply to livestock used in a farm business. Fillable 1040ez form 2012 See Holding period under Livestock , later. Fillable 1040ez form 2012 Nonbusiness bad debt. Fillable 1040ez form 2012   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. Fillable 1040ez form 2012 See chapter 4 of Publication 550. Fillable 1040ez form 2012 Nontaxable exchange. Fillable 1040ez form 2012   If you acquire an asset in exchange for another asset and your basis for the new asset is figured, in whole or in part, by using your basis in the old property, the holding period of the new property includes the holding period of the old property. Fillable 1040ez form 2012 That is, it begins on the same day as your holding period for the old property. Fillable 1040ez form 2012 Gift. Fillable 1040ez form 2012   If you receive a gift of property and your basis in it is figured using the donor's basis, your holding period includes the donor's holding period. Fillable 1040ez form 2012 Real property. Fillable 1040ez form 2012   To figure how long you held real property, start counting on the day after you received title to it or, if earlier, on the day after you took possession of it and assumed the burdens and privileges of ownership. Fillable 1040ez form 2012   However, taking possession of real property under an option agreement is not enough to start the holding period. Fillable 1040ez form 2012 The holding period cannot start until there is an actual contract of sale. Fillable 1040ez form 2012 The holding period of the seller cannot end before that time. Fillable 1040ez form 2012 Figuring Net Gain or Loss The totals for short-term capital gains and losses and the totals for long-term capital gains and losses must be figured separately. Fillable 1040ez form 2012 Net short-term capital gain or loss. Fillable 1040ez form 2012   Combine your short-term capital gains and losses. Fillable 1040ez form 2012 Do this by adding all of your short-term capital gains. Fillable 1040ez form 2012 Then add all of your short-term capital losses. Fillable 1040ez form 2012 Subtract the lesser total from the greater. Fillable 1040ez form 2012 The difference is your net short-term capital gain or loss. Fillable 1040ez form 2012 Net long-term capital gain or loss. Fillable 1040ez form 2012   Follow the same steps to combine your long-term capital gains and losses. Fillable 1040ez form 2012 The result is your net long-term capital gain or loss. Fillable 1040ez form 2012 Net gain. Fillable 1040ez form 2012   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Fillable 1040ez form 2012 However, part of your gain (but not more than your net capital gain) may be taxed at a lower rate than the rate of tax on your ordinary income. Fillable 1040ez form 2012 See Capital Gains Tax Rates , later. Fillable 1040ez form 2012 Net loss. Fillable 1040ez form 2012   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Fillable 1040ez form 2012 But there are limits on how much loss you can deduct and when you can deduct it. Fillable 1040ez form 2012 See Treatment of Capital Losses next. Fillable 1040ez form 2012 Treatment of Capital Losses If your capital losses are more than your capital gains, you must claim the difference even if you do not have ordinary income to offset it. Fillable 1040ez form 2012 For taxpayers other than corporations, the yearly limit on the capital loss you can deduct is $3,000 ($1,500 if you are married and file a separate return). Fillable 1040ez form 2012 If your other income is low, you may not be able to use the full $3,000. Fillable 1040ez form 2012 The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). Fillable 1040ez form 2012 Capital loss carryover. Fillable 1040ez form 2012   Generally, you have a capital loss carryover if either of the following situations applies to you. Fillable 1040ez form 2012 Your net loss on Schedule D (Form 1040), is more than the yearly limit. Fillable 1040ez form 2012 Your taxable income without your deduction for exemptions is less than zero. Fillable 1040ez form 2012 If either of these situations applies to you for 2013, see Capital Losses under Reporting Capital Gains and Losses in chapter 4 of Publication 550 to figure the amount you can carry over to 2014. Fillable 1040ez form 2012    To figure your capital loss carryover from 2013 to 2014, you will need a copy of your 2013 Form 1040 and Schedule D (Form 1040). Fillable 1040ez form 2012 Capital Gains Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. Fillable 1040ez form 2012 These lower rates are called the maximum capital gains rates. Fillable 1040ez form 2012 The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. Fillable 1040ez form 2012 See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). Fillable 1040ez form 2012 Also see Publication 550. Fillable 1040ez form 2012 Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. Fillable 1040ez form 2012 A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). Fillable 1040ez form 2012 Property held for sale in the ordinary course of your farm business. Fillable 1040ez form 2012   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. Fillable 1040ez form 2012 Gain or loss from sales or other dispositions of this property is reported on Schedule F (Form 1040) (not on Schedule D (Form 1040) or Form 4797). Fillable 1040ez form 2012 The treatment of this property is discussed in chapter 3. Fillable 1040ez form 2012 Land and depreciable properties. Fillable 1040ez form 2012   Land and depreciable property you use in farming are not capital assets. Fillable 1040ez form 2012 Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. Fillable 1040ez form 2012 However, your gains and losses from sales and exchanges of your farmland and depreciable properties must be considered together with certain other transactions to determine whether the gains and losses are treated as capital or ordinary gains and losses. Fillable 1040ez form 2012 The sales of these business assets are reported on Form 4797. Fillable 1040ez form 2012 See chapter 9 for more information. Fillable 1040ez form 2012 Hedging (Commodity Futures) Hedging transactions are transactions that you enter into in the normal course of business primarily to manage the risk of interest rate or price changes, or currency fluctuations, with respect to borrowings, ordinary property, or ordinary obligations. Fillable 1040ez form 2012 Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. Fillable 1040ez form 2012 A commodity futures contract is a standardized, exchange-traded contract for the sale or purchase of a fixed amount of a commodity at a future date for a fixed price. Fillable 1040ez form 2012 The holder of an option on a futures contract has the right (but not the obligation) for a specified period of time to enter into a futures contract to buy or sell at a particular price. Fillable 1040ez form 2012 A forward contract is generally similar to a futures contract except that the terms are not standardized and the contract is not exchange traded. Fillable 1040ez form 2012 Businesses may enter into commodity futures contracts or forward contracts and may acquire options on commodity futures contracts as either of the following. Fillable 1040ez form 2012 Hedging transactions. Fillable 1040ez form 2012 Transactions that are not hedging transactions. Fillable 1040ez form 2012 Futures transactions with exchange-traded commodity futures contracts that are not hedging transactions, generally, result in capital gain or loss and are subject to the mark-to-market rules discussed in Publication 550. Fillable 1040ez form 2012 There is a limit on the amount of capital losses you can deduct each year. Fillable 1040ez form 2012 Hedging transactions are not subject to the mark-to-market rules. Fillable 1040ez form 2012 If, as a farmer-producer, to protect yourself from the risk of unfavorable price fluctuations, you enter into commodity forward contracts, futures contracts, or options on futures contracts and the contracts cover an amount of the commodity within your range of production, the transactions are generally considered hedging transactions. Fillable 1040ez form 2012 They can take place at any time you have the commodity under production, have it on hand for sale, or reasonably expect to have it on hand. Fillable 1040ez form 2012 The gain or loss on the termination of these hedges is generally ordinary gain or loss. Fillable 1040ez form 2012 Farmers who file their income tax returns on the cash method report any profit or loss on the hedging transaction on Schedule F, line 8. Fillable 1040ez form 2012 Gains or losses from hedging transactions that hedge supplies of a type regularly used or consumed in the ordinary course of your trade or business may be ordinary gains or losses. Fillable 1040ez form 2012 Examples include fuel and feed. Fillable 1040ez form 2012 If you have numerous transactions in the commodity futures market during the year, you must be able to show which transactions are hedging transactions. Fillable 1040ez form 2012 Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. Fillable 1040ez form 2012 It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. Fillable 1040ez form 2012 Retain the identification of each hedging transaction with your books and records. Fillable 1040ez form 2012 Also, identify the item(s) or aggregate risk that is being hedged in your records. Fillable 1040ez form 2012 Although the identification of the hedging transaction must be made before the end of the day it was entered into, you have 35 days after entering into the transaction to identify the hedged item(s) or risk. Fillable 1040ez form 2012 For more information on the tax treatment of futures and options contracts, see Commodity Futures and Section 1256 Contracts Marked to Market in Publication 550. Fillable 1040ez form 2012 Accounting methods for hedging transactions. Fillable 1040ez form 2012   The accounting method you use for a hedging transaction must clearly reflect income. Fillable 1040ez form 2012 This means that your accounting method must reasonably match the timing of income, deduction, gain, or loss from a hedging transaction with the timing of income, deduction, gain, or loss from the item or items being hedged. Fillable 1040ez form 2012 There are requirements and limits on the method you can use for certain hedging transactions. Fillable 1040ez form 2012 See Regulations section 1. Fillable 1040ez form 2012 446-4(e) for those requirements and limits. Fillable 1040ez form 2012   Hedging transactions must be accounted for under the rules stated above unless the transaction is subject to mark-to-market accounting under section 475 or you use an accounting method other than the following methods. Fillable 1040ez form 2012 Cash method. Fillable 1040ez form 2012 Farm-price method. Fillable 1040ez form 2012 Unit-livestock-price method. Fillable 1040ez form 2012   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. Fillable 1040ez form 2012   Your books and records must describe the accounting method used for each type of hedging transaction. Fillable 1040ez form 2012 They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. Fillable 1040ez form 2012 You must make the additional identification no more than 35 days after entering into the hedging transaction. Fillable 1040ez form 2012 Example of a hedging transaction. Fillable 1040ez form 2012   You file your income tax returns on the cash method. Fillable 1040ez form 2012 On July 2 you anticipate a yield of 50,000 bushels of corn this year. Fillable 1040ez form 2012 The December futures price is $5. Fillable 1040ez form 2012 75 a bushel, but there are indications that by harvest time the price will drop. Fillable 1040ez form 2012 To protect yourself against a drop in the price, you enter into the following hedging transaction. Fillable 1040ez form 2012 You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. Fillable 1040ez form 2012 75 a bushel. Fillable 1040ez form 2012   The price did not drop as anticipated but rose to $6 a bushel. Fillable 1040ez form 2012 In November, you sell your crop at a local elevator for $6 a bushel. Fillable 1040ez form 2012 You also close out your futures position by buying ten December contracts for $6 a bushel. Fillable 1040ez form 2012 You paid a broker's commission of $1,400 ($70 per contract) for the complete in and out position in the futures market. Fillable 1040ez form 2012   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. Fillable 1040ez form 2012 Your loss on the hedge is 25 cents a bushel. Fillable 1040ez form 2012 In effect, the net selling price of your corn is $5. Fillable 1040ez form 2012 75 a bushel. Fillable 1040ez form 2012   Report the results of your futures transactions and your sale of corn separately on Schedule F. Fillable 1040ez form 2012 See the instructions for the 2013 Schedule F (Form 1040). Fillable 1040ez form 2012   The loss on your futures transactions is $13,900, figured as follows. Fillable 1040ez form 2012 July 2 - Sold December corn futures (50,000 bu. Fillable 1040ez form 2012 @$5. Fillable 1040ez form 2012 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Fillable 1040ez form 2012 @$6 plus $1,400 broker's commission) 301,400 Futures loss ($13,900) This loss is reported as a negative figure on Schedule F, Part I, line 8, as other income. Fillable 1040ez form 2012   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. Fillable 1040ez form 2012 × $6). Fillable 1040ez form 2012 Report it on Schedule F, Part I, line 2, as income from sales of products you raised. Fillable 1040ez form 2012   Assume you were right and the price went down 25 cents a bushel. Fillable 1040ez form 2012 In effect, you would still net $5. Fillable 1040ez form 2012 75 a bushel, figured as follows. Fillable 1040ez form 2012 Sold cash corn, per bushel $5. Fillable 1040ez form 2012 50 Gain on hedge, per bushel . Fillable 1040ez form 2012 25 Net price, per bushel $5. Fillable 1040ez form 2012 75       The gain on your futures transactions would have been $11,100, figured as follows. Fillable 1040ez form 2012 July 2 - Sold December corn futures (50,000 bu. Fillable 1040ez form 2012 @$5. Fillable 1040ez form 2012 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Fillable 1040ez form 2012 @$5. Fillable 1040ez form 2012 50 plus $1,400 broker's commission) 276,400 Futures gain $11,100 The $11,100 is reported on Schedule F, Part I, line 8, as other income. Fillable 1040ez form 2012   The proceeds from the sale of your corn at the local elevator, $275,000, are reported on Schedule F, Part I, line 2, as income from sales of products you raised. Fillable 1040ez form 2012 Livestock This part discusses the sale or exchange of livestock used in your farm business. Fillable 1040ez form 2012 Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. Fillable 1040ez form 2012 However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. Fillable 1040ez form 2012 See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. Fillable 1040ez form 2012 The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. Fillable 1040ez form 2012 The sale of this livestock is reported on Schedule F. Fillable 1040ez form 2012 See chapter 3. Fillable 1040ez form 2012 Also, special rules apply to sales or exchanges caused by weather-related conditions. Fillable 1040ez form 2012 See chapter 3. Fillable 1040ez form 2012 Holding period. Fillable 1040ez form 2012   The sale or exchange of livestock used in your farm business (defined below) qualifies as a section 1231 transaction if you held the livestock for 12 months or more (24 months or more for horses and cattle). Fillable 1040ez form 2012 Livestock. Fillable 1040ez form 2012   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. Fillable 1040ez form 2012 Also, for section 1231 transactions, livestock does not include chickens, turkeys, pigeons, geese, emus, ostriches, rheas, or other birds, fish, frogs, reptiles, etc. Fillable 1040ez form 2012 Livestock used in farm business. Fillable 1040ez form 2012   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. Fillable 1040ez form 2012 The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. Fillable 1040ez form 2012 An animal is