Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

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.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Free Online Federal Tax Filing 2011

Tax Calculator 2012File 2008 Taxes1040 Tax FormHow To Amend Tax Return2010 Tax Forms 1040aH And R Block Tax ReturnTax 20101040x How ToFederal Tax Tables 20112012 Tax Forms1040 Tax FormAmended Tax Return 2012Can I File 2012 Taxes NowHow Do I File My 2012 Taxes For FreeSample 1040x Filled OutWww Irs Gov Form1040xHow To Ammend TaxesFree Tax Filing For StudentsHow To File Taxes For FreeTax Amendment DeadlineIrs 2011 Taxes Online1040ez Income Tax Form2012 Tax Forms 1040 EzForms For 2012 Income TaxFree 2011 Tax Software DownloadWww H & R BlockIrs Form 1040ez 2013Filing Taxes For 2012Turbotax OnlineHow Much Does H&r Block Charge To Prepare TaxesHow To File 2010 Taxes Late1041 Ez FormHttp Freefile Irs GovState Income Tax ReturnFree Online Tax Filing For 2012Hr Block Free E FileIrs State Tax ReturnHow Can I File My 2010 Taxes1040ez 2012 FormFile An Amended Return

Free Online Federal Tax Filing 2011

Free online federal tax filing 2011 8. Free online federal tax filing 2011   Gains and Losses Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesDetermining Gain or Loss Like-Kind Exchanges Transfer to Spouse Ordinary or Capital Gain or LossCapital Assets Noncapital Assets Hedging (Commodity Futures) Livestock Converted Wetland and Highly Erodible Cropland Timber Sale of a Farm Foreclosure or Repossession Abandonment Introduction This chapter explains how to figure, and report on your tax return, your gain or loss on the disposition of your property or debt and whether such gain or loss is ordinary or capital. Free online federal tax filing 2011 Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. Free online federal tax filing 2011 Dispositions discussed in this chapter include sales, exchanges, foreclosures, repossessions, canceled debts, hedging transactions, and elections to treat cutting of timber as a sale or exchange. Free online federal tax filing 2011 Topics - This chapter discusses: Sales and exchanges Ordinary or capital gain or loss Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 523 Selling Your Home 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 908 Bankruptcy Tax Guide Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8949 Sales and Other Dispositions of Capital Assets See chapter 16 for information about getting publications and forms. Free online federal tax filing 2011 Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. Free online federal tax filing 2011 This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. Free online federal tax filing 2011 A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Free online federal tax filing 2011 An exchange is a transfer of property for other property or services. Free online federal tax filing 2011 Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. Free online federal tax filing 2011 If the amount you realize from a sale or exchange of property is more than its adjusted basis, you will have a gain. Free online federal tax filing 2011 If the adjusted basis of the property is more than the amount you realize, you will have a loss. Free online federal tax filing 2011 Basis and adjusted basis. Free online federal tax filing 2011   The basis of property you buy is usually its cost. Free online federal tax filing 2011 The adjusted basis of property is basis plus certain additions and minus certain deductions. Free online federal tax filing 2011 See chapter 6 for more information about basis and adjusted basis. Free online federal tax filing 2011 Amount realized. Free online federal tax filing 2011   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (FMV) (defined in chapter 6) of all property or services you receive. Free online federal tax filing 2011 The amount you realize also includes any of your liabilities assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Free online federal tax filing 2011   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. Free online federal tax filing 2011 Amount recognized. Free online federal tax filing 2011   Your gain or loss realized from a sale or exchange of certain property is usually a recognized gain or loss for tax purposes. Free online federal tax filing 2011 A recognized gain is a gain you must include in gross income and report on your income tax return. Free online federal tax filing 2011 A recognized loss is a loss you deduct from gross income. Free online federal tax filing 2011 However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. Free online federal tax filing 2011 See Like-Kind Exchanges next. Free online federal tax filing 2011 Also, a loss from the disposition of property held for personal use is not deductible. Free online federal tax filing 2011 Like-Kind Exchanges Certain exchanges of property are not taxable. Free online federal tax filing 2011 This means any gain from the exchange is not recognized, and any loss cannot be deducted. Free online federal tax filing 2011 Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Free online federal tax filing 2011 The exchange of property for the same kind of property is the most common type of nontaxable exchange. Free online federal tax filing 2011 To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. Free online federal tax filing 2011 Qualifying property. Free online federal tax filing 2011 Like-kind property. Free online federal tax filing 2011 These two requirements are discussed later. Free online federal tax filing 2011 Multiple-party transactions. Free online federal tax filing 2011   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. Free online federal tax filing 2011 Any part of these multiple-party transactions can qualify as a like-kind exchange if it meets all the requirements described in this section. Free online federal tax filing 2011 Receipt of title from third party. Free online federal tax filing 2011   If you receive property in a like-kind exchange and the other party who transfers the property to you does not give you the title, but a third party does, you can still treat this transaction as a like-kind exchange if it meets all the requirements. Free online federal tax filing 2011 Basis of property received. Free online federal tax filing 2011   If you receive property in a like-kind exchange, the basis of the property will be the same as the basis of the property you gave up. Free online federal tax filing 2011 See chapter 6 for more information. Free online federal tax filing 2011 Money paid. Free online federal tax filing 2011   If, in addition to giving up like-kind property, you pay money in a like-kind exchange, you still have no recognized gain or loss. Free online federal tax filing 2011 The basis of the property received is the basis of the property given up, increased by the money paid. Free online federal tax filing 2011 Example. Free online federal tax filing 2011 You traded an old tractor with an adjusted basis of $15,000 for a new one. Free online federal tax filing 2011 The new tractor costs $300,000. Free online federal tax filing 2011 You were allowed $80,000 for the old tractor and paid $220,000 cash. Free online federal tax filing 2011 You have no recognized gain or loss on the transaction regardless of the adjusted basis of your old tractor and the basis of the new tractor is $235,000, the adjusted basis of the old tractor plus the cash paid ($15,000 + $220,000). Free online federal tax filing 2011 If you had sold the old tractor to a third party for $80,000 and bought a new one, you would have a recognized gain or loss on the sale of your old tractor equal to the difference between the amount realized and the adjusted basis of the old tractor. Free online federal tax filing 2011 In this case, the taxable gain would be $65,000 ($80,000 − $15,000) and the basis of the new tractor would be $300,000. Free online federal tax filing 2011 Reporting the exchange. Free online federal tax filing 2011   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. Free online federal tax filing 2011 The Instructions for Form 8824 explain how to report the details of the exchange. Free online federal tax filing 2011   If you have any recognized gain because you received money or unlike property, report it on Schedule D (Form 1040) or Form 4797, whichever applies. Free online federal tax filing 2011 You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. Free online federal tax filing 2011 See chapter 9 for more information. Free online federal tax filing 2011 Qualifying property. Free online federal tax filing 2011   In a like-kind exchange, both the property you give up and the property you receive must be held by you for investment or for productive use in your trade or business. Free online federal tax filing 2011 Machinery, buildings, land, trucks, breeding livestock, rental houses, and certain mutual ditch, reservoir, or irrigation company stock are examples of property that may qualify. Free online federal tax filing 2011 Nonqualifying property. Free online federal tax filing 2011   The rules for like-kind exchanges do not apply to exchanges of the following property. Free online federal tax filing 2011 Property you use for personal purposes, such as your home and family car. Free online federal tax filing 2011 Stock in trade or other property held primarily for sale, such as crops and produce. Free online federal tax filing 2011 Stocks, bonds, or notes. Free online federal tax filing 2011 However, see Qualifying property above. Free online federal tax filing 2011 Other securities or evidences of indebtedness, such as accounts receivable. Free online federal tax filing 2011 Partnership interests. Free online federal tax filing 2011 However, you may have a nontaxable exchange under other rules. Free online federal tax filing 2011 See Other Nontaxable Exchanges in chapter 1 of Publication 544. Free online federal tax filing 2011 Like-kind property. Free online federal tax filing 2011   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. Free online federal tax filing 2011 Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Free online federal tax filing 2011 Generally, real property exchanged for real property qualifies as an exchange of like-kind property. Free online federal tax filing 2011 For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. Free online federal tax filing 2011   An exchange of a tractor for a new tractor is an exchange of like-kind property, and so is an exchange of timber land for crop acreage. Free online federal tax filing 2011 An exchange of a tractor for acreage, however, is not an exchange of like-kind property. Free online federal tax filing 2011 The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. Free online federal tax filing 2011 For example, the exchange of a bull for a cow is not a like-kind exchange. Free online federal tax filing 2011 An exchange of the assets of a business for the assets of a similar business cannot be treated as an exchange of one property for another property. Free online federal tax filing 2011    Note. Free online federal tax filing 2011 Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. Free online federal tax filing 2011 Personal property. Free online federal tax filing 2011   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. Free online federal tax filing 2011 Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. Free online federal tax filing 2011 Property classified in any General Asset Class may not be classified within a Product Class. Free online federal tax filing 2011 Assets that are not in the same class will qualify as like-kind property if they are of the same nature or character. Free online federal tax filing 2011 General Asset Classes. Free online federal tax filing 2011   General Asset Classes describe the types of property frequently used in many businesses. Free online federal tax filing 2011 They include, but are not limited to, the following property. Free online federal tax filing 2011 Office furniture, fixtures, and equipment (asset class 00. Free online federal tax filing 2011 11). Free online federal tax filing 2011 Information systems, such as computers and peripheral equipment (asset class 00. Free online federal tax filing 2011 12). Free online federal tax filing 2011 Data handling equipment except computers (asset class 00. Free online federal tax filing 2011 13). Free online federal tax filing 2011 Automobiles and taxis (asset class 00. Free online federal tax filing 2011 22). Free online federal tax filing 2011 Light general purpose trucks (asset class 00. Free online federal tax filing 2011 241). Free online federal tax filing 2011 Heavy general purpose trucks (asset class 00. Free online federal tax filing 2011 242). Free online federal tax filing 2011 Tractor units for use over-the-road (asset class 00. Free online federal tax filing 2011 26). Free online federal tax filing 2011 Trailers and trailer-mounted containers (asset class 00. Free online federal tax filing 2011 27). Free online federal tax filing 2011 Industrial steam and electric generation and/or distribution systems (asset class 00. Free online federal tax filing 2011 4). Free online federal tax filing 2011 Product Classes. Free online federal tax filing 2011   Product Classes include property listed in a 6-digit product class in sectors 31 through 33 of the North American Industry Classification System (NAICS) of the Executive Office of the President, Office of Management and Budget, United States, (NAICS Manual). Free online federal tax filing 2011 The latest version of the manual can be accessed at www. Free online federal tax filing 2011 census. Free online federal tax filing 2011 gov/eos/www/naics/. Free online federal tax filing 2011 Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. Free online federal tax filing 2011 ntis. Free online federal tax filing 2011 gov/products/naics. Free online federal tax filing 2011 aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. Free online federal tax filing 2011 A CD-ROM version with search and retrieval software is also available from NTIS. Free online federal tax filing 2011    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. Free online federal tax filing 2011 Partially nontaxable exchange. Free online federal tax filing 2011   If, in addition to like-kind property, you receive money or unlike property in an exchange on which you realize gain, you have a partially nontaxable exchange. Free online federal tax filing 2011 You are taxed on the gain you realize, but only to the extent of the money and the FMV of the unlike property you receive. Free online federal tax filing 2011 A loss is not deductible. Free online federal tax filing 2011 Example 1. Free online federal tax filing 2011 You trade farmland that cost $30,000 for $10,000 cash and other land to be used in farming with a FMV of $50,000. Free online federal tax filing 2011 You have a realized gain of $30,000 ($50,000 FMV of new land + $10,000 cash − $30,000 basis of old farmland = $30,000 realized gain). Free online federal tax filing 2011 However, only $10,000, the cash received, is recognized (included in income). Free online federal tax filing 2011 Example 2. Free online federal tax filing 2011 Assume the same facts as in Example 1, except that, instead of money, you received a tractor with a FMV of $10,000. Free online federal tax filing 2011 Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). Free online federal tax filing 2011 Example 3. Free online federal tax filing 2011 Assume in Example 1 that the FMV of the land you received was only $15,000. Free online federal tax filing 2011 Your $5,000 loss is not recognized. Free online federal tax filing 2011 Unlike property given up. Free online federal tax filing 2011   If, in addition to like-kind property, you give up unlike property, you must recognize gain or loss on the unlike property you give up. Free online federal tax filing 2011 The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. Free online federal tax filing 2011 Like-kind exchanges between related persons. Free online federal tax filing 2011   Special rules apply to like-kind exchanges between related persons. Free online federal tax filing 2011 These rules affect both direct and indirect exchanges. Free online federal tax filing 2011 Under these rules, if either person disposes of the property within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Free online federal tax filing 2011 The gain or loss on the original exchange must be recognized as of the date of the later disposition. Free online federal tax filing 2011 The 2-year holding period begins on the date of the last transfer of property that was part of the like-kind exchange. Free online federal tax filing 2011 Related persons. Free online federal tax filing 2011   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. Free online federal tax filing 2011 ), you and a corporation in which you have more than 50% ownership, you and a partnership in which you directly or indirectly own more than a 50% interest of the capital or profits, and two partnerships in which you directly or indirectly own more than 50% of the capital interests or profits. Free online federal tax filing 2011   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. Free online federal tax filing 2011 Example. Free online federal tax filing 2011 You used a grey pickup truck in your farming business. Free online federal tax filing 2011 Your sister used a red pickup truck in her landscaping business. Free online federal tax filing 2011 In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. Free online federal tax filing 2011 At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. Free online federal tax filing 2011 The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. Free online federal tax filing 2011 You realized a gain of $1,000 (the $7,200 FMV of the red pickup truck, minus the grey pickup truck's $6,000 adjusted basis, minus the $200 you paid). Free online federal tax filing 2011 Your sister realized a gain