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Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

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Report Phishing

The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

What is phishing?
Phishing is a scam typically carried out by unsolicited email and/or websites that pose as legitimate sites and lure unsuspecting victims to provide personal and financial information.

All unsolicited email claiming to be from either the IRS or any other IRS-related components such as the Office of Professional Responsibility or EFTPS, should be reported to phishing@irs.gov.

However, if you have experienced monetary losses due to an IRS-related incident please file a complaint with the Federal Trade Commission through their Complaint Assistant to make that information available to investigators.

ALERT: IRS Warns of Phone Scam

What to do if you receive a suspicious IRS-related communication

If

Then

You receive an email claiming to be from the IRS that contains a request for personal information …
  1. Do not reply.
  2. Do not open any attachments. Attachments may contain malicious code that will infect your computer.
  3. Do not click on any links.
    If you clicked on links in a suspicious email or phishing website and entered confidential information, visit our identity protection page.
  4. Forward the email as-is, to us at phishing@irs.gov.
  5. After you forward the email and/or header information to us, delete the original email message you received.

Note:
Please forward the full original email to us at phishing@irs.gov. Do not forward scanned images of printed emails as that strips the email of valuable information only available in the electronic copy.

You discover a website on the Internet that claims to be the IRS but you suspect it is bogus … ... send the URL of the suspicious site to phishing@irs.gov. Please add in the subject line of the email, 'Suspicious website'.
You receive a phone call or paper letter via mail from an individual claiming to be the IRS but you suspect they are not an IRS employee …

Phone call:

  1. Ask for a call back number and employee badge number.
  2. Contact the IRS to determine if the caller is an IRS employee with a legitimate need to contact you.
  3. If you determine the person calling you is an IRS employee with a legitimate need to contact you, call them back.

Letter or notice via paper mail:

  1. Contact the IRS to determine if the mail is a legitimate IRS letter.
  2. If it is a legitimate IRS letter, reply if needed.

Report the incident to the Treasury Inspector General for Tax Administration if the caller or party that sent the paper letter is not legitimate.

You receive an unsolicited e-mail or fax, involving a stock or share purchase 

... and you are a U.S. citizen located in the United States or its territories or a U.S. citizen living abroad.

  1. Complete the appropriate complaint form with the U.S. Securities and Exchange Commission.
  2. Forward email to phishing@irs.gov.
    Please add in the subject line of the email, 'Stock'.
  3. If you are a victim of monetary or identity theft, you may submit a complaint through the FTC Complaint Assistant.  

... and you are not a U.S. citizen and reside outside the United States.

  1. Complete the appropriate complaint form with the U.S. Securities and Exchange Commission.
  2. Contact your securities regulator and file a complaint.
  3. Forward email to phishing@irs.gov.
    Please add in the subject line of the e-mail, 'Stock'.
  4. If you are a victim of monetary or identity theft, you may report your complaint to econsumer.gov.
You receive an unsolicited fax (such as Form W8-BEN) claiming to be from the IRS, requesting personal information … Contact the IRS to determine if the fax is from the IRS.
  • If you learn the fax is not from the IRS, please send us the information via email at phishing@irs.gov. In the subject line of the email, please type the word ‘FAX’.
You receive a text message or Short Message Service (SMS) message claiming to be from the IRS …
  1. Do not reply.
  2. Do not open any attachments. Attachments may contain malicious code that will infect your computer or mobile phone.
  3. Do not click on any links. If you clicked on links in a suspicious SMS and entered confidential information, visit our identity protection page.
  4. Forward the text as-is, to us at 202-552-1226. Note: Standard text messaging rates apply.
  5. If possible, in a separate text, forward the originating number to us at 202-552-1226
  6. After you forward the text, please delete the original text.

You have a tax-related question ...

Note: Do not submit tax-related questions to phishing@irs.gov.

If you have a tax-related question, unrelated to phishing or identity theft, please contact the IRS.

How to identify phishing email scams claiming to be from the IRS and bogus IRS websites


The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

The IRS does not:

  • request detailed personal information through e-mail.
  • send any communication requesting your PIN numbers, passwords or similar access information for credit cards, banks or other financial accounts.

What to do if you receive a suspicious email message that does not claim to be from the IRS

 If

 Then

You receive a suspicious phishing email not claiming to be from the IRS ... Forward the email as-is to reportphishing@antiphishing.org.
You receive an email you suspect contains malicious code or a malicious attachment and you HAVE clicked on the link or downloaded the attachment … Visit OnGuardOnline.gov to learn what to do if you suspect you have malware on your computer.
You receive an email you suspect contains malicious code or a malicious attachment and you HAVE NOT clicked on the link or downloaded the attachment … Forward the email to your Internet Service Provider’s abuse department and/or to spam@uce.gov.

 

 

Page Last Reviewed or Updated: 26-Mar-2014

Phishing-Malware

See YouTube for more ID theft videos.