not held for draft, breeding, dairy, or sporting purposes merely because it is suitable for that purpose, or because it is held for sale to other persons for use by them for that purpose. Fillable 1040ez form 2012 However, a draft, breeding, or sporting purpose may be present if an animal is disposed of within a reasonable time after it is prevented from its intended use or made undesirable as a result of an accident, disease, drought, or unfitness of the animal. Fillable 1040ez form 2012 Example 1. Fillable 1040ez form 2012 You discover an animal that you intend to use for breeding purposes is sterile. Fillable 1040ez form 2012 You dispose of it within a reasonable time. Fillable 1040ez form 2012 This animal was held for breeding purposes. Fillable 1040ez form 2012 Example 2. Fillable 1040ez form 2012 You retire and sell your entire herd, including young animals that you would have used for breeding or dairy purposes had you remained in business. Fillable 1040ez form 2012 These young animals were held for breeding or dairy purposes. Fillable 1040ez form 2012 Also, if you sell young animals to reduce your breeding or dairy herd because of drought, these animals are treated as having been held for breeding or dairy purposes. Fillable 1040ez form 2012 See Sales Caused by Weather-Related Conditions in chapter 3. Fillable 1040ez form 2012 Example 3. Fillable 1040ez form 2012 You are in the business of raising hogs for slaughter. Fillable 1040ez form 2012 Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. Fillable 1040ez form 2012 You sell the brood sows after obtaining the litter. Fillable 1040ez form 2012 Even though you hold these brood sows for ultimate sale to customers in the ordinary course of your business, they are considered to be held for breeding purposes. Fillable 1040ez form 2012 Example 4. Fillable 1040ez form 2012 You are in the business of raising registered cattle for sale to others for use as breeding cattle. Fillable 1040ez form 2012 The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. Fillable 1040ez form 2012 Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. Fillable 1040ez form 2012 Such use does not demonstrate that you are holding the cattle for breeding purposes. Fillable 1040ez form 2012 However, those cattle you held as additions or replacements to your own breeding herd to produce calves are considered to be held for breeding purposes, even though they may not actually have produced calves. Fillable 1040ez form 2012 The same applies to hog and sheep breeders. Fillable 1040ez form 2012 Example 5. Fillable 1040ez form 2012 You breed, raise, and train horses for racing purposes. Fillable 1040ez form 2012 Every year you cull horses from your racing stable. Fillable 1040ez form 2012 In 2013, you decided that to prevent your racing stable from getting too large to be effectively operated, you must cull six horses that had been raced at public tracks in 2012. Fillable 1040ez form 2012 These horses are all considered held for sporting purposes. Fillable 1040ez form 2012 Figuring gain or loss on the cash method. Fillable 1040ez form 2012   Farmers or ranchers who use the cash method of accounting figure their gain or loss on the sale of livestock used in their farming business as follows. Fillable 1040ez form 2012 Raised livestock. Fillable 1040ez form 2012   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. Fillable 1040ez form 2012 Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. Fillable 1040ez form 2012 The basis of the animal sold is zero if the costs of raising it were deducted during the years the animal was being raised. Fillable 1040ez form 2012 However, see Uniform Capitalization Rules in chapter 6. Fillable 1040ez form 2012 Purchased livestock. Fillable 1040ez form 2012   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. Fillable 1040ez form 2012 Example. Fillable 1040ez form 2012 A farmer sold a breeding cow on January 8, 2013, for $1,250. Fillable 1040ez form 2012 Expenses of the sale were $125. Fillable 1040ez form 2012 The cow was bought July 2, 2009, for $1,300. Fillable 1040ez form 2012 Depreciation (not less than the amount allowable) was $867. Fillable 1040ez form 2012 Gross sales price $1,250 Cost (basis) $1,300   Minus: Depreciation deduction 867   Unrecovered cost (adjusted basis) $ 433   Expense of sale 125 558 Gain realized $ 692 Converted Wetland and Highly Erodible Cropland Special rules apply to dispositions of land converted to farming use after March 1, 1986. Fillable 1040ez form 2012 Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. Fillable 1040ez form 2012 Any loss on the disposition of such property is treated as a long-term capital loss. Fillable 1040ez form 2012 Converted wetland. Fillable 1040ez form 2012   This is generally land that was drained or filled to make the production of agricultural commodities possible. Fillable 1040ez form 2012 It includes converted wetland held by the person who originally converted it or held by any other person who used the converted wetland at any time after conversion for farming. Fillable 1040ez form 2012   A wetland (before conversion) is land that meets all the following conditions. Fillable 1040ez form 2012 It is mostly soil that, in its undrained condition, is saturated, flooded, or ponded long enough during a growing season to develop an oxygen-deficient state that supports the growth and regeneration of plants growing in water. Fillable 1040ez form 2012 It is saturated by surface or groundwater at a frequency and duration sufficient to support mostly plants that are adapted for life in saturated soil. Fillable 1040ez form 2012 It supports, under normal circumstances, mostly plants that grow in saturated soil. Fillable 1040ez form 2012 Highly erodible cropland. Fillable 1040ez form 2012   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. Fillable 1040ez form 2012 Generally, highly erodible cropland is land currently classified by the Department of Agriculture as Class IV, VI, VII, or VIII under its classification system. Fillable 1040ez form 2012 Highly erodible cropland also includes land that would have an excessive average annual erosion rate in relation to the soil loss tolerance level, as determined by the Department of Agriculture. Fillable 1040ez form 2012 Successor. Fillable 1040ez form 2012   Converted wetland or highly erodible cropland is also land held by any person whose basis in the land is figured by reference to the adjusted basis of a person in whose hands the property was converted wetland or highly erodible cropland. Fillable 1040ez form 2012 Timber Standing timber you held as investment property is a capital asset. Fillable 1040ez form 2012 Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. Fillable 1040ez form 2012 If you held the timber primarily for sale to customers, it is not a capital asset. Fillable 1040ez form 2012 Gain or loss on its sale is ordinary business income or loss. Fillable 1040ez form 2012 It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). Fillable 1040ez form 2012 See the Instructions for Schedule F (Form 1040). Fillable 1040ez form 2012 Farmers who cut timber on their land and sell it as logs, firewood, or pulpwood usually have no cost or other basis for that timber. Fillable 1040ez form 2012 Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. Fillable 1040ez form 2012 , are ordinary farm income and expenses reported on Schedule F. Fillable 1040ez form 2012 Different rules apply if you owned the timber longer than 1 year and elect to treat timber cutting as a sale or exchange or you enter into a cutting contract, discussed below. Fillable 1040ez form 2012 Timber considered cut. Fillable 1040ez form 2012   Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Fillable 1040ez form 2012 This is true whether the timber is cut under contract or whether you cut it yourself. Fillable 1040ez form 2012 Christmas trees. Fillable 1040ez form 2012   Evergreen trees, such as Christmas trees, that are more than 6 years old when severed from their roots and sold for ornamental purposes are included in the term timber. Fillable 1040ez form 2012 They qualify for both rules discussed below. Fillable 1040ez form 2012 Election to treat cutting as a sale or exchange. Fillable 1040ez form 2012   Under the general rule, the cutting of timber results in no gain or loss. Fillable 1040ez form 2012 It is not until a sale or exchange occurs that gain or loss is realized. Fillable 1040ez form 2012 But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year it is cut. Fillable 1040ez form 2012 Even though the cut timber is not actually sold or exchanged, you report your gain or loss on the cutting for the year the timber is cut. Fillable 1040ez form 2012 Any later sale results in ordinary business income or loss. Fillable 1040ez form 2012 See the example below. Fillable 1040ez form 2012   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or use in your trade or business. Fillable 1040ez form 2012 Making the election. Fillable 1040ez form 2012   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of your gain or loss. Fillable 1040ez form 2012 You do not have to make the election in the first year you cut the timber. Fillable 1040ez form 2012 You can make it in any year to which the election would apply. Fillable 1040ez form 2012 If the timber is partnership property, the election is made on the partnership return. Fillable 1040ez form 2012 This election cannot be made on an amended return. Fillable 1040ez form 2012   Once you have made the election, it remains in effect for all later years unless you revoke it. Fillable 1040ez form 2012 Election under section 631(a) may be revoked. Fillable 1040ez form 2012   If you previously elected for any tax year ending before October 23, 2004, to treat the cutting of timber as a sale or exchange under section 631(a), you may revoke this election without the consent of the IRS for any tax year ending after October 22, 2004. Fillable 1040ez form 2012 The prior election (and revocation) is disregarded for purposes of making a subsequent election. Fillable 1040ez form 2012 See Form T (Timber), Forest Activities Schedule, for more information. Fillable 1040ez form 2012 Gain or loss. Fillable 1040ez form 2012   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its FMV on the first day of your tax year in which it is cut. Fillable 1040ez form 2012   Your adjusted basis for depletion of cut timber is based on the number of units (board feet, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. Fillable 1040ez form 2012 Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 and Regulations section 1. Fillable 1040ez form 2012 611-3. Fillable 1040ez form 2012   Depletion of timber is discussed in chapter 7. Fillable 1040ez form 2012 Example. Fillable 1040ez form 2012   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Fillable 1040ez form 2012 It had an adjusted basis for depletion of $40 per MBF. Fillable 1040ez form 2012 You are a calendar year taxpayer. Fillable 1040ez form 2012 On January 1, 2013, the timber had a FMV of $350 per MBF. Fillable 1040ez form 2012 It was cut in April for sale. Fillable 1040ez form 2012 On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Fillable 1040ez form 2012 You report the difference between the FMV and your adjusted basis for depletion as a gain. Fillable 1040ez form 2012 This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as a capital gain or as ordinary gain. Fillable 1040ez form 2012 You figure your gain as follows. Fillable 1040ez form 2012 FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000   The FMV becomes your basis in the cut timber, and a later sale of the cut timber, including any by-product or tree tops, will result in ordinary business income or loss. Fillable 1040ez form 2012 Outright sales of timber. Fillable 1040ez form 2012   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined later). Fillable 1040ez form 2012 However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see Date of disposal below). Fillable 1040ez form 2012 Cutting contract. Fillable 1040ez form 2012   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Fillable 1040ez form 2012 You are the owner of the timber. Fillable 1040ez form 2012 You held the timber longer than 1 year before its disposal. Fillable 1040ez form 2012 You kept an economic interest in the timber. Fillable 1040ez form 2012   You have kept an economic interest in standing timber if, under the cutting contract, the expected return on your investment is conditioned on the cutting of the timber. Fillable 1040ez form 2012   The difference between the amount realized from the disposal of the timber and its adjusted basis for depletion is treated as gain or loss on its sale. Fillable 1040ez form 2012 Include this amount on Form 4797 along with your other section 1231 gains or losses. Fillable 1040ez form 2012 Date of disposal. Fillable 1040ez form 2012   The date of disposal is the date the timber is cut. Fillable 1040ez form 2012 However, for outright sales by landowners or if you receive payment under the contract before the timber is cut, you can elect to treat the date of payment as the date of disposal. Fillable 1040ez form 2012   This election applies only to figure the holding period of the timber. Fillable 1040ez form 2012 It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Fillable 1040ez form 2012   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Fillable 1040ez form 2012 The statement must identify the advance payments subject to the election and the contract under which they were made. Fillable 1040ez form 2012   If you timely filed your return for the year you received payment without making the election, you can still make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). Fillable 1040ez form 2012 Attach the statement to the amended return and write “Filed pursuant to section 301. Fillable 1040ez form 2012 9100-2” at the top of the statement. Fillable 1040ez form 2012 File the amended return at the same address the original return was filed. Fillable 1040ez form 2012 Owner. Fillable 1040ez form 2012   An owner is any person who owns an interest in the timber, including a sublessor and the holder of a contract to cut the timber. Fillable 1040ez form 2012 You own an interest in timber if you have the right to cut it for sale on your own account or for use in your business. Fillable 1040ez form 2012 Tree stumps. Fillable 1040ez form 2012   Tree stumps are a capital asset if they are on land held by an investor who is not in the timber or stump business as a buyer, seller, or processor. Fillable 1040ez form 2012 Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Fillable 1040ez form 2012 However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Fillable 1040ez form 2012 Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Fillable 1040ez form 2012   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Fillable 1040ez form 2012 Sale of a Farm The sale of your farm will usually involve the sale of both nonbusiness property (your home) and business property (the land and buildings used in the farm operation and perhaps machinery and livestock). Fillable 1040ez form 2012 If you have a gain from the sale, you may be allowed to exclude the gain on your home. Fillable 1040ez form 2012 For more information, see Publication 523, Selling Your Home. Fillable 1040ez form 2012 The gain on the sale of your business property is taxable. Fillable 1040ez form 2012 A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. Fillable 1040ez form 2012 Your taxable gain or loss on the sale of property used in your farm business is taxed under the rules for section 1231 transactions. Fillable 1040ez form 2012 See chapter 9. Fillable 1040ez form 2012 Losses from personal-use property, other than casualty or theft losses, are not deductible. Fillable 1040ez form 2012 If you receive payments for your farm in installments, your gain is taxed over the period of years the payments are received, unless you elect not to use the installment method of reporting the gain. Fillable 1040ez form 2012 See chapter 10 for information about installment sales. Fillable 