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Fillable 1040ez

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Fillable 1040ez

Fillable 1040ez 32. Fillable 1040ez   Child and Dependent Care Credit Table of Contents Reminders Introduction Useful Items - You may want to see: Tests To Claim the CreditQualifying Person Test Earned Income Test Work-Related Expense Test Joint Return Test Provider Identification Test How To Figure the CreditFiguring Total Work-Related Expenses Earned Income Limit Dollar Limit Amount of Credit How To Claim the CreditTax credit not refundable. Fillable 1040ez Employment Taxes for Household Employers Reminders Taxpayer identification number needed for each qualifying person. Fillable 1040ez  You must include on line 2 of Form 2441 the name and taxpayer identification number (generally the social security number) of each qualifying person. Fillable 1040ez See Taxpayer identification number under Qualifying Person Test, later. Fillable 1040ez You may have to pay employment taxes. Fillable 1040ez  If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer who has to pay employment taxes. Fillable 1040ez Usually, you are not a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business. Fillable 1040ez See Employment Taxes for Household Employers , later. Fillable 1040ez Introduction This chapter discusses the credit for child and dependent care expenses and covers the following topics. Fillable 1040ez Tests you must meet to claim the credit. Fillable 1040ez How to figure the credit. Fillable 1040ez How to claim the credit. Fillable 1040ez Employment taxes you may have to pay as a household employer. Fillable 1040ez You may be able to claim the credit if you pay someone to care for your dependent who is under age 13 or for your spouse or dependent who is not able to care for himself or herself. Fillable 1040ez The credit can be up to 35% of your expenses. Fillable 1040ez To qualify, you must pay these expenses so you can work or look for work. Fillable 1040ez This credit should not be confused with the child tax credit discussed in chapter 34. Fillable 1040ez Dependent care benefits. Fillable 1040ez   If you received any dependent care benefits from your employer during the year, you may be able to exclude from your income all or part of them. Fillable 1040ez You must complete Form 2441, Part III, before you can figure the amount of your credit. Fillable 1040ez See Dependent Care Benefits under How To Figure the Credit, later. Fillable 1040ez Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 503 Child and Dependent Care Expenses 926 Household Employer's Tax Guide Form (and Instructions) 2441 Child and Dependent Care Expenses Schedule H (Form 1040) Household Employment Taxes W-7 Application for IRS Individual Taxpayer Identification Number W-10 Dependent Care Provider's Identification and Certification Tests To Claim the Credit To be able to claim the credit for child and dependent care expenses, you must file Form 1040 or Form 1040A, not Form 1040EZ, and meet all the following tests. Fillable 1040ez The care must be for one or more qualifying persons who are identified on Form 2441. Fillable 1040ez (See Qualifying Person Test . Fillable 1040ez ) You (and your spouse if filing jointly) must have earned income during the year. Fillable 1040ez (However, see Rule for student-spouse or spouse not able to care for self under Earned Income Test, later. Fillable 1040ez ) You must pay child and dependent care expenses so you (and your spouse if filing jointly) can work or look for work. Fillable 1040ez (See Work-Related Expense Test , later. Fillable 1040ez ) You must make payments for child and dependent care to someone you (and your spouse) cannot claim as a dependent. Fillable 1040ez If you make payments to your child, he or she cannot be your dependent and must be age 19 or older by the end of the year. Fillable 1040ez You cannot make payments to: Your spouse, or The parent of your qualifying person if your qualifying person is your child and under age 13. Fillable 1040ez (See Payments to Relatives or Dependents under Work-Related Expense Test, later. Fillable 1040ez ) Your filing status may be single, head of household, or qualifying widow(er) with dependent child. Fillable 1040ez If you are married, you must file a joint return, unless an exception applies to you. Fillable 1040ez (See Joint Return Test , later. Fillable 1040ez ) You must identify the care provider on your tax return. Fillable 1040ez (See Provider Identification Test , later. Fillable 1040ez ) If you exclude or deduct dependent care benefits provided by a dependent care benefits plan, the total amount you exclude or deduct must be less than the dollar limit for qualifying expenses (generally, $3,000 if one qualifying person was cared for or $6,000 if two or more qualifying persons were cared for). Fillable 1040ez (If two or more qualifying persons were cared for, the amount you exclude or deduct will always be less than the dollar limit, since the total amount you can exclude or deduct is limited to $5,000. Fillable 1040ez See Reduced Dollar Limit under How To Figure the Credit, later. Fillable 1040ez ) These tests are presented in Figure 32-A and are also explained in detail in this chapter. Fillable 1040ez Figure 32-A. Fillable 1040ez Can You Claim the Credit? Please click here for the text description of the image. Fillable 1040ez Figure 32-A Can You Claim the Credit? Qualifying Person Test Your child and dependent care expenses must be for the care of one or more qualifying persons. Fillable 1040ez A qualifying person is: Your qualifying child who is your dependent and who was under age 13 when the care was provided (but see Child of divorced or separated parents or parents living apart, later), Your spouse who was not physically or mentally able to care for himself or herself and lived with you for more than half the year, or A person who was not physically or mentally able to care for himself or herself, lived with you for more than half the year, and either: Was your dependent, or Would have been your dependent except that: He or she received gross income of $3,900 or more, He or she filed a joint return, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Fillable 1040ez Dependent defined. Fillable 1040ez   A dependent is a person, other than you or your spouse, for whom you can claim an exemption. Fillable 1040ez To be your dependent, a person must be your qualifying child (or your qualifying relative). Fillable 1040ez Qualifying child. Fillable 1040ez   To be your qualifying child, a child must live with you for more than half the year and meet other requirements. Fillable 1040ez More information. Fillable 1040ez   For more information about who is a dependent or a qualifying child, see chapter 3. Fillable 1040ez Physically or mentally not able to care for oneself. Fillable 1040ez   Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Fillable 1040ez Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves. Fillable 1040ez Person qualifying for part of year. Fillable 1040ez   You determine a person's qualifying status each day. Fillable 1040ez For example, if the person for whom you pay child and dependent care expenses no longer qualifies on September 16, count only those expenses through September 15. Fillable 1040ez Also see Yearly limit under Dollar Limit, later. Fillable 1040ez Birth or death of otherwise qualifying person. Fillable 1040ez   In determining whether a person is a qualifying person, a person who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the person's home for more than half the time he or she was alive in 2013. Fillable 1040ez Taxpayer identification number. Fillable 1040ez   You must include on your return the name and taxpayer identification number (generally the social security number) of the qualifying person(s). Fillable 1040ez If the correct information is not shown, the credit may be reduced or disallowed. Fillable 1040ez Individual taxpayer identification number (ITIN) for aliens. Fillable 1040ez   If your qualifying person is a nonresident or resident alien who does not have and cannot get a social security number (SSN), use that person's ITIN. Fillable 1040ez The ITIN is entered wherever an SSN is requested on a tax return. Fillable 1040ez To apply for an ITIN, see Form W-7. Fillable 1040ez   An ITIN is for tax use only. Fillable 1040ez It does not entitle the holder to social security benefits or change the holder's employment or immigration status under U. Fillable 1040ez S. Fillable 1040ez law. Fillable 1040ez Adoption taxpayer identification number (ATIN). Fillable 1040ez   If your qualifying person is a child who was placed in your home for adoption and for whom you do not have an SSN, you must get an ATIN for the child. Fillable 1040ez File Form W-7A, Application for Taxpayer Identification Number for Pending U. Fillable 1040ez S. Fillable 1040ez Adoptions. Fillable 1040ez Child of divorced or separated parents or parents living apart. Fillable 1040ez   Even if you cannot claim your child as a dependent, he or she is treated as your qualifying person if: The child was under age 13 or was not physically or mentally able to care for himself or herself, The child received over half of his or her support during the calendar year from one or both parents who are divorced or legally separated under a decree of divorce or separate maintenance, are separated under a written separation agreement, or lived apart at all times during the last 6 months of the calendar year, The child was in the custody of one or both parents for more than half the year, and You were the child's custodial parent. Fillable 1040ez   The custodial parent is the parent with whom the child lived for the greater number of nights in 2013. Fillable 1040ez If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income. Fillable 1040ez For details and an exception for a parent who works at night, see Pub. Fillable 1040ez 501. Fillable 1040ez   The noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents. Fillable 1040ez Earned Income Test To claim the credit, you (and your spouse if filing jointly) must have earned income during the year. Fillable 1040ez Earned income. Fillable 1040ez   Earned income includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. Fillable 1040ez A net loss from self-employment reduces earned income. Fillable 1040ez Earned income also includes strike benefits and any disability pay you report as wages. Fillable 1040ez   Generally, only taxable compensation is included. Fillable 1040ez However, you can elect to include nontaxable combat pay in earned income. Fillable 1040ez If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. Fillable 1040ez (In other words, if one of you makes the election, the other one can also make it but does not have to. Fillable 1040ez ) You should figure your credit both ways and make the election if it gives you a greater tax benefit. Fillable 1040ez Members of certain religious faiths opposed to social security. Fillable 1040ez   Certain income earned by persons who are members of certain religious faiths that are opposed to participation in Social Security Act programs and have an IRS-approved form that exempts certain income from social security and Medicare taxes may not be considered earned income for this purpose. Fillable 1040ez See Earned Income Test in Publication 503. Fillable 1040ez Not earned income. Fillable 1040ez   Earned income does not include: Pensions and annuities, Social security and railroad retirement benefits, Workers' compensation, Interest and dividends, Unemployment compensation, Scholarship or fellowship grants, except for those reported on a Form W-2 and paid to you for teaching or other services, Nontaxable workfare payments, Child support payments received by you, Income of nonresident aliens that is not effectively connected with a U. Fillable 1040ez S. Fillable 1040ez trade or business, or Any amount received for work while an inmate in a penal institution. Fillable 1040ez Rule for student-spouse or spouse not able to care for self. Fillable 1040ez   Your spouse is treated as having earned income for any month that he or she is: A full-time student, or Physically or mentally not able to care for himself or herself. Fillable 1040ez (Your spouse also must live with you for more than half the year. Fillable 1040ez )   If you are filing a joint return, this rule also applies to you. Fillable 1040ez You can be treated as having earned income for any month you are a full-time student or not able to care for yourself. Fillable 1040ez   Figure the earned income of the nonworking spouse described under (1) or (2) above as explained under Earned Income Limit , later. Fillable 1040ez   This rule applies to only one spouse for any one month. Fillable 1040ez If, in the same month, both you and your spouse do not work and are either full-time students or not physically or mentally able to care for yourselves, only one of you can be treated as having earned income in that month. Fillable 1040ez Full-time student. Fillable 1040ez   You are a full-time student if you are enrolled at a school for the number of hours or classes that the school considers full time. Fillable 1040ez You must have been a full-time student for some part of each of 5 calendar months during the year. Fillable 1040ez (The months need not be consecutive. Fillable 1040ez ) School. Fillable 1040ez   The term “school” includes high schools, colleges, universities, and technical, trade, and mechanical schools. Fillable 1040ez A school does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. Fillable 1040ez Work-Related Expense Test Child and dependent care expenses must be work-related to qualify for the credit. Fillable 1040ez Expenses are considered work-related only if both of the following are true. Fillable 1040ez They allow you (and your spouse if filing jointly) to work or look for work. Fillable 1040ez They are for a qualifying person's care. Fillable 1040ez Working or Looking for Work To be work-related, your expenses must allow you to work or look for work. Fillable 1040ez If you are married, generally both you and your spouse must work or look for work. Fillable 1040ez One spouse is treated as working during any month he or she is a full-time student or is not physically or mentally able to care for himself or herself. Fillable 1040ez Your work can be for others or in your own business or partnership. Fillable 1040ez It can be either full time or part time. Fillable 1040ez Work also includes actively looking for work. Fillable 1040ez However, if you do not find a job and have no earned income for the year, you cannot take this credit. Fillable 1040ez See Earned Income Test , earlier. Fillable 1040ez An expense is not considered work-related merely because you had it while you were working. Fillable 1040ez The purpose of the expense must be to allow you to work. Fillable 1040ez Whether your expenses allow you to work or look for work depends on the facts. Fillable 1040ez Example 1. Fillable 1040ez The cost