 

The Free Electronic Federal Tax Filing

Free electronic federal tax filing 2. Free electronic federal tax filing   Ordinary or Capital Gain or Loss Table of Contents IntroductionSection 1231 transactions. Free electronic federal tax filing Topics - This chapter discusses: Useful Items - You may want to see: Capital Assets Noncapital AssetsCommodities derivative dealer. Free electronic federal tax filing Sales and Exchanges Between Related PersonsGain Is Ordinary Income Nondeductible Loss Other DispositionsSale of a Business Dispositions of Intangible Property Subdivision of Land Timber Precious Metals and Stones, Stamps, and Coins Coal and Iron Ore Conversion Transactions Introduction You must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). Free electronic federal tax filing You must do this to figure your net capital gain or loss. Free electronic federal tax filing For individuals, a net capital gain may be taxed at a different tax rate than ordinary income. Free electronic federal tax filing See Capital Gains Tax Rates in chapter 4. Free electronic federal tax filing Your deduction for a net capital loss may be limited. Free electronic federal tax filing See Treatment of Capital Losses in chapter 4. Free electronic federal tax filing Capital gain or loss. Free electronic federal tax filing   Generally, you will have a capital gain or loss if you sell or exchange a capital asset. Free electronic federal tax filing You also may have a capital gain if your section 1231 transactions result in a net gain. Free electronic federal tax filing Section 1231 transactions. Free electronic federal tax filing   Section 1231 transactions are sales and exchanges of property held longer than 1 year and either used in a trade or business or held for the production of rents or royalties. Free electronic federal tax filing They also include certain involuntary conversions of business or investment property, including capital assets. Free electronic federal tax filing See Section 1231 Gains and Losses in chapter 3 for more information. Free electronic federal tax filing Topics - This chapter discusses: Capital assets Noncapital assets Sales and exchanges between  related persons Other dispositions Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 4797 Sales of Business Property 8594 Asset Acquisition Statement Under Section 1060 8949 Sales and Other Dispositions of Capital Assets See chapter 5 for information about getting publications and forms. Free electronic federal tax filing Capital Assets Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. Free electronic federal tax filing For exceptions, see Noncapital Assets, later. Free electronic federal tax filing The following items are examples of capital assets. Free electronic federal tax filing Stocks and bonds. Free electronic federal tax filing A home owned and occupied by you and your family. Free electronic federal tax filing Timber grown on your home property or investment property, even if you make casual sales of the timber. Free electronic federal tax filing Household furnishings. Free electronic federal tax filing A car used for pleasure or commuting. Free electronic federal tax filing Coin or stamp collections. Free electronic federal tax filing Gems and jewelry. Free electronic federal tax filing Gold, silver, and other metals. Free electronic federal tax filing Personal-use property. Free electronic federal tax filing   Generally, property held for personal use is a capital asset. Free electronic federal tax filing Gain from a sale or exchange of that property is a capital gain. Free electronic federal tax filing Loss from the sale or exchange of that property is not deductible. Free electronic federal tax filing You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Free electronic federal tax filing Investment property. Free electronic federal tax filing   Investment property (such as stocks and bonds) is a capital asset, and a gain or loss from its sale or exchange is a capital gain or loss. Free electronic federal tax filing This treatment does not apply to property used to produce rental income. Free electronic federal tax filing See Business assets, later, under Noncapital Assets. Free electronic federal tax filing Release of restriction on land. Free electronic federal tax filing   Amounts you receive for the release of a restrictive covenant in a deed to land are treated as proceeds from the sale of a capital asset. Free electronic federal tax filing Noncapital Assets A noncapital asset is property that is not a capital asset. Free electronic federal tax filing The following kinds of property are not capital assets. Free electronic federal tax filing Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business. Free electronic federal tax filing Inventories are discussed in Publication 538, Accounting Periods and Methods. Free electronic federal tax filing But, see the Tip below. Free electronic federal tax filing Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of any properties described in (1), above. Free electronic federal tax filing Depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later), even if the property is fully depreciated (or amortized). Free electronic federal tax filing Sales of this type of property are discussed in chapter 3. Free electronic federal tax filing Real property used in your trade or business or as rental property, even if the property is fully depreciated. Free electronic federal tax filing A copyright; a literary, musical, or artistic composition; a letter; a memorandum; or similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs): Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Received from a person who created the property or for whom the property was prepared under circumstances (for example, by gift) entitling you to the basis of the person who created the property, or for whom it was prepared or produced. Free electronic federal tax filing But, see the Tip below. Free electronic federal tax filing U. Free electronic federal tax filing S. Free electronic federal tax filing Government publications you got from the government for free or for less than the normal sales price or that you acquired under circumstances entitling you to the basis of someone who got the publications for free or for less than the normal sales price. Free electronic federal tax filing Any commodities derivative financial instrument (discussed later) held by a commodities derivatives dealer unless it meets both of the following requirements. Free electronic federal tax filing It is established to the satisfaction of the IRS that the instrument has no connection to the activities of the dealer as a dealer. Free electronic federal tax filing The instrument is clearly identified in the dealer's records as meeting (a) by the end of the day on which it was acquired, originated, or entered into. Free electronic federal tax filing Any hedging transaction (defined later) that is clearly identified as a hedging transaction by the end of the day on which it was acquired, originated, or entered into. Free electronic federal tax filing Supplies of a type you regularly use or consume in the ordinary course of your trade or business. Free electronic federal tax filing You can elect to treat as capital assets certain self-created musical compositions or copyrights you sold or exchanged. Free electronic federal tax filing See chapter 4 of Publication 550 for details. Free electronic federal tax filing Property held mainly for sale to customers. Free electronic federal tax filing   Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business are not capital assets. Free electronic federal tax filing Inventories are discussed in Publication 538. Free electronic federal tax filing Business assets. Free electronic federal tax filing   Real property and depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later under Dispositions of Intangible Property) are not capital assets. Free electronic federal tax filing The sale or disposition of business property is discussed in chapter 3. Free electronic federal tax filing Letters