1040ez form 2012 When you sell your farm, the gain or loss on each asset is figured separately. Fillable 1040ez form 2012 The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. Fillable 1040ez form 2012 Each of the assets sold must be classified as one of the following. Fillable 1040ez form 2012 Capital asset held 1 year or less. Fillable 1040ez form 2012 Capital asset held longer than 1 year. Fillable 1040ez form 2012 Property (including real estate) used in your business and held 1 year or less (including draft, breeding, dairy, and sporting animals held less than the holding periods discussed earlier under Livestock ). Fillable 1040ez form 2012 Property (including real estate) used in your business and held longer than 1 year (including only draft, breeding, dairy, and sporting animals held for the holding periods discussed earlier). Fillable 1040ez form 2012 Property held primarily for sale or which is of the kind that would be included in inventory if on hand at the end of your tax year. Fillable 1040ez form 2012 Allocation of consideration paid for a farm. Fillable 1040ez form 2012   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. Fillable 1040ez form 2012 The residual method is required only if the group of assets sold constitutes a trade or business. Fillable 1040ez form 2012 This method determines gain or loss from the transfer of each asset. Fillable 1040ez form 2012 It also determines the buyer's basis in the business assets. Fillable 1040ez form 2012 For more information, see Sale of a Business in chapter 2 of Publication 544. Fillable 1040ez form 2012 Property used in farm operation. Fillable 1040ez form 2012   The rules for excluding the gain on the sale of your home, described later under Sale of your home , do not apply to the property used for your farming business. Fillable 1040ez form 2012 Recognized gains and losses on business property must be reported on your return for the year of the sale. Fillable 1040ez form 2012 If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). Fillable 1040ez form 2012 Example. Fillable 1040ez form 2012 You sell your farm, including your main home, which you have owned since December 2001. Fillable 1040ez form 2012 You realize gain on the sale as follows. Fillable 1040ez form 2012   Farm   Farm   With Home Without   Home Only Home Selling price $382,000 $158,000 $224,000 Cost (or other basis) 240,000 110,000 130,000 Gain $142,000 $48,000 $94,000 You must report the $94,000 gain from the sale of the property used in your farm business. Fillable 1040ez form 2012 All or a part of that gain may have to be reported as ordinary income from the recapture of depreciation or soil and water conservation expenses. Fillable 1040ez form 2012 Treat the balance as section 1231 gain. Fillable 1040ez form 2012 The $48,000 gain from the sale of your home is not taxable as long as you meet the requirements explained later under Sale of your home . Fillable 1040ez form 2012 Partial sale. Fillable 1040ez form 2012   If you sell only part of your farm, you must report any recognized gain or loss on the sale of that part on your tax return for the year of the sale. Fillable 1040ez form 2012 You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. Fillable 1040ez form 2012 For a detailed discussion on installment sales, see Publication 544. Fillable 1040ez form 2012 Adjusted basis of the part sold. Fillable 1040ez form 2012   This is the properly allocated part of your original cost or other basis of the entire farm plus or minus necessary adjustments for improvements, depreciation, etc. Fillable 1040ez form 2012 , on the part sold. Fillable 1040ez form 2012 If your home is on the farm, you must properly adjust the basis to exclude those costs from your farm asset costs, as discussed below under Sale of your home . Fillable 1040ez form 2012 Example. Fillable 1040ez form 2012 You bought a 600-acre farm for $700,000. Fillable 1040ez form 2012 The farm included land and buildings. Fillable 1040ez form 2012 The purchase contract designated $600,000 of the purchase price to the land. Fillable 1040ez form 2012 You later sold 60 acres of land on which you had installed a fence. Fillable 1040ez form 2012 Your adjusted basis for the part of your farm sold is $60,000 (1/10 of $600,000), plus any unrecovered cost (cost not depreciated) of the fence on the 60 acres at the time of sale. Fillable 1040ez form 2012 Use this amount to determine your gain or loss on the sale of the 60 acres. Fillable 1040ez form 2012 Assessed values for local property taxes. Fillable 1040ez form 2012   If you paid a flat sum for the entire farm and no other facts are available for properly allocating your original cost or other basis between the land and the buildings, you can use the assessed values for local property taxes for the year of purchase to allocate the costs. Fillable 1040ez form 2012 Example. Fillable 1040ez form 2012 Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. Fillable 1040ez form 2012 However, in the year of purchase, local taxes on the entire property were based on assessed valuations of $420,000 for land and $140,000 for improvements, or a total of $560,000. Fillable 1040ez form 2012 The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. Fillable 1040ez form 2012 Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. Fillable 1040ez form 2012 The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). Fillable 1040ez form 2012 Sale of your home. Fillable 1040ez form 2012   Your home is a capital asset and not property used in the trade or business of farming. Fillable 1040ez form 2012 If you sell a farm that includes a house you and your family occupy, you must determine the part of the selling price and the part of the cost or other basis allocable to your home. Fillable 1040ez form 2012 Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. Fillable 1040ez form 2012   If you use part of your home for business, you must make an appropriate adjustment to the basis for depreciation allowed or allowable. Fillable 1040ez form 2012 For more information on basis, see chapter 6. Fillable 1040ez form 2012 More information. Fillable 1040ez form 2012   For more information on selling your home, see Publication 523. Fillable 1040ez form 2012 Gain from condemnation. Fillable 1040ez form 2012   If you have a gain from a condemnation or sale under threat of condemnation, you may use the preceding rules for excluding the gain, rather than the rules discussed under Postponing Gain in chapter 11. Fillable 1040ez form 2012 However, any gain that cannot be excluded (because it is more than the limit) may be postponed under the rules discussed under Postponing Gain in chapter 11. Fillable 1040ez form 2012 Foreclosure or Repossession If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Fillable 1040ez form 2012 The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Fillable 1040ez form 2012 This is true even if you voluntarily return the property to the lender. Fillable 1040ez form 2012 You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. Fillable 1040ez form 2012 Buyer's (borrower's) gain or loss. Fillable 1040ez form 2012   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Fillable 1040ez form 2012 The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Fillable 1040ez form 2012 See Determining Gain or Loss , earlier. Fillable 1040ez form 2012 Worksheet 8-1. Fillable 1040ez form 2012 Worksheet for Foreclosures andRepossessions Part 1. Fillable 1040ez form 2012 Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Fillable 1040ez form 2012 Complete this part only if you were personally liable for the debt. Fillable 1040ez form 2012 Otherwise, go to Part 2. Fillable 1040ez form 2012   1. Fillable 1040ez form 2012 Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable after the transfer of property   2. Fillable 1040ez form 2012 Enter the Fair Market Value of the transferred property   3. Fillable 1040ez form 2012 Ordinary income from cancellation of debt upon foreclosure or repossession. Fillable 1040ez form 2012 * Subtract line 2 from line 1. Fillable 1040ez form 2012 If zero or less, enter -0-   Part 2. Fillable 1040ez form 2012 Figure your gain or loss from foreclosure or repossession. Fillable 1040ez form 2012   4. Fillable 1040ez form 2012 If you completed Part 1, enter the smaller of line 1 or line 2. Fillable 1040ez form 2012 If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. Fillable 1040ez form 2012 Enter any proceeds you received from the foreclosure sale   6. Fillable 1040ez form 2012 Add lines 4 and 5   7. Fillable 1040ez form 2012 Enter the adjusted basis of the transferred property   8. Fillable 1040ez form 2012 Gain or loss from foreclosure or repossession. Fillable 1040ez form 2012 Subtract line 7  from line 6   * The income may not be taxable. Fillable 1040ez form 2012 See Cancellation of debt . Fillable 1040ez form 2012    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. Fillable 1040ez form 2012 Amount realized on a nonrecourse debt. Fillable 1040ez form 2012   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full amount of the debt canceled by the transfer. Fillable 1040ez form 2012 The full canceled debt is included in the amount realized even if the fair market value of the property is less than the canceled debt. Fillable 1040ez form 2012 Example 1. Fillable 1040ez form 2012 Ann paid $200,000 for land used in her farming business. Fillable 1040ez form 2012 She paid $15,000 down and borrowed the remaining $185,000 from a bank. Fillable 1040ez form 2012 Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. Fillable 1040ez form 2012 The bank foreclosed on the loan 2 years after Ann stopped making payments. Fillable 1040ez form 2012 When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. Fillable 1040ez form 2012 The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. Fillable 1040ez form 2012 She figures her gain or loss on Form 4797, Part I, by comparing the amount realized ($180,000) with her adjusted basis ($200,000). Fillable 1040ez form 2012 She has a $20,000 deductible loss. Fillable 1040ez form 2012 Example 2. Fillable 1040ez form 2012 Assume the same facts as in Example 1 except the FMV of the land was $210,000. Fillable 1040ez form 2012 The result is the same. Fillable 1040ez form 2012 The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. Fillable 1040ez form 2012 Because her adjusted basis is $200,000, she has a deductible loss of $20,000, which she reports on Form 4797, Part I. Fillable 1040ez form 2012 Amount realized on a recourse debt. Fillable 1040ez form 2012   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Fillable 1040ez form 2012   You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Fillable 1040ez form 2012 The amount realized does not include the canceled debt that is your income from cancellation of debt. Fillable 1040ez form 2012 See Cancellation of debt , later. Fillable 1040ez form 2012 Example 3. Fillable 1040ez form 2012 Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). Fillable 1040ez form 2012 In this case, the amount she realizes is $170,000. Fillable 1040ez form 2012 This is the canceled debt ($180,000) up to the FMV of the land ($170,000). Fillable 1040ez form 2012 Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). Fillable 1040ez form 2012 She has a $30,000 deductible loss, which she figures on Form 4797, Part I. Fillable 1040ez form 2012 She is also treated as receiving ordinary income from cancellation of debt. Fillable 1040ez form 2012 That income is $10,000 ($180,000 − $170,000). Fillable 1040ez form 2012 This is the part of the canceled debt not included in the amount realized. Fillable 1040ez form 2012 She reports this as other income on Schedule F, line 8. Fillable 1040ez form 2012 Seller's (lender's) gain or loss on repossession. Fillable 1040ez form 2012   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Fillable 1040ez form 2012 For more information, see Repossession in Publication 537, Installment Sales. Fillable 1040ez form 2012 Cancellation of debt. Fillable 1040ez form 2012   If property that is repossessed or foreclosed upon secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the FMV of the property. Fillable 1040ez form 2012 This income is separate from any gain or loss realized from the foreclosure or repossession. Fillable 1040ez form 2012 Report the income from cancellation of a business debt on Schedule F, line 8. Fillable 1040ez form 2012 Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Fillable 1040ez form 2012    You can use Worksheet 8-1 to figure your income from cancellation of debt. Fillable 1040ez form 2012   However, income from cancellation of debt is not taxed if any of the following apply. Fillable 1040ez form 2012 The cancellation is intended as a gift. Fillable 1040ez form 2012 The debt is qualified farm debt (see chapter 3). Fillable 1040ez form 2012 The debt is qualified real property business debt (see chapter 5 of Publication 334). Fillable 1040ez form 2012 You are insolvent or bankrupt (see  chapter 3). Fillable 1040ez form 2012 The debt is qualified principal residence indebtedness (see chapter 3). Fillable 1040ez form 2012   Use Form 982 to report the income exclusion. Fillable 1040ez form 2012 Abandonment The abandonment of property is a disposition of property. Fillable 1040ez form 2012 You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership, but without passing it on to anyone else. Fillable 1040ez form 2012 Business or investment property. Fillable 1040ez form 2012   Loss from abandonment of business or investment property is deductible as a loss. Fillable 1040ez form 2012 Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Fillable 1040ez form 2012 If your adjusted basis is more than the amount you realize (if any), then you have a loss. Fillable 1040ez form 2012 If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Fillable 1040ez form 2012 This rule also applies to leasehold improvements the lessor made for the lessee. Fillable 1040ez form 2012 However, if the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed earlier under Foreclosure or Repossession . Fillable 1040ez form 2012   If the abandoned property is secured by debt, special rules apply. Fillable 1040ez form 2012 The tax consequences of abandonment of property that secures a debt depend on whether you are personally liable for the debt (recourse debt) or were not personally liable for the debt (nonrecourse debt). Fillable 1040ez form 2012 For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Fillable 1040ez form 2012 The abandonment loss is deducted in the tax year in which the loss is sustained. Fillable 1040ez form 2012 Report the loss on Form 4797, Part II, line 10. Fillable 1040ez form 2012 Personal-use property. Fillable 1040ez form 2012   You cannot deduct any loss from abandonment of your home or other property held for personal use. Fillable 1040ez form 2012 Canceled debt. Fillable 1040ez form 2012   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. Fillable 1040ez form 2012 This income is separate from any loss realized from abandonment of the property. Fillable 1040ez form 2012 Report income from cancellation of a debt related to a business or rental activity as business or rental income. Fillable 1040ez form 2012 Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Fillable 1040ez form 2012   However, income from cancellation of debt is not taxed in certain circumstances. Fillable 1040ez form 2012 See Cancellation of debt earlier under Foreclosure or Repossession . Fillable 1040ez form 2012 Forms 1099-A and 1099-C. Fillable 1040ez form 2012   A lender who acquires an interest in your property in a foreclosure, repossession, or abandonment should send you Form 1099-A showing the information you need to figure your loss from the foreclosure, repossession, or abandonment. Fillable 1040ez form 2012 However, if the lender cancels part of your debt and the lender must file Form 1099-C, the lender may include the information about the foreclosure, repossession, or abandonment on that form instead of Form 1099-A. Fillable 1040ez form 2012 The lender must file Form 1099-C and send you a copy if the canceled debt is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Fillable 1040ez form 2012 For foreclosures, repossessions, abandonments of property, and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Fillable 1040ez form 2012 Prev  Up  Next   Home   More Online Publications