of a babysitter while you and your spouse go out to eat is not normally a work-related expense. Fillable 1040ez Example 2. Fillable 1040ez You work during the day. Fillable 1040ez Your spouse works at night and sleeps during the day. Fillable 1040ez You pay for care of your 5-year-old child during the hours when you are working and your spouse is sleeping. Fillable 1040ez Your expenses are considered work-related. Fillable 1040ez Volunteer work. Fillable 1040ez    For this purpose, you are not considered to be working if you do unpaid volunteer work or volunteer work for a nominal salary. Fillable 1040ez Work for part of year. Fillable 1040ez   If you work or actively look for work during only part of the period covered by the expenses, then you must figure your expenses for each day. Fillable 1040ez For example, if you work all year and pay care expenses of $250 a month ($3,000 for the year), all the expenses are work-related. Fillable 1040ez However, if you work or look for work for only 2 months and 15 days during the year and pay expenses of $250 a month, your work-related expenses are limited to $625 (2½ months × $250). Fillable 1040ez Temporary absence from work. Fillable 1040ez   You do not have to figure your expenses for each day during a short, temporary absence from work, such as for vacation or a minor illness, if you have to pay for care anyway. Fillable 1040ez Instead, you can figure your credit including the expenses you paid for the period of absence. Fillable 1040ez   An absence of 2 weeks or less is a short, temporary absence. Fillable 1040ez An absence of more than 2 weeks may be considered a short, temporary absence, depending on the circumstances. Fillable 1040ez Example. Fillable 1040ez You pay a nanny to care for your 2-year-old son and 4-year-old daughter so you can work. Fillable 1040ez You become ill and miss 4 months of work but receive sick pay. Fillable 1040ez You continue to pay the nanny to care for the children while you are ill. Fillable 1040ez Your absence is not a short, temporary absence, and your expenses are not considered work-related. Fillable 1040ez Part-time work. Fillable 1040ez   If you work part-time, you generally must figure your expenses for each day. Fillable 1040ez However, if you have to pay for care weekly, monthly, or in another way that includes both days worked and days not worked, you can figure your credit including the expenses you paid for days you did not work. Fillable 1040ez Any day when you work at least 1 hour is a day of work. Fillable 1040ez Example 1. Fillable 1040ez You work 3 days a week. Fillable 1040ez While you work, your 6-year-old child attends a dependent care center, which complies with all state and local regulations. Fillable 1040ez You can pay the center $150 for any 3 days a week or $250 for 5 days a week. Fillable 1040ez Your child attends the center 5 days a week. Fillable 1040ez Your work-related expenses are limited to $150 a week. Fillable 1040ez Example 2. Fillable 1040ez The facts are the same as in Example 1 except the center does not offer a 3-day option. Fillable 1040ez The entire $250 weekly fee may be a work-related expense. Fillable 1040ez Care of a Qualifying Person To be work-related, your expenses must be to provide care for a qualifying person. Fillable 1040ez You do not have to choose the least expensive way of providing care. Fillable 1040ez The cost of a paid care provider may be an expense for the care of a qualifying person even if another care provider is available at no cost. Fillable 1040ez Expenses are for the care of a qualifying person only if their main purpose is the person's well-being and protection. Fillable 1040ez Expenses for household services qualify if part of the services is for the care of qualifying persons. Fillable 1040ez See Household services , later. Fillable 1040ez Expenses not for care. Fillable 1040ez   Expenses for care do not include amounts you pay for food, lodging, clothing, education, and entertainment. Fillable 1040ez However, you can include small amounts paid for these items if they are incidental to and cannot be separated from the cost of caring for the qualifying person. Fillable 1040ez   Child support payments are not for care and do not qualify for the credit. Fillable 1040ez Education. Fillable 1040ez   Expenses for a child in nursery school, preschool, or similar programs for children below the level of kindergarten are expenses for care. Fillable 1040ez Expenses to attend kindergarten or a higher grade are not expenses for care. Fillable 1040ez Do not use these expenses to figure your credit. Fillable 1040ez   However, expenses for before- or after-school care of a child in kindergarten or a higher grade may be expenses for care. Fillable 1040ez   Summer school and tutoring programs are not for care. Fillable 1040ez Example 1. Fillable 1040ez You take your 3-year-old child to a nursery school that provides lunch and educational activities as a part of its preschool childcare service. Fillable 1040ez The lunch and educational activities are incidental to the childcare, and their cost cannot be separated from the cost of care. Fillable 1040ez You can count the total cost when you figure the credit. Fillable 1040ez Example 2. Fillable 1040ez You place your 10-year-old child in a boarding school so you can work full time. Fillable 1040ez Only the part of the boarding school expense that is for the care of your child is a work-related expense. Fillable 1040ez You can count that part of the expense in figuring your credit if it can be separated from the cost of education. Fillable 1040ez You cannot count any part of the amount you pay the school for your child's education. Fillable 1040ez Care outside your home. Fillable 1040ez   You can count the cost of care provided outside your home if the care is for your dependent under age 13 or any other qualifying person who regularly spends at least 8 hours each day in your home. Fillable 1040ez Dependent care center. Fillable 1040ez   You can count care provided outside your home by a dependent care center only if the center complies with all state and local regulations that apply to these centers. Fillable 1040ez   A dependent care center is a place that provides care for more than six persons (other than persons who live there) and receives a fee, payment, or grant for providing services for any of those persons, even if the center is not run for profit. Fillable 1040ez Camp. Fillable 1040ez   The cost of sending your child to an overnight camp is not considered a work-related expense. Fillable 1040ez The cost of sending your child to a day camp may be a work-related expense, even if the camp specializes in a particular activity, such as computers or soccer. Fillable 1040ez Transportation. Fillable 1040ez   If a care provider takes a qualifying person to or from a place where care is provided, that transportation is for the care of the qualifying person. Fillable 1040ez This includes transportation by bus, subway, taxi, or private car. Fillable 1040ez However, transportation not provided by a care provider is not for the care of a qualifying person. Fillable 1040ez Also, if you pay the transportation cost for the care provider to come to your home, that expense is not for care of a qualifying person. Fillable 1040ez Fees and deposits. Fillable 1040ez   Fees you paid to an agency to get the services of a care provider, deposits you paid to an agency or preschool, application fees, and other indirect expenses are work-related expenses if you have to pay them to get care, even though they are not directly for care. Fillable 1040ez However, a forfeited deposit is not for the care of a qualifying person if care is not provided. Fillable 1040ez Example 1. Fillable 1040ez You paid a fee to an agency to get the services of the nanny who cares for your 2-year-old daughter while you work. Fillable 1040ez The fee you paid is a work-related expense. Fillable 1040ez Example 2. Fillable 1040ez You placed a deposit with a preschool to reserve a place for your 3-year-old child. Fillable 1040ez You later sent your child to a different preschool and forfeited the deposit. Fillable 1040ez The forfeited deposit is not for care and so is not a work-related expense. Fillable 1040ez Household services. Fillable 1040ez   Expenses you pay for household services meet the work-related expense test if they are at least partly for the well-being and protection of a qualifying person. Fillable 1040ez   Household services are ordinary and usual services done in and around your home that are necessary to run your home. Fillable 1040ez They include the services of a housekeeper, maid, or cook. Fillable 1040ez However, they do not include the services of a chauffeur, bartender, or gardener. Fillable 1040ez See Household Services in Publication 503 for more information. Fillable 1040ez   In this chapter, the term housekeeper refers to any household employee whose services include the care of a qualifying person. Fillable 1040ez Taxes paid on wages. Fillable 1040ez   The taxes you pay on wages for qualifying child and dependent care services are work-related expenses. Fillable 1040ez See Employment Taxes for Household Employers , later. Fillable 1040ez Payments to Relatives or Dependents You can count work-related payments you make to relatives who are not your dependents, even if they live in your home. Fillable 1040ez However, do not count any amounts you pay to: A dependent for whom you (or your spouse if filing jointly) can claim an exemption, Your child who was under age 19 at the end of the year, even if he or she is not your dependent, A person who was your spouse any time during the year, or The parent of your qualifying person if your qualifying person is your child and under age 13. Fillable 1040ez Joint Return Test Generally, married couples must file a joint return to take the credit. Fillable 1040ez However, if you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. Fillable 1040ez Legally separated. Fillable 1040ez   You are not considered married if you are legally separated from your spouse under a decree of divorce or separate maintenance. Fillable 1040ez You may be eligible to take the credit on your return using head of household filing status. Fillable 1040ez Married and living apart. Fillable 1040ez   You are not considered married and are eligible to take the credit if all the following apply. Fillable 1040ez You file a return apart from your spouse. Fillable 1040ez Your home is the home of a qualifying person for more than half the year. Fillable 1040ez You pay more than half the cost of keeping up your home for the year. Fillable 1040ez Your spouse does not live in your home for the last 6 months of the year. Fillable 1040ez Costs of keeping up a home. Fillable 1040ez   The costs of keeping up a home normally include property taxes, mortgage interest, rent, utility charges, home repairs, insurance on the home, and food eaten at home. Fillable 1040ez   The costs of keeping up a home do not include payments for clothing, education, medical treatment, vacations, life insurance, transportation, or mortgage principal. Fillable 1040ez   They also do not include the purchase, permanent improvement, or replacement of property. Fillable 1040ez For example, you cannot include the cost of replacing a water heater. Fillable 1040ez However, you can include the cost of repairing a water heater. Fillable 1040ez Death of spouse. Fillable 1040ez   If your spouse died during the year and you do not remarry before the end of the year, you generally must file a joint return to take the credit. Fillable 1040ez If you do remarry before the end of the year, the credit can be claimed on your deceased spouse's return. Fillable 1040ez Provider Identification Test You must identify all persons or organizations that provide care for your child or dependent. Fillable 1040ez Use Form 2441, Part I, to show the information. Fillable 1040ez If you do not have any care providers and you are filing Form 2441 only to report taxable income in Part III, enter “none” in line 1, column (a). Fillable 1040ez Information needed. Fillable 1040ez   To identify the care provider, you must give the provider's: Name, Address, and Taxpayer identification number. Fillable 1040ez   If the care provider is an individual, the taxpayer identification number is his or her social security number or individual taxpayer identification number. Fillable 1040ez If the care provider is an organization, then it is the employer identification number (EIN). Fillable 1040ez   You do not have to show the taxpayer identification number if the care provider is a tax-exempt organization (such as a church or school). Fillable 1040ez In this case, enter “Tax-Exempt” in the space where Form 2441 asks for the number. Fillable 1040ez   If you cannot provide all of the information or if the information is incorrect, you must be able to show that you used due diligence (discussed later) in trying to furnish the necessary information. Fillable 1040ez Getting the information. Fillable 1040ez   You can use Form W-10 to request the required information from the care provider. Fillable 1040ez If you do not use Form W-10, you can get the information from one of the other sources listed in the instructions for Form W-10 including: A copy of the provider's social security card, A copy of the provider's completed Form W-4 if he or she is your household employee, A copy of the statement furnished by your employer if the provider is your employer's dependent care plan, or A letter or invoice from the provider if it shows the information. Fillable 1040ez    You should keep this information with your tax records. Fillable 1040ez Do not send Form W-10 (or other document containing this information) to the Internal Revenue Service. Fillable 1040ez Due diligence. Fillable 1040ez   If the care provider information you give is incorrect or incomplete, your credit may not be allowed. Fillable 1040ez However, if you can show that you used due diligence in trying to supply the information, you can still claim the credit. Fillable 1040ez   You can show due diligence by getting and keeping the provider's completed Form W-10 or one of the other sources of information just listed. Fillable 1040ez Care providers can be penalized if they do not provide this information to you or if they provide incorrect information. Fillable 1040ez Provider refusal. Fillable 1040ez   If the provider refuses to give you their identifying information, you should report on Form 2441 whatever information you have (such as the name and address). Fillable 1040ez Enter “See Attached Statement” in the columns calling for the information you do not have. Fillable 1040ez Then attach a statement explaining that you requested the information from the care provider, but the provider did not give you the information. Fillable 1040ez Be sure to write your name and social security number on this statement. Fillable 1040ez The statement will show that you used due diligence in trying to furnish the necessary information. Fillable 1040ez