and memoranda. Free electronic federal tax filing   Letters, memoranda, and similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs) are not treated as capital assets (as discussed earlier) if your personal efforts created them or if they were prepared or produced for you. Free electronic federal tax filing Nor is this property a capital asset if your basis in it is determined by reference to the person who created it or the person for whom it was prepared. Free electronic federal tax filing For this purpose, letters and memoranda addressed to you are considered prepared for you. Free electronic federal tax filing If letters or memoranda are prepared by persons under your administrative control, they are considered prepared for you whether or not you review them. Free electronic federal tax filing Commodities derivative financial instrument. Free electronic federal tax filing   A commodities derivative financial instrument is a commodities contract or other financial instrument for commodities (other than a share of corporate stock, a beneficial interest in a partnership or trust, a note, bond, debenture, or other evidence of indebtedness, or a section 1256 contract) the value or settlement price of which is calculated or determined by reference to a specified index (as defined in section 1221(b) of the Internal Revenue Code). Free electronic federal tax filing Commodities derivative dealer. Free electronic federal tax filing   A commodities derivative dealer is a person who regularly offers to enter into, assume, offset, assign, or terminate positions in commodities derivative financial instruments with customers in the ordinary course of a trade or business. Free electronic federal tax filing Hedging transaction. Free electronic federal tax filing   A hedging transaction is any transaction you enter into in the normal course of your trade or business primarily to manage any of the following. Free electronic federal tax filing Risk of price changes or currency fluctuations involving ordinary property you hold or will hold. Free electronic federal tax filing Risk of interest rate or price changes or currency fluctuations for borrowings you make or will make, or ordinary obligations you incur or will incur. Free electronic federal tax filing Sales and Exchanges Between Related Persons This section discusses the rules that may apply to the sale or exchange of property between related persons. Free electronic federal tax filing If these rules apply, gains may be treated as ordinary income and losses may not be deductible. Free electronic federal tax filing See Transfers to Spouse in chapter 1 for rules that apply to spouses. Free electronic federal tax filing Gain Is Ordinary Income If a gain is recognized on the sale or exchange of property to a related person, the gain may be ordinary income even if the property is a capital asset. Free electronic federal tax filing It is ordinary income if the sale or exchange is a depreciable property transaction or a controlled partnership transaction. Free electronic federal tax filing Depreciable property transaction. Free electronic federal tax filing   Gain on the sale or exchange of property, including a leasehold or a patent application, that is depreciable property in the hands of the person who receives it is ordinary income if the transaction is either directly or indirectly between any of the following pairs of entities. Free electronic federal tax filing A person and the person's controlled entity or entities. Free electronic federal tax filing A taxpayer and any trust in which the taxpayer (or his or her spouse) is a beneficiary unless the beneficiary's interest in the trust is a remote contingent interest; that is, the value of the interest computed actuarially is 5% or less of the value of the trust property. Free electronic federal tax filing An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest (a bequest for a sum of money). Free electronic federal tax filing An employer (or any person related to the employer under rules (1), (2), or (3)) and a welfare benefit fund (within the meaning of section 419(e) of the Internal Revenue Code) that is controlled directly or indirectly by the employer (or any person related to the employer). Free electronic federal tax filing Controlled entity. Free electronic federal tax filing   A person's controlled entity is either of the following. Free electronic federal tax filing A corporation in which more than 50% of the value of all outstanding stock, or a partnership in which more than 50% of the capital interest or profits interest, is directly or indirectly owned by or for that person. Free electronic federal tax filing An entity whose relationship with that person is one of the following. Free electronic federal tax filing A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. Free electronic federal tax filing Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 50%” is substituted for “at least 80%” in that definition. Free electronic federal tax filing Two S corporations, if the same persons own more than 50% in value of the outstanding stock of each corporation. Free electronic federal tax filing Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Free electronic federal tax filing Controlled partnership transaction. Free electronic federal tax filing   A gain recognized in a controlled partnership transaction may be ordinary income. Free electronic federal tax filing The gain is ordinary income if it results from the sale or exchange of property that, in the hands of the party who receives it, is a noncapital asset such as trade accounts receivable, inventory, stock in trade, or depreciable or real property used in a trade or business. Free electronic federal tax filing   A controlled partnership transaction is a transaction directly or indirectly between either of the following pairs of entities. Free electronic federal tax filing A partnership and a person who directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. Free electronic federal tax filing Two partnerships, if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. Free electronic federal tax filing Determining ownership. Free electronic federal tax filing   In the transactions under Depreciable property transaction and Controlled partnership transaction, earlier, use the following rules to determine the ownership of stock or a partnership interest. Free electronic federal tax filing Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Free electronic federal tax filing (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. Free electronic federal tax filing ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. Free electronic federal tax filing Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. Free electronic federal tax filing For purposes of applying (1) or (2), above, stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. Free electronic federal tax filing But stock or a partnership interest constructively owned by an individual under (2) is not treated as owned by the individual for reapplying (2) to make another person the constructive owner of that stock or partnership interest. Free electronic federal tax filing Nondeductible Loss A loss on the sale or exchange of property between related persons is not deductible. Free electronic federal tax filing This applies to both direct and indirect transactions, but not to distributions of property from a corporation in a complete liquidation. Free electronic federal tax filing For the list of related persons, see Related persons next. Free electronic federal tax filing If a sale or exchange is between any of these related persons and involves the lump-sum sale of a number of blocks of stock or pieces of property, the gain or loss must be figured separately for each block of stock or piece of property. Free electronic federal tax filing The gain on each item is taxable. Free electronic federal tax filing The loss on any item is nondeductible. Free electronic federal tax filing Gains from the sales of any of these items may not be offset by losses on the sales of any of the