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The Fillable 1040ez Form 2012

Fillable 1040ez form 2012 Publication 1212 - Main Content Table of Contents Definitions Debt Instruments on the OID List Debt Instruments Not on the OID List Information for Brokers and Other MiddlemenShort-Term Obligations Redeemed at Maturity Long-Term Debt Instruments Certificates of Deposit Bearer Bonds and Coupons Backup Withholding Information for Owners of OID Debt InstrumentsExceptions. Fillable 1040ez form 2012 Adjustment for premium. Fillable 1040ez form 2012 Adjustment for acquisition premium. Fillable 1040ez form 2012 Adjustment for market discount. Fillable 1040ez form 2012 Form 1099-OID How To Report OID Figuring OID on Long-Term Debt Instruments Figuring OID on Stripped Bonds and Coupons How To Get Tax HelpLow Income Taxpayer Clinics Definitions The following terms are used throughout this publication. Fillable 1040ez form 2012 “Original issue discount” is defined first. Fillable 1040ez form 2012 The other terms are listed alphabetically. Fillable 1040ez form 2012 Original issue discount (OID). Fillable 1040ez form 2012   OID is a form of interest. Fillable 1040ez form 2012 It is the excess of a debt instrument's stated redemption price at maturity over its issue price (acquisition price for a stripped bond or coupon). Fillable 1040ez form 2012 Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID. Fillable 1040ez form 2012 Accrual period. Fillable 1040ez form 2012   An accrual period is an interval of time used to measure OID. Fillable 1040ez form 2012 The length of an accrual period can be 6 months, a year, or some other period, depending on when the debt instrument was issued. Fillable 1040ez form 2012 Acquisition premium. Fillable 1040ez form 2012   Acquisition premium is the excess of a debt instrument's adjusted basis immediately after purchase, including purchase at original issue, over the debt instrument's adjusted issue price at that time. Fillable 1040ez form 2012 A debt instrument does not have acquisition premium, however, if the debt instrument was purchased at a premium. Fillable 1040ez form 2012 See Premium, later. Fillable 1040ez form 2012 Adjusted issue price. Fillable 1040ez form 2012   The adjusted issue price of a debt instrument at the beginning of an accrual period is used to figure the OID allocable to that period. Fillable 1040ez form 2012 In general, the adjusted issue price at the beginning of the debt instrument's first accrual period is its issue price. Fillable 1040ez form 2012 The adjusted issue price at the beginning of any subsequent accrual period is the sum of the issue price and all the OID includible in income before that accrual period minus any payment previously made on the debt instrument, other than a payment of qualified stated interest. Fillable 1040ez form 2012 Debt instrument. Fillable 1040ez form 2012   The term “debt instrument” means any instrument or contractual arrangement that constitutes indebtedness under general principles of federal income tax law (including, for example, a bond, debenture, note, certificate, or other evidence of indebtedness). Fillable 1040ez form 2012 It generally does not include an annuity contract. Fillable 1040ez form 2012 Issue price. Fillable 1040ez form 2012   For debt instruments listed in Section I-A and Section I-B, the issue price generally is the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of these instruments was sold. Fillable 1040ez form 2012 Market discount. Fillable 1040ez form 2012   Market discount arises when a debt instrument purchased in the secondary market has decreased in value since its issue date, generally because of an increase in interest rates. Fillable 1040ez form 2012 An OID debt instrument has market discount if your adjusted basis in the debt instrument immediately after you acquired it (usually its purchase price) was less than the debt instrument's issue price plus the total OID that accrued before you acquired it. Fillable 1040ez form 2012 The market discount is the difference between the issue price plus accrued OID and your adjusted basis. Fillable 1040ez form 2012 Premium. Fillable 1040ez form 2012   A debt instrument is purchased at a premium if its adjusted basis immediately after purchase is greater than the total of all amounts payable on the debt instrument after the purchase date, other than qualified stated interest. Fillable 1040ez form 2012 The premium is the excess of the adjusted basis over the payable amounts. Fillable 1040ez form 2012 See Publication 550 for information on the tax treatment of bond premium. Fillable 1040ez form 2012 Qualified stated interest. Fillable 1040ez form 2012   In general, qualified stated interest is stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually over the term of the debt instrument at a single fixed rate. Fillable 1040ez form 2012 Stated redemption price at maturity. Fillable 1040ez form 2012   A debt instrument's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on the debt instrument other than qualified stated interest. Fillable 1040ez form 2012 Yield to maturity (YTM). Fillable 1040ez form 2012   In general, the YTM is the discount rate that, when used in figuring the present value of all principal and interest payments, produces an amount equal to the issue price of the debt instrument. Fillable 1040ez form 2012 The YTM is generally shown on the face of the debt instrument or in the literature you receive from your broker. Fillable 1040ez form 2012 If you do not have this information, consult your broker, tax advisor, or the issuer. Fillable 1040ez form 2012 Debt Instruments on the OID List The OID list on the IRS website can be used by brokers and other middlemen to prepare information returns. Fillable 1040ez form 2012 If you own a listed debt instrument, you generally should not rely on the information in the OID list to determine (or compare) the OID to be reported on your tax return. Fillable 1040ez form 2012 The OID amounts listed are figured without reference to the price or date at which you acquired the debt instrument. Fillable 1040ez form 2012 For information about determining the OID to be reported on your tax return, see the instructions for figuring OID under Information for Owners of OID Debt Instruments, later. Fillable 1040ez form 2012 The following discussions explain what information is contained in each section of the list. Fillable 1040ez form 2012 Section I. Fillable 1040ez form 2012   This section contains publicly offered, long-term debt instruments. Fillable 1040ez form 2012 Section I-A: Corporate Debt Instruments Issued Before 1985. Fillable 1040ez form 2012 Section I-B: Corporate Debt Instruments Issued After 1984. Fillable 1040ez form 2012 Section I-C: Inflation-Indexed Debt Instruments. Fillable 1040ez form 2012 For each publicly offered debt instrument in Section I, the list contains the following information. Fillable 1040ez form 2012 The name of the issuer. Fillable 1040ez form 2012 The Committee on Uniform Security Identification Procedures (CUSIP) number. Fillable 1040ez form 2012 The issue date. Fillable 1040ez form 2012 The maturity date. Fillable 1040ez form 2012 The issue price expressed as a percent of principal or of stated redemption price at maturity. Fillable 1040ez form 2012 The annual stated or coupon interest rate. Fillable 1040ez form 2012 (This rate is shown as 0. Fillable 1040ez form 2012 00 if no annual interest payments are provided. Fillable 1040ez form 2012 ) The yield to maturity will be added to Section I-B for bonds issued after December 31, 2006. Fillable 1040ez form 2012 The total OID accrued up to January 1 of a calendar year. Fillable 1040ez form 2012 (This information is not available for every instrument. Fillable 1040ez form 2012 ) For long-term debt instruments issued after July 1, 1982, the daily OID for the accrual periods falling in a calendar year and a subsequent year. Fillable 1040ez form 2012 The total OID per $1,000 of principal or maturity value for a calendar year and a subsequent year. Fillable 1040ez form 2012 Section II. Fillable 1040ez form 2012   This section contains stripped coupons and principal components of U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 Treasury and Government-Sponsored Enterprise debt instruments. Fillable 1040ez form 2012 These stripped components are available through the Department of the Treasury's Separate Trading of Registered Interest and Principal of Securities (STRIPS) program and government-sponsored enterprises such as the Resolution Funding Corporation. Fillable 1040ez form 2012 This section also includes debt instruments backed by U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 Treasury securities that represent ownership interests in those securities. Fillable 1040ez form 2012   The obligations listed in Section II are arranged by maturity date. Fillable 1040ez form 2012 The amounts listed are the total OID for a calendar year per $1,000 of redemption price. Fillable 1040ez form 2012 Section III. Fillable 1040ez form 2012   This section contains short-term discount obligations. Fillable 1040ez form 2012 Section III-A: Short-Term U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 Treasury Bills. Fillable 1040ez form 2012 Section III-B: Federal Home Loan Banks. Fillable 1040ez form 2012 Section III-C: Federal National Mortgage Association. Fillable 1040ez form 2012 Section III-D: Federal Farm Credit Banks. Fillable 1040ez form 2012 Section III-E: Federal Home Loan Mortgage Corporation. Fillable 1040ez form 2012 Section III-F: Federal Agricultural Mortgage Corporation. Fillable 1040ez form 2012    Information that supplements Section III-A is available on the Internet at http://www. Fillable 1040ez form 2012 treasurydirect. Fillable 1040ez form 2012 gov/tdhome. Fillable 1040ez form 2012 htm. Fillable 1040ez form 2012   The short-term obligations listed in this section are arranged by maturity date. Fillable 1040ez form 2012 For each obligation, the list contains the CUSIP number, maturity date, issue date, issue price (expressed as a percent of principal), and discount to be reported as interest for a calendar year per $1,000 of redemption price. Fillable 1040ez form 2012 Brokers and other middlemen should rely on the issue price information in Section III only if they are unable to determine the price actually paid by the owner. Fillable 1040ez form 2012 Debt Instruments Not on the OID List The list of debt instruments discussed earlier does not contain the following items. Fillable 1040ez form 2012 U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 savings bonds. Fillable 1040ez form 2012 Certificates of deposit and other face-amount certificates issued at a discount, including syndicated certificates of deposit. Fillable 1040ez form 2012 Obligations issued by tax-exempt organizations. Fillable 1040ez form 2012 OID debt instruments that matured or were entirely called by the issuer before the tables were posted on the IRS website. Fillable 1040ez form 2012 Mortgage-backed securities and mortgage participation certificates. Fillable 1040ez form 2012 Long-term OID debt instruments issued before May 28, 1969. Fillable 1040ez form 2012 Short-term obligations, other than the obligations listed in Section III. Fillable 1040ez form 2012 Debt instruments issued at a discount by states or their political subdivisions. Fillable 1040ez form 2012 REMIC regular interests and CDOs. Fillable 1040ez form 2012 Commercial paper and banker's acceptances issued at a discount. Fillable 1040ez form 2012 Obligations issued at a discount by individuals. Fillable 1040ez form 2012 Foreign obligations not traded in the United States and obligations not issued in the United States. Fillable 1040ez form 2012 Information for Brokers and Other Middlemen The following discussions contain specific instructions for brokers and middlemen who hold or redeem a debt instrument for the owner. Fillable 1040ez form 2012 In general, you must file a Form 1099 for the debt instrument if the interest or OID to be included in the owner's income for a calendar year totals $10 or more. Fillable 1040ez form 2012 You also must file a Form 1099 if you were required to deduct and withhold tax, even if the interest or OID is less than $10. Fillable 1040ez form 2012 See Backup Withholding, later. Fillable 1040ez form 2012 If you must file a Form 1099, furnish a copy to the owner of the debt instrument by January 31 in the year it is due. Fillable 1040ez form 2012 File all your Forms 1099 with the IRS, accompanied by Form 1096, by February 28 in the year it is due (March 31 if you file electronically). Fillable 1040ez form 2012 Electronic payee statements. Fillable 1040ez form 2012   You can issue Form 1099-OID electronically with the consent of the recipient. Fillable 1040ez form 2012 More information. Fillable 1040ez form 2012   For more information, including penalties for failure to file (or furnish) required information returns or statements, see the General Instructions for Certain Information Returns (Forms 1098, 1099, 3921, 3922, 5498, and W-2G) for the appropriate calendar year. Fillable 1040ez form 2012 Short-Term Obligations Redeemed at Maturity If you redeem a short-term discount obligation for the owner at maturity, you must report the discount as interest on Form 1099-INT. Fillable 1040ez form 2012 To figure the discount, use the purchase price shown on the owner's copy of the purchase confirmation receipt or similar record, or the price shown in your transaction records. Fillable 1040ez form 2012 If you sell the obligation for the owner before maturity, you must file Form 1099-B to reflect the gross proceeds to the seller. Fillable 1040ez form 2012 Do not report the accrued discount to the date of sale on either Form 1099-INT or Form 1099-OID. Fillable 1040ez form 2012 If the owner's purchase price cannot be determined, figure the discount as if the owner had purchased the obligation at its original issue price. Fillable 1040ez form 2012 A special rule is used to determine the original issue price for information reporting on U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 Treasury bills (T-bills) listed in Section III-A. Fillable 1040ez form 2012 Under this rule, you treat as the original issue price of the T-bill the noncompetitive (weighted average of accepted auction bids) discount price for the longest-maturity T-bill maturing on the same date as the T-bill being redeemed. Fillable 1040ez form 2012 This noncompetitive discount price is the issue price (expressed as a percent of principal) shown in Section III-A. Fillable 1040ez form 2012 A similar rule is used to figure the discount on short-term discount obligations issued by the organizations listed in Section III-B through Section III-F. Fillable 1040ez form 2012 Example 1. Fillable 1040ez form 2012 There are 13-week and 26-week T-bills maturing on the same date as the T-bill being redeemed. Fillable 1040ez form 2012 The price actually paid by the owner cannot be established by owner or middleman records. Fillable 1040ez form 2012 You treat as the issue price of the T-bill the noncompetitive discount price (expressed as a percent of principal) shown in Section III-A for a 26-week bill maturing on the same date as the T-bill redeemed. Fillable 1040ez form 2012 The interest you report on Form 1099-INT is the OID (per $1,000 of principal) shown in Section III-A for that obligation. Fillable 1040ez form 2012 Long-Term Debt Instruments If you hold a long-term OID debt instrument as a nominee for the true owner, you generally must file Form 1099-OID. Fillable 1040ez form 2012 For this purpose, you can rely on Section I of the OID list to determine the following information. Fillable 1040ez form 2012 Whether a debt instrument has OID. Fillable 1040ez form 2012 The OID to be reported on the Form 1099-OID. Fillable 