of $6,200 (the $7,000 FMV of the grey pickup truck plus the $200 you paid, minus the $1,000 adjusted basis of the red pickup truck). Free online federal tax filing 2011 However, because this was a like-kind exchange, you recognized no gain. Free online federal tax filing 2011 Your basis in the red pickup truck was $6,200 (the $6,000 adjusted basis of the grey pickup truck plus the $200 you paid). Free online federal tax filing 2011 She recognized gain only to the extent of the money she received, $200. Free online federal tax filing 2011 Her basis in the grey pickup truck was $1,000 (the $1,000 adjusted basis of the red pickup truck minus the $200 received, plus the $200 gain recognized). Free online federal tax filing 2011 In 2013, you sold the red pickup truck to a third party for $7,000. Free online federal tax filing 2011 Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Free online federal tax filing 2011 On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. Free online federal tax filing 2011 You also report a loss on the sale as $200 (the adjusted basis of the red pickup truck, $7,200 (its $6,200 basis plus the $1,000 gain recognized), minus the $7,000 realized from the sale). Free online federal tax filing 2011 In addition, your sister must report on her tax return for 2013 the $6,000 balance of her gain on the 2012 exchange. Free online federal tax filing 2011 Her adjusted basis in the grey pickup truck is increased to $7,000 (its $1,000 basis plus the $6,000 gain recognized). Free online federal tax filing 2011 Exceptions to the rules for related persons. Free online federal tax filing 2011   The following property dispositions are excluded from these rules. Free online federal tax filing 2011 Dispositions due to the death of either related person. Free online federal tax filing 2011 Involuntary conversions. Free online federal tax filing 2011 Dispositions where it is established to the satisfaction of the IRS that neither the exchange nor the disposition has, as a main purpose, the avoidance of federal income tax. Free online federal tax filing 2011 Multiple property exchanges. Free online federal tax filing 2011   Under the like-kind exchange rules, you must generally make a property-by-property comparison to figure your recognized gain and the basis of the property you receive in the exchange. Free online federal tax filing 2011 However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. Free online federal tax filing 2011 Transfer and receive properties in two or more exchange groups. Free online federal tax filing 2011 Transfer or receive more than one property within a single exchange group. Free online federal tax filing 2011   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. Free online federal tax filing 2011 Deferred exchange. Free online federal tax filing 2011   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. Free online federal tax filing 2011 A deferred exchange is an exchange in which you transfer property you use in business or hold for investment and later receive like-kind property you will use in business or hold for investment. Free online federal tax filing 2011 The property you receive is replacement property. Free online federal tax filing 2011 The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. Free online federal tax filing 2011 In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. Free online federal tax filing 2011   For more information see Deferred Exchanges in chapter 1 of Publication 544. Free online federal tax filing 2011 Transfer to Spouse No gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or a former spouse if incident to divorce. Free online federal tax filing 2011 This rule does not apply if the recipient is a nonresident alien. Free online federal tax filing 2011 Nor does this rule apply to a transfer in trust to the extent the liabilities assumed and the liabilities on the property are more than the property's adjusted basis. Free online federal tax filing 2011 Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is not considered a sale or exchange. Free online federal tax filing 2011 The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Free online federal tax filing 2011 This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its FMV at the time of transfer or any consideration paid by the recipient. Free online federal tax filing 2011 This rule applies for determining loss as well as gain. Free online federal tax filing 2011 Any gain recognized on a transfer in trust increases the basis. Free online federal tax filing 2011 For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. Free online federal tax filing 2011 Ordinary or Capital Gain or Loss Generally, you will have a capital gain or loss if you sell or exchange a capital asset (defined below). Free online federal tax filing 2011 You may also have a capital gain if your section 1231 transactions result in a net gain. Free online federal tax filing 2011 See Section 1231 Gains and Losses in  chapter 9. Free online federal tax filing 2011 To figure your net capital gain or loss, you must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). Free online federal tax filing 2011 Your net capital gains may be taxed at a lower tax rate than ordinary income. Free online federal tax filing 2011 See Capital Gains Tax Rates , later. Free online federal tax filing 2011 Your deduction for a net capital loss may be limited. Free online federal tax filing 2011 See Treatment of Capital Losses , later. Free online federal tax filing 2011 Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. Free online federal tax filing 2011 The following items are examples of capital assets. Free online federal tax filing 2011 A home owned and occupied by you and your family. Free online federal tax filing 2011 Household furnishings. Free online federal tax filing 2011 A car used for pleasure. Free online federal tax filing 2011 If your car is used both for pleasure and for farm business, it is partly a capital asset and partly a noncapital asset, defined later. Free online federal tax filing 2011 Stocks and bonds. Free online federal tax filing 2011 However, there are special rules for gains on qualified small business stock. Free online federal tax filing 2011 For more information on this subject, see Gains on Qualified Small Business Stock and Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. Free online federal tax filing 2011 Personal-use property. Free online federal tax filing 2011   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. Free online federal tax filing 2011 Loss from the sale or exchange of personal-use property is not deductible. Free online federal tax filing 2011 You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Free online federal tax filing 2011 For information on casualties and thefts, see chapter 11. Free online federal tax filing 2011 Long and Short Term Where you report a capital gain or loss depends on how long you own the asset before you sell or exchange it. Free online federal tax filing 2011 The time you own an asset before disposing of it is the holding period. Free online federal tax filing 2011 If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. Free online federal tax filing 2011 Report it in Part I of Schedule D (Form 1040). Free online federal tax filing 2011 If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. Free online federal tax filing 2011 Report it in Part II of Schedule D (Form 1040). Free online federal tax filing 2011 Holding period. Free online federal tax filing 2011   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. Free online federal tax filing 2011 The day you disposed of the property is part of your holding period. Free online federal tax filing 2011 Example. Free online federal tax filing 2011 If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Free online federal tax filing 2011 If you sold the asset on June 19, 2013, your holding period is not longer than 1 year, but if you sold it on June 20, 2013, your holding period is longer than 1 year. Free online federal tax filing 2011 Inherited property. Free online federal tax filing 2011   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Free online federal tax filing 2011 This rule does not apply to livestock used in a farm business. Free online federal tax filing 2011 See Holding period under Livestock , later. Free online federal tax filing 2011 Nonbusiness bad debt. Free online federal tax filing 2011   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. Free online federal tax filing 2011 See chapter 4 of Publication 550. Free online federal tax filing 2011 Nontaxable exchange. Free online federal tax filing 2011   If you acquire an asset in exchange for another asset and your basis for the new asset is figured, in whole or in part, by using your basis in the old property, the holding period of the new property includes the holding period of the old property. Free online federal tax filing 2011 That is, it begins on the same day as your holding period for the old property. Free online federal tax filing 2011 Gift. Free online federal tax filing 2011   If you receive a gift of property and your basis in it is figured using the donor's basis, your holding period includes the donor's holding period. Free online federal tax filing 2011 Real property. Free online federal tax filing 2011   To figure how long you held real property, start counting on the day after you received title to it or, if earlier, on the day after you took possession of it and assumed the burdens and privileges of ownership. Free online federal tax filing 2011   However, taking possession of real property under an option agreement is not enough to start the holding period. Free online federal tax filing 2011 The holding period cannot start until there is an actual contract of sale. Free online federal tax filing 2011 The holding period of the seller cannot end before that time. Free online federal tax filing 2011 Figuring Net Gain or Loss The totals for short-term capital gains and losses and the totals for long-term capital gains and losses must be figured separately. Free online federal tax filing 2011 Net short-term capital gain or loss. Free online federal tax filing 2011   Combine your short-term capital gains and losses. Free online federal tax filing 2011 Do this by adding all of your short-term capital gains. Free online federal tax filing 2011 Then add all of your short-term capital losses. Free online federal tax filing 2011 Subtract the lesser total from the greater. Free online federal tax filing 2011 The difference is your net short-term capital gain or loss. Free online federal tax filing 2011 Net long-term capital gain or loss. Free online federal tax filing 2011   Follow the same steps to combine your long-term capital gains and losses. Free online federal tax filing 2011 The result is your net long-term capital gain or loss. Free online federal tax filing 2011 Net gain. Free online federal tax filing 2011   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Free online federal tax filing 2011 However, part of your gain (but not more than your net capital gain) may be taxed at a lower rate than the rate of tax on your ordinary income. Free online federal tax filing 2011 See Capital Gains Tax Rates , later. Free online federal tax filing 2011 Net loss. Free online federal tax filing 2011   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Free online federal tax filing 2011 But there are limits on how much loss you can deduct and when you can deduct it. Free online federal tax filing 2011 See Treatment of Capital Losses next. Free online federal tax filing 2011 Treatment of Capital Losses If your capital losses are more than your capital gains, you must claim the difference even if you do not have ordinary income to offset it. Free online federal tax filing 2011 For taxpayers other than corporations, the yearly limit on the capital loss you can deduct is $3,000 ($1,500 if you are married and file a separate return). Free online federal tax filing 2011 If your other income is low, you may not be able to use the full $3,000. Free online federal tax filing 2011 The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). Free online federal tax filing 2011 Capital loss carryover. Free online federal tax filing 2011   Generally, you have a capital loss carryover if either of the following situations applies to you. Free online federal tax filing 2011 Your net loss on Schedule D (Form 1040), is more than the yearly limit. Free online federal tax filing 2011 Your taxable income without your deduction for exemptions is less than zero. Free online federal tax filing 2011 If either of these situations applies to you for 2013, see Capital Losses under Reporting Capital Gains and Losses in chapter 4 of Publication 550 to figure the amount you can carry over to 2014. Free online federal tax filing 2011    To figure your capital loss carryover from 2013 to 2014, you will need a copy of your 2013 Form 1040 and Schedule D (Form 1040). Free online federal tax filing 2011 Capital Gains Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. Free online federal tax filing 2011 These lower rates are called the maximum capital gains rates. Free online federal tax filing 2011 The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. Free online federal tax filing 2011 See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). Free online federal tax filing 2011 Also see Publication 550. Free online federal tax filing 2011 Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. Free online federal tax filing 2011 A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). Free online federal tax filing 2011 Property held for sale in the ordinary course of your farm business. Free online federal tax filing 2011   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. Free online federal tax filing 2011 Gain or loss from sales or other dispositions of this property is reported on Schedule F (Form 1040) (not on Schedule D (Form 1040) or Form 4797). Free online federal tax filing 2011 The treatment of this property is discussed in chapter 3. Free online federal tax filing 2011 Land and depreciable properties. Free online federal tax filing 2011   Land and depreciable property you use in farming are not capital assets. Free online federal tax filing 2011 Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. Free online federal tax filing 2011 However, your gains and losses from sales and exchanges of your farmland and depreciable properties must be considered together with certain other transactions to determine whether the gains and losses are treated as capital or ordinary gains and losses. Free online federal tax filing 2011 The sales of these business assets are reported on Form 4797. Free online federal tax filing 2011 See chapter 9 for more information. Free online federal tax filing 2011 Hedging (Commodity Futures) Hedging transactions are transactions that you enter into in the normal course of business primarily to manage the risk of interest rate or price changes, or currency fluctuations, with respect to borrowings, ordinary property, or ordinary obligations. Free online federal tax filing 2011 Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. Free online federal tax filing 2011 A commodity futures contract is a standardized, exchange-traded contract for the sale or purchase of a fixed amount of a commodity at a future date for a fixed price. Free online federal tax filing 2011 The holder of an option on a futures contract has the right (but not the obligation) for a specified period of time to enter into a futures contract to buy or sell at a particular price. Free online federal tax filing 2011 A forward contract is generally similar to a futures contract except that the terms are not standardized and the contract is not exchange traded. Free online federal tax filing 2011 Businesses may enter into commodity futures contracts or forward contracts and may acquire options on commodity futures contracts as either of the following. Free online federal tax filing 2011 Hedging transactions. Free online federal tax filing 2011 Transactions that are not hedging transactions. Free online federal tax filing 2011 Futures transactions with exchange-traded commodity futures contracts that are not hedging transactions, generally, result in capital gain or loss and are subject to the mark-to-market rules discussed in Publication 550. Free online federal tax filing 2011 There is a limit on the amount of capital losses you can deduct each year. Free online federal tax filing 2011 Hedging transactions are not subject to the mark-to-market rules. Free online federal tax filing 2011 If, as a farmer-producer, to protect yourself from the risk of unfavorable price fluctuations, you enter into commodity forward contracts, futures contracts, or options on futures contracts and the contracts cover an amount of the commodity within your range of production, the transactions are generally considered hedging transactions. Free online federal tax filing 2011 They can take place at any time you have the commodity under production, have it on hand for sale, or reasonably expect to have it on hand. Free online federal tax filing 2011 The gain or loss on the termination of these hedges is generally ordinary gain or loss. Free online federal tax filing 2011 Farmers who file their income tax returns on the cash method report any profit or loss on the hedging transaction on Schedule F, line 8. Free online federal tax filing 2011 Gains or losses from hedging transactions that hedge supplies of a type regularly used or consumed in the ordinary course of your trade or business may be ordinary gains or losses. Free online federal tax filing 2011 Examples include fuel and feed. Free online federal tax filing 2011 If you have numerous transactions in the commodity futures market during the year, you must be able to show which transactions are hedging transactions. Free online federal tax filing 2011 Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. Free online federal tax filing 2011 