other items. Free electronic federal tax filing Related persons. Free electronic federal tax filing   The following is a list of related persons. Free electronic federal tax filing Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Free electronic federal tax filing ), and lineal descendants (children, grandchildren, etc. Free electronic federal tax filing ). Free electronic federal tax filing An individual and a corporation if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. Free electronic federal tax filing Two corporations that are members of the same controlled group as defined in section 267(f) of the Internal Revenue Code. Free electronic federal tax filing A trust fiduciary and a corporation if the trust or the grantor of the trust directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. Free electronic federal tax filing A grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Free electronic federal tax filing Fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. Free electronic federal tax filing A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization, or a member of that person's family. Free electronic federal tax filing A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. Free electronic federal tax filing Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Free electronic federal tax filing Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Free electronic federal tax filing An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest. Free electronic federal tax filing Two partnerships if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. Free electronic federal tax filing A person and a partnership if the person directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. Free electronic federal tax filing Partnership interests. Free electronic federal tax filing   The nondeductible loss rule does not apply to a sale or exchange of an interest in the partnership between the related persons described in (12) or (13) above. Free electronic federal tax filing Controlled groups. Free electronic federal tax filing   Losses on transactions between members of the same controlled group described in (3) earlier are deferred rather than denied. Free electronic federal tax filing   For more information, see section 267(f) of the Internal Revenue Code. Free electronic federal tax filing Ownership of stock or partnership interests. Free electronic federal tax filing   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership for a loss on a sale or exchange, the following rules apply. Free electronic federal tax filing Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Free electronic federal tax filing (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. Free electronic federal tax filing ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. Free electronic federal tax filing Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. Free electronic federal tax filing An individual owning (other than by applying (2)) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Free electronic federal tax filing For purposes of applying (1), (2), or (3), stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. Free electronic federal tax filing But stock or a partnership interest constructively owned by an individual under (2) or (3) is not treated as owned by the individual for reapplying either (2) or (3) to make another person the constructive owner of that stock or partnership interest. Free electronic federal tax filing Indirect transactions. Free electronic federal tax filing   You cannot deduct your loss on the sale of stock through your broker if under a prearranged plan a related person or entity buys the same stock you had owned. Free electronic federal tax filing This does not apply to a cross-trade between related parties through an exchange that is purely coincidental and is not prearranged. Free electronic federal tax filing Property received from a related person. Free electronic federal tax filing   If, in a purchase or exchange, you received property from a related person who had a loss that was not allowable and you later sell or exchange the property at a gain, you recognize the gain only to the extent it is more than the loss previously disallowed to the related person. Free electronic federal tax filing This rule applies only to the original transferee. Free electronic federal tax filing Example 1. Free electronic federal tax filing Your brother sold stock to you for $7,600. Free electronic federal tax filing His cost basis was $10,000. Free electronic federal tax filing His loss of $2,400 was not deductible. Free electronic federal tax filing You later sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900 ($10,500 − $7,600). Free electronic federal tax filing Your recognized gain is only $500, the gain that is more than the $2,400 loss not allowed to your brother. Free electronic federal tax filing Example 2. Free electronic federal tax filing Assume the same facts as in Example 1, except that you sell the stock for $6,900 instead of $10,500. Free electronic federal tax filing Your recognized loss is only $700 ($7,600 − $6,900). Free electronic federal tax filing You cannot deduct the loss not allowed to your brother. Free electronic federal tax filing Other Dispositions This section discusses rules for determining the treatment of gain or loss from various dispositions of property. Free electronic federal tax filing Sale of a Business The sale of a business usually is not a sale of one asset. Free electronic federal tax filing Instead, all the assets of the business are sold. Free electronic federal tax filing Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss. Free electronic federal tax filing A business usually has many assets. Free electronic federal tax filing When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade. Free electronic federal tax filing The gain or loss on each asset is figured separately. Free electronic federal tax filing The sale of capital assets results in capital gain or loss. Free electronic federal tax filing The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction (discussed in chapter 3). Free electronic federal tax filing The sale of inventory results in ordinary income or loss. Free electronic federal tax filing Partnership interests. Free electronic federal tax filing   An interest in a partnership or joint venture is treated as a capital asset when sold. Free electronic federal tax filing The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss. Free electronic federal tax filing For more information, see Disposition of Partner's Interest in Publication 541. Free electronic federal tax filing Corporation interests. Free electronic federal tax filing   Your interest in a corporation is represented by stock certificates. Free electronic federal tax filing When you sell these certificates, you usually realize capital gain or loss. Free electronic federal tax filing For information on the sale of stock, see chapter 4 in Publication 550. Free electronic federal tax filing Corporate liquidations. Free electronic federal tax filing   Corporate liquidations of property generally are treated as a sale or exchange. Free electronic federal tax filing Gain or loss generally is recognized by the corporation on a liquidating sale of its assets. Free electronic federal tax filing Gain or loss generally is recognized also on a liquidating distribution of assets as if the corporation sold the assets to the distributee at fair market value. Free electronic federal tax filing   In certain cases in which the distributee is a corporation in control of the distributing corporation, the distribution may not be taxable. Free electronic federal tax filing For more information, see section 332 of the Internal Revenue Code and the related regulations. Free electronic federal tax filing Allocation of consideration paid for a business. Free electronic federal tax filing   The sale of a trade or business for a lump sum is considered a sale of each individual asset rather than of a single asset. Free electronic federal tax filing Except