U. Fillable 1040ez S. Fillable 1040ez citizens and resident aliens living abroad. Fillable 1040ez   If you are living abroad, your care provider may not have, and may not be required to get, a U. Fillable 1040ez S. Fillable 1040ez taxpayer identification number (for example, an SSN or EIN). Fillable 1040ez If so, enter “LAFCP” (Living Abroad Foreign Care Provider) in the space for the care provider's taxpayer identification number. Fillable 1040ez How To Figure the Credit Your credit is a percentage of your work-related expenses. Fillable 1040ez Your expenses are subject to the earned income limit and the dollar limit. Fillable 1040ez The percentage is based on your adjusted gross income. Fillable 1040ez Figuring Total Work-Related Expenses To figure the credit for 2013 work-related expenses, count only those you paid by December 31, 2013. Fillable 1040ez Expenses prepaid in an earlier year. Fillable 1040ez   If you pay for services before they are provided, you can count the prepaid expenses only in the year the care is received. Fillable 1040ez Claim the expenses for the later year as if they were actually paid in that later year. Fillable 1040ez Expenses not paid until the following year. Fillable 1040ez   Do not count 2012 expenses that you paid in 2013 as work-related expenses for 2013. Fillable 1040ez You may be able to claim an additional credit for them on your 2013 return, but you must figure it separately. Fillable 1040ez See Payments for prior year's expenses under Amount of Credit in Publication 503. Fillable 1040ez    If you had expenses in 2013 that you did not pay until 2014, you cannot count them when figuring your 2013 credit. Fillable 1040ez You may be able to claim a credit for them on your 2014 return. Fillable 1040ez Expenses reimbursed. Fillable 1040ez   If a state social services agency pays you a nontaxable amount to reimburse you for some of your child and dependent care expenses, you cannot count the expenses that are reimbursed as work-related expenses. Fillable 1040ez Example. Fillable 1040ez You paid work-related expenses of $3,000. Fillable 1040ez You are reimbursed $2,000 by a state social services agency. Fillable 1040ez You can use only $1,000 to figure your credit. Fillable 1040ez Medical expenses. Fillable 1040ez   Some expenses for the care of qualifying persons who are not able to care for themselves may qualify as work-related expenses and also as medical expenses. Fillable 1040ez You can use them either way, but you cannot use the same expenses to claim both a credit and a medical expense deduction. Fillable 1040ez   If you use these expenses to figure the credit and they are more than the earned income limit or the dollar limit, discussed later, you can add the excess to your medical expenses. Fillable 1040ez However, if you use your total expenses to figure your medical expense deduction, you cannot use any part of them to figure your credit. Fillable 1040ez    Amounts excluded from your income under your employer's dependent care benefits plan cannot be used to claim a medical expense deduction. Fillable 1040ez Dependent Care Benefits If you receive dependent care benefits, your dollar limit for purposes of the credit may be reduced. Fillable 1040ez See Reduced Dollar Limit , later. Fillable 1040ez But, even if you cannot take the credit, you may be able to take an exclusion or deduction for the dependent care benefits. Fillable 1040ez Dependent care benefits. Fillable 1040ez   Dependent care benefits include: Amounts your employer paid directly to either you or your care provider for the care of your qualifying person while you work, The fair market value of care in a daycare facility provided or sponsored by your employer, and Pre-tax contributions you made under a dependent care flexible spending arrangement. Fillable 1040ez Your salary may have been reduced to pay for these benefits. Fillable 1040ez If you received benefits as an employee, they should be shown in box 10 of your Form W-2. Fillable 1040ez See Statement for employee , later. Fillable 1040ez Benefits you received as a partner should be shown in box 13 of your Schedule K-1 (Form 1065) with code O. Fillable 1040ez Enter the amount of these benefits on Form 2441, Part III, line 12. Fillable 1040ez Exclusion or deduction. Fillable 1040ez   If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Fillable 1040ez Your employer can tell you whether your benefit plan qualifies. Fillable 1040ez To claim the exclusion, you must complete Part III of Form 2441. Fillable 1040ez You cannot use Form 1040EZ. Fillable 1040ez   If you are self-employed and receive benefits from a qualified dependent care benefit plan, you are treated as both employer and employee. Fillable 1040ez Therefore, you would not get an exclusion from wages. Fillable 1040ez Instead, you would get a deduction on Form 1040, Schedule C, line 14; Schedule E, line 19 or 28; or Schedule F, line 15. Fillable 1040ez To claim the deduction, you must use Form 2441. Fillable 1040ez   The amount you can exclude or deduct is limited to the smallest of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). Fillable 1040ez The definition of earned income for the exclusion or deduction is the same as the definition used when figuring the credit except that earned income for the exclusion or deduction does not include any dependent care benefits you receive. Fillable 1040ez See Earned Income Limit, later. Fillable 1040ez    You can choose to include your nontaxable combat pay in earned income when figuring your exclusion or deduction, even if you choose not to include it in earned income for the earned income credit or the credit for child and dependent care expenses. Fillable 1040ez Statement for employee. Fillable 1040ez   Your employer must give you a Form W-2 (or similar statement) showing in box 10 the total amount of dependent care benefits provided to you during the year under a qualified plan. Fillable 1040ez Your employer will also include any dependent care benefits over $5,000 in your wages shown on your Form W-2 in box 1. Fillable 1040ez Effect of exclusion on credit. Fillable 1040ez   If you exclude dependent care benefits from your income, the amount of the excluded benefits: Is not included in your work-related expenses, and Reduces the dollar limit, discussed later. Fillable 1040ez Earned Income Limit The amount of work-related expenses you use to figure your credit cannot be more than: Your earned income for the year if you are single at the end of the year, or The smaller of your or your spouse's earned income for the year if you are married at the end of the year. Fillable 1040ez Earned income is defined under Earned Income Test , earlier. Fillable 1040ez For purposes of item (2), use your spouse's earned income for the entire year, even if you were married for only part of the year. Fillable 1040ez Separated spouse. Fillable 1040ez   If you are legally separated or married and living apart from your spouse (as described under Joint Return Test , earlier), you are not considered married for purposes of the earned income limit. Fillable 1040ez Use only your income in figuring the earned income limit. Fillable 1040ez Surviving spouse. Fillable 1040ez   If your spouse died during the year and you file a joint return as a surviving spouse, you may, but are not required to, take into account the earned income of your spouse who died during the year. Fillable 1040ez Community property laws. Fillable 1040ez   You should disregard community property laws when you figure earned income for this credit. Fillable 1040ez You or your spouse is a student or not able to care for self. Fillable 1040ez   Your spouse who is either a full-time student or not able to care for himself or herself is treated as having earned income. Fillable 1040ez His or her earned income for each month is considered to be at least $250 if there is one qualifying person in your home, or at least $500 if there are two or more. Fillable 1040ez Spouse works. Fillable 1040ez   If your spouse works during that month, use the higher of $250 (or $500) or his or her actual earned income for that month. Fillable 1040ez Spouse qualifies for part of month. Fillable 1040ez    If your spouse is a full-time student or not able to care for himself or herself for only part of a month, the full $250 (or $500) still applies for that month. Fillable 1040ez You are a student or not able to care for self. Fillable 1040ez   These rules also apply if you are a student or not able to care for yourself and you are filing a joint return. Fillable 1040ez For each month or part of a month you are a student or not able to care for yourself, your earned income is considered to be at least $250 (or $500). Fillable 1040ez If you also work during that month, use the higher of $250 (or $500) or your actual earned income for that month. Fillable 1040ez Both spouses qualify. Fillable 1040ez   If, in the same month, both you and your spouse are either full-time students or not able to care for yourselves, only one spouse can be considered to have this earned income of $250 (or $500) for that month. Fillable 1040ez Dollar Limit There is a dollar limit on the amount of your work-related expenses you can use to figure the credit. Fillable 1040ez This limit is $3,000 for one qualifying person, or $6,000 for two or more qualifying persons. Fillable 1040ez If you paid work-related expenses for the care of two or more qualifying persons, the applicable dollar limit is $6,000. Fillable 1040ez This $6,000 limit does not need to be divided equally among them. Fillable 1040ez For example, if your work-related expenses for the care of one qualifying person are $3,200 and your work-related expenses for another qualifying person are $2,800, you can use the total, $6,000, when figuring the credit. Fillable 1040ez Yearly limit. Fillable 1040ez   The dollar limit is a yearly limit. Fillable 1040ez The amount of the dollar limit remains the same no matter how long, during the year, you have a qualifying person in your household. Fillable 1040ez Use the $3,000 limit if you paid work-related expenses for the care of one qualifying person at any time during the year. Fillable 1040ez Use $6,000 if you paid work-related expenses for the care of more than one qualifying person at any time during the year. Fillable 1040ez Reduced Dollar Limit If you received dependent care benefits that you exclude or deduct from your income, you must subtract that amount from the dollar limit that applies to you. Fillable 1040ez Your reduced dollar limit is figured on Form 2441, Part III. Fillable 1040ez See Dependent Care Benefits , earlier, for information on excluding or deducting these benefits. Fillable 1040ez Example 1. Fillable 1040ez George is a widower with one child and earns $24,000 a year. Fillable 1040ez He pays work-related expenses of $2,900 for the care of his 4-year-old child and qualifies to claim the credit for child and dependent care expenses. Fillable 1040ez His employer pays an additional $1,000 under a dependent care benefit plan. Fillable 1040ez This $1,000 is excluded from George's income. Fillable 1040ez Although the dollar limit for his work-related expenses is $3,000 (one qualifying person), George figures his credit on only $2,000 of the $2,900 work-related expenses he paid. Fillable 1040ez This is because his dollar limit is reduced as shown next. Fillable 1040ez   George's Reduced Dollar Limit 1) Maximum allowable expenses for one qualifying person $3,000 2) Minus: Dependent care benefits George excludes from income −1,000 3) Reduced dollar limit on expenses George can use for the credit $2,000 Example 2. Fillable 1040ez Randall is married and both he and his wife are employed. Fillable 1040ez Each has earned income in excess of $6,000. Fillable 1040ez They have two children, Anne and Andy, ages 2 and 4, who attend a daycare facility licensed and regulated by the state. Fillable 1040ez Randall's work-related expenses are $6,000 for the year. Fillable 1040ez Randall's employer has a dependent care assistance program as part of its cafeteria plan, which allows employees to make pre-tax contributions to a dependent care flexible spending arrangement. Fillable 1040ez Randall has elected to take the maximum $5,000 exclusion from his salary to cover dependent care expenses through this program. Fillable 1040ez Although the dollar limit for his work- related expenses is $6,000 (two or more qualifying persons), Randall figures his credit on only $1,000 of the $6,000 work-related expense paid. Fillable 1040ez This is because his dollar limit is reduced as shown next. Fillable 1040ez   Randall's Reduced Dollar Limit 1) Maximum allowable expenses for two qualifying persons $6,000 2) Minus: Dependent care benefits Randall selects from employer's cafeteria plan and excludes from income −5,000 3) Reduced dollar limit on expenses Randall can use for the credit $1,000 Amount of Credit To determine the amount of your credit, multiply your work-related expenses (after applying the earned income and dollar limits) by a percentage. Fillable 1040ez This percentage depends on your adjusted gross income shown on Form 1040, line 38, or Form 1040A, line 22. Fillable 1040ez The following table shows the percentage to use based on adjusted gross income. Fillable 1040ez   IF your adjusted gross income is: THEN the percentage is:       Over   But not over         $0   $15,000   35%       15,000   17,000   34%       17,000   19,000   33%       19,000   21,000   32%       21,000   23,000   31%       23,000   25,000   30%       25,000   27,000   29%       27,000   29,000   28%       29,000   31,000   27%       31,000   33,000   26%       33,000   35,000   25%       35,000   37,000   24%       37,000   39,000   23%       39,000   41,000   22%       41,000   43,000   21%       43,000   No limit   20%   How To Claim the Credit To claim the credit, you can file Form 1040 or Form 1040A. Fillable 1040ez You cannot claim the credit on Form 1040EZ. Fillable 1040ez Form 1040 or 1040A. Fillable 1040ez   You must complete Form 2441 and attach it to your Form 1040 or 1040A. Fillable 1040ez Enter the credit on Form 1040, line 48, or Form 1040A, line 29. Fillable 1040ez Limit on credit. Fillable 1040ez   The amount of credit you can claim is generally limited to the amount of your tax. Fillable 1040ez For more information, see the Instructions for Form 2441. Fillable 1040ez Tax credit not refundable. Fillable 1040ez   You cannot get a refund for any part of the credit that is more than this limit. Fillable 1040ez Recordkeeping. Fillable 1040ez You should keep records of your work-related expenses. Fillable 1040ez Also, if your dependent or spouse is not able to care for himself or herself, your records should show both the nature and the length of the disability. Fillable 1040ez Other records you should keep to support your claim for the credit are described earlier under Provider Identification Test . Fillable 1040ez Employment Taxes for Household Employers If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. Fillable 1040ez If