It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. Free online federal tax filing 2011 Retain the identification of each hedging transaction with your books and records. Free online federal tax filing 2011 Also, identify the item(s) or aggregate risk that is being hedged in your records. Free online federal tax filing 2011 Although the identification of the hedging transaction must be made before the end of the day it was entered into, you have 35 days after entering into the transaction to identify the hedged item(s) or risk. Free online federal tax filing 2011 For more information on the tax treatment of futures and options contracts, see Commodity Futures and Section 1256 Contracts Marked to Market in Publication 550. Free online federal tax filing 2011 Accounting methods for hedging transactions. Free online federal tax filing 2011   The accounting method you use for a hedging transaction must clearly reflect income. Free online federal tax filing 2011 This means that your accounting method must reasonably match the timing of income, deduction, gain, or loss from a hedging transaction with the timing of income, deduction, gain, or loss from the item or items being hedged. Free online federal tax filing 2011 There are requirements and limits on the method you can use for certain hedging transactions. Free online federal tax filing 2011 See Regulations section 1. Free online federal tax filing 2011 446-4(e) for those requirements and limits. Free online federal tax filing 2011   Hedging transactions must be accounted for under the rules stated above unless the transaction is subject to mark-to-market accounting under section 475 or you use an accounting method other than the following methods. Free online federal tax filing 2011 Cash method. Free online federal tax filing 2011 Farm-price method. Free online federal tax filing 2011 Unit-livestock-price method. Free online federal tax filing 2011   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. Free online federal tax filing 2011   Your books and records must describe the accounting method used for each type of hedging transaction. Free online federal tax filing 2011 They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. Free online federal tax filing 2011 You must make the additional identification no more than 35 days after entering into the hedging transaction. Free online federal tax filing 2011 Example of a hedging transaction. Free online federal tax filing 2011   You file your income tax returns on the cash method. Free online federal tax filing 2011 On July 2 you anticipate a yield of 50,000 bushels of corn this year. Free online federal tax filing 2011 The December futures price is $5. Free online federal tax filing 2011 75 a bushel, but there are indications that by harvest time the price will drop. Free online federal tax filing 2011 To protect yourself against a drop in the price, you enter into the following hedging transaction. Free online federal tax filing 2011 You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. Free online federal tax filing 2011 75 a bushel. Free online federal tax filing 2011   The price did not drop as anticipated but rose to $6 a bushel. Free online federal tax filing 2011 In November, you sell your crop at a local elevator for $6 a bushel. Free online federal tax filing 2011 You also close out your futures position by buying ten December contracts for $6 a bushel. Free online federal tax filing 2011 You paid a broker's commission of $1,400 ($70 per contract) for the complete in and out position in the futures market. Free online federal tax filing 2011   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. Free online federal tax filing 2011 Your loss on the hedge is 25 cents a bushel. Free online federal tax filing 2011 In effect, the net selling price of your corn is $5. Free online federal tax filing 2011 75 a bushel. Free online federal tax filing 2011   Report the results of your futures transactions and your sale of corn separately on Schedule F. Free online federal tax filing 2011 See the instructions for the 2013 Schedule F (Form 1040). Free online federal tax filing 2011   The loss on your futures transactions is $13,900, figured as follows. Free online federal tax filing 2011 July 2 - Sold December corn futures (50,000 bu. Free online federal tax filing 2011 @$5. Free online federal tax filing 2011 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Free online federal tax filing 2011 @$6 plus $1,400 broker's commission) 301,400 Futures loss ($13,900) This loss is reported as a negative figure on Schedule F, Part I, line 8, as other income. Free online federal tax filing 2011   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. Free online federal tax filing 2011 × $6). Free online federal tax filing 2011 Report it on Schedule F, Part I, line 2, as income from sales of products you raised. Free online federal tax filing 2011   Assume you were right and the price went down 25 cents a bushel. Free online federal tax filing 2011 In effect, you would still net $5. Free online federal tax filing 2011 75 a bushel, figured as follows. Free online federal tax filing 2011 Sold cash corn, per bushel $5. Free online federal tax filing 2011 50 Gain on hedge, per bushel . Free online federal tax filing 2011 25 Net price, per bushel $5. Free online federal tax filing 2011 75       The gain on your futures transactions would have been $11,100, figured as follows. Free online federal tax filing 2011 July 2 - Sold December corn futures (50,000 bu. Free online federal tax filing 2011 @$5. Free online federal tax filing 2011 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Free online federal tax filing 2011 @$5. Free online federal tax filing 2011 50 plus $1,400 broker's commission) 276,400 Futures gain $11,100 The $11,100 is reported on Schedule F, Part I, line 8, as other income. Free online federal tax filing 2011   The proceeds from the sale of your corn at the local elevator, $275,000, are reported on Schedule F, Part I, line 2, as income from sales of products you raised. Free online federal tax filing 2011 Livestock This part discusses the sale or exchange of livestock used in your farm business. Free online federal tax filing 2011 Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. Free online federal tax filing 2011 However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. Free online federal tax filing 2011 See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. Free online federal tax filing 2011 The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. Free online federal tax filing 2011 The sale of this livestock is reported on Schedule F. Free online federal tax filing 2011 See chapter 3. Free online federal tax filing 2011 Also, special rules apply to sales or exchanges caused by weather-related conditions. Free online federal tax filing 2011 See chapter 3. Free online federal tax filing 2011 Holding period. Free online federal tax filing 2011   The sale or exchange of livestock used in your farm business (defined below) qualifies as a section 1231 transaction if you held the livestock for 12 months or more (24 months or more for horses and cattle). Free online federal tax filing 2011 Livestock. Free online federal tax filing 2011   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. Free online federal tax filing 2011 Also, for section 1231 transactions, livestock does not include chickens, turkeys, pigeons, geese, emus, ostriches, rheas, or other birds, fish, frogs, reptiles, etc. Free online federal tax filing 2011 Livestock used in farm business. Free online federal tax filing 2011   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. Free online federal tax filing 2011 The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. Free online federal tax filing 2011 An animal is not held for draft, breeding, dairy, or sporting purposes merely because it is suitable for that purpose, or because it is held for sale to other persons for use by them for that purpose. Free online federal tax filing 2011 However, a draft, breeding, or sporting purpose may be present if an animal is disposed of within a reasonable time after it is prevented from its intended use or made undesirable as a result of an accident, disease, drought, or unfitness of the animal. Free online federal tax filing 2011 Example 1. Free online federal tax filing 2011 You discover an animal that you intend to use for breeding purposes is sterile. Free online federal tax filing 2011 You dispose of it within a reasonable time. Free online federal tax filing 2011 This animal was held for breeding purposes. Free online federal tax filing 2011 Example 2. Free online federal tax filing 2011 You retire and sell your entire herd, including young animals that you would have used for breeding or dairy purposes had you remained in business. Free online federal tax filing 2011 These young animals were held for breeding or dairy purposes. Free online federal tax filing 2011 Also, if you sell young animals to reduce your breeding or dairy herd because of drought, these animals are treated as having been held for breeding or dairy purposes. Free online federal tax filing 2011 See Sales Caused by Weather-Related Conditions in chapter 3. Free online federal tax filing 2011 Example 3. Free online federal tax filing 2011 You are in the business of raising hogs for slaughter. Free online federal tax filing 2011 Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. Free online federal tax filing 2011 You sell the brood sows after obtaining the litter. Free online federal tax filing 2011 Even though you hold these brood sows for ultimate sale to customers in the ordinary course of your business, they are considered to be held for breeding purposes. Free online federal tax filing 2011 Example 4. Free online federal tax filing 2011 You are in the business of raising registered cattle for sale to others for use as breeding cattle. Free online federal tax filing 2011 The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. Free online federal tax filing 2011 Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. Free online federal tax filing 2011 Such use does not demonstrate that you are holding the cattle for breeding purposes. Free online federal tax filing 2011 However, those cattle you held as additions or replacements to your own breeding herd to produce calves are considered to be held for breeding purposes, even though they may not actually have produced calves. Free online federal tax filing 2011 The same applies to hog and sheep breeders. Free online federal tax filing 2011 Example 5. Free online federal tax filing 2011 You breed, raise, and train horses for racing purposes. Free online federal tax filing 2011 Every year you cull horses from your racing stable. Free online federal tax filing 2011 In 2013, you decided that to prevent your racing stable from getting too large to be effectively operated, you must cull six horses that had been raced at public tracks in 2012. Free online federal tax filing 2011 These horses are all considered held for sporting purposes. Free online federal tax filing 2011 Figuring gain or loss on the cash method. Free online federal tax filing 2011   Farmers or ranchers who use the cash method of accounting figure their gain or loss on the sale of livestock used in their farming business as follows. Free online federal tax filing 2011 Raised livestock. Free online federal tax filing 2011   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. Free online federal tax filing 2011 Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. Free online federal tax filing 2011 The basis of the animal sold is zero if the costs of raising it were deducted during the years the animal was being raised. Free online federal tax filing 2011 However, see Uniform Capitalization Rules in chapter 6. Free online federal tax filing 2011 Purchased livestock. Free online federal tax filing 2011   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. Free online federal tax filing 2011 Example. Free online federal tax filing 2011 A farmer sold a breeding cow on January 8, 2013, for $1,250. Free online federal tax filing 2011 Expenses of the sale were $125. Free online federal tax filing 2011 The cow was bought July 2, 2009, for $1,300. Free online federal tax filing 2011 Depreciation (not less than the amount allowable) was $867. Free online federal tax filing 2011 Gross sales price $1,250 Cost (basis) $1,300   Minus: Depreciation deduction 867   Unrecovered cost (adjusted basis) $ 433   Expense of sale 125 558 Gain realized $ 692 Converted Wetland and Highly Erodible Cropland Special rules apply to dispositions of land converted to farming use after March 1, 1986. Free online federal tax filing 2011 Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. Free online federal tax filing 2011 Any loss on the disposition of such property is treated as a long-term capital loss. Free online federal tax filing 2011 Converted wetland. Free online federal tax filing 2011   This is generally land that was drained or filled to make the production of agricultural commodities possible. Free online federal tax filing 2011 It includes converted wetland held by the person who originally converted it or held by any other person who used the converted wetland at any time after conversion for farming. Free online federal tax filing 2011   A wetland (before conversion) is land that meets all the following conditions. Free online federal tax filing 2011 It is mostly soil that, in its undrained condition, is saturated, flooded, or ponded long enough during a growing season to develop an oxygen-deficient state that supports the growth and regeneration of plants growing in water. Free online federal tax filing 2011 It is saturated by surface or groundwater at a frequency and duration sufficient to support mostly plants that are adapted for life in saturated soil. Free online federal tax filing 2011 It supports, under normal circumstances, mostly plants that grow in saturated soil. Free online federal tax filing 2011 Highly erodible cropland. Free online federal tax filing 2011   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. Free online federal tax filing 2011 Generally, highly erodible cropland is land currently classified by the Department of Agriculture as Class IV, VI, VII, or VIII under its classification system. Free online federal tax filing 2011 Highly erodible cropland also includes land that would have an excessive average annual erosion rate in relation to the soil loss tolerance level, as determined by the Department of Agriculture. Free online federal tax filing 2011 Successor. Free online federal tax filing 2011   Converted wetland or highly erodible cropland is also land held by any person whose basis in the land is figured by reference to the adjusted basis of a person in whose hands the property was converted wetland or highly erodible cropland. Free online federal tax filing 2011 Timber Standing timber you held as investment property is a capital asset. Free online federal tax filing 2011 Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. Free online federal tax filing 2011 If you held the timber primarily for sale to customers, it is not a capital asset. Free online federal tax filing 2011 Gain or loss on its sale is ordinary business income or loss. Free online federal tax filing 2011 It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). Free online federal tax filing 2011 See the Instructions for Schedule F (Form 1040). Free online federal tax filing 2011 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 online federal tax filing 2011 Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. Free online federal tax filing 2011 , are ordinary farm income and expenses reported on Schedule F. Free online federal tax filing 2011 Different rules apply if you owned the timber longer than 1 year and elect to treat timber cutting as a sale or exchange or you enter into a cutting contract, discussed below. Free online federal tax filing 2011 Timber considered cut. Free online federal tax filing 2011   Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Free online federal tax filing 2011 This is true whether the timber is cut under contract or whether you cut it yourself. Free online federal tax filing 2011 Christmas trees. Free online federal tax filing 2011   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 online federal tax filing 2011 They qualify for both rules discussed below. Free online federal tax filing 2011 Election to treat cutting as a sale or exchange. Free online federal tax filing 2011   Under the general rule, the cutting of timber results in no gain or loss. Free online federal tax filing 2011 It is not until a sale or exchange occurs that gain or loss is realized. Free online federal tax filing 2011 But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year it is cut. Free online federal tax filing 2011 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 online federal tax filing 2011 Any later sale results in ordinary business income or loss. Free online federal tax filing 2011 See the example below. Free online federal tax filing 2011   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or use in your trade or business. Free online federal tax filing 2011 Making the election. Free online federal tax filing 2011   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of your gain or loss. Free online federal tax filing 2011 You do not have to make the election in the first year you cut the timber. Free online federal tax filing 2011 You can make it in any year to which the election would apply. Free online federal tax filing 2011 If the timber is partnership property, the election is made on the partnership return. Free online federal tax filing 2011 This election cannot be made on an amended return. Free online federal tax filing 2011   Once you have made the election, it remains in effect for all later years unless you revoke it. Free online federal tax filing 2011 Election under section 631(a) may be revoked. Free online federal tax filing 2011   If you