for assets exchanged under any nontaxable exchange rules, both the buyer and seller of a business must use the residual method (explained later) to allocate the consideration to each business asset transferred. Free electronic federal tax filing This method determines gain or loss from the transfer of each asset and how much of the consideration is for goodwill and certain other intangible property. Free electronic federal tax filing It also determines the buyer's basis in the business assets. Free electronic federal tax filing Consideration. Free electronic federal tax filing   The buyer's consideration is the cost of the assets acquired. Free electronic federal tax filing The seller's consideration is the amount realized (money plus the fair market value of property received) from the sale of assets. Free electronic federal tax filing Residual method. Free electronic federal tax filing   The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. Free electronic federal tax filing This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b) of the Internal Revenue Code. Free electronic federal tax filing Section 743(b) applies if a partnership has an election in effect under section 754 of the Internal Revenue Code. Free electronic federal tax filing   A group of assets constitutes a trade or business if either of the following applies. Free electronic federal tax filing Goodwill or going concern value could, under any circumstances, attach to them. Free electronic federal tax filing The use of the assets would constitute an active trade or business under section 355 of the Internal Revenue Code. Free electronic federal tax filing   The residual method provides for the consideration to be reduced first by the amount of Class I assets (defined below). Free electronic federal tax filing The consideration remaining after this reduction must be allocated among the various business assets in a certain order. Free electronic federal tax filing See Classes of assets next for the complete order. Free electronic federal tax filing Classes of assets. Free electronic federal tax filing   The following definitions are the classifications for deemed or actual asset acquisitions. Free electronic federal tax filing Allocate the consideration among the assets in the following order. Free electronic federal tax filing The amount allocated to an asset, other than a Class VII asset, cannot exceed its fair market value on the purchase date. Free electronic federal tax filing The amount you can allocate to an asset also is subject to any applicable limits under the Internal Revenue Code or general principles of tax law. Free electronic federal tax filing Class I assets are cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). Free electronic federal tax filing Class II assets are certificates of deposit, U. Free electronic federal tax filing S. Free electronic federal tax filing Government securities, foreign currency, and actively traded personal property, including stock and securities. Free electronic federal tax filing Class III assets are accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. Free electronic federal tax filing However, see section 1. Free electronic federal tax filing 338-6(b)(2)(iii) of the regulations for exceptions that apply to debt instruments issued by persons related to a target corporation, contingent debt instruments, and debt instruments convertible into stock or other property. Free electronic federal tax filing Class IV assets are property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held by the taxpayer primarily for sale to customers in the ordinary course of business. Free electronic federal tax filing Class V assets are all assets other than Class I, II, III, IV, VI, and VII assets. Free electronic federal tax filing    Note. Free electronic federal tax filing Furniture and fixtures, buildings, land, vehicles, and equipment, which constitute all or part of a trade or business are generally Class V assets. Free electronic federal tax filing Class VI assets are section 197 intangibles (other than goodwill and going concern value). Free electronic federal tax filing Class VII assets are goodwill and going concern value (whether the goodwill or going concern value qualifies as a section 197 intangible). Free electronic federal tax filing   If an asset described in one of the classifications described above can be included in more than one class, include it in the lower numbered class. Free electronic federal tax filing For example, if an asset is described in both Class II and Class IV, choose Class II. Free electronic federal tax filing Example. Free electronic federal tax filing The total paid in the sale of the assets of Company SKB is $21,000. Free electronic federal tax filing No cash or deposit accounts or similar accounts were sold. Free electronic federal tax filing The company's U. Free electronic federal tax filing S. Free electronic federal tax filing Government securities sold had a fair market value of $3,200. Free electronic federal tax filing The only other asset transferred (other than goodwill and going concern value) was inventory with a fair market value of $15,000. Free electronic federal tax filing Of the $21,000 paid for the assets of Company SKB, $3,200 is allocated to U. Free electronic federal tax filing S. Free electronic federal tax filing Government securities, $15,000 to inventory assets, and the remaining $2,800 to goodwill and going concern value. Free electronic federal tax filing Agreement. Free electronic federal tax filing   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value of any of the assets. Free electronic federal tax filing This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Free electronic federal tax filing Reporting requirement. Free electronic federal tax filing   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Free electronic federal tax filing Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. Free electronic federal tax filing Generally, the buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Free electronic federal tax filing See the Instructions for Form 8594. Free electronic federal tax filing Dispositions of Intangible Property Intangible property is any personal property that has value but cannot be seen or touched. Free electronic federal tax filing It includes such items as patents, copyrights, and the goodwill value of a business. Free electronic federal tax filing Gain or loss on the sale or exchange of amortizable or depreciable intangible property held longer than 1 year (other than an amount recaptured as ordinary income) is a section 1231 gain or loss. Free electronic federal tax filing The treatment of section 1231 gain or loss and the recapture of amortization and depreciation as ordinary income are explained in chapter 3. Free electronic federal tax filing See chapter 8 of Publication 535, Business Expenses, for information on amortizable intangible property and chapter 1 of Publication 946, How To Depreciate Property, for information on intangible property that can and cannot be depreciated. Free electronic federal tax filing Gain or loss on dispositions of other intangible property is ordinary or capital depending on whether the property is a capital asset or a noncapital asset. Free electronic federal tax filing The following discussions explain special rules that apply to certain dispositions of intangible property. Free electronic federal tax filing Section 197 Intangibles Section 197 intangibles are certain intangible assets acquired after August 10, 1993 (after July 25, 1991, if chosen), and held in connection with the conduct of a trade or business or an activity entered into for profit whose costs are amortized over 15 years. Free electronic federal tax filing They include the following assets. Free electronic federal tax filing Goodwill. Free electronic federal tax filing Going concern value. Free electronic federal tax filing Workforce in place. Free electronic federal tax filing Business books and records, operating systems, and other information bases. Free electronic federal