1040ez form 2012 In general, you must report OID on publicly offered, long-term debt instruments listed in Section I. Fillable 1040ez form 2012 You also can report OID on other long-term debt instruments. Fillable 1040ez form 2012 Form 1099-OID. Fillable 1040ez form 2012   On Form 1099-OID for a calendar year show the following information. Fillable 1040ez form 2012 Box 1. Fillable 1040ez form 2012 The OID for the actual dates the owner held the debt instruments during a calendar year. Fillable 1040ez form 2012 To determine this amount, see Figuring OID, next. Fillable 1040ez form 2012 Box 2. Fillable 1040ez form 2012 The qualified stated interest paid or credited during the calendar year. Fillable 1040ez form 2012 Interest reported here is not reported on Form 1099-INT. Fillable 1040ez form 2012 The qualified stated interest on Treasury inflation-protected securities may be reported on Form 1099-INT in box 3 instead. Fillable 1040ez form 2012 Box 3. Fillable 1040ez form 2012 Any interest or principal forfeited because of an early withdrawal that the owner can deduct from gross income. Fillable 1040ez form 2012 Do not reduce the amounts in boxes 1 and 2 by the forfeiture. Fillable 1040ez form 2012 Box 4. Fillable 1040ez form 2012 Any backup withholding for this debt instrument. Fillable 1040ez form 2012 Box 7. Fillable 1040ez form 2012 The CUSIP number, if any. Fillable 1040ez form 2012 If there is no CUSIP number, give a description of the debt instrument, including the abbreviation for the stock exchange, the abbreviation used by the stock exchange for the issuer, the coupon rate, and the year of maturity (for example, NYSE XYZ 12. Fillable 1040ez form 2012 50 2006). Fillable 1040ez form 2012 If the issuer of the debt instrument is other than the payer, show the name of the issuer in this box. Fillable 1040ez form 2012 Box 8. Fillable 1040ez form 2012 The OID on a U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 Treasury obligation for the part of the year the owner held the debt instrument. Fillable 1040ez form 2012 Box 9. Fillable 1040ez form 2012 Investment expenses passed on to holders of a single-class REMIC. Fillable 1040ez form 2012 Boxes 10-12. Fillable 1040ez form 2012 Use to report any state income tax withheld for this debt instrument. Fillable 1040ez form 2012 Figuring OID. Fillable 1040ez form 2012   You can determine the OID on a long-term debt instrument by using either of the following. Fillable 1040ez form 2012 Section I of the OID list. Fillable 1040ez form 2012 The income tax regulations. Fillable 1040ez form 2012 Using Section I. Fillable 1040ez form 2012   If the owner held the debt instrument for the entire calendar year, report the OID shown in Section I for the calendar year. Fillable 1040ez form 2012 Because OID is listed for each $1,000 of stated redemption price at maturity, you must adjust the listed amount to reflect the debt instrument's actual stated redemption price at maturity. Fillable 1040ez form 2012 For example, if the debt instrument's stated redemption price at maturity is $500, report one-half the listed OID. Fillable 1040ez form 2012   If the owner held the debt instrument for less than the entire calendar year, figure the OID to report as follows. Fillable 1040ez form 2012 Look up the daily OID for the first accrual period in the calendar year during which the owner held the debt instrument. Fillable 1040ez form 2012 Multiply the daily OID by the number of days the owner held the debt instrument during that accrual period. Fillable 1040ez form 2012 Repeat steps (1) and (2) for any remaining accrual periods for the year during which the owner held the debt instrument. Fillable 1040ez form 2012 Add the results in steps (2) and (3) to determine the owner's OID per $1,000 of stated redemption price at maturity. Fillable 1040ez form 2012 If necessary, adjust the OID in (4) to reflect the debt instrument's stated redemption price at maturity. Fillable 1040ez form 2012 Report the result on Form 1099-OID in box 1. Fillable 1040ez form 2012 Using the income tax regulations. Fillable 1040ez form 2012   Instead of using Section I to figure OID, you can use the regulations under sections 1272 through 1275 of the Internal Revenue Code. Fillable 1040ez form 2012 For example, under the regulations, you can use monthly accrual periods in figuring OID for a debt instrument issued after April 3, 1994, that provides for monthly payments. Fillable 1040ez form 2012 (If you use Section I-B, the OID is figured using 6-month accrual periods. Fillable 1040ez form 2012 )   For a general explanation of the rules for figuring OID under the regulations, see Figuring OID on Long-Term Debt Instruments under Information for Owners of OID Debt Instruments, later. Fillable 1040ez form 2012 Certificates of Deposit If you hold a bank certificate of deposit (CD) as a nominee, you must determine whether the CD has OID and any OID includible in the income of the owner. Fillable 1040ez form 2012 You must file an information return showing the reportable interest and OID, if any, on the CD. Fillable 1040ez form 2012 These rules apply whether or not you sold the CD to the owner. Fillable 1040ez form 2012 Report OID on a CD in the same way as OID on other debt instruments. Fillable 1040ez form 2012 See Short-Term Obligations Redeemed at Maturity and Long-Term Debt Instruments, earlier. Fillable 1040ez form 2012 Bearer Bonds and Coupons If a coupon from a bearer bond is presented to you for collection before the bond matures, you generally must report the interest on Form 1099-INT. Fillable 1040ez form 2012 However, do not report the interest if either of the following apply. Fillable 1040ez form 2012 You hold the bond as a nominee for the true owner. Fillable 1040ez form 2012 The payee is a foreign person. Fillable 1040ez form 2012 See Payments to foreign person under Backup Withholding, later. Fillable 1040ez form 2012 Because you cannot assume the presenter of the coupon also owns the bond, you should not report OID on the bond on Form 1099-OID. Fillable 1040ez form 2012 The coupon may have been “stripped” (separated) from the bond and separately purchased. Fillable 1040ez form 2012 However, if a long-term bearer bond on the OID list is presented to you for redemption upon call or maturity, you should prepare a Form 1099-OID showing the OID for that calendar year, as well as any coupon interest payments collected at the time of redemption. Fillable 1040ez form 2012 Backup Withholding If you report OID on Form 1099-OID or interest on Form 1099-INT for a calendar year, you may be required to apply backup withholding to the reportable payment at a rate of 28%. Fillable 1040ez form 2012 The backup withholding is deducted at the time a cash payment is made. Fillable 1040ez form 2012 See Pub. Fillable 1040ez form 2012 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), for more information. Fillable 1040ez form 2012 Backup withholding generally applies in the following situations. Fillable 1040ez form 2012 The payee does not give you a taxpayer identification number (TIN). Fillable 1040ez form 2012 The IRS notifies you that the payee gave an incorrect TIN. Fillable 1040ez form 2012 The IRS notifies you that the payee is subject to backup withholding due to payee underreporting. Fillable 1040ez form 2012 For debt instruments acquired after 1983: The payee does not certify, under penalties of perjury, that he or she is not subject to backup withholding under (3), or The payee does not certify, under penalties of perjury, that the TIN given is correct. Fillable 1040ez form 2012 However, for short-term discount obligations (other than government obligations), bearer bonds and coupons, and U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 savings bonds, backup withholding applies only if the payee does not give you a TIN or gives you an obviously incorrect number for a TIN. Fillable 1040ez form 2012 Short-term obligations. Fillable 1040ez form 2012   Backup withholding applies to OID on a short-term obligation only when the OID is paid at maturity. Fillable 1040ez form 2012 However, backup withholding applies to any interest payable before maturity when the interest is paid or credited. Fillable 1040ez form 2012   If the owner of a short-term obligation at maturity is not the original owner and can establish the purchase price of the obligation, the amount subject to backup withholding must be determined by treating the purchase price as the issue price. Fillable 1040ez form 2012 However, you can choose to disregard that price if it would require significant manual intervention in the computer or recordkeeping system used for the obligation. Fillable 1040ez form 2012 If the purchase price of a listed obligation is not established or is disregarded, you must use the issue price shown in Section III. Fillable 1040ez form 2012 Long-term obligations. Fillable 1040ez form 2012   If no cash payments are made on a long-term obligation before maturity, backup withholding applies only at maturity. Fillable 1040ez form 2012 The amount subject to backup withholding is the OID includible in the owner's gross income for the calendar year when the obligation matures. Fillable 1040ez form 2012 The amount to be withheld is limited to the cash paid. Fillable 1040ez form 2012 Registered long-term obligations with cash payments. Fillable 1040ez form 2012   If a registered long-term obligation has cash payments before maturity, backup withholding applies when a cash payment is made. Fillable 1040ez form 2012 The amount subject to backup withholding is the total of the qualified stated interest (defined earlier under Definitions) and OID includible in the owner's gross income for the calendar year when the payment is made. Fillable 1040ez form 2012 If more than one cash payment is made during the year, the OID subject to withholding for the year must be allocated among the expected cash payments in the ratio that each bears to the total of the expected cash payments. Fillable 1040ez form 2012 For any payment, the required withholding is limited to the cash paid. Fillable 1040ez form 2012 Payee not the original owner. Fillable 1040ez form 2012   If the payee is not the original owner of the obligation, the OID subject to backup withholding is the OID includible in the gross income of all owners during the calendar year (without regard to any amount paid by the new owner at the time of transfer). Fillable 1040ez form 2012 The amount subject to backup withholding at maturity of a listed obligation must be determined using the issue price shown in Section I. Fillable 1040ez form 2012 Bearer long-term obligations with cash payments. Fillable 1040ez form 2012   If a bearer long-term obligation has cash payments before maturity, backup withholding applies when the cash payments are made. Fillable 1040ez form 2012 For payments before maturity, the amount subject to withholding is the qualified stated interest (defined earlier under Definitions) includible in the owner's gross income for the calendar year. Fillable 1040ez form 2012 For a payment at maturity, the amount subject to withholding is only the total of any qualified stated interest paid at maturity and the OID includible in the owner's gross income for the calendar year when the obligation matures. Fillable 1040ez form 2012 The required withholding at maturity is limited to the cash paid. Fillable 1040ez form 2012 Sales and redemptions. Fillable 1040ez form 2012   If you report the gross proceeds from a sale, exchange, or redemption of a debt instrument on Form 1099-B for a calendar year, you may be required to withhold 28% of the amount reported. Fillable 1040ez form 2012 Backup withholding applies in the following situations. Fillable 1040ez form 2012 The payee does not give you a TIN. Fillable 1040ez form 2012 The IRS notifies you that the payee gave an incorrect TIN. Fillable 1040ez form 2012 For debt instruments held in an account opened after 1983, the payee does not certify, under penalties of perjury, that the TIN given is correct. Fillable 1040ez form 2012 Payments outside the United States to U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 person. Fillable 1040ez form 2012   The requirements for backup withholding and information reporting apply to payments of OID and interest made outside the United States to a U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 person, a controlled foreign corporation, or a foreign person at least 50% of whose income for the preceding 3-year period is effectively connected with the conduct of a U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 trade or business. Fillable 1040ez form 2012 Payments to foreign person. Fillable 1040ez form 2012   The following discussions explain the rules for backup withholding and information reporting on payments to foreign persons. Fillable 1040ez form 2012 U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 -source amount. Fillable 1040ez form 2012   Backup withholding and information reporting are not required for payments of U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 -source OID, interest, or proceeds from a sale or redemption of an OID instrument if the payee has given you proof (generally the appropriate Form W-8 or an acceptable substitute) that the payee is a foreign person. Fillable 1040ez form 2012 A U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 resident is not a foreign person. Fillable 1040ez form 2012 For proof of the payee's foreign status, you can rely on the appropriate Form W-8 or on documentary evidence for payments made outside the United States to an offshore account or, in case of broker proceeds, a sale effected outside the United States. Fillable 1040ez form 2012 Receipt of the appropriate Form W-8 does not relieve you from information reporting and backup withholding if you actually know the payee is a U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 person. Fillable 1040ez form 2012   For information about the 28% withholding tax that may apply to payments of U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 -source OID or interest to foreign persons, see Publication 515. Fillable 1040ez form 2012 Foreign-source amount. Fillable 1040ez form 2012   Backup withholding and information reporting are not required for payments of foreign-source OID and interest made outside the United States. Fillable 1040ez form 2012 However, if the payments are made inside the United States, the requirements for backup withholding and information reporting will apply unless the payee has given you the appropriate Form W-8 or acceptable substitute as proof that the payee is a foreign person. Fillable 1040ez form 2012 More information. Fillable 1040ez form 2012   For more information about backup withholding and information reporting on foreign-source amounts or payments to foreign persons, see Regulations section 1. Fillable 1040ez form 2012 6049-5. Fillable 1040ez form 2012 Information for Owners of OID Debt Instruments This section is for persons who prepare their own tax returns. Fillable 1040ez form 2012 It discusses the income tax rules for figuring and reporting OID on long-term debt instruments. Fillable 1040ez form 2012 It also includes a similar discussion for stripped bonds and coupons, such as zero coupon bonds available through the Department of the Treasury's STRIPS program and government-sponsored enterprises such as the Resolution Funding Corporation. Fillable 1040ez form 2012 However, the information provided does not cover every situation. Fillable 1040ez form 2012 More information can be found in the regulations under sections 1271 through 1275 of the Internal Revenue Code. Fillable 1040ez form 2012 Including OID in income. Fillable 1040ez form 2012   Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer. Fillable 1040ez form 2012 Exceptions. Fillable 1040ez form 2012   The rules for including OID in income as it accrues generally do not apply to the following debt instruments. Fillable 1040ez form 2012 U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 savings bonds. Fillable 1040ez form 2012 Tax-exempt obligations. Fillable 1040ez form 2012 (However, see