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Help Amending Tax Return

Help amending tax return Car Expenses Table of Contents Introduction Depreciation of CarSpecial Depreciation Allowance Depreciation Limit Amended Return Election Not To Claim Special Allowance If you purchased a car after September 10, 2001, for use in your business (or as an employee) and figure your deductible expenses using the actual car expense method, new law contains provisions that may affect your depreciation deduction for that car. Help amending tax return Publication 463, Travel, Entertainment, Gift, and Car Expenses, contains information on figuring depreciation on your car. Help amending tax return However, Publication 463 does not contain the new provisions because it was printed before the law was enacted. Help amending tax return The new provisions are in the Supplement to Publication 463, which is reprinted below. Help amending tax return Supplement to Publication 463 Travel, Entertainment, Gift, and Car Expenses   Introduction This supplemental publication is for taxpayers who purchased a car for business purposes after September 10, 2001, and figure their deductible expenses, including a deduction for depreciation, using the actual car expense method. Help amending tax return After Publication 463 was printed, the Job Creation and Worker Assistance Act of 2002 was signed into law by the President. Help amending tax return Certain provisions of this new law may reduce your taxes for 2001. Help amending tax return The new law contains the following provisions. Help amending tax return A new depreciation deduction, the special depreciation allowance. Help amending tax return An increase in the limit on depreciation for any car for which you claim the new special depreciation allowance. Help amending tax return If you have already filed your 2001 return, you may wish to file an amended return to claim any of these benefits. Help amending tax return See Amended Return, later. Help amending tax return Depreciation of Car If you used the actual car expense method to figure your deduction for a car you own and use in your business (or as an employee), you generally can claim a depreciation deduction. Help amending tax return However, there is a limit on the depreciation deduction you can take for your car each year. Help amending tax return See Depreciation Limit later. Help amending tax return Special Depreciation Allowance The new law allows you to claim a special depreciation allowance. Help amending tax return This special allowance is a deduction equal to 30% of the depreciable basis of qualified property. Help amending tax return You figure the amount of the special depreciation allowance after any section 179 deduction you choose to claim, but before figuring your regular depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS). Help amending tax return See Depreciation Deduction under Actual Car Expenses in chapter 4 of Publication 463 for information about MACRS. Help amending tax return You can claim the special depreciation allowance only for the year the qualified property is placed in service. Help amending tax return Qualified property. Help amending tax return   Qualified property includes a car (any four-wheeled vehicle, including a truck or van not more than 6,000 pounds, that is made primarily for use on public streets, roads, and highways) that meets all of the following requirements. Help amending tax return You bought it new. Help amending tax return You bought it after September 10, 2001. Help amending tax return (But a car is not qualified property if a binding written contract for you to buy the car was in effect before September 11, 2001. Help amending tax return ) You began using it for business after September 10, 2001, and used it more than 50% in a qualified business use. Help amending tax return Example. Help amending tax return Bob bought a new car on October 15, 2001, for $20,000 and placed it in service immediately, using it 75% for business. Help amending tax return Bob's car is qualified property. Help amending tax return Bob chooses not to take a section 179 deduction for the car. Help amending tax return He does claim the new special depreciation allowance. Help amending tax return Bob first must figure the car's depreciable basis, which is $15,000 ($20,000 × . Help amending tax return 75). Help amending tax return He then figures the special depreciation allowance of $4,500 ($15,000 × . Help amending tax return 30). Help amending tax return The remaining depreciable basis of $10,500 ($15,000 - $4,500) is depreciated using MACRS (200% declining balance method, half-year convention) and results in a deduction of $2,100 ($10,500 × . Help amending tax return 20), for a total depreciation deduction for 2001 of $6,600 ($4,500 + $2,100). Help amending tax return However, Bob's depreciation deduction is limited to $5,745 ($7,660 × . Help amending tax return 75), as discussed next. Help amending tax return Depreciation Limit The limit on your depreciation deduction for 2001 is increased to $7,660 for a car that is qualified property (defined above) and for which you claim the special depreciation allowance. Help amending tax return The limit is increased to $23,080 if the car is an electric car. Help amending tax return The section 179 deduction is treated as depreciation for purposes of this limit. Help amending tax return If you use a car less than 100% in your business or work, the limit is $7,660 (or $23,080 for an electric car) multiplied by the percentage of business and investment use during the year. Help amending tax return For cars that do not qualify for (or for which you choose not to claim) the special depreciation allowance, the limit remains $3,060 ($9,280 for electric cars). Help amending tax return Amended Return If you filed your 2001 calendar year return before June 1, 2002, and did not claim the new special depreciation allowance for a qualified car, you can claim it by filing an amended return on Form 1040X, Amended U. Help amending tax return