tax filing Patents, copyrights, formulas, processes, designs, patterns, know how, formats, and similar items. Free electronic federal tax filing Customer-based intangibles. Free electronic federal tax filing Supplier-based intangibles. Free electronic federal tax filing Licenses, permits, and other rights granted by a governmental unit. Free electronic federal tax filing Covenants not to compete entered into in connection with the acquisition of a business. Free electronic federal tax filing Franchises, trademarks, and trade names. Free electronic federal tax filing See chapter 8 of Publication 535 for a description of each intangible. Free electronic federal tax filing Dispositions. Free electronic federal tax filing   You cannot deduct a loss from the disposition or worthlessness of a section 197 intangible you acquired in the same transaction (or series of related transactions) as another section 197 intangible you still hold. Free electronic federal tax filing Instead, you must increase the adjusted basis of your retained section 197 intangible by the nondeductible loss. Free electronic federal tax filing If you retain more than one section 197 intangible, increase each intangible's adjusted basis. Free electronic federal tax filing Figure the increase by multiplying the nondeductible loss by a fraction, the numerator (top number) of which is the retained intangible's adjusted basis on the date of the loss and the denominator (bottom number) of which is the total adjusted basis of all retained intangibles on the date of the loss. Free electronic federal tax filing   In applying this rule, members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity. Free electronic federal tax filing For example, a corporation cannot deduct a loss on the sale of a section 197 intangible if, after the sale, a member of the same controlled group retains other section 197 intangibles acquired in the same transaction as the intangible sold. Free electronic federal tax filing Covenant not to compete. Free electronic federal tax filing   A covenant not to compete (or similar arrangement) that is a section 197 intangible cannot be treated as disposed of or worthless before you have disposed of your entire interest in the trade or business for which the covenant was entered into. Free electronic federal tax filing Members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity in determining whether a member has disposed of its entire interest in a trade or business. Free electronic federal tax filing Anti-churning rules. Free electronic federal tax filing   Anti-churning rules prevent a taxpayer from converting section 197 intangibles that do not qualify for amortization into property that would qualify for amortization. Free electronic federal tax filing However, these rules do not apply to part of the basis of property acquired by certain related persons if the transferor elects to do both the following. Free electronic federal tax filing Recognize gain on the transfer of the property. Free electronic federal tax filing Pay income tax on the gain at the highest tax rate. Free electronic federal tax filing   If the transferor is a partnership or S corporation, the partnership or S corporation (not the partners or shareholders) can make the election. Free electronic federal tax filing But each partner or shareholder must pay the tax on his or her share of gain. Free electronic federal tax filing   To make the election, you, as the transferor, must attach a statement containing certain information to your income tax return for the year of the transfer. Free electronic federal tax filing You must file the tax return by the due date (including extensions). Free electronic federal tax filing You must also notify the transferee of the election in writing by the due date of the return. Free electronic federal tax filing   If you timely filed your return without making the election, you can make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). Free electronic federal tax filing Attach the statement to the amended return and write “Filed pursuant to section 301. Free electronic federal tax filing 9100-2” at the top of the statement. Free electronic federal tax filing File the amended return at the same address the original return was filed. Free electronic federal tax filing For more information about making the election, see Regulations section 1. Free electronic federal tax filing 197-2(h)(9). Free electronic federal tax filing For information about reporting the tax on your income tax return, see the Instructions for Form 4797. Free electronic federal tax filing Patents The transfer of a patent by an individual is treated as a sale or exchange of a capital asset held longer than 1 year. Free electronic federal tax filing This applies even if the payments for the patent are made periodically during the transferee's use or are contingent on the productivity, use, or disposition of the patent. Free electronic federal tax filing For information on the treatment of gain or loss on the transfer of capital assets, see chapter 4. Free electronic federal tax filing This treatment applies to your transfer of a patent if you meet all the following conditions. Free electronic federal tax filing You are the holder of the patent. Free electronic federal tax filing You transfer the patent other than by gift, inheritance, or devise. Free electronic federal tax filing You transfer all substantial rights to the patent or an undivided interest in all such rights. Free electronic federal tax filing You do not transfer the patent to a related person. Free electronic federal tax filing Holder. Free electronic federal tax filing   You are the holder of a patent if you are either of the following. Free electronic federal tax filing The individual whose effort created the patent property and who qualifies as the original and first inventor. Free electronic federal tax filing The individual who bought an interest in the patent from the inventor before the invention was tested and operated successfully under operating conditions and who is neither related to, nor the employer of, the inventor. Free electronic federal tax filing All substantial rights. Free electronic federal tax filing   All substantial rights to patent property are all rights that have value when they are transferred. Free electronic federal tax filing A security interest (such as a lien), or a reservation calling for forfeiture for nonperformance, is not treated as a substantial right for these rules and may be kept by you as the holder of the patent. Free electronic federal tax filing   All substantial rights to a patent are not transferred if any of the following apply to the transfer. Free electronic federal tax filing The rights are limited geographically within a country. Free electronic federal tax filing The rights are limited to a period less than the remaining life of the patent. Free electronic federal tax filing The rights are limited to fields of use within trades or industries and are less than all the rights that exist and have value at the time of the transfer. Free electronic federal tax filing The rights are less than all the claims or inventions covered by the patent that exist and have value at the time of the transfer. Free electronic federal tax filing Related persons. Free electronic federal tax filing   This tax treatment does not apply if the transfer is directly or indirectly between you and a related person as defined earlier in the list under Nondeductible Loss, with the following changes. Free electronic federal tax filing Members of your family include your spouse, ancestors, and lineal descendants, but not your brothers, sisters, half-brothers, or half-sisters. Free electronic federal tax filing Substitute “25% or more” ownership for “more than 50%. Free electronic federal tax filing ”   If you fit within the definition of a related person independent of family status, the brother-sister exception in (1), earlier, does not apply. Free electronic federal tax filing For example, a transfer between a brother and a sister as beneficiary and fiduciary