Tax-Exempt Bonds and Coupons, later. Fillable 1040ez form 2012 ) Obligations issued by individuals before March 2, 1984. Fillable 1040ez form 2012 Loans of $10,000 or less between individuals who are not in the business of lending money. Fillable 1040ez form 2012 (The dollar limit includes outstanding prior loans by the lender to the borrower. Fillable 1040ez form 2012 ) This exception does not apply if a principal purpose of the loan is to avoid any federal tax. Fillable 1040ez form 2012   See chapter 1 of Publication 550 for information about the rules for these and other types of discounted debt instruments, such as short-term and market discount obligations. Fillable 1040ez form 2012 Publication 550 also discusses rules for holders of REMIC interests and CDOs. Fillable 1040ez form 2012 De minimis rule. Fillable 1040ez form 2012   You can treat OID as zero if the total OID on a debt instrument is less than one-fourth of 1% (. Fillable 1040ez form 2012 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Fillable 1040ez form 2012 Debt instruments with de minimis OID are not listed in this publication. Fillable 1040ez form 2012 There are special rules to determine the de minimis amount in the case of debt instruments that provide for more than one payment of principal. Fillable 1040ez form 2012 Also, the de minimis rules generally do not apply to tax-exempt obligations. Fillable 1040ez form 2012 Example 2. Fillable 1040ez form 2012 You bought at issuance a 10-year debt instrument with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Fillable 1040ez form 2012 One-fourth of 1% of $1,000 (the stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Fillable 1040ez form 2012 Under the de minimis rule, you can treat the OID as zero because the $20 discount is less than $25. Fillable 1040ez form 2012 Example 3. Fillable 1040ez form 2012 Assume the same facts as Example 2, except the debt instrument was issued at $950. Fillable 1040ez form 2012 You must report part of the $50 OID each year because it is more than $25. Fillable 1040ez form 2012 Choice to report all interest as OID. Fillable 1040ez form 2012   Generally, you can choose to treat all interest on a debt instrument acquired after April 3, 1994, as OID and include it in gross income by using the constant yield method. Fillable 1040ez form 2012 See Constant yield method under Debt Instruments Issued After 1984, later, for more information. Fillable 1040ez form 2012   For this choice, interest includes stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. Fillable 1040ez form 2012 For more information, see Regulations section 1. Fillable 1040ez form 2012 1272-3. Fillable 1040ez form 2012 Purchase after date of original issue. Fillable 1040ez form 2012   A debt instrument you purchased after the date of original issue may have premium, acquisition premium, or market discount. Fillable 1040ez form 2012 If so, the OID reported to you on Form 1099-OID may have to be adjusted. Fillable 1040ez form 2012 For more information, see Showing an OID adjustment under How To Report OID, later. Fillable 1040ez form 2012 The following rules generally do not apply to contingent payment debt instruments. Fillable 1040ez form 2012 Adjustment for premium. Fillable 1040ez form 2012   If your debt instrument (other than an inflation-indexed debt instrument) has premium, do not report any OID as ordinary income. Fillable 1040ez form 2012 Your adjustment is the total OID shown on your Form 1099-OID. Fillable 1040ez form 2012 Adjustment for acquisition premium. Fillable 1040ez form 2012   If your debt instrument has acquisition premium, reduce the OID you report. Fillable 1040ez form 2012 Your adjustment is the difference between the OID shown on your Form 1099-OID and the reduced OID amount figured using the rules explained later under Figuring OID on Long-Term Debt Instruments. Fillable 1040ez form 2012 Adjustment for market discount. Fillable 1040ez form 2012   If your debt instrument has market discount that you choose to include in income currently, increase the OID you report. Fillable 1040ez form 2012 Your adjustment is the accrued market discount for the year. Fillable 1040ez form 2012 See Market Discount Bonds in chapter 1 of Publication 550 for information on how to figure accrued market discount and include it in your income currently and for other information about market discount bonds. Fillable 1040ez form 2012 If you choose to use the constant yield method to figure accrued market discount, also see Figuring OID on Long-Term Debt Instruments, later. Fillable 1040ez form 2012 The constant yield method of figuring accrued OID, explained in those discussions under Constant yield method, is also used to figure accrued market discount. Fillable 1040ez form 2012 For more information concerning premium or market discount on an inflation-indexed debt instrument, see Regulations section 1. Fillable 1040ez form 2012 1275-7. Fillable 1040ez form 2012 Sale, exchange, or redemption. Fillable 1040ez form 2012   Generally, you treat your gain or loss from the sale, exchange, or redemption of a discounted debt instrument as a capital gain or loss if you held the debt instrument as a capital asset. Fillable 1040ez form 2012 If you sold the debt instrument through a broker, you should receive Form 1099-B or an equivalent statement from the broker. Fillable 1040ez form 2012 Use the Form 1099-B or other statement and your brokerage statements to complete Form 8949, and Schedule D (Form 1040). Fillable 1040ez form 2012   Your gain or loss is the difference between the amount you realized on the sale, exchange, or redemption and your basis in the debt instrument. Fillable 1040ez form 2012 Your basis, generally, is your cost increased by the OID you have included in income each year you held it. Fillable 1040ez form 2012 In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Fillable 1040ez form 2012   See chapter 4 of Publication 550 for more information about the tax treatment of the sale or redemption of discounted debt instruments. Fillable 1040ez form 2012 Example 4. Fillable 1040ez form 2012 Larry, a calendar year taxpayer, bought a corporate debt instrument at original issue for $86,235. Fillable 1040ez form 2012 00 on November 1 of Year 1. Fillable 1040ez form 2012 The 15-year debt instrument matures on October 31 of Year 16 at a stated redemption price of $100,000. Fillable 1040ez form 2012 The debt instrument provides for semiannual payments of interest at 10%. Fillable 1040ez form 2012 Assume the debt instrument is a capital asset in Larry's hands. Fillable 1040ez form 2012 The debt instrument has $13,765. Fillable 1040ez form 2012 00 of OID ($100,000 stated redemption price at maturity minus $86,235. Fillable 1040ez form 2012 00 issue price). Fillable 1040ez form 2012 Larry sold the debt instrument for $90,000 on November 1 of Year 4. Fillable 1040ez form 2012 Including the OID he will report for the period he held the debt instrument in Year 4, Larry has included $4,556. Fillable 1040ez form 2012 00 of OID in income and has increased his basis by that amount to $90,791. Fillable 1040ez form 2012 00. Fillable 1040ez form 2012 Larry has realized a loss of $791. Fillable 1040ez form 2012 00. Fillable 1040ez form 2012 All of Larry's loss is capital loss. Fillable 1040ez form 2012 Form 1099-OID The issuer of the debt instrument (or your broker, if you purchased or held the debt instrument through a broker) should give you a copy of Form 1099-OID or a similar statement if the accrued OID for the calendar year is $10 or more and the term of the debt instrument is more than 1 year. Fillable 1040ez form 2012 Form 1099-OID shows all OID income in box 1 except OID on a U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 Treasury obligation, which is shown in box 8. Fillable 1040ez form 2012 It also shows, in box 2, any qualified stated interest you must include in income. Fillable 1040ez form 2012 (However, any qualified stated interest on Treasury inflation-protected securities can be reported on Form 1099-INT in box 3. Fillable 1040ez form 2012 ) A copy of Form 1099-OID will be sent to the IRS. Fillable 1040ez form 2012 Do not attach your copy to your tax return. Fillable 1040ez form 2012 Keep it for your records. Fillable 1040ez form 2012 If you are required to file a tax return and you receive Form 1099-OID showing taxable amounts, you must report these amounts on your return. Fillable 1040ez form 2012 A 20% accuracy-related penalty may be charged for underpayment of tax due to either negligence or disregard of rules and regulations or substantial understatement of tax. Fillable 1040ez form 2012 Form 1099-OID not received. Fillable 1040ez form 2012   If you held an OID debt instrument for a calendar year but did not receive a Form 1099-OID, refer to the discussions under Figuring OID on Long-Term Debt Instruments, later, for information on the OID you must report. Fillable 1040ez form 2012 Refiguring OID. Fillable 1040ez form 2012   You must refigure the OID shown on Form 1099-OID, in box 1 or box 8, to determine the proper amount to include in income if one of the following applies. Fillable 1040ez form 2012 You bought the debt instrument at a premium or at an acquisition premium. Fillable 1040ez form 2012 The debt instrument is a stripped bond or coupon (including zero coupon bonds backed by U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 Treasury securities). Fillable 1040ez form 2012 The debt instrument is a contingent payment or inflation-indexed debt instrument. Fillable 1040ez form 2012 See the discussions under Figuring OID on Long-Term Debt Instruments or Figuring OID on Stripped Bonds and Coupons, later, for the specific computations. Fillable 1040ez form 2012 Refiguring interest. Fillable 1040ez form 2012   If you disposed of a debt instrument or acquired it from another holder between interest dates, see the discussion under Bonds Sold Between Interest Dates in chapter 1 of Publication 550 for information about refiguring the interest shown on Form 1099-OID in box 2. Fillable 1040ez form 2012 Nominee. Fillable 1040ez form 2012   If you are the holder of an OID debt instrument and you receive a Form 1099-OID that shows your taxpayer identification number and includes amounts belonging to another person, you are considered a “nominee. Fillable 1040ez form 2012 ” You must file another Form 1099-OID for each actual owner, showing the OID for the owner. Fillable 1040ez form 2012 Show the owner of the debt instrument as the “recipient” and you as the “payer. Fillable 1040ez form 2012 ”   Complete Form 1099-OID and Form 1096 and file the forms with the Internal Revenue Service Center for your area. Fillable 1040ez form 2012 You must also give a copy of the Form 1099-OID to the actual owner. Fillable 1040ez form 2012 However, you are not required to file a nominee return to show amounts belonging to your spouse. Fillable 1040ez form 2012 See the Form 1099 instructions for more information. Fillable 1040ez form 2012   When preparing your tax return, follow the instructions under Showing an OID adjustment in the next discussion. Fillable 1040ez form 2012 How To Report OID Generally, you report your taxable interest and OID income on the interest line of Form 1040EZ, Form 1040A, or Form 1040. Fillable 1040ez form 2012 Form 1040 or Form 1040A required. Fillable 1040ez form 2012   You must use Form 1040 or Form 1040A (you cannot use Form 1040EZ) under either of the following conditions. Fillable 1040ez form 2012 You received a Form 1099-OID as a nominee for the actual owner. Fillable 1040ez form 2012 Your total interest and OID income for the year was more than $1,500. Fillable 1040ez form 2012 Form 1040 required. Fillable 1040ez form 2012   You must use Form 1040 (you cannot use Form 1040A or Form 1040EZ) if you are reporting more or less OID than the amount shown on Form 1099-OID, other than because you are a nominee. Fillable 1040ez form 2012 For example, if you paid a premium or an acquisition premium when you purchased the debt instrument, you must use Form 1040 because you will report less OID than shown on Form 1099-OID. Fillable 1040ez form 2012 Also, you must use Form 1040 if you were charged an early withdrawal penalty. Fillable 1040ez form 2012 Where to report. Fillable 1040ez form 2012   List each payer's name (if a brokerage firm gave you a Form 1099, list the brokerage firm as the payer) and the amount received from each payer on Form 1040A, Schedule B, Part I, line 1, or Form 1040, Schedule B, line 1. Fillable 1040ez form 2012 Include all OID and periodic interest shown on any Form 1099-OID, boxes 1, 2, and 8, you received for the tax year. Fillable 1040ez form 2012 Also include any other OID and interest income for which you did not receive a Form 1099. Fillable 1040ez form 2012 Showing an OID adjustment. Fillable 1040ez form 2012   If you use Form 1040 to report more or less OID than shown on Form 1099-OID, list the full OID on Schedule B, Part I, line 1, and follow the instructions under 1 or 2, next. Fillable 1040ez form 2012   If you use Form 1040A to report the OID shown on a Form 1099-OID you received as a nominee for the actual owner, list the full OID on Schedule B, Part I, line 1 and follow the instructions under 1. Fillable 1040ez form 2012 If the OID, as adjusted, is less than the amount shown on Form 1099-OID, show the adjustment as follows. Fillable 1040ez form 2012 Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Fillable 1040ez form 2012 Below the subtotal, write “Nominee Distribution” or “OID Adjustment” and show the OID you are not required to report. Fillable 1040ez form 2012 Subtract that OID from the subtotal and enter the result on line 2. Fillable 1040ez form 2012 If the OID, as adjusted, is more than the amount shown on Form 1099-OID, show the adjustment as follows. Fillable 1040ez form 2012 Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Fillable 1040ez form 2012 Below the subtotal, write “OID Adjustment” and show the additional OID. Fillable 1040ez form 2012 Add that OID to the subtotal and enter the result on line 2. Fillable 1040ez form 2012 Figuring OID on Long-Term Debt Instruments How you figure the OID on a long-term debt instrument depends on the date it was issued. Fillable 1040ez form 2012 It also may depend on the type of the debt instrument. Fillable 1040ez form 2012 There are different rules for each of the following debt instruments. Fillable 1040ez form 2012 Corporate debt instruments issued after 1954 and before May 28, 1969, and government debt instruments issued after 1954 and before July 2, 1982. Fillable 1040ez form 2012 Corporate debt instruments issued after May 27, 1969, and before July 2, 1982. Fillable 1040ez form 2012 Debt instruments issued after July 1, 1982, and before 1985. Fillable 1040ez form 2012 Debt instruments issued after 1984 (other than debt instruments described in (5) and (6)). Fillable 1040ez form 2012 Contingent payment debt instruments issued after August 12, 1996. Fillable 1040ez form 2012 Inflation-indexed debt instruments (including Treasury inflation-protected securities) issued after January 5, 1997. Fillable 1040ez form 2012 Zero coupon bonds. Fillable 1040ez form 2012   The rules for figuring OID on zero coupon bonds backed by U. Fillable 1040ez form 2012 S. Fillable 1040ez form 2012 Treasury securities are discussed under Figuring OID on Stripped Bonds and Coupons, later. Fillable 1040ez form 2012 Corporate Debt Instruments Issued After 1954 and Before May 28, 1969, and Government Debt Instruments Issued After 1954 and Before July 2, 1982 If you hold these debt instruments as capital assets, you include OID in income only in the year the debt instrument is sold, exchanged, or redeemed, and only if you have a gain. Fillable 1040ez form 2012 The OID, which is taxed as ordinary income, generally equals the following amount. Fillable 1040ez form 2012   number of full months you held the debt instrument  number of full months from date of original issue to date of maturity X original issue discount The balance of the gain is capital gain. Fillable 1040ez form 2012 If there is a loss on the sale of the debt