S. Help amending tax return Individual Income Tax Return, by April 15, 2003. Help amending tax return At the top of the Form 1040X, print “Filed pursuant to Revenue Procedure 2002–33. Help amending tax return ” If you are an employee, attach Form 2106, Employee Business Expenses (revised March 2002). Help amending tax return If you are self-employed, attach Form 4562, Depreciation and Amortization (revised March 2002). Help amending tax return Or, you can claim the special depreciation allowance by filing Form 3115, Application for Change in Accounting Method, with your 2002 return. Help amending tax return For details, see Revenue Procedure 2002–33. Help amending tax return (But, filing Form 1040X for 2001 enables you to claim the special allowance earlier than attaching Form 3115 to your 2002 return. Help amending tax return ) You cannot claim the special depreciation allowance on an amended return (or by using Form 3115) if you made, or are treated as having made, the election not to claim it described later. Help amending tax return Example. Help amending tax return The facts are the same as in the previous example except that Bob filed his original 2001 income tax return on April 15, 2002, and claimed a $3,000 ($20,000 x . Help amending tax return 75 x . Help amending tax return 20) depreciation deduction for his new car using MACRS. Help amending tax return Bob now wishes to claim the special depreciation allowance for his new car on an amended 2001 return. Help amending tax return Bob, who is an employee, files Form 1040X, by April 15, 2003, with an updated Form 2106 (revised March 2002) attached, increasing his total depreciation deduction to $5,745, as figured in the earlier example. Help amending tax return Bob's new filled-in Form 2106 is shown later. Help amending tax return Election Not To Claim Special Allowance You can elect not to claim the special depreciation allowance for a car by making a statement attached to, or written on, your return indicating that you are electing not to claim the special depreciation allowance for 5-year property. Help amending tax return As a general rule, you must make this election by the due date (including extensions) of your return. Help amending tax return You can have an automatic extension of 6 months from the due date of your return (excluding extensions) to make the election with an amended return. Help amending tax return To get this extension, you must have filed your original return by the due date (including extensions). Help amending tax return At the top of the statement, print “Filed pursuant to section 301. Help amending tax return 9100–2. Help amending tax return ” If you elect not to claim the special depreciation allowance for a car, you cannot claim it for any other 5-year property placed in service during the same year. Help amending tax return Unless you elect (or are treated as electing) not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. Help amending tax return Deemed election for return filed before June 1, 2002. Help amending tax return   If you did not make the election not to claim the special depreciation allowance in the time and manner described above, you will still be treated as electing not to claim it if all of the following apply. Help amending tax return You filed your 2001 return before June 1, 2002. Help amending tax return You claimed depreciation on your return but did not claim the special depreciation allowance. Help amending tax return You did not file an amended 2001 return by April 15, 2003, or a Form 3115 with your 2002 return, to claim the special depreciation allowance. Help amending tax return Form 2106, Page 1, for Bob Smith Form 2106, Page 2, for Bob Smith Prev  Up  Next   Home   More Online Publications
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Help amending tax return 3. Help amending tax return   Farm Income Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Schedule F (Form 1040) Sales of Farm ProductsSchedule F. Help amending tax return Form 4797. Help amending tax return Sales Caused by Weather-Related Conditions Rents (Including Crop Shares)Crop Shares Agricultural Program PaymentsCommodity Credit Corporation (CCC) Loans Conservation Reserve Program (CRP) Crop Insurance and Crop Disaster Payments Feed Assistance and Payments Cost-Sharing Exclusion (Improvements) Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 Tobacco Quota Buyout Program Payments Other Payments Payment to More Than One Person Income From CooperativesPatronage Dividends Per-Unit Retain Certificates Cancellation of DebtGeneral Rule Exceptions Exclusions Income From Other SourcesSod. Help amending tax return Granting the right to remove deposits. Help amending tax return Income Averaging for FarmersElected Farm Income (EFI) How To Figure the Tax Effect on Other Tax Determinations Tax for Certain Children Who Have Unearned Income Alternative Minimum Tax (AMT) Schedule J Introduction You may receive income from many sources. Help amending tax return You must report the income from all the different sources on your tax return, unless it is excluded by law. Help amending tax return Where you report the income on your tax return depends on its source. Help amending tax return This chapter discusses farm income you report on Schedule F (Form 1040), Profit or Loss From Farming. Help amending tax return For information on where to report other income, see the Instructions for Form 1040, U. Help amending tax return S. Help amending tax return Individual Income Tax Return. Help amending tax return Accounting method. Help amending tax return   The rules discussed in this chapter assume you use the cash method of accounting. Help amending tax return Under the cash method, you generally include an item of income in gross income in the year you receive it. Help amending tax return See Cash Method in chapter 2. Help amending tax return   If you use an accrual method of accounting, different rules may apply to your situation. Help amending tax return See Accrual Method in chapter 2. Help amending tax return