previously elected for any tax year ending before October 23, 2004, to treat the cutting of timber as a sale or exchange under section 631(a), you may revoke this election without the consent of the IRS for any tax year ending after October 22, 2004. Free online federal tax filing 2011 The prior election (and revocation) is disregarded for purposes of making a subsequent election. Free online federal tax filing 2011 See Form T (Timber), Forest Activities Schedule, for more information. Free online federal tax filing 2011 Gain or loss. Free online federal tax filing 2011   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its FMV on the first day of your tax year in which it is cut. Free online federal tax filing 2011   Your adjusted basis for depletion of cut timber is based on the number of units (board feet, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. Free online federal tax filing 2011 Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 and Regulations section 1. Free online federal tax filing 2011 611-3. Free online federal tax filing 2011   Depletion of timber is discussed in chapter 7. Free online federal tax filing 2011 Example. Free online federal tax filing 2011   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Free online federal tax filing 2011 It had an adjusted basis for depletion of $40 per MBF. Free online federal tax filing 2011 You are a calendar year taxpayer. Free online federal tax filing 2011 On January 1, 2013, the timber had a FMV of $350 per MBF. Free online federal tax filing 2011 It was cut in April for sale. Free online federal tax filing 2011 On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Free online federal tax filing 2011 You report the difference between the FMV and your adjusted basis for depletion as a gain. Free online federal tax filing 2011 This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as a capital gain or as ordinary gain. Free online federal tax filing 2011 You figure your gain as follows. Free online federal tax filing 2011 FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000   The FMV becomes your basis in the cut timber, and a later sale of the cut timber, including any by-product or tree tops, will result in ordinary business income or loss. Free online federal tax filing 2011 Outright sales of timber. Free online federal tax filing 2011   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined later). Free online federal tax filing 2011 However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see Date of disposal below). Free online federal tax filing 2011 Cutting contract. Free online federal tax filing 2011   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 online federal tax filing 2011 You are the owner of the timber. Free online federal tax filing 2011 You held the timber longer than 1 year before its disposal. Free online federal tax filing 2011 You kept an economic interest in the timber. Free online federal tax filing 2011   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 online federal tax filing 2011   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 online federal tax filing 2011 Include this amount on Form 4797 along with your other section 1231 gains or losses. Free online federal tax filing 2011 Date of disposal. Free online federal tax filing 2011   The date of disposal is the date the timber is cut. Free online federal tax filing 2011 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 online federal tax filing 2011   This election applies only to figure the holding period of the timber. Free online federal tax filing 2011 It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Free online federal tax filing 2011   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 online federal tax filing 2011 The statement must identify the advance payments subject to the election and the contract under which they were made. Free online federal tax filing 2011   If you timely filed your return for the year you received payment without making the election, you can still make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). Free online federal tax filing 2011 Attach the statement to the amended return and write “Filed pursuant to section 301. Free online federal tax filing 2011 9100-2” at the top of the statement. Free online federal tax filing 2011 File the amended return at the same address the original return was filed. Free online federal tax filing 2011 Owner. Free online federal tax filing 2011   An owner is any person who owns an interest in the timber, including a sublessor and the holder of a contract to cut the timber. Free online federal tax filing 2011 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 online federal tax filing 2011 Tree stumps. Free online federal tax filing 2011   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 online federal tax filing 2011 Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Free online federal tax filing 2011 However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Free online federal tax filing 2011 Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Free online federal tax filing 2011   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Free online federal tax filing 2011 Sale of a Farm The sale of your farm will usually involve the sale of both nonbusiness property (your home) and business property (the land and buildings used in the farm operation and perhaps machinery and livestock). Free online federal tax filing 2011 If you have a gain from the sale, you may be allowed to exclude the gain on your home. Free online federal tax filing 2011 For more information, see Publication 523, Selling Your Home. Free online federal tax filing 2011 The gain on the sale of your business property is taxable. Free online federal tax filing 2011 A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. Free online federal tax filing 2011 Your taxable gain or loss on the sale of property used in your farm business is taxed under the rules for section 1231 transactions. Free online federal tax filing 2011 See chapter 9. Free online federal tax filing 2011 Losses from personal-use property, other than casualty or theft losses, are not deductible. Free online federal tax filing 2011 If you receive payments for your farm in installments, your gain is taxed over the period of years the payments are received, unless you elect not to use the installment method of reporting the gain. Free online federal tax filing 2011 See chapter 10 for information about installment sales. Free online federal tax filing 2011 When you sell your farm, the gain or loss on each asset is figured separately. Free online federal tax filing 2011 The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. Free online federal tax filing 2011 Each of the assets sold must be classified as one of the following. Free online federal tax filing 2011 Capital asset held 1 year or less. Free online federal tax filing 2011 Capital asset held longer than 1 year. Free online federal tax filing 2011 Property (including real estate) used in your business and held 1 year or less (including draft, breeding, dairy, and sporting animals held less than the holding periods discussed earlier under Livestock ). Free online federal tax filing 2011 Property (including real estate) used in your business and held longer than 1 year (including only draft, breeding, dairy, and sporting animals held for the holding periods discussed earlier). Free online federal tax filing 2011 Property held primarily for sale or which is of the kind that would be included in inventory if on hand at the end of your tax year. Free online federal tax filing 2011 Allocation of consideration paid for a farm. Free online federal tax filing 2011   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. Free online federal tax filing 2011 The residual method is required only if the group of assets sold constitutes a trade or business. Free online federal tax filing 2011 This method determines gain or loss from the transfer of each asset. Free online federal tax filing 2011 It also determines the buyer's basis in the business assets. Free online federal tax filing 2011 For more information, see Sale of a Business in chapter 2 of Publication 544. Free online federal tax filing 2011 Property used in farm operation. Free online federal tax filing 2011   The rules for excluding the gain on the sale of your home, described later under Sale of your home , do not apply to the property used for your farming business. Free online federal tax filing 2011 Recognized gains and losses on business property must be reported on your return for the year of the sale. Free online federal tax filing 2011 If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). Free online federal tax filing 2011 Example. Free online federal tax filing 2011 You sell your farm, including your main home, which you have owned since December 2001. Free online federal tax filing 2011 You realize gain on the sale as follows. Free online federal tax filing 2011   Farm   Farm   With Home Without   Home Only Home Selling price $382,000 $158,000 $224,000 Cost (or other basis) 240,000 110,000 130,000 Gain $142,000 $48,000 $94,000 You must report the $94,000 gain from the sale of the property used in your farm business. Free online federal tax filing 2011 All or a part of that gain may have to be reported as ordinary income from the recapture of depreciation or soil and water conservation expenses. Free online federal tax filing 2011 Treat the balance as section 1231 gain. Free online federal tax filing 2011 The $48,000 gain from the sale of your home is not taxable as long as you meet the requirements explained later under Sale of your home . Free online federal tax filing 2011 Partial sale. Free online federal tax filing 2011   If you sell only part of your farm, you must report any recognized gain or loss on the sale of that part on your tax return for the year of the sale. Free online federal tax filing 2011 You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. Free online federal tax filing 2011 For a detailed discussion on installment sales, see Publication 544. Free online federal tax filing 2011 Adjusted basis of the part sold. Free online federal tax filing 2011   This is the properly allocated part of your original cost or other basis of the entire farm plus or minus necessary adjustments for improvements, depreciation, etc. Free online federal tax filing 2011 , on the part sold. Free online federal tax filing 2011 If your home is on the farm, you must properly adjust the basis to exclude those costs from your farm asset costs, as discussed below under Sale of your home . Free online federal tax filing 2011 Example. Free online federal tax filing 2011 You bought a 600-acre farm for $700,000. Free online federal tax filing 2011 The farm included land and buildings. Free online federal tax filing 2011 The purchase contract designated $600,000 of the purchase price to the land. Free online federal tax filing 2011 You later sold 60 acres of land on which you had installed a fence. Free online federal tax filing 2011 Your adjusted basis for the part of your farm sold is $60,000 (1/10 of $600,000), plus any unrecovered cost (cost not depreciated) of the fence on the 60 acres at the time of sale. Free online federal tax filing 2011 Use this amount to determine your gain or loss on the sale of the 60 acres. Free online federal tax filing 2011 Assessed values for local property taxes. Free online federal tax filing 2011   If you paid a flat sum for the entire farm and no other facts are available for properly allocating your original cost or other basis between the land and the buildings, you can use the assessed values for local property taxes for the year of purchase to allocate the costs. Free online federal tax filing 2011 Example. Free online federal tax filing 2011 Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. Free online federal tax filing 2011 However, in the year of purchase, local taxes on the entire property were based on assessed valuations of $420,000 for land and $140,000 for improvements, or a total of $560,000. Free online federal tax filing 2011 The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. Free online federal tax filing 2011 Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. Free online federal tax filing 2011 The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). Free online federal tax filing 2011 Sale of your home. Free online federal tax filing 2011   Your home is a capital asset and not property used in the trade or business of farming. Free online federal tax filing 2011 If you sell a farm that includes a house you and your family occupy, you must determine the part of the selling price and the part of the cost or other basis allocable to your home. Free online federal tax filing 2011 Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. Free online federal tax filing 2011   If you use part of your home for business, you must make an appropriate adjustment to the basis for depreciation allowed or allowable. Free online federal tax filing 2011 For more information on basis, see chapter 6. Free online federal tax filing 2011 More information. Free online federal tax filing 2011   For more information on selling your home, see Publication 523. Free online federal tax filing 2011 Gain from condemnation. Free online federal tax filing 2011   If you have a gain from a condemnation or sale under threat of condemnation, you may use the preceding rules for excluding the gain, rather than the rules discussed under Postponing Gain in chapter 11. Free online federal tax filing 2011 However, any gain that cannot be excluded (because it is more than the limit) may be postponed under the rules discussed under Postponing Gain in chapter 11. Free online federal tax filing 2011 Foreclosure or Repossession If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Free online federal tax filing 2011 The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Free online federal tax filing 2011 This is true even if you voluntarily return the property to the lender. Free online federal tax filing 2011 You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. Free online federal tax filing 2011 Buyer's (borrower's) gain or loss. Free online federal tax filing 2011   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Free online federal tax filing 2011 The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Free online federal tax filing 2011 See Determining Gain or Loss , earlier. Free online federal tax filing 2011 Worksheet 8-1. Free online federal tax filing 2011 Worksheet for Foreclosures andRepossessions Part 1. Free online federal tax filing 2011 Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Free online federal tax filing 2011 Complete this part only if you were personally liable for the debt. Free online federal tax filing 2011 Otherwise, go to Part 2. Free online federal tax filing 2011   1. Free online federal tax filing 2011 Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable after the transfer of property   2. Free online federal tax filing 2011 Enter the Fair Market Value of the transferred property   3. Free online federal tax filing 2011 Ordinary income from cancellation of debt upon foreclosure or repossession. Free online federal tax filing 2011 * Subtract line 2 from line 1. Free online federal tax filing 2011 If zero or less, enter -0-   Part 2. Free online federal tax filing 2011 Figure your gain or loss from foreclosure or repossession. Free online federal tax filing 2011   4. Free online federal tax filing 2011 If you completed Part 1, enter the smaller of line 1 or line 2. Free online federal tax filing 2011 If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. Free online federal tax filing 2011 Enter any proceeds you received from the foreclosure sale   6. Free online federal tax filing 2011 Add lines 4 and 5   7. Free online federal tax filing 2011 Enter the adjusted basis of the transferred property   8. Free online federal tax filing 2011 Gain or loss from foreclosure or repossession. Free online federal tax filing 2011 Subtract line 7  from line 6   * The income may not be taxable. Free online federal tax filing 2011 See Cancellation of debt . Free online federal tax filing 2011    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. Free online federal tax filing 2011 Amount realized on a nonrecourse debt. Free online federal tax filing 2011   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full amount of the debt canceled by the transfer. Free online federal tax filing 2011 The full canceled debt is included in the amount realized even if the fair market value of the property is less than the canceled debt. Free online federal tax filing 2011 Example 1. Free online federal tax filing 2011 Ann paid $200,000 for land used in her farming business. Free online federal tax filing 2011 She paid $15,000 down and borrowed the remaining $185,000 from a bank. Free online federal tax filing 2011 Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. Free online federal tax filing 2011 The bank foreclosed on the loan 2 years after Ann stopped making payments. Free online federal tax filing 2011 When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. Free online federal tax filing 2011 The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. Free online federal tax filing 2011 She figures her gain or loss on Form 4797, Part I, by comparing the amount realized ($180,000) with her adjusted basis ($200,000). Free online federal tax filing 2011 She has a $20,000 deductible loss. Free online federal tax filing 2011 Example 2. Free online federal tax filing 2011 Assume the same facts as in Example 1 except the FMV of the land was $210,000. Free online federal tax filing 2011 The result is the same. Free online federal tax filing 2011 The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. Free online federal tax filing 2011 Because her adjusted basis is $200,000, she has a deductible loss of $20,000, which she reports on Form 4797, Part I. Free online federal tax filing 2011 Amount