instrument, the entire loss is a capital loss and no OID is reported. Fillable 1040ez form 2012 Corporate Debt Instruments Issued After May 27, 1969, and Before July 2, 1982 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments. Fillable 1040ez form 2012 For information about showing the correct OID on your tax return, see the discussion under How To Report OID, earlier. Fillable 1040ez form 2012 Your basis in the debt instrument is increased by the OID you include in income. Fillable 1040ez form 2012 Form 1099-OID. Fillable 1040ez form 2012   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Fillable 1040ez form 2012 However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Fillable 1040ez form 2012 See Reduction for acquisition premium, later. Fillable 1040ez form 2012 If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Fillable 1040ez form 2012 irs. Fillable 1040ez form 2012 gov/pub1212 by clicking the link under Recent Developments. Fillable 1040ez form 2012 Form 1099-OID not received. Fillable 1040ez form 2012    The OID listed is for each $1,000 of redemption price. Fillable 1040ez form 2012 You must adjust the listed amount if your debt instrument has a different principal amount. Fillable 1040ez form 2012 For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Fillable 1040ez form 2012   If you held the debt instrument the entire year, use the OID shown in Section I-A for a calendar year. Fillable 1040ez form 2012 (If your debt instrument is not listed in Section I-A, consult the issuer for information about the issue price and the OID that accrued for that year. Fillable 1040ez form 2012 ) If you did not hold the debt instrument the entire year, figure your OID using the following method. Fillable 1040ez form 2012 Divide the OID shown by 12. Fillable 1040ez form 2012 Multiply the result in (1) by the number of complete and partial months (for example, 6½ months) you held the debt instrument during a calendar year. Fillable 1040ez form 2012 This is the OID to include in income unless you paid an acquisition premium. Fillable 1040ez form 2012 The reduction for acquisition premium is discussed next. Fillable 1040ez form 2012 Reduction for acquisition premium. Fillable 1040ez form 2012   If you bought the debt instrument at an acquisition premium, figure the OID to include in income as follows. Fillable 1040ez form 2012 Divide the total OID on the debt instrument by the number of complete months, and any part of a month, from the date of original issue to the maturity date. Fillable 1040ez form 2012 This is the monthly OID. Fillable 1040ez form 2012 Subtract from your cost the issue price and the accumulated OID from the date of issue to the date of purchase. Fillable 1040ez form 2012 (If the result is zero or less, stop here. Fillable 1040ez form 2012 You did not pay an acquisition premium. Fillable 1040ez form 2012 ) Divide the amount figured in (2) by the number of complete months, and any part of a month, from the date of your purchase to the maturity date. Fillable 1040ez form 2012 Subtract the amount figured in (3) from the amount figured in (1). Fillable 1040ez form 2012 This is the OID to include in income for each month you hold the debt instrument during the year. Fillable 1040ez form 2012 Transfers during the month. Fillable 1040ez form 2012   If you buy or sell a debt instrument on any day other than the same day of the month as the date of original issue, the ratable monthly portion of OID for the month of sale is divided between the seller and the buyer according to the number of days each held the debt instrument. Fillable 1040ez form 2012 Your holding period for this purpose begins the day you acquire the debt instrument and ends the day before you dispose of it. Fillable 1040ez form 2012 Debt Instruments Issued After July 1, 1982, and Before 1985 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments and increase your basis by the amount included. Fillable 1040ez form 2012 For information about showing the correct OID on your tax return, see How To Report OID, earlier. Fillable 1040ez form 2012 Form 1099-OID. Fillable 1040ez form 2012   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Fillable 1040ez form 2012 However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Fillable 1040ez form 2012 See Constant yield method and the discussions on acquisition premium that follow, later. Fillable 1040ez form 2012 If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Fillable 1040ez form 2012 irs. Fillable 1040ez form 2012 gov/pub1212 by clicking the link under Recent Developments. Fillable 1040ez form 2012 Form 1099-OID not received. Fillable 1040ez form 2012    The OID listed is for each $1,000 of redemption price. Fillable 1040ez form 2012 You must adjust the listed amount if your debt instrument has a different principal amount. Fillable 1040ez form 2012 For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Fillable 1040ez form 2012   If you held the debt instrument the entire year, use the OID shown in Section I-A. Fillable 1040ez form 2012 (If your instrument is not listed in Section I-A, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Fillable 1040ez form 2012 ) If you did not hold the debt instrument the entire year, figure your OID using either of the following methods. Fillable 1040ez form 2012 Method 1. Fillable 1040ez form 2012    Divide the total OID for a calendar year by 365 (366 for leap years). Fillable 1040ez form 2012 Multiply the result in (1) by the number of days you held the debt instrument during that particular year. Fillable 1040ez form 2012  This computation is an approximation and may result in a slightly higher OID than Method 2. Fillable 1040ez form 2012 Method 2. Fillable 1040ez form 2012    Look up the daily OID for the first accrual period you held the debt instrument during a calendar year. Fillable 1040ez form 2012 (See Accrual period under Constant yield method, next. Fillable 1040ez form 2012 ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Fillable 1040ez form 2012 If you held the debt instrument for part of both accrual periods, repeat (1) and (2) for the second accrual period. Fillable 1040ez form 2012 Add the results of (2) and (3). Fillable 1040ez form 2012 This is the OID to include in income, unless you paid an acquisition premium. Fillable 1040ez form 2012 (The reduction for acquisition premium is discussed later. Fillable 1040ez form 2012 ) Constant yield method. Fillable 1040ez form 2012   This discussion shows how to figure OID on debt instruments issued after July 1, 1982, and before 1985, using a constant yield method. Fillable 1040ez form 2012 OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Fillable 1040ez form 2012   Figure the OID allocable to any accrual period as follows. Fillable 1040ez form 2012 Multiply the adjusted issue price at the beginning of the accrual period by the debt instrument's yield to maturity. Fillable 1040ez form 2012 Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Fillable 1040ez form 2012 Accrual period. Fillable 1040ez form 2012   An accrual period for any OID debt instrument issued after July 1, 1982, and before 1985 is each 1-year period beginning on the date of the issue of the obligation and each anniversary thereafter, or the shorter period to maturity for the last accrual period. Fillable 1040ez form 2012 Your tax year will usually include parts of two accrual periods. Fillable 1040ez form 2012 Daily OID. Fillable 1040ez form 2012   The OID for any accrual period is allocated equally to each day in the accrual period. Fillable 1040ez form 2012 You must include in income the sum of the OID amounts for each day you hold the debt instrument during the year. Fillable 1040ez form 2012 If your tax year includes parts of two or more accrual periods, you must include the proper daily OID amounts for each accrual period. Fillable 1040ez form 2012 Figuring daily OID. Fillable 1040ez form 2012   The daily OID for the initial accrual period is figured using the following formula. Fillable 1040ez form 2012   (ip × ytm) − qsi     p   ip = issue price ytm = yield to maturity qsi = qualified stated interest p = number of days in accrual period         The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Fillable 1040ez form 2012 Reduction for acquisition premium on debt instruments purchased before July 19, 1984. Fillable 1040ez form 2012   If you bought the debt instrument at an acquisition premium before July 19, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Fillable 1040ez form 2012 Figure the daily acquisition premium by dividing the total acquisition premium by the number of days in the period beginning on your purchase date and ending on the day before the date of maturity. Fillable 1040ez form 2012 Reduction for acquisition premium on debt instruments purchased after July 18, 1984. Fillable 1040ez form 2012   If you bought the debt instrument at an acquisition premium after July 18, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Fillable 1040ez form 2012 However, the method of figuring the daily acquisition premium is different from the method described in the preceding discussion. Fillable 1040ez form 2012 To figure the daily acquisition premium under this method, multiply the daily OID by the following fraction. Fillable 1040ez form 2012 The numerator is the acquisition premium. Fillable 1040ez form 2012 The denominator is the total OID remaining for the debt instrument after your purchase date. Fillable 1040ez form 2012 Section I-A is available at www. Fillable 1040ez form 2012 irs. Fillable 1040ez form 2012 gov/pub1212 and clicking the link under Recent Developments. Fillable 1040ez form 2012 Using Section I-A to figure accumulated OID. Fillable 1040ez form 2012   If you bought your corporate debt instrument in a calendar year or the subsequent year, you can figure the accumulated OID to the date of purchase by adding the following amounts. Fillable 1040ez form 2012 The amount from the “Total OID to January 1, YYYY” column for your debt instrument. Fillable 1040ez form 2012 The OID from January 1 of a calendar year to the date of purchase, figured as follows. Fillable 1040ez form 2012 Multiply the daily OID for the first accrual period in the calendar year by the number of days from January 1 to the date of purchase, or the end of the accrual period if the debt instrument was purchased in the second or third accrual period. Fillable 1040ez form 2012 Multiply the daily OID for each subsequent accrual period by the number of days in the period to the date of purchase or the end of the accrual period, whichever applies. Fillable 1040ez form 2012 Add the amounts figured in (2a) and (2b). Fillable 1040ez form 2012 Debt Instruments Issued After 1984 If you hold debt instruments issued after 1984, you must report part of the OID in gross income each year that you own the debt instruments. Fillable 1040ez form 2012 You must include the OID in gross income whether or not you hold the debt instrument as a capital asset. Fillable 1040ez form 2012 Your basis in the debt instrument is increased by the OID you include in income. Fillable 1040ez form 2012 For information about showing the correct OID on your tax return, see How To Report OID, earlier. Fillable 1040ez form 2012 Form 1099-OID. Fillable 1040ez form 2012   You should receive a Form 1099-OID showing OID for the part of a calendar year you held the debt instrument. Fillable 1040ez form 2012 However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Fillable 1040ez form 2012 See Constant yield method and Reduction for acquisition premium, later. Fillable 1040ez form 2012   You may also need to refigure the OID for a contingent payment or inflation-indexed debt instrument on which the amount reported on Form 1099-OID is inaccurate. Fillable 1040ez form 2012 See Contingent Payment Debt Instruments or Inflation-Indexed Debt Instruments, later. Fillable 1040ez form 2012 If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-B available at www. Fillable 1040ez form 2012 irs. Fillable 1040ez form 2012 gov/pub1212 by clicking the link under Recent Developments. Fillable 1040ez form 2012 Form 1099-OID not received. Fillable 1040ez form 2012   The OID listed is for each $1,000 of redemption price. Fillable 1040ez form 2012 You must adjust the listed amount if your debt instrument has a different principal amount. Fillable 1040ez form 2012 For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Fillable 1040ez form 2012   Use the OID shown in Section I-B for a calendar year if you held the debt instrument the entire year. Fillable 1040ez form 2012 (If your debt instrument is not listed in Section I-B, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Fillable 1040ez form 2012 ) If you did not hold the debt instrument the entire year, figure your OID as follows. Fillable 1040ez form 2012 Look up the daily OID for the first accrual period in which you held the debt instrument during a calendar year. Fillable 1040ez form 2012 (See Accrual period under Constant yield method, later. Fillable 1040ez form 2012 ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Fillable 1040ez form 2012 Repeat (1) and (2) for any remaining accrual periods in which you held the debt instrument. Fillable 1040ez form 2012 Add the results of (2) and (3). Fillable 1040ez form 2012 This is the OID to include in income for that year, unless you paid an acquisition premium. Fillable 1040ez form 2012 (The reduction for acquisition premium is discussed later. Fillable 1040ez form 2012 ) Tax-exempt bond. Fillable 1040ez form 2012   If you own a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Fillable 1040ez form 2012 You need to make this adjustment to determine if you have a gain or loss on a later disposition of the bond. Fillable 1040ez form 2012 In general, use the rules that follow to determine your OID. Fillable 1040ez form 2012 Constant yield method. Fillable 1040ez form 2012   This discussion shows how to figure OID on debt instruments issued after 1984 using a constant yield method. Fillable 1040ez form 2012 (The special rules that apply to contingent payment debt instruments and inflation-indexed debt instruments are explained later. Fillable 1040ez form 2012 ) OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Fillable 1040ez form 2012   Figure the OID allocable to any accrual period as follows. Fillable 1040ez form 2012 Multiply the adjusted issue price at the beginning of the accrual period by a fraction. Fillable 1040ez form 2012 The numerator of the fraction is the debt instrument's yield to maturity and the denominator is the number of accrual periods per year. Fillable 1040ez form 2012 The yield must be stated appropriately taking into account the length of the particular accrual period. Fillable 1040ez form 2012 Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Fillable 1040ez form 2012 Accrual period. Fillable 1040ez form 2012   For debt instruments issued after 1984 and before April 4, 1994, an accrual period is each 6-month period that ends on the day that corresponds to the stated maturity date of the debt instrument or the date 6 months before that date. Fillable 1040ez form 2012 For example, a debt instrument maturing on March 31 has accrual periods that end on September 30 and March 31 of each calendar year. Fillable 1040ez form 2012 Any short period is included as the first accrual period. Fillable 1040ez form 2012   For debt instruments issued after April 3, 1994, accrual periods may be of any length and may vary in length over the term of the debt instrument, as long as each accrual period is no longer than 1 year and all payments are made on the first or last day of an accrual period. Fillable 1040ez form 2012 However, the OID listed for these debt instruments in Section I-B has been figured using 6-month accrual periods. Fillable 1040ez form 2012 Daily OID. Fillable 1040ez form 2012   The OID for any accrual period is allocated equally to each day in the accrual period. Fillable 1040ez form 2012 Figure the amount to include in income by adding the OID for each day you hold the debt instrument during the year. Fillable 1040ez form 2012 Since your tax year