you are a household employer, you will need an employer identification number (EIN) and you may have to pay employment taxes. Fillable 1040ez If the individuals who work in your home are self-employed, you are not liable for any of the taxes discussed in this section. Fillable 1040ez Self-employed persons who are in business for themselves are not household employees. Fillable 1040ez Usually, you are not a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business. Fillable 1040ez If you use a placement agency that exercises control over what work is done and how it will be done by a babysitter or companion who works in your home, the worker is not your employee. Fillable 1040ez This control could include providing rules of conduct and appearance and requiring regular reports. Fillable 1040ez In this case, you do not have to pay employment taxes. Fillable 1040ez But, if an agency merely gives you a list of sitters and you hire one from that list, and pay the sitter directly, the sitter may be your employee. Fillable 1040ez If you have a household employee, you may be subject to: Social security and Medicare taxes, Federal unemployment tax, and Federal income tax withholding. Fillable 1040ez Social security and Medicare taxes are generally withheld from the employee's pay and matched by the employer. Fillable 1040ez Federal unemployment (FUTA) tax is paid by the employer only and provides for payments of unemployment compensation to workers who have lost their jobs. Fillable 1040ez Federal income tax is withheld from the employee's total pay if the employee asks you to do so and you agree. Fillable 1040ez For more information on a household employer's tax responsibilities, see Publication 926 and Schedule H (Form 1040) and its instructions. Fillable 1040ez State employment tax. Fillable 1040ez   You may also have to pay state unemployment tax. Fillable 1040ez Contact your state unemployment tax office for information. Fillable 1040ez You should also find out whether you need to pay or collect other state employment taxes or carry workers' compensation insurance. Fillable 1040ez For a list of state unemployment tax agencies, visit the U. Fillable 1040ez S. Fillable 1040ez Department of Labor's website. Fillable 1040ez A link to that website is in Publication 926, or you can find it with an online search. Fillable 1040ez Prev  Up  Next   Home   More Online Publications
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The Fillable 1040ez

Fillable 1040ez 3. Fillable 1040ez   Farm Income Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Schedule F (Form 1040) Sales of Farm ProductsSchedule F. Fillable 1040ez Form 4797. Fillable 1040ez Sales Caused by Weather-Related Conditions Rents (Including Crop Shares)Crop Shares Agricultural Program PaymentsCommodity Credit Corporation (CCC) Loans Conservation Reserve Program (CRP) Crop Insurance and Crop Disaster Payments Feed Assistance and Payments Cost-Sharing Exclusion (Improvements) Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 Tobacco Quota Buyout Program Payments Other Payments Payment to More Than One Person Income From CooperativesPatronage Dividends Per-Unit Retain Certificates Cancellation of DebtGeneral Rule Exceptions Exclusions Income From Other SourcesSod. Fillable 1040ez Granting the right to remove deposits. Fillable 1040ez Income Averaging for FarmersElected Farm Income (EFI) How To Figure the Tax Effect on Other Tax Determinations Tax for Certain Children Who Have Unearned Income Alternative Minimum Tax (AMT) Schedule J Introduction You may receive income from many sources. Fillable 1040ez You must report the income from all the different sources on your tax return, unless it is excluded by law. Fillable 1040ez Where you report the income on your tax return depends on its source. Fillable 1040ez This chapter discusses farm income you report on Schedule F (Form 1040), Profit or Loss From Farming. Fillable 1040ez For information on where to report other income, see the Instructions for Form 1040, U. Fillable 1040ez S. Fillable 1040ez Individual Income Tax Return. Fillable 1040ez Accounting method. Fillable 1040ez   The rules discussed in this chapter assume you use the cash method of accounting. Fillable 1040ez Under the cash method, you generally include an item of income in gross income in the year you receive it. Fillable 1040ez See Cash Method in chapter 2. Fillable 1040ez   If you use an accrual method of accounting, different rules may apply to your situation. Fillable 1040ez See Accrual Method in chapter 2. Fillable 1040ez Topics - This chapter discusses: Schedule F Sales of farm products Rents (including crop shares) Agricultural program payments Income from cooperatives Cancellation of debt Income from other sources Income averaging for farmers Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 550 Investment Income and Expenses 908 Bankruptcy Tax Guide 925 Passive Activity and At-Risk Rules 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness Sch E (Form 1040) Supplemental Income and Loss Sch J (Form 1040) Income Averaging for Farmers and Fishermen 1099-G Certain Government Payments 1099-PATR Taxable Distributions Received From Cooperatives 4797 Sales of Business Property 4835 Farm Rental Income and Expenses See chapter 16 for information about getting publications and forms. Fillable 1040ez Schedule F (Form 1040) Individuals, trusts, and partnerships report farm income on Schedule F (Form 1040), Profit or Loss From Farming. Fillable 1040ez Use this schedule to figure the net profit or loss from regular farming operations. Fillable 1040ez Income from farming reported on Schedule F includes amounts you receive from cultivating, operating, or managing a farm for gain or profit, either as owner or tenant. Fillable 1040ez This includes income from operating a stock, dairy, poultry, fish, fruit, or truck farm and income from operating a plantation, ranch, range, or orchard. Fillable 1040ez It also includes income from the sale of crop shares if you materially participate in producing the crop. Fillable 1040ez See Rents (Including Crop Shares) , later. Fillable 1040ez Income received from operating a nursery, which specializes in growing ornamental plants, is considered to be income from farming. Fillable 1040ez Income reported on Schedule F does not include gains or losses from sales or other dispositions of the following farm assets. Fillable 1040ez Land. Fillable 1040ez Depreciable farm equipment. Fillable 1040ez Buildings and structures. Fillable 1040ez Livestock held for draft, breeding, sport, or dairy purposes. Fillable 1040ez Gains and losses from most dispositions of farm assets are discussed in chapters 8 and 9. Fillable 1040ez Gains and losses from casualties, thefts, and condemnations are discussed in chapter 11. Fillable 1040ez Sales of Farm Products Where to report. Fillable 1040ez    Table 3-1 shows where to report the sale of farm products on your tax return. Fillable 1040ez Schedule F. Fillable 1040ez   Amounts received from the sales of products you raised on your farm for sale (or bought for resale), such as livestock, produce, or grains, are reported on Schedule F. Fillable 1040ez This includes money and the fair market value of any property or services you receive. Fillable 1040ez When you sell farm products bought for resale, your profit or loss is the difference between your selling price (money plus the fair market value of any property) and your basis in the item (usually the cost). Fillable 1040ez See chapter 6 for information on the basis of assets. Fillable 1040ez You generally report these amounts on Schedule F for the year you receive payment. Fillable 1040ez Example. Fillable 1040ez In 2012, you bought 20 feeder calves for $11,000 for resale. Fillable 1040ez You sold them in 2013 for $21,000. Fillable 1040ez You report the $21,000 sales price on Schedule F, line 1b, subtract your $11,000 basis on line 1d, and report the resulting $10,000 profit on line 1e. Fillable 1040ez Form 4797. Fillable 1040ez   Sales of livestock held for draft, breeding, sport, or dairy purposes may result in ordinary or capital gains or losses, depending on the circumstances. Fillable 1040ez In either case, you should always report these sales on Form 4797 instead of Schedule F. Fillable 1040ez See Livestock under Ordinary or Capital Gain or Loss in chapter 8. Fillable 1040ez Animals you do not hold primarily for sale are considered business assets of your farm. Fillable 1040ez Table 3-1. Fillable 1040ez Where To Report Sales of Farm Products Item Sold Schedule F Form 4797 Farm products raised for sale X   Farm products bought for resale X   Farm assets not held primarily for sale, such as livestock held for draft, breeding, sport, or dairy purposes (bought or raised)   X Sale by agent. Fillable 1040ez   If your agent sells your farm products, you have constructive receipt of the income when your agent receives payment and you must include the net proceeds from the sale in gross income for the year the agent receives payment. Fillable 1040ez This applies even if your agent pays you in a later year. Fillable 1040ez For a discussion on constructive receipt of income, see Cash Method under Accounting Methods in chapter 2. Fillable 1040ez Sales Caused by Weather-Related Conditions If you sell or exchange more livestock, including poultry, than you normally would in a year because of a drought, flood, or other weather-related condition, you may be able to postpone reporting the gain from the additional animals until the next year. Fillable 1040ez You must meet all the following conditions to qualify. Fillable 1040ez Your principal trade or business is farming. Fillable 1040ez You use the cash method of accounting. Fillable 1040ez You can show that, under your usual business practices, you would not have sold or exchanged the additional animals this year except for the weather-related condition. Fillable 1040ez The weather-related condition caused an area to be designated as eligible for assistance by the federal government. Fillable 1040ez Sales or exchanges made before an area became eligible for federal assistance qualify if the weather-related condition that caused the sale or exchange also caused the area to be designated as eligible for federal assistance. Fillable 1040ez The designation can be made by the President, the Department of Agriculture (or any of its agencies), or by other federal departments or agencies. Fillable 1040ez A weather-related sale or exchange of livestock (other than poultry) held for draft, breeding, or dairy purposes may be an involuntary conversion. Fillable 1040ez See Other Involuntary Conversions in chapter 11. Fillable 1040ez Usual business practice. Fillable 1040ez   You must determine the number of animals you would have sold had you followed your usual business practice in the absence of the weather-related condition. Fillable 1040ez Do this by considering all the facts and circumstances, but do not take into account your sales in any earlier year for which you postponed the gain. Fillable 1040ez If you have not yet established a usual business practice, rely on the usual business practices of similarly situated farmers in your general region. Fillable 1040ez Connection with affected area. Fillable 1040ez   The livestock does not have to be raised or sold in an area affected by a weather-related condition for the postponement to apply. Fillable 1040ez However, the sale must occur solely because of a weather-related condition that affected the water, grazing, or other requirements of the livestock. Fillable 1040ez This requirement generally will not be met if the costs of feed, water, or other requirements of the livestock affected by the weather-related condition are not substantial in relation to the total costs of holding the livestock. Fillable 1040ez Classes of livestock. Fillable 1040ez   You must figure the amount to be postponed separately for each generic class of animals—for example, hogs, sheep, and cattle. Fillable 1040ez Do not separate animals into classes based on age, sex, or breed. Fillable 1040ez Amount to be postponed. Fillable 1040ez   Follow these steps to figure the amount of gain to be postponed for each class of animals. Fillable 1040ez Divide the total income realized from the sale of all livestock in the class during the tax year by the total number of such livestock sold. Fillable 1040ez For this purpose, do not treat any postponed gain from the previous year as income received from the sale of livestock. Fillable 1040ez Multiply the result in (1) by the excess number of such livestock sold solely because of weather-related conditions. Fillable 1040ez Example. Fillable 1040ez You are a calendar year taxpayer and you normally sell 100 head of beef cattle a year. Fillable 1040ez As a result of drought, you sold 135 head during 2012. Fillable 1040ez You realized $70,200 from the sale. Fillable 1040ez On August 9, 2012, as a result of drought, the affected area was declared a disaster area eligible for federal assistance. Fillable 1040ez The income you can postpone until 2013 is $18,200 [($70,200 ÷ 135) × 35]. Fillable 1040ez How to postpone gain. Fillable 1040ez   To postpone gain, attach a statement to your tax return for the year of the sale. Fillable 1040ez The statement must include your name and address and give the following information for each class of livestock for which you are postponing gain. Fillable 1040ez A statement that you are postponing gain under Internal Revenue Code (IRC) section 451(e). Fillable 1040ez Evidence of the weather-related conditions that forced the early sale or exchange of the livestock and the date, if known, on which an area was designated as eligible for assistance by the federal government because of weather-related conditions. Fillable 1040ez A statement explaining the relationship of the area affected by the weather-related condition to your early sale or exchange of the livestock. Fillable 1040ez The number of animals sold in each of the 3 preceding years. Fillable 1040ez The number of animals you would have sold in the tax year had you followed your normal business practice in the absence of weather-related conditions. Fillable 1040ez The total number of animals sold and the number sold because of weather-related conditions during the tax year. Fillable 1040ez A computation, as described above, of the income to be postponed for each class of livestock. Fillable 1040ez   Generally, you must file the statement and the return by the due date of the return, including extensions. Fillable 1040ez However, for sales or exchanges treated as an involuntary conversion from weather-related sales of livestock in an area eligible for federal assistance (discussed in chapter 11), you can file this statement at any time during the replacement period. Fillable 1040ez For other sales or exchanges, if you timely filed your return for the year without postponing gain, you can still postpone gain by filing an amended return within 6 months of the due date of the return (excluding extensions). Fillable 1040ez Attach