realized on a recourse debt. Free online federal tax filing 2011   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Free online federal tax filing 2011   You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Free online federal tax filing 2011 The amount realized does not include the canceled debt that is your income from cancellation of debt. Free online federal tax filing 2011 See Cancellation of debt , later. Free online federal tax filing 2011 Example 3. Free online federal tax filing 2011 Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). Free online federal tax filing 2011 In this case, the amount she realizes is $170,000. Free online federal tax filing 2011 This is the canceled debt ($180,000) up to the FMV of the land ($170,000). Free online federal tax filing 2011 Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). Free online federal tax filing 2011 She has a $30,000 deductible loss, which she figures on Form 4797, Part I. Free online federal tax filing 2011 She is also treated as receiving ordinary income from cancellation of debt. Free online federal tax filing 2011 That income is $10,000 ($180,000 − $170,000). Free online federal tax filing 2011 This is the part of the canceled debt not included in the amount realized. Free online federal tax filing 2011 She reports this as other income on Schedule F, line 8. Free online federal tax filing 2011 Seller's (lender's) gain or loss on repossession. Free online federal tax filing 2011   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Free online federal tax filing 2011 For more information, see Repossession in Publication 537, Installment Sales. Free online federal tax filing 2011 Cancellation of debt. Free online federal tax filing 2011   If property that is repossessed or foreclosed upon secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the FMV of the property. Free online federal tax filing 2011 This income is separate from any gain or loss realized from the foreclosure or repossession. Free online federal tax filing 2011 Report the income from cancellation of a business debt on Schedule F, line 8. Free online federal tax filing 2011 Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Free online federal tax filing 2011    You can use Worksheet 8-1 to figure your income from cancellation of debt. Free online federal tax filing 2011   However, income from cancellation of debt is not taxed if any of the following apply. Free online federal tax filing 2011 The cancellation is intended as a gift. Free online federal tax filing 2011 The debt is qualified farm debt (see chapter 3). Free online federal tax filing 2011 The debt is qualified real property business debt (see chapter 5 of Publication 334). Free online federal tax filing 2011 You are insolvent or bankrupt (see  chapter 3). Free online federal tax filing 2011 The debt is qualified principal residence indebtedness (see chapter 3). Free online federal tax filing 2011   Use Form 982 to report the income exclusion. Free online federal tax filing 2011 Abandonment The abandonment of property is a disposition of property. Free online federal tax filing 2011 You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership, but without passing it on to anyone else. Free online federal tax filing 2011 Business or investment property. Free online federal tax filing 2011   Loss from abandonment of business or investment property is deductible as a loss. Free online federal tax filing 2011 Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Free online federal tax filing 2011 If your adjusted basis is more than the amount you realize (if any), then you have a loss. Free online federal tax filing 2011 If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Free online federal tax filing 2011 This rule also applies to leasehold improvements the lessor made for the lessee. Free online federal tax filing 2011 However, if the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed earlier under Foreclosure or Repossession . Free online federal tax filing 2011   If the abandoned property is secured by debt, special rules apply. Free online federal tax filing 2011 The tax consequences of abandonment of property that secures a debt depend on whether you are personally liable for the debt (recourse debt) or were not personally liable for the debt (nonrecourse debt). Free online federal tax filing 2011 For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Free online federal tax filing 2011 The abandonment loss is deducted in the tax year in which the loss is sustained. Free online federal tax filing 2011 Report the loss on Form 4797, Part II, line 10. Free online federal tax filing 2011 Personal-use property. Free online federal tax filing 2011   You cannot deduct any loss from abandonment of your home or other property held for personal use. Free online federal tax filing 2011 Canceled debt. Free online federal tax filing 2011   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. Free online federal tax filing 2011 This income is separate from any loss realized from abandonment of the property. Free online federal tax filing 2011 Report income from cancellation of a debt related to a business or rental activity as business or rental income. Free online federal tax filing 2011 Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Free online federal tax filing 2011   However, income from cancellation of debt is not taxed in certain circumstances. Free online federal tax filing 2011 See Cancellation of debt earlier under Foreclosure or Repossession . Free online federal tax filing 2011 Forms 1099-A and 1099-C. Free online federal tax filing 2011   A lender who acquires an interest in your property in a foreclosure, repossession, or abandonment should send you Form 1099-A showing the information you need to figure your loss from the foreclosure, repossession, or abandonment. Free online federal tax filing 2011 However, if the lender cancels part of your debt and the lender must file Form 1099-C, the lender may include the information about the foreclosure, repossession, or abandonment on that form instead of Form 1099-A. Free online federal tax filing 2011 The lender must file Form 1099-C and send you a copy if the canceled debt is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Free online federal tax filing 2011 For foreclosures, repossessions, abandonments of property, and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Free online federal tax filing 2011 Prev  Up  Next   Home   More Online Publications
Español

National Indian Gaming Commission

The National Indian Gaming Commission is a regulatory body that oversees some aspects of gaming on Indian lands, often complementing the work of Indian regulators.

Contact the Agency or Department

Website: National Indian Gaming Commission

E-mail:

Address: 1441 L St NW
Suite 9100

Washington, DC 20005

Phone Number: (202) 632-7003

The Free Online Federal Tax Filing 2011

Free online federal tax filing 2011 8. Free online federal tax filing 2011   Amortization Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: How To Deduct Amortization Starting a BusinessBusiness Start-Up Costs Costs of Organizing a Corporation Costs of Organizing a Partnership How To Amortize Getting a Lease Section 197 IntangiblesSection 197 Intangibles Defined Assets That Are Not Section 197 Intangibles Safe Harbor for Creative Property Costs Anti-Churning Rules Incorrect Amount of Amortization Deducted Disposition of Section 197 Intangibles Reforestation Costs Geological and Geophysical Costs Pollution Control FacilitiesNew identifiable treatment facility. Free online federal tax filing 2011 Research and Experimental Costs Optional Write-off of Certain Tax Preferences Introduction Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. Free online federal tax filing 2011 It is similar to the straight line method of depreciation. Free online federal tax filing 2011 The various amortizable costs covered in this chapter are included in the list below. Free online federal tax filing 2011 However, this chapter does not discuss amortization of bond premium. Free online federal tax filing 2011 For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. Free online federal tax filing 2011 Topics - This chapter discusses: Deducting amortization Amortizing costs of starting a business Amortizing costs of getting a lease Amortizing costs of section 197 intangibles Amortizing reforestation costs Amortizing costs of geological and geophysical costs Amortizing costs of pollution control facilities Amortizing costs of research and experimentation Amortizing costs of certain tax preferences Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 4626 Alternative Minimum Tax—Corporations 6251 Alternative Minimum Tax—Individuals See chapter 12 for information about getting publications and forms. Free online federal tax filing 2011 How To Deduct Amortization To deduct amortization that begins during the current tax year, complete Part VI of Form 4562 and attach it to your income tax return. Free online federal tax filing 2011 To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. Free online federal tax filing 2011 For example, in 2012, you began to amortize a lease. Free online federal tax filing 2011 In 2013, you began to amortize a second lease. Free online federal tax filing 2011 Report amortization from the new lease on line 42 of your 2013 Form 4562. Free online federal tax filing 2011 Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. Free online federal tax filing 2011 If you do not have any new amortizable expenses for the current year, you are not required to complete Form 4562 (unless you are claiming depreciation). Free online federal tax filing 2011 Report the current year's deduction for amortization that began in a prior year directly on the “Other deduction” or “Other expense line” of your return. Free online federal tax filing 2011 Starting a Business When you start a business, treat all eligible costs you incur before you begin operating the business as capital expenditures which are part of your basis in the business. Free online federal tax filing 2011 Generally, you recover costs for particular assets through depreciation deductions. Free online federal tax filing 2011 However, you generally cannot recover other costs until you sell the business or otherwise go out of business. Free online federal tax filing 2011 For a discussion on how to treat these costs, see If your attempt to go into business is unsuccessful under Capital Expenses in chapter 1. Free online federal tax filing 2011 For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. Free online federal tax filing 2011 The costs that are not deducted currently can be amortized ratably over a 180-month period. Free online federal tax filing 2011 The amortization period starts with the month you begin operating your active trade or business. Free online federal tax filing 2011 You are not required to attach a statement to make this election. Free online federal tax filing 2011 You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Free online federal tax filing 2011 Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business. Free online federal tax filing 2011 See Regulations sections 1. Free online federal tax filing 2011 195-1, 1. Free online federal tax filing 2011 248-1, and 1. Free online federal tax filing 2011 709-1. Free online federal tax filing 2011 For costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of business start-up and organizational costs in the year your active trade or business begins. Free online federal tax filing 2011 Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. Free online federal tax filing 2011 If the election is made, you must attach any statement required by Regulations sections 1. Free online federal tax filing 2011 195-1(b), 1. Free online federal tax filing 2011 248-1(c), and 1. Free online federal tax filing 2011 709-1(c), as in effect before September 9, 2008. Free online federal tax filing 2011 Note. Free online federal tax filing 2011 You can apply the provisions of Regulations sections 1. Free online federal tax filing 2011 195-1, 1. Free online federal tax filing 2011 248-1, and 1. Free online federal tax filing 2011 709-1 to all business start-up and organizational costs paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. Free online federal tax filing 2011 Otherwise, the provisions under Regulations sections 1. Free online federal tax filing 2011 195-1(b), 1. Free online federal tax filing 2011 248-1(c), and 1. Free online federal tax filing 2011 709-1(c), as in effect before September 9, 2008, will apply. Free online federal tax filing 2011 For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organization costs over an amortization period of 60 months or more. Free online federal tax filing 2011 See How To Make the Election , later. Free online federal tax filing 2011 The cost must qualify as one of the following. Free online federal tax filing 2011 A business start-up cost. Free online federal tax filing 2011 An organizational cost for a corporation. Free online federal tax filing 2011 An organizational cost for a partnership. Free online federal tax filing 2011 Business Start-Up Costs Start-up costs are amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business. Free online federal tax filing 2011 Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit; and for the production of income in anticipation of the activity becoming an active trade or business. Free online federal tax filing 2011 Qualifying costs. Free online federal tax filing 2011   A start-up cost is amortizable if it meets both of the following tests. Free online federal tax filing 2011 It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into). Free online federal tax filing 2011 It is a cost you pay or incur before the day your active trade or business begins. Free online federal tax filing 2011   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. Free online federal tax filing 2011 Advertisements for the opening of the business. Free online federal tax filing 2011 Salaries and wages for employees who are being trained and their instructors. Free online federal tax filing 2011 Travel and other necessary costs for securing prospective distributors, suppliers, or customers. Free online federal tax filing 2011 Salaries and fees for executives and consultants, or for similar professional services. Free online federal tax filing 2011 Nonqualifying costs. Free online federal tax filing 2011   Start-up costs do not include deductible interest, taxes, or research and experimental costs. Free online federal tax filing 2011 See Research and Experimental Costs , later. Free online federal tax filing 2011 Purchasing an active trade or business. Free online federal tax filing 2011   Amortizable start-up costs for purchasing an active trade or business include only investigative costs incurred in the course of a general search for or preliminary investigation of the business. Free online federal tax filing 2011 These are costs that help you decide whether to purchase a business. Free online federal tax filing 2011 Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. Free online federal tax filing 2011 Example. Free online federal tax filing 2011 On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. Free online federal tax filing 2011 They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. Free online federal tax filing 2011 In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. Free online federal tax filing 2011 The letter stated that a binding commitment would result only after a purchase agreement was signed. Free online federal tax filing 2011 The law firm and accounting firm continued to provide services including a review of XYZ's books and records and the preparation of a purchase agreement. Free online federal tax filing 2011 On October 22nd, you signed a purchase agreement with XYZ, Inc. Free online federal tax filing 2011 All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. Free online federal tax filing 2011 Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. Free online federal tax filing 2011 Disposition of business. Free online federal tax filing 2011   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. Free online federal tax filing 2011 However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. Free online federal tax filing 2011 Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. Free online federal tax filing 2011 Qualifying costs. Free online federal tax filing 2011   To qualify as an organizational cost, it must be: For the creation of the corporation, Chargeable to a capital account (see chapter 1), Amortized over the life of the corporation if the corporation had a fixed life, and Incurred before the end of the first tax year in which the corporation is in business. Free online federal tax filing 2011   A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year. Free online federal tax filing 2011   Examples of organizational costs include: The cost of temporary directors. Free online federal tax filing 2011 The cost of organizational meetings. Free online federal tax filing 2011 State incorporation fees. Free online federal tax filing 2011 The cost of legal services. Free online federal tax filing 2011 Nonqualifying costs. Free online federal tax filing 2011   The following items are capital expenses that cannot be amortized: Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs. Free online federal tax filing 2011 Costs associated with the transfer of assets to the corporation. Free online federal tax filing 2011 Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. Free online federal tax filing 2011 Qualifying costs. Free online federal tax filing 2011   A partnership can amortize an organizational cost only if it meets all the following tests. Free online federal tax filing 2011 It is for the creation of the partnership and not for starting or operating the partnership trade or business. Free online federal tax filing 2011 It is chargeable to a capital account (see chapter 1). Free online federal