Topics - This chapter discusses: Schedule F Sales of farm products Rents (including crop shares) Agricultural program payments Income from cooperatives Cancellation of debt Income from other sources Income averaging for farmers Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 550 Investment Income and Expenses 908 Bankruptcy Tax Guide 925 Passive Activity and At-Risk Rules 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness Sch E (Form 1040) Supplemental Income and Loss Sch J (Form 1040) Income Averaging for Farmers and Fishermen 1099-G Certain Government Payments 1099-PATR Taxable Distributions Received From Cooperatives 4797 Sales of Business Property 4835 Farm Rental Income and Expenses See chapter 16 for information about getting publications and forms. Help amending tax return Schedule F (Form 1040) Individuals, trusts, and partnerships report farm income on Schedule F (Form 1040), Profit or Loss From Farming. Help amending tax return Use this schedule to figure the net profit or loss from regular farming operations. Help amending tax return Income from farming reported on Schedule F includes amounts you receive from cultivating, operating, or managing a farm for gain or profit, either as owner or tenant. Help amending tax return This includes income from operating a stock, dairy, poultry, fish, fruit, or truck farm and income from operating a plantation, ranch, range, or orchard. Help amending tax return It also includes income from the sale of crop shares if you materially participate in producing the crop. Help amending tax return See Rents (Including Crop Shares) , later. Help amending tax return Income received from operating a nursery, which specializes in growing ornamental plants, is considered to be income from farming. Help amending tax return Income reported on Schedule F does not include gains or losses from sales or other dispositions of the following farm assets. Help amending tax return Land. Help amending tax return Depreciable farm equipment. Help amending tax return Buildings and structures. Help amending tax return Livestock held for draft, breeding, sport, or dairy purposes. Help amending tax return Gains and losses from most dispositions of farm assets are discussed in chapters 8 and 9. Help amending tax return Gains and losses from casualties, thefts, and condemnations are discussed in chapter 11. Help amending tax return Sales of Farm Products Where to report. Help amending tax return    Table 3-1 shows where to report the sale of farm products on your tax return. Help amending tax return Schedule F. Help amending tax return   Amounts received from the sales of products you raised on your farm for sale (or bought for resale), such as livestock, produce, or grains, are reported on Schedule F. Help amending tax return This includes money and the fair market value of any property or services you receive. Help amending tax return When you sell farm products bought for resale, your profit or loss is the difference between your selling price (money plus the fair market value of any property) and your basis in the item (usually the cost). Help amending tax return See chapter 6 for information on the basis of assets. Help amending tax return You generally report these amounts on Schedule F for the year you receive payment. Help amending tax return Example. Help amending tax return In 2012, you bought 20 feeder calves for $11,000 for resale. Help amending tax return You sold them in 2013 for $21,000. Help amending tax return You report the $21,000 sales price on Schedule F, line 1b, subtract your $11,000 basis on line 1d, and report the resulting $10,000 profit on line 1e. Help amending tax return Form 4797. Help amending tax return   Sales of livestock held for draft, breeding, sport, or dairy purposes may result in ordinary or capital gains or losses, depending on the circumstances. Help amending tax return In either case, you should always report these sales on Form 4797 instead of Schedule F. Help amending tax return See Livestock under Ordinary or Capital Gain or Loss in chapter 8. Help amending tax return Animals you do not hold primarily for sale are considered business assets of your farm. Help amending tax return Table 3-1. Help amending tax return Where To Report Sales of Farm Products Item Sold Schedule F Form 4797 Farm products raised for sale X   Farm products bought for resale X   Farm assets not held primarily for sale, such as livestock held for draft, breeding, sport, or dairy purposes (bought or raised)   X Sale by agent. Help amending tax return   If your agent sells your farm products, you have constructive receipt of the income when your agent receives payment and you must include the net proceeds from the sale in gross income for the year the agent receives payment. Help amending tax return This applies even if your agent pays you in a later year. Help amending tax return For a discussion on constructive receipt of income, see Cash Method under Accounting Methods in chapter 2. Help amending tax return Sales Caused by Weather-Related Conditions If you sell or exchange more livestock, including poultry, than you normally would in a year because of a drought, flood, or other weather-related condition, you may be able to postpone reporting the gain from the additional animals until the next year. Help amending tax return You must meet all the following conditions to qualify. Help amending tax return Your principal trade or business is farming. Help amending tax return You use the cash method of accounting. Help amending tax return You can show that, under your usual business practices, you would not have sold or exchanged the additional animals this year except for the weather-related condition. Help amending tax return The weather-related condition caused an area to be designated as eligible for assistance by the federal government. Help amending tax return Sales or exchanges made before an area became eligible for federal assistance qualify if the weather-related condition that caused the sale or exchange also caused the area to