the statement to the amended return and write “Filed pursuant to section 301. Fillable 1040ez 9100-2” at the top of the amended return. Fillable 1040ez File the amended return at the same address you filed the original return. Fillable 1040ez Once you have filed the statement, you can cancel your postponement of gain only with the approval of the IRS. Fillable 1040ez Rents (Including Crop Shares) The rent you receive for the use of your farmland is generally rental income, not farm income. Fillable 1040ez However, if you materially participate in farming operations on the land, the rent is farm income. Fillable 1040ez See Landlord Participation in Farming in chapter 12. Fillable 1040ez Pasture income and rental. Fillable 1040ez   If you pasture someone else's livestock and take care of them for a fee, the income is from your farming business. Fillable 1040ez You must enter it as Other income on Schedule F. Fillable 1040ez If you simply rent your pasture for a flat cash amount without providing services, report the income as rent on Part I of Schedule E (Form 1040), Supplemental Income and Loss. Fillable 1040ez Crop Shares You must include rent you receive in the form of crop shares in income in the year you convert the shares to money or the equivalent of money. Fillable 1040ez It does not matter whether you use the cash method of accounting or an accrual method of accounting. Fillable 1040ez If you materially participate in operating a farm from which you receive rent in the form of crop shares or livestock, the rental income is included in self-employment income. Fillable 1040ez See Landlord Participation in Farming in chapter 12. Fillable 1040ez Report the rental income on Schedule F. Fillable 1040ez If you do not materially participate in operating the farm, report this income on Form 4835 and carry the net income or loss to Schedule E (Form 1040). Fillable 1040ez The income is not included in self-employment income. Fillable 1040ez Crop shares you use to feed livestock. Fillable 1040ez   Crop shares you receive as a landlord and feed to your livestock are considered converted to money when fed to the livestock. Fillable 1040ez You must include the fair market value of the crop shares in income at that time. Fillable 1040ez You are entitled to a business expense deduction for the livestock feed in the same amount and at the same time you include the fair market value of the crop share as rental income. Fillable 1040ez Although these two transactions cancel each other for figuring adjusted gross income on Form 1040, they may be necessary to figure your self-employment tax. Fillable 1040ez See  chapter 12. Fillable 1040ez Crop shares you give to others (gift). Fillable 1040ez   Crop shares you receive as a landlord and give to others are considered converted to money when you make the gift. Fillable 1040ez You must report the fair market value of the crop share as income, even though someone else receives payment for the crop share. Fillable 1040ez Example. Fillable 1040ez A tenant farmed part of your land under a crop-share arrangement. Fillable 1040ez The tenant harvested and delivered the crop in your name to an elevator company. Fillable 1040ez Before selling any of the crop, you instructed the elevator company to cancel your warehouse receipt and make out new warehouse receipts in equal amounts of the crop in the names of your children. Fillable 1040ez They sell their crop shares in the following year and the elevator company makes payments directly to your children. Fillable 1040ez In this situation, you are considered to have received rental income and then made a gift of that income. Fillable 1040ez You must include the fair market value of the crop shares in your income for the tax year you gave the crop shares to your children. Fillable 1040ez Crop share loss. Fillable 1040ez   If you are involved in a rental or crop-share lease arrangement, any loss from these activities may be subject to the limits under the passive loss rules. Fillable 1040ez See Publication 925 for information on these rules. Fillable 1040ez Agricultural Program Payments You must include in income most government payments, such as those for approved conservation practices, direct payments, and counter-cyclical payments, whether you receive them in cash, materials, services, or commodity certificates. Fillable 1040ez However, you can exclude from income some payments you receive under certain cost-sharing conservation programs. Fillable 1040ez See Cost-Sharing Exclusion (Improvements) , later. Fillable 1040ez Report the agricultural program payment on the appropriate line of Schedule F, Part I. Fillable 1040ez Report the full amount even if you return a government check for cancellation, refund any of the payment you receive, or the government collects all or part of the payment from you by reducing the amount of some other payment or Commodity Credit Corporation (CCC) loan. Fillable 1040ez However, you can deduct the amount you refund or return or that reduces some other payment or loan to you. Fillable 1040ez Claim the deduction on Schedule F for the year of repayment or reduction. Fillable 1040ez Commodity Credit Corporation (CCC) Loans Generally, you do not report loans you receive as income. Fillable 1040ez However, if you pledge part or all of your production to secure a CCC loan, you can treat the loan as if it were a sale of the crop and report the loan proceeds as income in the year you receive them. Fillable 1040ez You do not need approval from the IRS to adopt this method of reporting CCC loans. Fillable 1040ez Once you report a CCC loan as income for the year received, you generally must report all CCC loans in that year and later years in the same way. Fillable 1040ez However, you can obtain for your tax year an automatic consent to change your method of accounting for loans received from the CCC, from including the loan amount in gross income for the tax year in which the loan is received to treating the loan amount as a loan. Fillable 1040ez For more information, see Part I of the Instructions for Form 3115 and Revenue Procedure 2008-52. Fillable 1040ez Revenue Procedure 2008-52, 2008-36 I. Fillable 1040ez R. Fillable 1040ez B. Fillable 1040ez 587, is available at  www. Fillable 1040ez irs. Fillable 1040ez gov/irb/2008-36_IRB/ar09. Fillable 1040ez html. Fillable 1040ez You can request income tax withholding from CCC loan payments you receive. Fillable 1040ez Use Form W-4V, Voluntary Withholding Request. Fillable 1040ez See chapter 16 for information about ordering the form. Fillable 1040ez To elect to report a CCC loan as income, include the loan proceeds as income on Schedule F, line 7a, for the year you receive it. Fillable 1040ez Attach a statement to your return showing the details of the loan. Fillable 1040ez You must file the statement and the return by the due date of the return, including extensions. Fillable 1040ez If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Fillable 1040ez Attach the statement to the amended return and write “Filed pursuant to section 301. Fillable 1040ez 9100-2” at the top of the return. Fillable 1040ez File the amended return at the same address you filed the original return. Fillable 1040ez When you make this election, the amount you report as income becomes your basis in the commodity. Fillable 1040ez See chapter 6 for information on the basis of assets. Fillable 1040ez If you later repay the loan, redeem the pledged commodity, and sell it, you report as income at the time of sale the sale proceeds minus your basis in the commodity. Fillable 1040ez If the sale proceeds are less than your basis in the commodity, you can report the difference as a loss on Schedule F. Fillable 1040ez If you forfeit the pledged crops to the CCC in full payment of the loan, the forfeiture is treated for tax purposes as a sale of the crops. Fillable 1040ez If you did not report the loan proceeds as income for the year you received them, you must include them in your income for the year of the forfeiture. Fillable 1040ez Form 1099-A. Fillable 1040ez   If you forfeit pledged crops to the CCC in full payment of a loan, you may receive a Form 1099-A, Acquisition or Abandonment of Secured Property. Fillable 1040ez “CCC” should be shown in box 6. Fillable 1040ez The amount of any CCC loan outstanding when you forfeited your commodity should also be indicated on the form. Fillable 1040ez Market Gain Under the CCC nonrecourse marketing assistance loan program, your repayment amount for a loan secured by your pledge of an eligible commodity is generally based on the lower of the loan rate or the prevailing world market price for the commodity on the date of repayment. Fillable 1040ez If you repay the loan when the world price is lower, the difference between that repayment amount and the original loan amount is market gain. Fillable 1040ez Whether you use cash or CCC certificates to repay the loan, you will receive a Form 1099-G showing the market gain you realized. Fillable 1040ez Market gain should be reported as follows. Fillable 1040ez If you elected to include the CCC loan in income in the year you received it, do not include the market gain in income. Fillable 1040ez However, adjust the basis of the commodity for the amount of the market gain. Fillable 1040ez If you did not include the CCC loan in income in the year received, include the market gain in your income. Fillable 1040ez The following examples show how to report market gain. Fillable 1040ez Example 1. Fillable 1040ez Mike Green is a cotton farmer. Fillable 1040ez He uses the cash method of accounting and files his tax return on a calendar year basis. Fillable 1040ez He has deducted all expenses incurred in producing the cotton and has a zero basis in the commodity. Fillable 1040ez In 2012, Mike pledged 1,000 pounds of cotton as collateral for a CCC loan of $2,000 (a loan rate of $2. Fillable 1040ez 00 per pound). Fillable 1040ez In 2013, he repaid the loan and redeemed the cotton for $1,500 when the world price was $1. Fillable 1040ez 50 per pound (lower than the loan amount). Fillable 1040ez Later in 2013, he sold the cotton for $2,500. Fillable 1040ez The market gain on the redemption was $. Fillable 1040ez 50 ($2. Fillable 1040ez 00 – $1. Fillable 1040ez 50) per pound. Fillable 1040ez Mike realized total market gain of $500 ($. Fillable 1040ez 50 x 1,000 pounds). Fillable 1040ez How he reports this market gain and figures his gain or loss from the sale of the cotton depends on whether he included CCC loans in income in 2012. Fillable 1040ez Included CCC loan. Fillable 1040ez   Mike reported the $2,000 CCC loan as income for 2012 on Schedule F, line 1b, so he is treated as if he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when he redeemed it. Fillable 1040ez The $500 market gain is not recognized on the redemption. Fillable 1040ez He reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. Fillable 1040ez   Mike's basis in the cotton after he redeemed it was $1,500, which is the redemption (repurchase) price paid for the cotton. Fillable 1040ez His gain from the sale is $1,000 ($2,500 – $1,500). Fillable 1040ez He reports the $1,000 gain as income for 2013 on Schedule F, line 1b. Fillable 1040ez Excluded CCC loan. Fillable 1040ez   Mike has income of $500 from market gain in 2013. Fillable 1040ez He reports it on Schedule F, lines 4a and 4b. Fillable 1040ez His basis in the cotton is zero, so his gain from its sale is $2,500. Fillable 1040ez He reports the $2,500 gain as income for 2013 on Schedule F, line 1b. Fillable 1040ez Example 2. Fillable 1040ez The facts are the same as in Example 1 except that, instead of selling the cotton for $2,500 after redeeming it, Mike entered into an option-to-purchase contract with a cotton buyer before redeeming the cotton. Fillable 1040ez Under that contract, Mike authorized the cotton buyer to pay the CCC loan on Mike's behalf. Fillable 1040ez In 2013, the cotton buyer repaid the loan for $1,500 and immediately exercised his option, buying the cotton for $1,500. Fillable 1040ez How Mike reports the $500 market gain on the redemption of the cotton and figures his gain or loss from its sale depends on whether he included CCC loans in income in 2012. Fillable 1040ez Included CCC loan. Fillable 1040ez   As in Example 1, Mike is treated as though he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when the cotton buyer redeemed it for him. Fillable 1040ez The $500 market gain is not recognized on the redemption. Fillable 1040ez Mike reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. Fillable 1040ez   Also, as in Example 1, Mike's basis in the cotton when the cotton buyer redeemed it for him was $1,500. Fillable 1040ez Mike has no gain or loss on its sale to the cotton buyer for that amount. Fillable 1040ez Excluded CCC loan. Fillable 1040ez   As in Example 1, Mike has income of $500 from market gain in 2013. Fillable 1040ez He reports it on Schedule F, lines 4a and 4b. Fillable 1040ez His basis in the cotton is zero, so his gain from its sale is $1,500. Fillable 1040ez He reports the $1,500 gain as income for 2013 on Schedule F, line 1b. Fillable 1040ez Conservation Reserve Program (CRP) Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a long-term contract with the USDA, agreeing to convert to a less intensive use of that cropland. Fillable 1040ez You must include the annual rental payments and any one-time incentive payment you receive under the program on Schedule F, lines 4a and 4b. Fillable 1040ez Cost-share payments you receive may qualify for the cost-sharing exclusion. Fillable 1040ez See Cost-Sharing Exclusion (Improvements) , later. Fillable 1040ez CRP payments are reported to you on Form 1099-G. Fillable 1040ez Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. Fillable 1040ez See the instructions for Schedule SE (Form 1040). Fillable 1040ez Crop Insurance and Crop Disaster Payments You must include in income any crop insurance proceeds you receive as the result of physical crop damage or reduction of crop revenue, or both. Fillable 1040ez You generally include them in the year you receive them. Fillable 1040ez Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops, because of drought, flood, or any other natural disaster. Fillable 1040ez You can request income tax withholding from crop disaster payments you receive from the federal government. Fillable 1040ez Use Form W-4V, Voluntary Withholding Request. Fillable 1040ez See chapter 16 for information about ordering the form. Fillable 1040ez Election to postpone reporting until the following year. Fillable 1040ez   You can postpone reporting some or all crop insurance proceeds as income until the year following the year the physical damage occurred if you meet all the following conditions. Fillable 1040ez You use the cash method of accounting. Fillable 1040ez You receive the crop insurance proceeds in the same tax year the crops are damaged. Fillable 1040ez You can show that under your normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred. Fillable 1040ez   Deferral is not