tax filing 2011 It could be amortized over the life of the partnership if the partnership had a fixed life. Free online federal tax filing 2011 It is incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. Free online federal tax filing 2011 However, if the partnership uses the cash method of accounting and pays the cost after the end of its first tax year, see Cash method partnership under How To Amortize, later. Free online federal tax filing 2011 It is for a type of item normally expected to benefit the partnership throughout its entire life. Free online federal tax filing 2011   Organizational costs include the following fees. Free online federal tax filing 2011 Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. Free online federal tax filing 2011 Accounting fees for services incident to the organization of the partnership. Free online federal tax filing 2011 Filing fees. Free online federal tax filing 2011 Nonqualifying costs. Free online federal tax filing 2011   The following costs cannot be amortized. Free online federal tax filing 2011 The cost of acquiring assets for the partnership or transferring assets to the partnership. Free online federal tax filing 2011 The cost of admitting or removing partners, other than at the time the partnership is first organized. Free online federal tax filing 2011 The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership. Free online federal tax filing 2011 The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. Free online federal tax filing 2011 These “syndication fees” are capital expenses that cannot be depreciated or amortized. Free online federal tax filing 2011 Liquidation of partnership. Free online federal tax filing 2011   If a partnership is liquidated before the end of the amortization period, the unamortized amount of qualifying organizational costs can be deducted in the partnership's final tax year. Free online federal tax filing 2011 However, these costs can be deducted only to the extent they qualify as a loss from a business. Free online federal tax filing 2011 How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). Free online federal tax filing 2011 You can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both are not less than the applicable amortization period. Free online federal tax filing 2011 Once you choose an amortization period, you cannot change it. Free online federal tax filing 2011 To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. Free online federal tax filing 2011 The result is the amount you can deduct for each month. Free online federal tax filing 2011 Cash method partnership. Free online federal tax filing 2011   A partnership using the cash method of accounting can deduct an organizational cost only if it has been paid by the end of the tax year. Free online federal tax filing 2011 However, any cost the partnership could have deducted as an organizational cost in an earlier tax year (if it had been paid that year) can be deducted in the tax year of payment. Free online federal tax filing 2011 How To Make the Election To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 to your return for the first tax year you are in business. Free online federal tax filing 2011 You may also be required to attach an accompanying statement (described later) to your return. Free online federal tax filing 2011 For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. Free online federal tax filing 2011 Generally, for start-up or organizational costs paid or incurred before September 9, 2008, and after October 22, 2004, unless you choose to apply Regulations sections 1. Free online federal tax filing 2011 195-1, 1. Free online federal tax filing 2011 248-1, and 1. Free online federal tax filing 2011 709-1, you must also attach an accompanying statement to elect to amortize the costs. Free online federal tax filing 2011 If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. Free online federal tax filing 2011 See Starting a Business , earlier, for more information. Free online federal tax filing 2011 Generally, you must file the return by the due date (including any extensions). Free online federal tax filing 2011 However, 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). Free online federal tax filing 2011 For more information, see the instructions for Part VI of Form 4562. Free online federal tax filing 2011 You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Free online federal tax filing 2011 Note. Free online federal tax filing 2011 The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business. Free online federal tax filing 2011 If your business is organized as a corporation or partnership, only the corporation or partnership can elect to amortize its start-up or organizational costs. Free online federal tax filing 2011 A shareholder or partner cannot make this election. Free online federal tax filing 2011 You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. Free online federal tax filing 2011 Only the corporation or partnership can amortize these costs. Free online federal tax filing 2011 However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. Free online federal tax filing 2011 These costs qualify as business start-up costs if you acquire the partnership interest. Free online federal tax filing 2011 Start-up costs election statement. Free online federal tax filing 2011   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. Free online federal tax filing 2011 A description of the business to which the start-up costs relate. Free online federal tax filing 2011 A description of each start-up cost incurred. Free online federal tax filing 2011 The month your active business began (or was acquired). Free online federal tax filing 2011 The number of months in your amortization period (which is generally 180 months). Free online federal tax filing 2011 Filing the statement early. Free online federal tax filing 2011   You can elect to amortize your start-up costs by filing the statement with a return for any tax year before the year your active business begins. Free online federal tax filing 2011 If you file the statement early, the election becomes effective in the month of the tax year your active business begins. Free online federal tax filing 2011 Revised statement. Free online federal tax filing 2011   You can file a revised statement to include any start-up costs not included in your original statement. Free online federal tax filing 2011 However, you cannot include on the revised statement any cost you previously treated on your return as a cost other than a start-up cost. Free online federal tax filing 2011 You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. Free online federal tax filing 2011 Organizational costs election statement. Free online federal tax filing 2011   If you elect to amortize your corporation's or partnership's organizational costs, attach a separate statement (if required) that contains the following information. Free online federal tax filing 2011 A description of each cost. Free online federal tax filing 2011 The amount of each cost. Free online federal tax filing 2011 The date each cost was incurred. Free online federal tax filing 2011 The month your corporation or partnership began active business (or acquired the business). Free online federal tax filing 2011 The number of months in your amortization period (which is generally 180 months). Free online federal tax filing 2011 Partnerships. Free online federal tax filing 2011   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. Free online federal tax filing 2011   You do not need to separately list any partnership organizational cost that is less than $10. Free online federal tax filing 2011 Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. Free online federal tax filing 2011   After a partnership makes the election to amortize organizational costs, it can later file an amended return to include additional organizational costs not included in the partnership's original return and statement. Free online federal tax filing 2011 Getting a Lease If you get a lease for business property, you may recover the cost of acquiring the lease by amortizing it over the term of the lease. Free online federal tax filing 2011 The term of the lease for amortization purposes generally includes all renewal options (and any other period for which you and the lessor reasonably expect the lease to be renewed). Free online federal tax filing 2011 However, renewal periods are not included if 75% or more of the cost of acquiring the lease is for the term of the lease remaining on the acquisition date (not including any period for which you may choose to renew, extend, or continue the lease). Free online federal tax filing 2011 For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. Free online federal tax filing 2011 How to amortize. Free online federal tax filing 2011   Enter your deduction in Part VI of Form 4562 if you are deducting amortization that begins during the current year, or on the appropriate line of your tax return if you are not otherwise required to file Form 4562. Free online federal tax filing 2011 Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. Free online federal tax filing 2011 You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income. Free online federal tax filing 2011 You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. Free online federal tax filing 2011 See Anti-Churning Rules, later. Free online federal tax filing 2011 Your amortization deduction each year is the applicable part of the intangible's adjusted basis (for purposes of determining gain), figured by amortizing it ratably over 15 years (180 months). Free online federal tax filing 2011 The 15-year period begins with the later of: The month the intangible is acquired, or The month the trade or business or activity engaged in for the production of income begins. Free online federal tax filing 2011 You cannot deduct amortization for the month you dispose of the intangible. Free online federal tax filing 2011 If you pay or incur an amount that increases the basis of an amortizable section 197 intangible after the 15-year period begins, amortize it over the remainder of the 15-year period beginning with the month the basis increase occurs. Free online federal tax filing 2011 You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. Free online federal tax filing 2011 Tax-exempt use property subject to a lease. Free online federal tax filing 2011   The amortization period for any section 197 intangible leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), shall not be less than 125 percent of the lease term. Free online federal tax filing 2011 Cost attributable to other property. Free online federal tax filing 2011   The rules for section 197 intangibles do not apply to any amount that is included in determining the cost of property that is not a section 197 intangible. Free online federal tax filing 2011 For example, if the cost of computer software is not separately stated from the cost of hardware or other tangible property and you consistently treat it as part of the cost of the hardware or other tangible property, these rules do not apply. Free online federal tax filing 2011 Similarly, none of the cost of acquiring real property held for the production of rental income is considered the cost of goodwill, going concern value, or any other section 197 intangible. Free online federal tax filing 2011 Section 197 Intangibles Defined The following assets are section 197 intangibles and must be amortized over 180 months: Goodwill; Going concern value; Workforce in place; Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers; A patent, copyright, formula, process, design, pattern, know-how, format, or similar item; A customer-based intangible; A supplier-based intangible; Any item similar to items (3) through (7); A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals); A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business; Any franchise, trademark, or trade name; and A contract for the use of, or a term interest in, any item in this list. Free online federal tax filing 2011 You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business. Free online federal tax filing 2011 Goodwill. Free online federal tax filing 2011   This is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor. Free online federal tax filing 2011 Going concern value. Free online federal tax filing 2011   This is the additional value of a trade or business that attaches to property because the property is an integral part of an ongoing business activity. Free online federal tax filing 2011 It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership (but does not include any other section 197 intangible). Free online federal tax filing 2011 It also includes value based on the immediate use or availability of an acquired trade or business, such as the use of earnings during any period in which the business would not otherwise be available or operational. Free online federal tax filing 2011 Workforce in place, etc. Free online federal tax filing 2011   This includes the composition of a workforce (for example, its experience, education, or training). Free online federal tax filing 2011 It also includes the terms and conditions of employment, whether contractual or otherwise, and any other value placed on employees or any of their attributes. Free online federal tax filing 2011   For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. Free online federal tax filing 2011 Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. Free online federal tax filing 2011 Business books and records, etc. Free online federal tax filing 2011   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. Free online federal tax filing 2011 It also includes the cost of customer lists, subscription lists, insurance expirations, patient or client files, and lists of newspaper, magazine, radio, and television advertisers. Free online federal tax filing 2011 Patents, copyrights, etc. Free online federal tax filing 2011   This includes package design, computer software, and any interest in a film, sound recording, videotape, book, or other similar property, except as discussed later under Assets That Are Not Section 197 Intangibles . Free online federal tax filing 2011 Customer-based intangible. Free online federal tax filing 2011   This is the composition of market, market share, and any other value resulting from the future provision of goods or services because of relationships with customers in the ordinary course of business. Free online federal tax filing 2011 For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. Free online federal tax filing 2011 A customer base. Free online federal tax filing 2011 A circulation base. Free online federal tax filing 2011 An undeveloped market or market growth. Free online federal tax filing 2011 Insurance in force. Free online federal tax filing 2011 A mortgage servicing contract. Free online federal tax filing 2011 An investment management contract. Free online federal tax filing 2011 Any other relationship with customers involving the future provision of goods or services. Free online federal tax filing 2011   Accounts receivable or other similar rights to income for goods or services provided to customers before the acquisition of a trade or business are not section 197 intangibles. Free online federal tax filing 2011 Supplier-based intangible. Free online federal tax filing 2011   A supplier-based intangible is the value resulting from the future acquisitions, (through contract or other relationships with suppliers in the ordinary course of business) of goods or services that you will sell or use. Free online federal tax filing 2011 The amount you pay or incur for supplier-based intangibles includes, for example, any portion of the purchase price of an acquired trade or business that is attributable to the existence of a favorable relationship with persons providing distribution services (such as a favorable shelf or display space or a retail outlet), or the existence of favorable supply contracts. Free online federal tax filing 2011 Do not include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. Free online federal tax filing 2011 Also, see Assets That Are Not Section 197 Intangibles below. Free online federal tax filing 2011 Government-granted license, permit, etc. Free online federal tax filing 2011   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. Free online federal tax filing 2011 For example, you must amortize the capitalized costs of acquiring (including issuing or renewing) a liquor license, a taxicab medallion or license, or a television or radio broadcasting license. Free online federal tax filing 2011 Covenant not to compete. Free online federal tax filing 2011   Section 197 intangibles include a covenant not to compete (or similar arrangement) entered into in connection with the acquisition of an interest in a trade or business, or a substantial portion of a trade or business. Free online federal tax filing 2011 An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. Free online federal tax filing 2011   An arrangement that requires the former owner to perform services (or to provide property or the use of property) is not similar to a covenant not to compete to the extent the amount paid under the arrangement represents reasonable compensation for those services or for that property or its use. Free online federal tax filing 2011 Franchise, trademark, or trade name. Free online federal tax filing 2011   A franchise, trademark, or trade name is a section 197 intangible. Free online federal tax filing 2011 You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. Free online federal tax filing 2011 For information on currently deductible contingent payments, see chapter 11. Free online federal tax filing 2011 Professional sports franchise. Free online federal tax filing 2011   A franchise engaged in professional sports and any intangible assets acquired in connection with acquiring the franchise (including player contracts) is a section 197 intangible amortizable