of the same trust is a transfer between related persons. Free electronic federal tax filing The brother-sister exception does not apply because the trust relationship is independent of family status. Free electronic federal tax filing Franchise, Trademark, or Trade Name If you transfer or renew a franchise, trademark, or trade name for a price contingent on its productivity, use, or disposition, the amount you receive generally is treated as an amount realized from the sale of a noncapital asset. Free electronic federal tax filing A franchise includes an agreement that gives one of the parties the right to distribute, sell, or provide goods, services, or facilities within a specified area. Free electronic federal tax filing Significant power, right, or continuing interest. Free electronic federal tax filing   If you keep any significant power, right, or continuing interest in the subject matter of a franchise, trademark, or trade name that you transfer or renew, the amount you receive is ordinary royalty income rather than an amount realized from a sale or exchange. Free electronic federal tax filing   A significant power, right, or continuing interest in a franchise, trademark, or trade name includes, but is not limited to, the following rights in the transferred interest. Free electronic federal tax filing A right to disapprove any assignment of the interest, or any part of it. Free electronic federal tax filing A right to end the agreement at will. Free electronic federal tax filing A right to set standards of quality for products used or sold, or for services provided, and for the equipment and facilities used to promote such products or services. Free electronic federal tax filing A right to make the recipient sell or advertise only your products or services. Free electronic federal tax filing A right to make the recipient buy most supplies and equipment from you. Free electronic federal tax filing A right to receive payments based on the productivity, use, or disposition of the transferred item of interest if those payments are a substantial part of the transfer agreement. Free electronic federal tax filing Subdivision of Land If you own a tract of land and, to sell or exchange it, you subdivide it into individual lots or parcels, the gain normally is ordinary income. Free electronic federal tax filing However, you may receive capital gain treatment on at least part of the proceeds provided you meet certain requirements. Free electronic federal tax filing See section 1237 of the Internal Revenue Code. Free electronic federal tax filing Timber Standing timber held as investment property is a capital asset. Free electronic federal tax filing Gain or loss from its sale is reported as a capital gain or loss on Form 8949, and Schedule D (Form 1040), as applicable. Free electronic federal tax filing If you held the timber primarily for sale to customers, it is not a capital asset. Free electronic federal tax filing Gain or loss on its sale is ordinary business income or loss. Free electronic federal tax filing It is reported in the gross receipts or sales and cost of goods sold items of your return. Free electronic federal tax filing Farmers who cut timber on their land and sell it as logs, firewood, or pulpwood usually have no cost or other basis for that timber. Free electronic federal tax filing These sales constitute a very minor part of their farm businesses. Free electronic federal tax filing In these cases, amounts realized from such sales, and the expenses of cutting, hauling, etc. Free electronic federal tax filing , are ordinary farm income and expenses reported on Schedule F (Form 1040), Profit or Loss From Farming. Free electronic federal tax filing Different rules apply if you owned the timber longer than 1 year and elect to either: Treat timber cutting as a sale or exchange, or Enter into a cutting contract. Free electronic federal tax filing Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Free electronic federal tax filing This is true whether the timber is cut under contract or whether you cut it yourself. Free electronic federal tax filing Under the rules discussed below, disposition of the timber is treated as a section 1231 transaction. Free electronic federal tax filing See chapter 3. Free electronic federal tax filing Gain or loss is reported on Form 4797. Free electronic federal tax filing Christmas trees. Free electronic federal tax filing   Evergreen trees, such as Christmas trees, that are more than 6 years old when severed from their roots and sold for ornamental purposes are included in the term timber. Free electronic federal tax filing They qualify for both rules discussed below. Free electronic federal tax filing Election to treat cutting as a sale or exchange. Free electronic federal tax filing   Under the general rule, the cutting of timber results in no gain or loss. Free electronic federal tax filing It is not until a sale or exchange occurs that gain or loss is realized. Free electronic federal tax filing But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year the timber is cut. Free electronic federal tax filing Even though the cut timber is not actually sold or exchanged, you report your gain or loss on the cutting for the year the timber is cut. Free electronic federal tax filing Any later sale results in ordinary business income or loss. Free electronic federal tax filing See Example, later. Free electronic federal tax filing   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or for use in your trade or business. Free electronic federal tax filing Making the election. Free electronic federal tax filing   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of the gain or loss. Free electronic federal tax filing You do not have to make the election in the first year you cut timber. Free electronic federal tax filing You can make it in any year to which the election would apply. Free electronic federal tax filing If the timber is partnership property, the election is made on the partnership return. Free electronic federal tax filing This election cannot be made on an amended return. Free electronic federal tax filing   Once you have made the election, it remains in effect for all later years unless you cancel it. Free electronic federal tax filing   If you previously elected to treat the cutting of timber as a sale or exchange, you may revoke this election without the consent of the IRS. Free electronic federal tax filing The prior election (and revocation) is disregarded for purposes of making a subsequent election. Free electronic federal tax filing See Form T (Timber), Forest Activities Schedule, for more information. Free electronic federal tax filing Gain or loss. Free electronic federal tax filing   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its fair market value on the first day of your tax year in which it is cut. Free electronic federal tax filing   Your adjusted basis for depletion of cut timber is based on the number of units (feet board measure, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. Free electronic federal tax filing Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 of the Internal Revenue Code and the related regulations. Free electronic federal tax filing   Timber depletion is discussed in chapter 9 of Publication 535. Free electronic federal tax filing Example. Free electronic federal tax filing In April 2013, you had owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Free electronic federal tax filing It had an adjusted basis for depletion of $40 per MBF. Free electronic federal tax filing You are a calendar year taxpayer. Free electronic federal tax filing On January 1, 2013, the timber had a fair market value (FMV) of $350 per MBF. Free electronic federal tax filing It was cut in April for sale. Free electronic federal tax filing On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Free electronic federal tax filing You report the difference between the fair market value and your adjusted basis for depletion as a gain. Free electronic federal tax filing This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as