permitted for proceeds received from revenue insurance policies. Fillable 1040ez   To postpone reporting some or all crop insurance proceeds received in 2013, report the amount you received on Schedule F, line 6a, but do not include it as a taxable amount on line 6b. Fillable 1040ez Check the box on line 8c and attach a statement to your tax return. Fillable 1040ez The statement must include your name and address and contain the following information. Fillable 1040ez A statement that you are making an election under IRC section 451(d) and Regulations section 1. Fillable 1040ez 451-6. Fillable 1040ez The specific crop or crops physically destroyed or damaged. Fillable 1040ez A statement that under your normal business practice you would have included income from some or all of the destroyed or damaged crops in gross income for a tax year following the year the crops were destroyed or damaged. Fillable 1040ez The cause of the physical destruction or damage and the date or dates it occurred. Fillable 1040ez The total payments you received from insurance carriers, itemized for each specific crop, and the date you received each payment. Fillable 1040ez The name of each insurance carrier from whom you received payments. Fillable 1040ez   One election covers all crops representing a single trade or business. Fillable 1040ez If you have more than one farming business, make a separate election for each one. Fillable 1040ez For example, if you operate two separate farms on which you grow different crops and you keep separate books for each farm, you should make two separate elections to postpone reporting insurance proceeds you receive for crops grown on each of your farms. Fillable 1040ez   An election is binding for the year unless the IRS approves your request to change it. Fillable 1040ez To request IRS approval to change your election, write to the IRS at the following address giving your name, address, identification number, the year you made the election, and your reasons for wanting to change it. Fillable 1040ez Ogden Submission Processing Center P. Fillable 1040ez O. Fillable 1040ez Box 9941 Ogden, UT 84409 Feed Assistance and Payments The Disaster Assistance Act of 1988 authorizes programs to provide feed assistance, reimbursement payments, and other benefits to qualifying livestock producers if the Secretary of Agriculture determines that, because of a natural disaster, a livestock emergency exists. Fillable 1040ez These programs include partial reimbursement for the cost of purchased feed and for certain transportation expenses. Fillable 1040ez They also include the donation or sale at a below-market price of feed owned by the Commodity Credit Corporation. Fillable 1040ez Include in income: The market value of donated feed, The difference between the market value and the price you paid for feed you buy at below-market prices, and Any cost reimbursement you receive. Fillable 1040ez You must include these benefits in income in the year you receive them. Fillable 1040ez You cannot postpone reporting them under the rules explained earlier for weather-related sales of livestock or crop insurance proceeds. Fillable 1040ez Report the benefits on Schedule F, Part I, as agricultural program payments. Fillable 1040ez You can usually take a current deduction for the same amount as a feed expense. Fillable 1040ez Cost-Sharing Exclusion (Improvements) You can exclude from your income part or all of a payment you receive under certain federal or state cost-sharing conservation, reclamation, and restoration programs. Fillable 1040ez A payment is any economic benefit you get as a result of an improvement. Fillable 1040ez However, this exclusion applies only to that part of a payment that meets all three of the following tests. Fillable 1040ez It was for a capital expense. Fillable 1040ez You cannot exclude any part of a payment for an expense you can deduct in the year you pay or incur it. Fillable 1040ez You must include the payment for a deductible expense in income, and you can take any offsetting deduction. Fillable 1040ez See chapter 5 for information on deducting soil and water conservation expenses. Fillable 1040ez It does not substantially increase your annual income from the property for which it is made. Fillable 1040ez An increase in annual income is substantial if it is more than the greater of the following amounts. Fillable 1040ez 10% of the average annual income derived from the affected property before receiving the improvement. Fillable 1040ez $2. Fillable 1040ez 50 times the number of affected acres. Fillable 1040ez The Secretary of Agriculture certified that the payment was primarily made for conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. Fillable 1040ez Qualifying programs. Fillable 1040ez   If the three tests listed above are met, you can exclude part or all of the payments from the following programs. Fillable 1040ez The rural clean water program authorized by the Federal Water Pollution Control Act. Fillable 1040ez The rural abandoned mine program authorized by the Surface Mining Control and Reclamation Act of 1977. Fillable 1040ez The water bank program authorized by the Water Bank Act. Fillable 1040ez The emergency conservation measures program authorized by title IV of the Agricultural Credit Act of 1978. Fillable 1040ez The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act. Fillable 1040ez The great plains conservation program authorized by the Soil Conservation and Domestic Policy Act. Fillable 1040ez The resource conservation and development program authorized by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation and Domestic Allotment Act. Fillable 1040ez Certain small watershed programs, listed later. Fillable 1040ez Any program of a state, possession of the United States, a political subdivision of any of these, or of the District of Columbia under which payments are made to individuals primarily for conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. Fillable 1040ez Several state programs have been approved. Fillable 1040ez For information about the status of those programs, contact the state offices of the Farm Service Agency (FSA) and the Natural Resources and Conservation Service (NRCS). Fillable 1040ez Small watershed programs. Fillable 1040ez   If the three tests listed earlier are met, you can exclude part or all of the payments you receive under the following programs for improvements made in connection with a watershed. Fillable 1040ez The programs under the Watershed Protection and Flood Prevention Act. Fillable 1040ez The flood prevention projects under the Flood Control Act of 1944. Fillable 1040ez The Emergency Watershed Protection Program under the Flood Control Act of 1950. Fillable 1040ez Certain programs under the Colorado River Basin Salinity Control Act. Fillable 1040ez The Wetlands Reserve Program authorized by the Food Security Act of 1985, the Federal Agriculture Improvement and Reform Act of 1996 and the Farm Security and Rural Investment Act of 2002. Fillable 1040ez The Environmental Quality Incentives Program (EQIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. Fillable 1040ez The Wildlife Habitat Incentives Program (WHIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. Fillable 1040ez The Soil and Water Conservation Assistance Program authorized by the Agricultural Risk Protection Act of 2000. Fillable 1040ez The Agricultural Management Assistance Program authorized by the Agricultural Risk Protection Act of 2000. Fillable 1040ez The Conservation Reserve Program authorized by the Food Security Act of 1985 and the Federal Agriculture Improvement and Reform Act of 1996. Fillable 1040ez The Forest Land Enhancement Program authorized under the Farm Security and Rural Investment Act of 2002. Fillable 1040ez The Conservation Security Program authorized by the Food Security Act of 1985. Fillable 1040ez The Forest Health Protection Program (FHPP) authorized by the Cooperative Forestry Assistance Act of 1978. Fillable 1040ez Income realized. Fillable 1040ez   The gross income you realize upon getting an improvement under these cost-sharing programs is the value of the improvement reduced by the sum of the excludable portion and your share of the cost of the improvement (if any). Fillable 1040ez Value of the improvement. Fillable 1040ez   You determine the value of the improvement by multiplying its fair market value (defined in chapter 6) by a fraction. Fillable 1040ez The numerator of the fraction is the total cost of the improvement (all amounts paid either by you or by the government for the improvement) reduced by the sum of the following items. Fillable 1040ez Any government payments under a program not listed earlier. Fillable 1040ez Any part of a government payment under a program listed earlier that the Secretary of Agriculture has not certified as primarily for conservation. Fillable 1040ez Any government payment to you for rent or for your services. Fillable 1040ez The denominator of the fraction is the total cost of the improvement. Fillable 1040ez Excludable portion. Fillable 1040ez   The excludable portion is the present fair market value of the right to receive annual income from the affected acreage of the greater of the following amounts. Fillable 1040ez 10% of the prior average annual income from the affected acreage. Fillable 1040ez The prior average annual income is the average of the gross receipts from the affected acreage for the last 3 tax years before the tax year in which you started to install the improvement. Fillable 1040ez $2. Fillable 1040ez 50 times the number of affected acres. Fillable 1040ez The calculation of present fair market value of the right to receive annual income is too complex to discuss in this publication. Fillable 1040ez You may need to consult your tax advisor for assistance. Fillable 1040ez Example. Fillable 1040ez One hundred acres of your land was reclaimed under a rural abandoned mine program contract with the Natural Resources Conservation Service of the USDA. Fillable 1040ez The total cost of the improvement was $500,000. Fillable 1040ez The USDA paid $490,000. Fillable 1040ez You paid $10,000. Fillable 1040ez The value of the cost-sharing improvement is $15,000. Fillable 1040ez The present fair market value of the right to receive the annual income described in (1) above is $1,380, and the present fair market value of the right to receive the annual income described in (2) is $1,550. Fillable 1040ez The excludable portion is the greater amount, $1,550. Fillable 1040ez You figure the amount to include in gross income as follows: Value of cost-sharing improvement $15,000 Minus: Your share $10,000     Excludable portion 1,550 11,550 Amount included in income $ 3,450 Effects of the exclusion. Fillable 1040ez   When you figure the basis of property you acquire or improve using cost-sharing payments excluded from income, subtract the excluded payments from your capital costs. Fillable 1040ez Any payment excluded from income is not part of your basis. Fillable 1040ez In the example above, the increase in basis is $500,000 – $490,000 + $3,450 = $13,450. Fillable 1040ez   In addition, you cannot take depreciation, amortization, or depletion deductions for the part of the cost of the property for which you receive cost-sharing payments you exclude from income. Fillable 1040ez How to report the exclusion. Fillable 1040ez   Attach a statement to your tax return (or amended return) for the tax year you receive the last government payment for the improvement. Fillable 1040ez The statement must include the following information. Fillable 1040ez The dollar amount of the cost funded by the government payment. Fillable 1040ez The value of the improvement. Fillable 1040ez The amount you are excluding. Fillable 1040ez   Report the total cost-sharing payments you receive on Schedule F, line 4a, and the taxable amount on line 4b. Fillable 1040ez Recapture. Fillable 1040ez   If you dispose of the property within 20 years after you received the excluded payments, you must treat as ordinary income part or all of the cost-sharing payments you excluded. Fillable 1040ez In the above example, if the 100 acres were sold within 20 years of the exclusion for a gain of $2,000, $1,550 of that amount would be included in ordinary income. Fillable 1040ez You must report the recapture on Form 4797. Fillable 1040ez See Section 1255 property under Other Gains in chapter 9. Fillable 1040ez Electing not to exclude payments. Fillable 1040ez   You can elect not to exclude all or part of any payments you receive under these programs. Fillable 1040ez If you make this election for all of these payments, none of the above restrictions and rules apply. Fillable 1040ez You must make this election by the due date, including extensions, for filing your return. Fillable 1040ez In the example above, an election not to exclude payments results in $5,000 included in income and a $15,000 increase in basis. Fillable 1040ez If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Fillable 1040ez Write “Filed pursuant to section 301. Fillable 1040ez 9100-2” at the top of the amended return and file it at the same address you filed the original return. Fillable 1040ez Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 The Farm Security and Rural Investment Act of 2002 created two new types of payments—direct and counter-cyclical payments. Fillable 1040ez You must include these payments on Schedule F, lines 4a and 4b. Fillable 1040ez The Food, Conservation, and Energy Act of 2008 provides for direct and counter-cyclical payments (DCP) as well as Average Crop Revenue Election (ACRE) payments. Fillable 1040ez You must include these payments on Schedule F, lines 6a and 6b. Fillable 1040ez The American Taxpayer Relief Act of 2012, enacted on January 2, 2013, amends the Food, Conservation, and Energy Act of 2008 and provided a one-year extension for these payments. Fillable 1040ez Tobacco Quota Buyout Program Payments The Fair and Equitable Tobacco Reform Act of 2004, title VI of the American Jobs Creation Act of 2004, terminated the tobacco marketing quota program and the tobacco price support program. Fillable 1040ez As a result, the USDA offered to enter into contracts with eligible tobacco quota holders and growers to provide compensation for the lost value of the quotas and related price support. Fillable 1040ez If you are an eligible tobacco quota holder, your contract entitles you to receive total payments of $7 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. Fillable 1040ez If you are an eligible tobacco grower, your contract entitles you to receive total payments of up to $3 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. Fillable 1040ez Tobacco Quota Holders Contract payments you receive are considered proceeds from a sale of your tobacco quota as of the date on which you and the USDA enter into the contract. Fillable 1040ez Your taxable gain or loss is the total amount received for your quota reduced by any amount treated as interest (discussed below), over your adjusted basis. Fillable 