over a 15-year period. Free online federal tax filing 2011 Contract for the use of, or a term interest in, a section 197 intangible. Free online federal tax filing 2011   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. Free online federal tax filing 2011 It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. Free online federal tax filing 2011 Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. Free online federal tax filing 2011 Any interest in a corporation, partnership, trust, or estate. Free online federal tax filing 2011 Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. Free online federal tax filing 2011 Any interest in land. Free online federal tax filing 2011 Most computer software. Free online federal tax filing 2011 (See Computer software , later. Free online federal tax filing 2011 ) Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Free online federal tax filing 2011 An interest in a film, sound recording, video tape, book, or similar property. Free online federal tax filing 2011 A right to receive tangible property or services under a contract or from a governmental agency. Free online federal tax filing 2011 An interest in a patent or copyright. Free online federal tax filing 2011 Certain rights that have a fixed duration or amount. Free online federal tax filing 2011 (See Rights of fixed duration or amount , later. Free online federal tax filing 2011 ) An interest under either of the following. Free online federal tax filing 2011 An existing lease or sublease of tangible property. Free online federal tax filing 2011 A debt that was in existence when the interest was acquired. Free online federal tax filing 2011 A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Free online federal tax filing 2011 Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized. Free online federal tax filing 2011 Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. Free online federal tax filing 2011 You generally must use the straight line method over its useful life. Free online federal tax filing 2011 For certain intangibles, the depreciation period is specified in the law and regulations. Free online federal tax filing 2011 For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. Free online federal tax filing 2011 For more information on depreciating intangible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Publication 946. Free online federal tax filing 2011 Computer software. Free online federal tax filing 2011   Section 197 intangibles do not include the following types of computer software. Free online federal tax filing 2011 Software that meets all the following requirements. Free online federal tax filing 2011 It is, or has been, readily available for purchase by the general public. Free online federal tax filing 2011 It is subject to a nonexclusive license. Free online federal tax filing 2011 It has not been substantially modified. Free online federal tax filing 2011 This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000. Free online federal tax filing 2011 Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Free online federal tax filing 2011 Computer software defined. Free online federal tax filing 2011   Computer software includes all programs designed to cause a computer to perform a desired function. Free online federal tax filing 2011 It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. Free online federal tax filing 2011 Rights of fixed duration or amount. Free online federal tax filing 2011   Section 197 intangibles do not include any right under a contract or from a governmental agency if the right is acquired in the ordinary course of a trade or business (or in an activity engaged in for the production of income) but not as part of a purchase of a trade or business and either: Has a fixed life of less than 15 years, or Is of a fixed amount that, except for the rules for section 197 intangibles, would be recovered under a method similar to the unit-of-production method of cost recovery. Free online federal tax filing 2011 However, this does not apply to the following intangibles. Free online federal tax filing 2011 Goodwill. Free online federal tax filing 2011 Going concern value. Free online federal tax filing 2011 A covenant not to compete. Free online federal tax filing 2011 A franchise, trademark, or trade name. Free online federal tax filing 2011 A customer-related information base, customer-based intangible, or similar item. Free online federal tax filing 2011 Safe Harbor for Creative Property Costs If you are engaged in the trade or business of film production, you may be able to amortize the creative property costs for properties not set for production within 3 years of the first capitalized transaction. Free online federal tax filing 2011 You may amortize these costs ratably over a 15-year period beginning on the first day of the second half of the tax year in which you properly write off the costs for financial accounting purposes. Free online federal tax filing 2011 If, during the 15-year period, you dispose of the creative property rights, you must continue to amortize the costs over the remainder of the 15-year period. Free online federal tax filing 2011 Creative property costs include costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. Free online federal tax filing 2011 Amortize these costs using the rules of Revenue Procedure 2004-36. Free online federal tax filing 2011 For more information, see Revenue Procedure 2004-36, 2004-24 I. Free online federal tax filing 2011 R. Free online federal tax filing 2011 B. Free online federal tax filing 2011 1063, available at  www. Free online federal tax filing 2011 irs. Free online federal tax filing 2011 gov/irb/2004-24_IRB/ar16. Free online federal tax filing 2011 html. Free online federal tax filing 2011 A change in the treatment of creative property costs is a change in method of accounting. Free online federal tax filing 2011 Anti-Churning Rules Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them did not result in a significant change in ownership or use. Free online federal tax filing 2011 These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. Free online federal tax filing 2011 Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. Free online federal tax filing 2011 You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. Free online federal tax filing 2011 You acquired the intangible from a person who held it at any time during the period in (1) and, as part of the transaction, the user did not change. Free online federal tax filing 2011 You granted the right to use the intangible to a person (or a person related to that person) who held or used it at any time during the period in (1). Free online federal tax filing 2011 This applies only if the transaction in which you granted the right and the transaction in which you acquired the intangible are part of a series of related transactions. Free online federal tax filing 2011 See Related person , later, for more information. Free online federal tax filing 2011 Exceptions. Free online federal tax filing 2011   The anti-churning rules do not apply in the following situations. Free online federal tax filing 2011 You acquired the intangible from a decedent and its basis was stepped up to its fair market value. Free online federal tax filing 2011 The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. Free online federal tax filing 2011 This exception does not apply if the transaction in which you acquired the intangible and the transaction in which the seller or transferor acquired it are part of a series of related transactions. Free online federal tax filing 2011 The gain-recognition exception, discussed later, applies. Free online federal tax filing 2011 Related person. Free online federal tax filing 2011   For purposes of the anti-churning rules, the following are related persons. Free online federal tax filing 2011 An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Free online federal tax filing 2011 ), and lineal descendants (children, grandchildren, etc. Free online federal tax filing 2011 ). Free online federal tax filing 2011 A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. Free online federal tax filing 2011 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 20%” is substituted for “at least 80%” in that definition and the determination is made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. Free online federal tax filing 2011 (For an exception, see section 1. Free online federal tax filing 2011 197-2(h)(6)(iv) of the regulations. Free online federal tax filing 2011 ) A trust fiduciary and a corporation if more than 20% of the value of the corporation's outstanding stock is owned, directly or indirectly, by or for the trust or grantor of the trust. Free online federal tax filing 2011 The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Free online federal tax filing 2011 The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Free online federal tax filing 2011 The executor and beneficiary of an estate. Free online federal tax filing 2011 A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). Free online federal tax filing 2011 A corporation and a partnership if the same persons own more than 20% of the value of the outstanding stock of the corporation and more than 20% of the capital or profits interest in the partnership. Free online federal tax filing 2011 Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 20% of the value of the outstanding stock of each corporation. Free online federal tax filing 2011 Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. Free online federal tax filing 2011 A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. Free online federal tax filing 2011 Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code). Free online federal tax filing 2011 When to determine relationship. Free online federal tax filing 2011   Persons are treated as related if the relationship existed at the following time. Free online federal tax filing 2011 In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. Free online federal tax filing 2011 In the case of a series of related transactions (or a series of transactions that comprise a qualified stock purchase under section 338(d)(3) of the Internal Revenue Code), immediately before the earliest transaction or immediately after the last transaction. Free online federal tax filing 2011 Ownership of stock. Free online federal tax filing 2011   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Free online federal tax filing 2011 Rule 1. Free online federal tax filing 2011   Stock 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 online federal tax filing 2011 Rule 2. Free online federal tax filing 2011   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Free online federal tax filing 2011 Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Free online federal tax filing 2011 Rule 3. Free online federal tax filing 2011   An individual owning (other than by applying Rule 2) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Free online federal tax filing 2011 Rule 4. Free online federal tax filing 2011   For purposes of applying Rule 1, 2, or 3, treat stock constructively owned by a person under Rule 1 as actually owned by that person. Free online federal tax filing 2011 Do not treat stock constructively owned by an individual under Rule 2 or 3 as owned by the individual for reapplying Rule 2 or 3 to make another person the constructive owner of the stock. Free online federal tax filing 2011 Gain-recognition exception. Free online federal tax filing 2011   This exception to the anti-churning rules applies if the person you acquired the intangible from (the transferor) meets both of the following requirements. Free online federal tax filing 2011 That person would not be related to you (as described under Related person , earlier) if the 20% test for ownership of stock and partnership interests were replaced by a 50% test. Free online federal tax filing 2011 That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. Free online federal tax filing 2011 See chapter 2 in Publication 544 for information on making this choice. Free online federal tax filing 2011   If this exception applies, the anti-churning rules apply only to the amount of your adjusted basis in the intangible that is more than the gain recognized by the transferor. Free online federal tax filing 2011 Notification. Free online federal tax filing 2011   If the person you acquired the intangible from chooses to recognize gain under the rules for this exception, that person must notify you in writing by the due date of the return on which the choice is made. Free online federal tax filing 2011 Anti-abuse rule. Free online federal tax filing 2011   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. Free online federal tax filing 2011 To avoid the requirement that the intangible be acquired after August 10, 1993. Free online federal tax filing 2011 To avoid any of the anti-churning rules. Free online federal tax filing 2011 More information. Free online federal tax filing 2011   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. Free online federal tax filing 2011 197-2(h). Free online federal tax filing 2011 Incorrect Amount of Amortization Deducted If you later discover that you deducted an incorrect amount for amortization for a section 197 intangible in any year, you may be able to make a correction for that year by filing an amended return. Free online federal tax filing 2011 See Amended Return , next. Free online federal tax filing 2011 If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. Free online federal tax filing 2011 See Changing Your Accounting Method , later. Free online federal tax filing 2011 Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. Free online federal tax filing 2011 A mathematical error made in any year. Free online federal tax filing 2011 A posting error made in any year. Free online federal tax filing 2011 An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. Free online federal tax filing 2011 When to file. Free online federal tax filing 2011   If an amended return is allowed, you must file it by the later of the following dates. Free online federal tax filing 2011 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Free online federal tax filing 2011 (A return filed early is considered filed on the due date. Free online federal tax filing 2011 ) 2 years from the time you paid your tax for that year. Free online federal tax filing 2011 Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Free online federal tax filing 2011 File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. Free online federal tax filing 2011 The following are examples of a change in method of accounting for amortization. Free online federal tax filing 2011 A change in the amortization method, period of recovery, or convention of an amortizable asset. Free online federal tax filing 2011 A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. Free online federal tax filing 2011 A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. Free online federal tax filing 2011 Changes in amortization that are not a change in method of accounting include the following: A change in computing amortization in the tax year in which your use of the asset changes. Free online federal tax filing 2011 An adjustment in the useful life of an amortizable asset. Free online federal tax filing 2011 Generally, the making of a late amortization election or the revocation of a timely valid amortization election. Free online federal tax filing 2011 Any change in the placed-in-service date of an amortizable asset. Free online federal tax filing 2011 See Regulations section 1. Free online federal tax filing 2011 446-1(e)(2)(ii)(a) for more information and examples. Free online federal tax filing 2011 Automatic approval. Free online federal tax filing 2011   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. Free online federal tax filing 2011 For a list of automatic accounting method changes, see the Instructions for Form 3115. Free online federal tax filing 2011 Also see the Instructions for Form 3115 for more information on getting approval, automatic approval procedures, and a list of exceptions to the automatic approval process. Free online federal tax filing 2011 For more information, see Revenue Procedure 2006-12, as modified by Revenue Procedure 2006-37, and Revenue Procedure 2008-52, as amplified, clarified, and modified by Revenue Procedure 2009-39, as clarified and modified by Revenue Procedure 2011-14, as modified and amplified by Revenue Procedure 2011-22, as modified by Revenue Procedure 2012-39, or any successor. Free online federal tax filing 2011 See Revenue Procedure 2006-12, 2006-3 I. Free online federal tax filing 2011 R. Free online federal tax filing 2011 B. Free online federal tax filing 2011 310, available at  www. Free online federal tax filing 2011 irs. Free online federal tax filing 2011 gov/irb/2006-03_IRB/ar14. Free online federal tax filing 2011 html. Free online federal tax filing 2011  See Revenue Procedure 2006-37, 2006-38 I. Free online federal tax filing 2011 R. Free online federal tax filing 2011 B. Free online federal tax filing 2011 499, available at  www. Free online federal tax filing 2011 irs. Free online federal tax filing 2011 gov/irb/2006-38_IRB/ar10. Free online federal tax filing 2011 html. Free online federal tax filing 2011  See Revenue Procedure 2008-52, 2008-36 I. Free online federal tax filing 2011 R. Free online federal tax filing 2011 B. Free online federal tax filing 2011 587, available at www. Free online federal tax filing 2011 irs. Free online federal tax filing 2011 gov/irb/2008-36_IRB/ar09. Free online federal tax filing 2011 html. Free online federal tax filing 2011  See Revenue Procedure 2009-39, 2009-38 I. Free online federal tax filing 2011 R. Free online federal tax filing 2011 B. Free online federal tax filing 2011 371, available at  www. Free online federal tax filing 2011 irs. Free online federal tax filing 2011 gov/irb/2009-38_IRB/ar08. Free online federal tax filing 2011 html. Free