capital gain or as ordinary gain. Free electronic federal tax filing You figure your gain as follows. Free electronic federal tax filing FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000 The fair market value becomes your basis in the cut timber and a later sale of the cut timber including any by-product or tree tops will result in ordinary business income or loss. Free electronic federal tax filing Outright sales of timber. Free electronic federal tax filing   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined below). Free electronic federal tax filing However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see below). Free electronic federal tax filing Cutting contract. Free electronic federal tax filing   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Free electronic federal tax filing You are the owner of the timber. Free electronic federal tax filing You held the timber longer than 1 year before its disposal. Free electronic federal tax filing You kept an economic interest in the timber. Free electronic federal tax filing   You have kept an economic interest in standing timber if, under the cutting contract, the expected return on your investment is conditioned on the cutting of the timber. Free electronic federal tax filing   The difference between the amount realized from the disposal of the timber and its adjusted basis for depletion is treated as gain or loss on its sale. Free electronic federal tax filing Include this amount on Form 4797 along with your other section 1231 gains or losses to figure whether it is treated as capital or ordinary gain or loss. Free electronic federal tax filing Date of disposal. Free electronic federal tax filing   The date of disposal is the date the timber is cut. Free electronic federal tax filing However, for outright sales by landowners or if you receive payment under the contract before the timber is cut, you can elect to treat the date of payment as the date of disposal. Free electronic federal tax filing   This election applies only to figure the holding period of the timber. Free electronic federal tax filing It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Free electronic federal tax filing   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Free electronic federal tax filing The statement must identify the advance payments subject to the election and the contract under which they were made. Free electronic federal tax filing   If you timely filed your return for the year you received payment without making the election, you still can make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). Free electronic federal tax filing Attach the statement to the amended return and write “Filed pursuant to section 301. Free electronic federal tax filing 9100-2” at the top of the statement. Free electronic federal tax filing File the amended return at the same address the original return was filed. Free electronic federal tax filing Owner. Free electronic federal tax filing   The owner of timber is any person who owns an interest in it, including a sublessor and the holder of a contract to cut the timber. Free electronic federal tax filing You own an interest in timber if you have the right to cut it for sale on your own account or for use in your business. Free electronic federal tax filing Tree stumps. Free electronic federal tax filing   Tree stumps are a capital asset if they are on land held by an investor who is not in the timber or stump business as a buyer, seller, or processor. Free electronic federal tax filing Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Free electronic federal tax filing However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Free electronic federal tax filing Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Free electronic federal tax filing   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Free electronic federal tax filing Precious Metals and Stones, Stamps, and Coins Gold, silver, gems, stamps, coins, etc. Free electronic federal tax filing , are capital assets except when they are held for sale by a dealer. Free electronic federal tax filing Any gain or loss from their sale or exchange generally is a capital gain or loss. Free electronic federal tax filing If you are a dealer, the amount received from the sale is ordinary business income. Free electronic federal tax filing Coal and Iron Ore You must treat the disposal of coal (including lignite) or iron ore mined in the United States as a section 1231 transaction if both the following apply to you. Free electronic federal tax filing You owned the coal or iron ore longer than 1 year before its disposal. Free electronic federal tax filing You kept an economic interest in the coal or iron ore. Free electronic federal tax filing For this rule, the date the coal or iron ore is mined is considered the date of its disposal. Free electronic federal tax filing Your gain or loss is the difference between the amount realized from disposal of the coal or iron ore and the adjusted basis you use to figure cost depletion (increased by certain expenses not allowed as deductions for the tax year). Free electronic federal tax filing This amount is included on Form 4797 along with your other section 1231 gains and losses. Free electronic federal tax filing You are considered an owner if you own or sublet an economic interest in the coal or iron ore in place. Free electronic federal tax filing If you own only an option to buy the coal in place, you do not qualify as an owner. Free electronic federal tax filing In addition, this gain or loss treatment does not apply to income realized by an owner who is a co-adventurer, partner, or principal in the mining of coal or iron ore. Free electronic federal tax filing The expenses of making and administering the contract under which the coal or iron ore was disposed of and the expenses of preserving the economic interest kept under the contract are not allowed as deductions in figuring taxable income. Free electronic federal tax filing Rather, their total, along with the adjusted depletion basis, is deducted from the amount received to determine gain. Free electronic federal tax filing If the total of these expenses plus the adjusted depletion basis is more than the amount received, the result is a loss. Free electronic federal tax filing Special rule. Free electronic federal tax filing   The above treatment does not apply if you directly or indirectly dispose of the iron ore or coal to any of the following persons. Free electronic federal tax filing A related person whose relationship to you would result in the disallowance of a loss (see Nondeductible Loss under Sales and Exchanges Between Related Persons, earlier). Free electronic federal tax filing An individual, trust, estate, partnership, association, company, or corporation owned or controlled directly or indirectly by the same interests that own or control your business. Free electronic federal tax filing Conversion Transactions Recognized gain on the disposition or termination of any position held as part of certain conversion transactions is treated as ordinary income. Free electronic federal tax filing This applies if substantially all your expected return is attributable to the time value of your net investment (like interest on a loan) and the transaction is any of the following. Free electronic federal tax filing An applicable straddle (generally, any set of offsetting positions with respect to personal property, including stock). Free electronic federal tax filing A transaction in which you acquire property and, at or about the same time, you contract to sell the same or substantially identical property at a specified price. Free electronic federal tax filing Any other transaction that is marketed and sold as producing capital gain from a transaction in which substantially all of your expected return is due to the time value of your net investment. Free electronic federal tax filing For more information, see chapter 4 of Publication 550. Free electronic federal tax filing Prev  Up  Next   Home   More Online Publications