1040ez The gain or loss is capital or ordinary depending on how you used the quota. Fillable 1040ez See Capital or ordinary gain or loss , later. Fillable 1040ez Report the entire gain on your income tax return for the tax year that includes the date you entered into the contract if you elect not to use the installment method. Fillable 1040ez Adjusted basis. Fillable 1040ez   The adjusted basis of your quota is determined differently depending on how you obtained the quota. Fillable 1040ez The basis of a quota derived from an original grant by the federal government is zero. Fillable 1040ez The basis of a purchased quota is the purchase price. Fillable 1040ez The basis of a quota received as a gift is generally the same as the donor's basis. Fillable 1040ez However, under certain circumstances, the basis is increased by the amount of gift taxes paid. Fillable 1040ez If the basis is greater than the fair market value of the quota at the time of the gift, the basis for determining loss is the fair market value. Fillable 1040ez The basis of an inherited quota is generally the fair market value of the quota at the time of the decedent's death. Fillable 1040ez Reduction of basis. Fillable 1040ez   You are required to reduce the basis of your tobacco quota by the following amounts. Fillable 1040ez Deductions you took for amortization, depletion, or depreciation. Fillable 1040ez Amounts you previously deducted as a loss because of a reduction in the number of pounds of tobacco allowable under the quota. Fillable 1040ez The entire cost of a purchased quota you deducted in an earlier year (which reduces your basis to zero). Fillable 1040ez Amount treated as interest. Fillable 1040ez   You must reduce your tobacco quota buyout program payment by the amount treated as interest. Fillable 1040ez The interest is reportable as ordinary income. Fillable 1040ez If payments total $3,000 or less, your total quota buyout program payment does not include any amount treated as interest and you are not required to reduce the total payment you receive. Fillable 1040ez   In all other cases, a portion of each payment may be treated as interest for federal tax purposes. Fillable 1040ez You may be required to reduce your total quota buyout program payment before you calculate your gain or loss. Fillable 1040ez For more information, see Notice 2005-57, 2005-32 I. Fillable 1040ez R. Fillable 1040ez B. Fillable 1040ez 267, available at www. Fillable 1040ez irs. Fillable 1040ez gov/irb/2005-32_IRB/ar13. Fillable 1040ez html. Fillable 1040ez Installment method. Fillable 1040ez   You may use the installment method to report a gain if you receive at least one payment after the close of your tax year. Fillable 1040ez Under the installment method, a portion of the gain is taken into account in each year in which a payment is received. Fillable 1040ez See chapter 10 for more information. Fillable 1040ez Capital or ordinary gain or loss. Fillable 1040ez   Whether your gain or loss is ordinary or capital depends on how you used the quota. Fillable 1040ez Quota used in the trade or business of farming. Fillable 1040ez   If you used the quota in the trade or business of farming and you held it for more than one year, you report the transaction as a section 1231 transaction on Form 4797. Fillable 1040ez See Section 1231 transactions in the Instructions for Form 4797 for detailed information on reporting section 1231 transactions. Fillable 1040ez Quota held for investment. Fillable 1040ez   If you held the quota for investment purposes, any gain or loss is capital gain or loss. Fillable 1040ez The same result also applies if you held the quota for the production of income, though not connected with a trade or business. Fillable 1040ez Gain treated as ordinary income. Fillable 1040ez   If you previously deducted any of the following items, some or all of the capital gain must be recharacterized and reported as ordinary income. Fillable 1040ez Any resulting capital gain is taxed as ordinary income up to the amount previously deducted. Fillable 1040ez The cost of acquiring a quota. Fillable 1040ez Amounts for amortization, depletion, or depreciation. Fillable 1040ez Amounts to reflect a reduction in the quota pounds. Fillable 1040ez   You should include the ordinary income on your return for the tax year even if you use the installment method to report the remainder of the gain. Fillable 1040ez Self-employment income. Fillable 1040ez   The tobacco quota buyout payments are not self-employment income. Fillable 1040ez Income averaging for farmers. Fillable 1040ez   The gain or loss resulting from the quota payments does not qualify for income averaging. Fillable 1040ez A tobacco quota is considered an interest in land. Fillable 1040ez Income averaging is not available for gain or loss arising from the sale or other disposition of land. Fillable 1040ez Involuntary conversion. Fillable 1040ez   The buyout of the tobacco quota is not an involuntary conversion. Fillable 1040ez Form 1099-S. Fillable 1040ez   A tobacco quota is considered an interest in land, so the USDA will generally report the total amount you receive under a contract on Form 1099-S, Proceeds From Real Estate Transactions, if the amount is $600 or more. Fillable 1040ez The USDA will generally report any portion of a payment treated as interest of $600 or more to you on Form 1099-INT, Interest Income, for the year in which the payment is made. Fillable 1040ez Like-kind exchange of quota. Fillable 1040ez   You may postpone reporting the gain or loss from tobacco quota buyout payments by entering into a like-kind exchange if you comply with the requirements of section 1031 and the regulations thereunder. Fillable 1040ez See Notice 2005-57 for more information. Fillable 1040ez Tobacco Growers Contract payments you receive are determined by reference to the amount of quota under which you produced (or planted) quota tobacco during the 2002, 2003, and 2004 tobacco marketing years and are prorated based on the number of years that you produced (or planted) quota tobacco during those years. Fillable 1040ez Taxation of payments to tobacco growers. Fillable 1040ez   Payments to growers replace ordinary income that would have been earned had the tobacco marketing quota and price support programs continued. Fillable 1040ez Individuals will generally report the payments as an Agricultural program payment on Schedule F. Fillable 1040ez If you are a landowner who does not materially participate in the operation or management of the farm and are receiving the grower payment because your farm rental income is based on the tobacco grown by a tenant, the grower payment should be reported on Form 4835. Fillable 1040ez Self-employment income. Fillable 1040ez   Payments to growers generally represent self-employment income. Fillable 1040ez If the grower is an individual carrying on a trade or business and deriving income (other than farm rental income properly reported on Form 4835) from that trade or business, the payments are net earnings from self-employment. Fillable 1040ez Income averaging for farmers. Fillable 1040ez   Payments to growers who are individuals qualify for farm income averaging. Fillable 1040ez Form 1099-G. Fillable 1040ez   If the amount received in a taxable year is $600 or more, the amount will generally be reported by the USDA on a Form 1099-G. Fillable 1040ez Other Payments You must include most other government program payments in income. Fillable 1040ez Fertilizer and Lime Include in income the value of fertilizer or lime you receive under a government program. Fillable 1040ez How to claim the offsetting deduction is explained under Fertilizer and Lime in chapter 4. Fillable 1040ez Improvements If government payments are based on improvements, such as a pollution control facility, you must include them in income. Fillable 1040ez You must also capitalize the full cost of the improvement. Fillable 1040ez Since you have included the payments in income, they do not reduce your basis. Fillable 1040ez However, see Cost-Sharing Exclusion (Improvements) , earlier, for additional information. Fillable 1040ez National Tobacco Growers' Settlement Trust Fund Payments If you are a producer, landowner, or tobacco quota owner who receives money from the National Tobacco Growers' Settlement Trust Fund, you must report those payments as income. Fillable 1040ez You should receive a Form 1099-MISC, Miscellaneous Income, that shows the payment amount. Fillable 1040ez If you produce a tobacco crop, report the payments as income from farming on your Schedule F. Fillable 1040ez If you are a landowner or tobacco quota owner who leases tobacco-related property but you do not produce the crop, report the payments as farm rental income on Form 4835. Fillable 1040ez Payment to More Than One Person The USDA reports program payments to the IRS. Fillable 1040ez It reports a program payment intended for more than one person as having been paid to the person whose identification number is on record for that payment (payee of record). Fillable 1040ez If you, as the payee of record, receive a program payment belonging to someone else, such as your landlord, the amount belonging to the other person is a nominee distribution. Fillable 1040ez You should file Form 1099-G to report the identity of the actual recipient to the IRS. Fillable 1040ez You should also give this information to the recipient. Fillable 1040ez You can avoid the inconvenience of unnecessary inquiries about the identity of the recipient if you file this form. Fillable 1040ez Report the total amount reported to you as the payee of record on Schedule F, line 4a or 6a. Fillable 1040ez However, do not report as a taxable amount on line 4b or 6b any amount belonging to someone else. Fillable 1040ez See chapter 16 for information about ordering Form 1099-G. Fillable 1040ez Income From Cooperatives If you buy farm supplies through a cooperative, you may receive income from the cooperative in the form of patronage dividends (refunds). Fillable 1040ez If you sell your farm products through a cooperative, you may receive either patronage dividends or a per-unit retain certificate, explained later, from the cooperative. Fillable 1040ez Form 1099-PATR. Fillable 1040ez   The cooperative will report the income to you on Form 1099-PATR or a similar form and send a copy to the IRS. Fillable 1040ez Form 1099-PATR may also show an alternative minimum tax adjustment that you must include on Form 6251, Alternative Minimum Tax—Individuals, if you are required to file the form. Fillable 1040ez For information on the alternative minimum tax, see the Instructions for Form 6251. Fillable 1040ez Patronage Dividends You generally report patronage dividends as income on Schedule F, lines 3a and 3b, for the tax year you receive them. Fillable 1040ez They include the following items. Fillable 1040ez Money paid as a patronage dividend, including cash advances received (for example, from a marketing cooperative). Fillable 1040ez The stated dollar value of qualified written notices of allocation. Fillable 1040ez The fair market value of other property. Fillable 1040ez Do not report as income on line 3b any patronage dividends you receive from expenditures that were not deductible, such as buying personal or family items, capital assets, or depreciable property. Fillable 1040ez You must reduce the cost or other basis of these items by the amount of such patronage dividends received. Fillable 1040ez Personal items include fuel purchased for personal use, basic local telephone service, and personal long distance calls. Fillable 1040ez If you cannot determine what the dividend is for, report it as income on lines 3a and 3b. Fillable 1040ez Qualified written notice of allocation. Fillable 1040ez   If you receive a qualified written notice of allocation as part of a patronage dividend, you must generally include its stated dollar value in your income on Schedule F, lines 3a and 3b, in the year you receive it. Fillable 1040ez A written notice of allocation is qualified if at least 20% of the patronage dividend is paid in money or by qualified check and either of the following conditions is met. Fillable 1040ez The notice must be redeemable in cash for at least 90 days after it is issued, and you must have received a written notice of your right of redemption at the same time as the written notice of allocation. Fillable 1040ez You must have agreed to include the stated dollar value in income in the year you receive the notice by doing one of the following. Fillable 1040ez Signing and giving a written agreement to the cooperative. Fillable 1040ez Getting or keeping membership in the cooperative after it adopted a bylaw providing that membership constitutes agreement. Fillable 1040ez The cooperative must notify you in writing of this bylaw and give you a copy. Fillable 1040ez Endorsing and cashing a qualified check paid as part of the same patronage dividend. Fillable 1040ez You must cash the check by the 90th day after the close of the payment period for the cooperative's tax year for which the patronage dividend was paid. Fillable 1040ez Qualified check. Fillable 1040ez   A qualified check is any instrument that is redeemable in money and meets both of the following requirements. Fillable 1040ez It is part of a patronage dividend that also includes a qualified written notice of allocation for which you met condition 2(c), above. Fillable 1040ez It is imprinted with a statement that endorsing and cashing it constitutes the payee's consent to include in income the stated dollar value of any written notices of allocation paid as part of the same patronage dividend. Fillable 1040ez Loss on redemption. Fillable 1040ez   You can deduct on Schedule F, Part II, any loss incurred on the redemption of a qualified written notice of allocation you received in the ordinary course of your farming business. Fillable 1040ez The loss is the difference between the stated dollar amount of the qualified written notice you included in income and the amount you received when you redeemed it. Fillable 1040ez Nonqualified notice of allocation. Fillable 1040ez   Do not include the stated dollar value of any nonqualified notice of allocation in income when you receive it. Fillable 1040ez Your basis in the notice is zero. Fillable 1040ez You must include in income for the tax year of disposition any amount you receive from its sale, redemption, or other disposition. Fillable 1040ez Report that amount, up to the stated dollar value of the notice, on Schedule F, lines 3a and 3b. Fillable 1040ez However, do not include that amount in your income if the notice resulted from buying or selling capital assets or depreciable property or from buying personal items, as explained in the following discussions. Fillable 1040ez   If the amount you receive is more than the stated dollar value of the notice, report the excess as the type of income it represents. Fillable 1040ez For example, if it represents interest income, report it on your return as interest. Fillable 1040ez Buying or selling capital