online federal tax filing 2011  See Revenue Procedure 2011-14, 2011-4 I. Free online federal tax filing 2011 R. Free online federal tax filing 2011 B. Free online federal tax filing 2011 330, available at  www. Free online federal tax filing 2011 irs. Free online federal tax filing 2011 gov/irb/2011-04_IRB/ar08. Free online federal tax filing 2011 html. Free online federal tax filing 2011  See Revenue Procedure 2011-22, 2011-18 I. Free online federal tax filing 2011 R. Free online federal tax filing 2011 B. Free online federal tax filing 2011 737, available at  www. Free online federal tax filing 2011 irs. Free online federal tax filing 2011 gov/irb/2011-18_IRB/ar08. Free online federal tax filing 2011 html. Free online federal tax filing 2011 Also, see Revenue Procedure 2012-39, 2012-41 I. Free online federal tax filing 2011 R. Free online federal tax filing 2011 B. Free online federal tax filing 2011 470 available at www. Free online federal tax filing 2011 irs. Free online federal tax filing 2011 gov/irb/2012-41_IRB/index. Free online federal tax filing 2011 html. Free online federal tax filing 2011 Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. Free online federal tax filing 2011 If you held the intangible for more than 1 year, any gain on its disposition, up to the amount of allowable amortization, is ordinary income (section 1245 gain). Free online federal tax filing 2011 If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, treat all of the section 197 intangibles as if they were a single asset for purposes of determining the amount of gain that is ordinary income. Free online federal tax filing 2011 Any remaining gain, or any loss, is a section 1231 gain or loss. Free online federal tax filing 2011 If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. Free online federal tax filing 2011 For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. Free online federal tax filing 2011 Nondeductible loss. Free online federal tax filing 2011   You cannot deduct any loss on the disposition or worthlessness of a section 197 intangible that you acquired in the same transaction (or series of related transactions) as other section 197 intangibles you still have. Free online federal tax filing 2011 Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. Free online federal tax filing 2011 Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. Free online federal tax filing 2011 The numerator is the adjusted basis of each remaining intangible on the date of the disposition. Free online federal tax filing 2011 The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. Free online federal tax filing 2011 Covenant not to compete. Free online federal tax filing 2011   A covenant not to compete, or similar arrangement, is not considered disposed of or worthless before you dispose of your entire interest in the trade or business for which you entered into the covenant. Free online federal tax filing 2011 Nonrecognition transfers. Free online federal tax filing 2011   If you acquire a section 197 intangible in a nonrecognition transfer, you are treated as the transferor with respect to the part of your adjusted basis in the intangible that is not more than the transferor's adjusted basis. Free online federal tax filing 2011 You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. Free online federal tax filing 2011 Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. Free online federal tax filing 2011   In a like-kind exchange or involuntary conversion of a section 197 intangible, you must continue to amortize the part of your adjusted basis in the acquired intangible that is not more than your adjusted basis in the exchanged or converted intangible over the remaining amortization period of the exchanged or converted intangible. Free online federal tax filing 2011 Amortize over a new 15-year period the part of your adjusted basis in the acquired intangible that is more than your adjusted basis in the exchanged or converted intangible. Free online federal tax filing 2011 Example. Free online federal tax filing 2011 You own a section 197 intangible you have amortized for 4 full years. Free online federal tax filing 2011 It has a remaining unamortized basis of $30,000. Free online federal tax filing 2011 You exchange the asset plus $10,000 for a like-kind section 197 intangible. Free online federal tax filing 2011 The nonrecognition provisions of like-kind exchanges apply. Free online federal tax filing 2011 You amortize $30,000 of the $40,000 adjusted basis of the acquired intangible over the 11 years remaining in the original 15-year amortization period for the transferred asset. Free online federal tax filing 2011 You amortize the other $10,000 of adjusted basis over a new 15-year period. Free online federal tax filing 2011 For more information, see Regulations section 1. Free online federal tax filing 2011 197-2(g). Free online federal tax filing 2011 Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. Free online federal tax filing 2011 See Reforestation Costs in chapter 7. Free online federal tax filing 2011 You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. Free online federal tax filing 2011 There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. Free online federal tax filing 2011 The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. Free online federal tax filing 2011 A partner, shareholder, or beneficiary cannot make that election. Free online federal tax filing 2011 A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc. Free online federal tax filing 2011 , of a partnership or S corporation. Free online federal tax filing 2011 The amortizable costs of an estate are divided between the estate and the income beneficiary based on the income of the estate allocable to each. Free online federal tax filing 2011 Qualifying costs. Free online federal tax filing 2011   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Free online federal tax filing 2011 Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. Free online federal tax filing 2011 They include costs for the following items. Free online federal tax filing 2011 Site preparation. Free online federal tax filing 2011 Seeds or seedlings. Free online federal tax filing 2011 Labor. Free online federal tax filing 2011 Tools. Free online federal tax filing 2011 Depreciation on equipment used in planting and seeding. Free online federal tax filing 2011 Qualifying costs do not include costs for which the government reimburses you under a cost-sharing program, unless you include the reimbursement in your income. Free online federal tax filing 2011 Qualified timber property. Free online federal tax filing 2011   Qualified timber property is property that contains trees in significant commercial quantities. Free online federal tax filing 2011 It can be a woodlot or other site that you own or lease. Free online federal tax filing 2011 The property qualifies only if it meets all of the following requirements. Free online federal tax filing 2011 It is located in the United States. Free online federal tax filing 2011 It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of timber products. Free online federal tax filing 2011 It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. Free online federal tax filing 2011 Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. Free online federal tax filing 2011 Amortization period. Free online federal tax filing 2011   The 84-month amortization period starts on the first day of the first month of the second half of the tax year you incur the costs (July 1 for a calendar year taxpayer), regardless of the month you actually incur the costs. Free online federal tax filing 2011 You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. Free online federal tax filing 2011 Life tenant and remainderman. Free online federal tax filing 2011   If one person holds the property for life with the remainder going to another person, the life tenant is entitled to the full amortization for qualifying reforestation costs incurred by the life tenant. Free online federal tax filing 2011 Any remainder interest in the property is ignored for amortization purposes. Free online federal tax filing 2011 Recapture. Free online federal tax filing 2011   If you dispose of qualified timber property within 10 years after the tax year you incur qualifying reforestation expenses, report any gain as ordinary income up to the amortization you took. Free online federal tax filing 2011 See chapter 3 of Publication 544 for more information. Free online federal tax filing 2011 How to make the election. Free online federal tax filing 2011   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. Free online federal tax filing 2011 A description of the costs and the dates you incurred them. Free online federal tax filing 2011 A description of the type of timber being grown and the purpose for which it is grown. Free online federal tax filing 2011 Attach a separate statement for each property for which you amortize reforestation costs. Free online federal tax filing 2011   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. Free online federal tax filing 2011 However, 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). Free online federal tax filing 2011 Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. Free online federal tax filing 2011 9100-2” on Form 4562. Free online federal tax filing 2011 File the amended return at the same address you filed the original return. Free online federal tax filing 2011 Revoking the election. Free online federal tax filing 2011   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. Free online federal tax filing 2011 Your application to revoke the election must include your name, address, the years for which your election was in effect, and your reason for revoking it. Free online federal tax filing 2011 Please provide your daytime telephone number (optional), in case we need to contact you. Free online federal tax filing 2011 You, or your duly authorized representative, must sign the application and file it at least 90 days before the due date (without extensions) for filing your income tax return for the first tax year for which your election is to end. Free online federal tax filing 2011    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. Free online federal tax filing 2011 NW, IR-5300 Washington, DC 20224 Geological and Geophysical Costs You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the United States. Free online federal tax filing 2011 These costs can be amortized ratably over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. Free online federal tax filing 2011 For major integrated oil companies (as defined in section 167(h)(5)), these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007). Free online federal tax filing 2011 If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. Free online federal tax filing 2011 Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. Free online federal tax filing 2011 However, see Atmospheric pollution control facilities for an exception. Free online federal tax filing 2011 The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. Free online federal tax filing 2011 Also, you can claim a special depreciation allowance on a certified pollution control facility that is qualified property even if you elect to amortize its cost. Free online federal tax filing 2011 You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. Free online federal tax filing 2011 See chapter 3 of Publication 946. Free online federal tax filing 2011 A certified pollution control facility is a new identifiable treatment facility used in connection with a plant or other property in operation before 1976, to reduce or control water or atmospheric pollution or contamination. Free online federal tax filing 2011 The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. Free online federal tax filing 2011 The facility must be certified by state and federal certifying authorities. Free online federal tax filing 2011 The facility must not significantly increase the output or capacity, extend the useful life, or reduce the total operating costs of the plant or other property. Free online federal tax filing 2011 Also, it must not significantly change the nature of the manufacturing or production process or facility. Free online federal tax filing 2011 The federal certifying authority will not certify your property to the extent it appears you will recover (over the property's useful life) all or part of its cost from the profit based on its operation (such as through sales of recovered wastes). Free online federal tax filing 2011 The federal certifying authority will describe the nature of the potential cost recovery. Free online federal tax filing 2011 You must then reduce the amortizable basis of the facility by this potential recovery. Free online federal tax filing 2011 New identifiable treatment facility. Free online federal tax filing 2011   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. Free online federal tax filing 2011 It does not include a building and its structural components unless the building is exclusively a treatment facility. Free online federal tax filing 2011 Atmospheric pollution control facilities. Free online federal tax filing 2011   Certain atmospheric pollution control facilities can be amortized over 84 months. Free online federal tax filing 2011 To qualify, the following must apply. Free online federal tax filing 2011 The facility must be acquired and placed in service after April 11, 2005. Free online federal tax filing 2011 If acquired, the original use must begin with you after April 11, 2005. Free online federal tax filing 2011 The facility must be used in connection with an electric generation plant or other property placed in operation after December 31, 1975, that is primarily coal fired. Free online federal tax filing 2011 If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies. Free online federal tax filing 2011 Basis reduction for corporations. Free online federal tax filing 2011   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. Free online federal tax filing 2011 More information. Free online federal tax filing 2011   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. Free online federal tax filing 2011 Research and Experimental Costs You can elect to amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period (see Optional write-off method below). Free online federal tax filing 2011 If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. Free online federal tax filing 2011 The amortization period begins the month you first receive an economic benefit from the costs. Free online federal tax filing 2011 For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. Free online federal tax filing 2011 Optional write-off method. Free online federal tax filing 2011   Rather than amortize these costs or deduct them as a current expense, you have the option of deducting (writing off) research and experimental costs ratably over a 10-year period beginning with the tax year in which you incurred the costs. Free online federal tax filing 2011 For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. Free online federal tax filing 2011 Costs you can amortize. Free online federal tax filing 2011   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. Free online federal tax filing 2011 You paid or incurred the costs in your trade or business. Free online federal tax filing 2011 You are not deducting the costs currently. Free online federal tax filing 2011 How to make the election. Free online federal tax filing 2011   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. Free online federal tax filing 2011 Generally, you must file the return by the due date (including extensions). Free online federal tax filing 2011 However, 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). Free online federal tax filing 2011 Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Free online federal tax filing 2011 9100-2” on Form 4562. Free online federal tax filing 2011 File the amended return at the same address you filed the original return. Free online federal tax filing 2011   Your election is binding for the year it is made and for all later years unless you obtain approval from the IRS to change to a different method. Free online federal tax filing 2011 Optional Write-off of Certain Tax Preferences You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. Free online federal tax filing 2011 If you make this election, there is no AMT adjustment. Free online federal tax filing 2011 The applicable costs and the optional recovery periods are as follows: Circulation costs — 3 years, Intangible drilling and development costs — 60 months, Mining exploration and development costs — 10 years, and Research and experimental costs — 10 years. Free online federal tax filing 2011 How to make the election. Free online federal tax filing 2011   To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins: Your name, address, and taxpayer identification number; and The type of cost and the specific amount of the cost for which you are making the election. Free online federal tax filing 2011   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. Free online federal tax filing 2011 However, 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). Free online federal tax filing 2011 Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Free online federal tax filing 2011 9100-2” on Form 4562. Free online federal tax filing 2011 File the amended return at the same address you filed the original return. Free online federal tax filing 2011 Revoking the election. Free online federal tax filing 2011   You must obtain consent from the IRS to revoke your election. Free online federal tax filing 2011 Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. Free online federal tax filing 2011 The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. Free online federal tax filing 2011 If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. Free online federal tax filing 2011 Prev  Up  Next   Home   More Online Publications