will usually include parts of two or more accrual periods, you must include the proper daily OID for each accrual period. Fillable 1040ez form 2012 If your debt instrument has 6-month accrual periods, your tax year will usually include one full 6-month accrual period and parts of two other 6-month periods. Fillable 1040ez form 2012 Figuring daily OID. Fillable 1040ez form 2012   The daily OID for the initial accrual period is figured using the following formula. Fillable 1040ez form 2012   (ip × ytm/n) − qsi     p   ip = issue price ytm = yield to maturity n = number of accrual periods in 1 year qsi = qualified stated interest p = number of days in accrual period       The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Fillable 1040ez form 2012 Example 5. Fillable 1040ez form 2012 On January 1 of Year 1, you bought a 15-year, 10% debt instrument of A Corporation at original issue for $86,235. Fillable 1040ez form 2012 17. Fillable 1040ez form 2012 According to the prospectus, the debt instrument matures on December 31 of Year 15 at a stated redemption price of $100,000. Fillable 1040ez form 2012 The yield to maturity is 12%, compounded semiannually. Fillable 1040ez form 2012 The debt instrument provides for qualified stated interest payments of $5,000 on June 30 and December 31 of each calendar year. Fillable 1040ez form 2012 The accrual periods are the 6-month periods ending on each of these dates. Fillable 1040ez form 2012 The number of days for the first accrual period (January 1 through June 30) is 181 days (182 for leap years). Fillable 1040ez form 2012 The daily OID for the first accrual period is figured as follows. Fillable 1040ez form 2012   ($86,235. Fillable 1040ez form 2012 17 x . Fillable 1040ez form 2012 12/2) – $5,000     181 days     = $174. Fillable 1040ez form 2012 11020 = $. Fillable 1040ez form 2012 96193   181           The adjusted issue price at the beginning of the second accrual period is the issue price plus the OID previously includible in income ($86,235. Fillable 1040ez form 2012 17 + $174. Fillable 1040ez form 2012 11), or $86,409. Fillable 1040ez form 2012 28. Fillable 1040ez form 2012 The number of days for the second accrual period (July 1 through December 31) is 184 days. Fillable 1040ez form 2012 The daily OID for the second accrual period is figured as follows. Fillable 1040ez form 2012   ($86,409. Fillable 1040ez form 2012 28 x . Fillable 1040ez form 2012 12/2) – $5,000     184 days     = $184. Fillable 1040ez form 2012 55681 = $1. Fillable 1040ez form 2012 00303   184 Since the first and second accrual periods coincide exactly with your tax year, you include in income for Year 1 the OID allocable to the first two accrual periods, $174. Fillable 1040ez form 2012 11 ($. Fillable 1040ez form 2012 95665 × 182 days) plus $184. Fillable 1040ez form 2012 56 ($1. Fillable 1040ez form 2012 00303 × 184 days), or $358. Fillable 1040ez form 2012 67. Fillable 1040ez form 2012 Add the OID to the $10,000 interest you report on your income tax return for Year 1. Fillable 1040ez form 2012 Example 6. Fillable 1040ez form 2012 Assume the same facts as in Example 5, except that you bought the debt instrument at original issue on May 1 of Year 1, with a maturity date of April 30, Year 16. Fillable 1040ez form 2012 Also, the interest payment dates are October 31 and April 30 of each calendar year. Fillable 1040ez form 2012 The accrual periods are the 6-month periods ending on each of these dates. Fillable 1040ez form 2012 The number of days for the first accrual period (May 1 through October 31) is 184 days. Fillable 1040ez form 2012 The daily OID for the first accrual period is figured as follows. Fillable 1040ez form 2012   ($86,235. Fillable 1040ez form 2012 17 x . Fillable 1040ez form 2012 12/2) – $5,000     184 days     = $174. Fillable 1040ez form 2012 11020 = $. Fillable 1040ez form 2012 94625   184           The number of days for the second accrual period (November 1 through April 30) is 181 days (182 for leap years). Fillable 1040ez form 2012 The daily OID for the second accrual period is figured as follows. Fillable 1040ez form 2012   ($86,409. Fillable 1040ez form 2012 28 x . Fillable 1040ez form 2012 12/2) – $5,000     181 days     = $184. Fillable 1040ez form 2012 55681 = $1. Fillable 1040ez form 2012 01965   181 If you hold the debt instrument through the end of Year 1, you must include $236. Fillable 1040ez form 2012 31 of OID in income. Fillable 1040ez form 2012 This is $174. Fillable 1040ez form 2012 11 ($. Fillable 1040ez form 2012 94625 × 184 days) for the period May 1 through October 31 plus $62. Fillable 1040ez form 2012 20 ($1. Fillable 1040ez form 2012 01965 × 61 days) for the period November 1 through December 31. Fillable 1040ez form 2012 The OID is added to the $5,000 interest income paid on October 31 of Year 1. Fillable 1040ez form 2012 Your basis in the debt instrument is increased by the OID you include in income. Fillable 1040ez form 2012 On January 1 of Year 2, your basis in the A Corporation debt instrument is $86,471. Fillable 1040ez form 2012 48 ($86,235. Fillable 1040ez form 2012 17 + $236. Fillable 1040ez form 2012 31). Fillable 1040ez form 2012 Short first accrual period. Fillable 1040ez form 2012   You may have to make adjustments if a debt instrument has a short first accrual period. Fillable 1040ez form 2012 For example, a debt instrument with 6-month accrual periods that is issued on February 15 and matures on October 31 has a short first accrual period that ends April 30. Fillable 1040ez form 2012 (The remaining accrual periods begin on May 1 and November 1. Fillable 1040ez form 2012 ) For this short period, figure the daily OID as described earlier, but adjust the yield for the length of the short accrual period. Fillable 1040ez form 2012 You may use any reasonable compounding method in determining OID for a short period. Fillable 1040ez form 2012 Examples of reasonable compounding methods include continuous compounding and monthly compounding (that is, simple interest within a month). Fillable 1040ez form 2012 Consult your tax advisor for more information about making this computation. Fillable 1040ez form 2012   The OID for the final accrual period is the difference between the amount payable at maturity (other than a payment of qualified stated interest) and the adjusted issue price at the beginning of the final accrual period. Fillable 1040ez form 2012 Reduction for acquisition premium. Fillable 1040ez form 2012   If you bought the debt instrument at an acquisition premium, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Fillable 1040ez form 2012 To figure the daily acquisition premium, multiply the daily OID by the following fraction. Fillable 1040ez form 2012 The numerator is the acquisition premium. Fillable 1040ez form 2012 The denominator is the total OID remaining for the debt instrument after your purchase date. Fillable 1040ez form 2012 Example 7. Fillable 1040ez form 2012 Assume the same facts as in Example 6, except that you bought the debt instrument on November 1 of Year 1 for $87,000, after its original issue on May 1 of Year 1. Fillable 1040ez form 2012 The adjusted issue price on November 1 of Year 1 is $86,409. Fillable 1040ez form 2012 28 ($86,235. Fillable 1040ez form 2012 17 + $174. Fillable 1040ez form 2012 11). Fillable 1040ez form 2012 In this case, you paid an acquisition premium of $590. Fillable 1040ez form 2012 72 ($87,000 − $86,409. Fillable 1040ez form 2012 28). Fillable 1040ez form 2012 The daily OID for the accrual period November 1 through April 30, reduced for the acquisition premium, is figured as follows. Fillable 1040ez form 2012 1) Daily OID on date of purchase (2nd accrual period) $1. Fillable 1040ez form 2012 01965*  2)  Acquisition premium $590. Fillable 1040ez form 2012 72    3)  Total OID remaining after purchase date ($13,764. Fillable 1040ez form 2012 83 − $174. Fillable 1040ez form 2012 11) 13,590. Fillable 1040ez form 2012 72   4) Line 2 ÷ line 3 . Fillable 1040ez form 2012 04346  5)  Line 1 × line 4 . Fillable 1040ez form 2012 04432  6)  Daily OID reduced for the acquisition premium. Fillable 1040ez form 2012 Line 1 − line 5 $0. Fillable 1040ez form 2012 97533  * As shown in Example 6. Fillable 1040ez form 2012 The total OID to include in income for Year 1 is $59. Fillable 1040ez form 2012 50 ($. Fillable 1040ez form 2012 97533 × 61 days). Fillable 1040ez form 2012 Contingent Payment Debt Instruments This discussion shows how to figure OID on a contingent payment debt instrument issued after August 12, 1996, that was issued for cash or publicly traded property. Fillable 1040ez form 2012 In general, a contingent payment debt instrument provides for one or more payments that are contingent as to timing or amount. Fillable 1040ez form 2012 If you hold a contingent payment bond, you must report OID as it accrues each year. Fillable 1040ez form 2012 Because the actual payments on a contingent payment debt instrument cannot be known in advance, issuers and holders cannot use the constant yield method (discussed earlier under Debt Instruments Issued After 1984) without making certain assumptions about the payments on the debt instrument. Fillable 1040ez form 2012 To figure OID accruals on contingent payment debt instruments, holders and issuers must use the noncontingent bond method. Fillable 1040ez form 2012 Noncontingent bond method. Fillable 1040ez form 2012    Under this method, the issuer must compute a comparable yield for the debt instrument and, based on this yield, construct a projected payment schedule for the instrument, which includes a projected fixed amount for each contingent payment. Fillable 1040ez form 2012 In general, holders and issuers accrue OID on this projected payment schedule using the constant yield method that applies to fixed payment debt instruments. Fillable 1040ez form 2012 When a contingent payment differs from the projected fixed amount, the holders and issuers make adjustments to their OID accruals. Fillable 1040ez form 2012 If the actual contingent payment is larger than expected, both the issuer and the holder increase their OID accruals. Fillable 1040ez form 2012 If the actual contingent payment is smaller than expected, holders and issuers generally decrease their OID accruals. Fillable 1040ez form 2012 Form 1099-OID. Fillable 1040ez form 2012   The amount shown on Form 1099-OID in box 1 you receive for a contingent payment debt instrument may not be the correct amount to include in income. Fillable 1040ez form 2012 For example, the amount may not be correct if the contingent payment was different from the projected amount. Fillable 1040ez form 2012 If the amount in box 1 is not correct, you must figure the OID to report on your return under the following rules. Fillable 1040ez form 2012 For information on showing an OID adjustment on your tax return, see How To Report OID, earlier. Fillable 1040ez form 2012 Figuring OID. Fillable 1040ez form 2012   To figure OID on a contingent payment debt instrument, you need to know the “comparable yield” and “projected payment schedule” of the debt instrument. Fillable 1040ez form 2012 The issuer must make these available to you. Fillable 1040ez form 2012 Comparable yield. Fillable 1040ez form 2012   The comparable yield generally is the yield at which the issuer would issue a fixed rate debt instrument with terms and conditions similar to those of the contingent payment debt instrument. Fillable 1040ez form 2012 The comparable yield is determined as of the debt instrument's issue date. Fillable 1040ez form 2012 Projected payment schedule. Fillable 1040ez form 2012   The projected payment schedule for a contingent payment debt instrument includes all fixed payments due under the instrument and a projected fixed amount for each contingent payment. Fillable 1040ez form 2012 The projected payment schedule is created by the issuer as of the debt instrument's issue date. Fillable 1040ez form 2012 It is used to determine the issuer's and holder's interest accruals and adjustments. Fillable 1040ez form 2012 Steps for figuring OID. Fillable 1040ez form 2012   Figure the OID on a contingent payment debt instrument in two steps. Fillable 1040ez form 2012 Figure the OID using the constant yield method (discussed earlier under Debt Instruments Issued After 1984 ) that applies to fixed payment debt instruments. Fillable 1040ez form 2012 Use the comparable yield as the yield to maturity. Fillable 1040ez form 2012 In general, use the projected payment schedule to determine the instrument's adjusted issue price at the beginning of each accrual period (other than the initial period). Fillable 1040ez form 2012 Do not treat any amount payable as qualified stated interest. Fillable 1040ez form 2012 Adjust the OID in (1) to account for actual contingent payments. Fillable 1040ez form 2012 If the contingent payment is greater than the projected fixed amount, you have a positive adjustment. Fillable 1040ez form 2012 If the contingent payment is less than the projected fixed amount, you have a negative adjustment. Fillable 1040ez form 2012 Net positive adjustment. Fillable 1040ez form 2012   A net positive adjustment exists for a tax year when the total of any positive adjustments described in (2) above for the tax year is more than the total of any negative adjustments for the tax year. Fillable 1040ez form 2012 Treat a net positive adjustment as additional OID for the tax year. Fillable 1040ez form 2012 Net negative adjustment. Fillable 1040ez form 2012   A net negative adjustment exists for a tax year when the total of any negative adjustments described in (2) above for the tax year is more than the total of any positive adjustments for the tax year. Fillable 1040ez form 2012 Use a net negative adjustment to offset OID on the debt instrument for the tax year. Fillable 1040ez form 2012 If the net negative adjustment is more than the OID on the debt instrument for the tax year, you can claim the difference as an ordinary loss. Fillable 1040ez form 2012 However, the amount you can claim as an ordinary loss is limited to the OID on the debt instrument you included in income in prior tax years. Fillable 1040ez form 2012 You must carry forward any net negative adjustment that is more than the total OID for the tax year and prior tax years and treat it as a negative adjustment in the next tax year. Fillable 1040ez form 2012 Basis adjustments. Fillable 1040ez form 2012   In general, increase your basis in a contingent payment debt instrument by the OID included in income. Fillable 1040ez form 2012 Your basis, however, is not affected by any negative or positive adjustments. Fillable 1040ez form 2012 Decrease your basis by any noncontingent payment received and the projected contingent payment scheduled to be received. Fillable 1040ez form 2012 Treatment of gain or loss on sale or exchange. Fillable 1040ez form 2012   If you sell a contingent payment debt instrument at a gain, your gain is ordinary income (interest income), even if you hold the debt instrument as a capital asset. Fillable 1040ez form 2012 If you sell a contingent payment debt instrument at a loss, your loss is an ordinary loss to the extent of your prior OID accruals on the debt instrument. Fillable 1040ez form 2012 If the debt instrument is a capital asset, treat any loss that is more than your prior OID accruals as a capital loss. Fillable 1040ez form 2012 See Regulations section 1. Fillable 1040ez form 2012 1275-4 for exceptions to these rules. Fillable 1040ez form 2012 Premium, acquisition premium, and market discount. Fillable 1040ez form 2012   The rules for accruing premium, acquisition premium, and market discount do not apply to a contingent payment debt instrument. Fillable 1040ez form 2012 See Regulations section 1. Fillable 1040ez form 2012 1275-4 to determine how to account for these items. Fillable 1040ez form 2012 Inflation-Indexed Debt Instruments This discussion shows how you figure OID on certain inflation-indexed debt instruments issued after January 5, 1997. Fillable 1040ez form 2012 An inflation-indexed debt instrument is generally a debt instrument on which the payments are adjusted for inflation and d