assets or depreciable property. Fillable 1040ez   Do not include in income patronage dividends from buying capital assets or depreciable property used in your business. Fillable 1040ez You must, however, reduce the basis of these assets by the dividends. Fillable 1040ez This reduction is taken into account as of the first day of the tax year in which the dividends are received. Fillable 1040ez If the dividends are more than your unrecovered basis, reduce the unrecovered basis to zero and include the difference on Schedule F, line 3a, for the tax year you receive them. Fillable 1040ez   This rule and the exceptions explained below also apply to amounts you receive from the sale, redemption, or other disposition of a nonqualified notice of allocation that resulted from buying or selling capital assets or depreciable property. Fillable 1040ez Example. Fillable 1040ez On July 1, 2012, Mr. Fillable 1040ez Brown, a patron of a cooperative association, bought a machine for his dairy farm business from the association for $2,900. Fillable 1040ez The machine has a life of 7 years under MACRS (as provided in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946, Depreciation and Amortization). Fillable 1040ez Mr. Fillable 1040ez Brown files his return on a calendar year basis. Fillable 1040ez For 2012, he claimed a depreciation deduction of $311, using the 10. Fillable 1040ez 71% depreciation rate from the 150% declining balance, half-year convention table (shown in Table A-14 in Appendix A of Publication 946). Fillable 1040ez On July 2, 2013, the cooperative association paid Mr. Fillable 1040ez Brown a $300 cash patronage dividend for buying the machine. Fillable 1040ez Mr. Fillable 1040ez Brown adjusts the basis of the machine and figures his depreciation deduction for 2013 (and later years) as follows. Fillable 1040ez Cost of machine on July 1, 2012 $2,900 Minus: 2012 depreciation $311     2013 cash dividend 300 611 Adjusted basis for  depreciation for 2013: $2,289 Depreciation rate: 1 ÷ 6½ (remaining recovery period as of 1/1/2012) = 15. Fillable 1040ez 38% × 1. Fillable 1040ez 5 = 23. Fillable 1040ez 07% Depreciation deduction for 2013 ($2,289 × 23. Fillable 1040ez 07%) $528 Exceptions. Fillable 1040ez   If the dividends are for buying or selling capital assets or depreciable property you did not own at any time during the year you received the dividends, you must include them on Schedule F, lines 3a and 3b, unless one of the following rules applies. Fillable 1040ez If the dividends relate to a capital asset you held for more than 1 year for which a loss was or would have been deductible, treat them as gain from the sale or exchange of a capital asset held for more than 1 year. Fillable 1040ez If the dividends relate to a capital asset for which a loss was not or would not have been deductible, do not report them as income (ordinary or capital gain). Fillable 1040ez   If the dividends are for selling capital assets or depreciable property during the year you received the dividends, treat them as an additional amount received on the sale. Fillable 1040ez Personal purchases. Fillable 1040ez   Because you cannot deduct the cost of personal, living, or family items, such as supplies, equipment, or services not related to the production of farm income, you can omit from the taxable amount of patronage dividends on Schedule F, line 3b, any dividends from buying those items (and you must reduce the cost or other basis of those items by the amount of the dividends). Fillable 1040ez This rule also applies to amounts you receive from the sale, redemption, or other disposition of a nonqualified written notice of allocation resulting from these purchases. Fillable 1040ez Per-Unit Retain Certificates A per-unit retain certificate is any written notice that shows the stated dollar amount of a per-unit retain allocation made to you by the cooperative. Fillable 1040ez A per-unit retain allocation is an amount paid to patrons for products sold for them that is fixed without regard to the net earnings of the cooperative. Fillable 1040ez These allocations can be paid in money, other property, or qualified certificates. Fillable 1040ez Per-unit retain certificates issued by a cooperative generally receive the same tax treatment as patronage dividends, discussed earlier. Fillable 1040ez Qualified certificates. Fillable 1040ez   Qualified per-unit retain certificates are those issued to patrons who have agreed to include the stated dollar amount of these certificates in income in the year of receipt. Fillable 1040ez The agreement may be made in writing or by getting or keeping membership in a cooperative whose bylaws or charter states that membership constitutes agreement. Fillable 1040ez If you receive qualified per-unit retain certificates, include the stated dollar amount of the certificates in income on Schedule F, lines 3a and 3b, for the tax year you receive them. Fillable 1040ez Nonqualified certificates. Fillable 1040ez   Do not include the stated dollar value of a nonqualified per-unit retain certificate in income when you receive it. Fillable 1040ez Your basis in the certificate is zero. Fillable 1040ez You must include in income any amount you receive from its sale, redemption, or other disposition. Fillable 1040ez Report the amount you receive from the disposition as ordinary income on Schedule F, lines 3a and 3b, for the tax year of disposition. Fillable 1040ez Cancellation of Debt This section explains the general rule for including canceled debt in income and the exceptions to the general rule. Fillable 1040ez For more information on canceled debt, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Fillable 1040ez General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in gross income for tax purposes. Fillable 1040ez Discharge of qualified farm indebtedness (defined below) is one of the exceptions to the general rule. Fillable 1040ez It is excluded from taxable income (see Exclusions , later). Fillable 1040ez Report the canceled amount on Schedule F, line 8, if you incurred the debt in your farming business. Fillable 1040ez If the debt is a nonbusiness debt, report the canceled amount as other income on Form 1040, line 21. Fillable 1040ez Election to defer income from discharge of indebtedness. Fillable 1040ez   You can elect to defer income from a discharge of business indebtedness that occurred after 2008 and before 2011. Fillable 1040ez Generally, if the election is made, the deferred income is included in gross income ratably over a 5-year period beginning in 2014 (for calendar year taxpayers) and the exclusions listed below do not apply. Fillable 1040ez See IRC section 108(i) and Publication 4681 for details. Fillable 1040ez Form 1099-C. Fillable 1040ez   If a federal agency, financial institution, credit union, finance company, or credit card company cancels or forgives your debt of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. Fillable 1040ez The amount of debt canceled is shown in box 2. Fillable 1040ez Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Fillable 1040ez These exceptions apply before the exclusions discussed below. Fillable 1040ez Price reduced after purchase. Fillable 1040ez   If your purchase of property was financed by the seller and the seller reduces the amount of the debt at a time when you are not insolvent and the reduction does not occur in a chapter 11 bankruptcy case, the amount of the debt reduction will be treated as a reduction in the purchase price of the property. Fillable 1040ez Reduce your basis in the property by the amount of the reduction in the debt. Fillable 1040ez The rules that apply to bankruptcy and insolvency are explained below under Exclusions . Fillable 1040ez Deductible debt. Fillable 1040ez   You do not realize income from a canceled debt to the extent the payment of the debt would have been a deductible expense. Fillable 1040ez This exception applies before the price reduction exception discussed above and the bankruptcy and insolvency exclusions discussed next. Fillable 1040ez Example. Fillable 1040ez You get accounting services for your farm on credit. Fillable 1040ez Later, you have trouble paying your farm debts, but you are not bankrupt or insolvent. Fillable 1040ez Your accountant forgives part of the amount you owe for the accounting services. Fillable 1040ez How you treat the canceled debt depends on your method of accounting. Fillable 1040ez Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Fillable 1040ez Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Fillable 1040ez Exclusions Do not include canceled debt in income in the following situations. Fillable 1040ez The cancellation takes place in a bankruptcy case under title 11 of the U. Fillable 1040ez S. Fillable 1040ez Code. Fillable 1040ez The cancellation takes place when you are insolvent. Fillable 1040ez The canceled debt is a qualified farm debt. Fillable 1040ez The canceled debt is a qualified real property business debt (in the case of a taxpayer other than a C corporation). Fillable 1040ez See Publication 334, Tax Guide for Small Business, chapter 5. Fillable 1040ez The canceled debt is qualified principal residence indebtedness which is discharged after 2006 and before 2014. Fillable 1040ez The exclusions do not apply in the following situations: If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations (2), (3), (4), and (5) do not apply. Fillable 1040ez If a canceled debt is excluded from income because it takes place when you are insolvent, the exclusions in situations (3) and (4) do not apply to the extent you are insolvent. Fillable 1040ez If a canceled debt is excluded from income because it is qualified principal residence indebtedness, the exclusion in situation (2) does not apply unless you elect to apply situation (2) instead of the exclusion for qualified principal residence indebtedness. Fillable 1040ez See Form 982 , later, for information on how to claim an exclusion for a canceled debt. Fillable 1040ez Debt. Fillable 1040ez   For this discussion, debt includes any debt for which you are liable or that attaches to property you hold. Fillable 1040ez Bankruptcy and Insolvency You can exclude a canceled debt from income if you are bankrupt or to the extent you are insolvent. Fillable 1040ez Bankruptcy. Fillable 1040ez   A bankruptcy case is a case under title 11 of the U. Fillable 1040ez S. Fillable 1040ez Code if you are under the jurisdiction of the court and the cancellation of the debt is granted by the court or is the result of a plan approved by the court. Fillable 1040ez   Do not include debt canceled in a bankruptcy case in your income in the year it is canceled. Fillable 1040ez Instead, you must use the amount canceled to reduce your tax attributes, explained below under Reduction of tax attributes . Fillable 1040ez Insolvency. Fillable 1040ez   You are insolvent to the extent your liabilities are more than the fair market value of your assets immediately before the cancellation of debt. Fillable 1040ez   You can exclude canceled debt from gross income up to the amount by which you are insolvent. Fillable 1040ez If the canceled debt is more than this amount and the debt qualifies, you can apply the rules for qualified farm debt or qualified real property business debt to the difference. Fillable 1040ez Otherwise, you include the difference in gross income. Fillable 1040ez Use the amount excluded because of insolvency to reduce any tax attributes, as explained below under Reduction of tax attributes . Fillable 1040ez You must reduce the tax attributes under the insolvency rules before applying the rules for qualified farm debt or for qualified real property business debt. Fillable 1040ez Example. Fillable 1040ez You had a $15,000 debt that was not qualified principal residence debt canceled outside of bankruptcy. Fillable 1040ez Immediately before the cancellation, your liabilities totaled $80,000 and your assets totaled $75,000. Fillable 1040ez Since your liabilities were more than your assets, you were insolvent to the extent of $5,000 ($80,000 − $75,000). Fillable 1040ez You can exclude this amount from income. Fillable 1040ez The remaining canceled debt ($10,000) may be subject to the qualified farm debt or qualified real property business debt rules. Fillable 1040ez If not, you must include it in income. Fillable 1040ez Reduction of tax attributes. Fillable 1040ez   If you exclude canceled debt from income in a bankruptcy case or during insolvency, you must use the excluded debt to reduce certain tax attributes. Fillable 1040ez Order of reduction. Fillable 1040ez   You must use the excluded canceled debt to reduce the following tax attributes in the order listed unless you elect to reduce the basis of depreciable property first, as explained later. Fillable 1040ez Net operating loss (NOL). Fillable 1040ez Reduce any NOL for the tax year of the debt cancellation, and then any NOL carryover to that year. Fillable 1040ez Reduce the NOL or NOL carryover one dollar for each dollar of excluded canceled debt. Fillable 1040ez General business credit carryover. Fillable 1040ez Reduce the credit carryover to or from the tax year of the debt cancellation. Fillable 1040ez Reduce the carryover 331/3 cents for each dollar of excluded canceled debt. Fillable 1040ez Minimum tax credit. Fillable 1040ez Reduce the minimum tax credit available at the beginning of the tax year following the tax year of the debt cancellation. Fillable 1040ez Reduce the credit 331/3 cents for each dollar of excluded canceled debt. Fillable 1040ez Capital loss. Fillable 1040ez Reduce any net capital loss for the tax year of the debt cancellation, and then any capital loss carryover to that year. Fillable 1040ez Reduce the capital loss or loss carryover one dollar for each dollar of excluded canceled debt. Fillable 1040ez Basis. Fillable 1040ez Reduce the basis of the property you hold at the beginning of the tax year following the tax year of the debt cancellation in the following order. Fillable 1040ez Real property (except inventory) used in your trade or business or held for investment that secured the canceled debt. Fillable 1040ez Personal property (except inventory and accounts and notes receivable) used in your trade or business or held for investment that secured the canceled debt. Fillable 1040ez Other property (except inventory and accounts and notes receivable) used in your trade or business or held for investment. Fillable 1040ez Inventory and accounts and notes receivable. Fillable 1040ez Other property. Fillable 1040ez Reduce the basis one dollar for each dollar of excluded canceled debt. Fillable 1040ez However, the reduction cannot be more than the total basis of property and the amount of money you hold immediately after the debt cancellation minus your total liabilities immediately after the cancellation. Fillable 1040ez For allocation rules that apply to basis reductions for multiple canceled debts, see Regulations section 1. Fillable 1040ez 1017-1(b)(2). Fillable 1040ez Also see Electing to reduce the basis of depreciable property