be designated as eligible for federal assistance. Help amending tax return The designation can be made by the President, the Department of Agriculture (or any of its agencies), or by other federal departments or agencies. Help amending tax return A weather-related sale or exchange of livestock (other than poultry) held for draft, breeding, or dairy purposes may be an involuntary conversion. Help amending tax return See Other Involuntary Conversions in chapter 11. Help amending tax return Usual business practice. Help amending tax return   You must determine the number of animals you would have sold had you followed your usual business practice in the absence of the weather-related condition. Help amending tax return Do this by considering all the facts and circumstances, but do not take into account your sales in any earlier year for which you postponed the gain. Help amending tax return If you have not yet established a usual business practice, rely on the usual business practices of similarly situated farmers in your general region. Help amending tax return Connection with affected area. Help amending tax return   The livestock does not have to be raised or sold in an area affected by a weather-related condition for the postponement to apply. Help amending tax return However, the sale must occur solely because of a weather-related condition that affected the water, grazing, or other requirements of the livestock. Help amending tax return This requirement generally will not be met if the costs of feed, water, or other requirements of the livestock affected by the weather-related condition are not substantial in relation to the total costs of holding the livestock. Help amending tax return Classes of livestock. Help amending tax return   You must figure the amount to be postponed separately for each generic class of animals—for example, hogs, sheep, and cattle. Help amending tax return Do not separate animals into classes based on age, sex, or breed. Help amending tax return Amount to be postponed. Help amending tax return   Follow these steps to figure the amount of gain to be postponed for each class of animals. Help amending tax return Divide the total income realized from the sale of all livestock in the class during the tax year by the total number of such livestock sold. Help amending tax return For this purpose, do not treat any postponed gain from the previous year as income received from the sale of livestock. Help amending tax return Multiply the result in (1) by the excess number of such livestock sold solely because of weather-related conditions. Help amending tax return Example. Help amending tax return You are a calendar year taxpayer and you normally sell 100 head of beef cattle a year. Help amending tax return As a result of drought, you sold 135 head during 2012. Help amending tax return You realized $70,200 from the sale. Help amending tax return On August 9, 2012, as a result of drought, the affected area was declared a disaster area eligible for federal assistance. Help amending tax return The income you can postpone until 2013 is $18,200 [($70,200 ÷ 135) × 35]. Help amending tax return How to postpone gain. Help amending tax return   To postpone gain, attach a statement to your tax return for the year of the sale. Help amending tax return The statement must include your name and address and give the following information for each class of livestock for which you are postponing gain. Help amending tax return A statement that you are postponing gain under Internal Revenue Code (IRC) section 451(e). Help amending tax return Evidence of the weather-related conditions that forced the early sale or exchange of the livestock and the date, if known, on which an area was designated as eligible for assistance by the federal government because of weather-related conditions. Help amending tax return A statement explaining the relationship of the area affected by the weather-related condition to your early sale or exchange of the livestock. Help amending tax return The number of animals sold in each of the 3 preceding years. Help amending tax return The number of animals you would have sold in the tax year had you followed your normal business practice in the absence of weather-related conditions. Help amending tax return The total number of animals sold and the number sold because of weather-related conditions during the tax year. Help amending tax return A computation, as described above, of the income to be postponed for each class of livestock. Help amending tax return   Generally, you must file the statement and the return by the due date of the return, including extensions. Help amending tax return However, for sales or exchanges treated as an involuntary conversion from weather-related sales of livestock in an area eligible for federal assistance (discussed in chapter 11), you can file this statement at any time during the replacement period. Help amending tax return For other sales or exchanges, if you timely filed your return for the year without postponing gain, you can still postpone gain by filing an amended return within 6 months of the due date of the return (excluding extensions). Help amending tax return Attach the statement to the amended return and write “Filed pursuant to section 301. Help amending tax return 9100-2” at the top of the amended return. Help amending tax return File the amended return at the same address you filed the original return. Help amending tax return Once you have filed the statement, you can cancel your postponement of gain only with the approval of the IRS. Help amending tax return Rents (Including Crop Shares) The rent you receive for the use of your farmland is generally rental income, not farm income. Help amending tax return However, if you materially participate in farming operations on the land, the rent is farm income. Help amending tax return See Landlord Participation in Farming in chapter 12. Help amending tax return Pasture income and rental. Help amending tax return   If you pasture someone else's livestock and take care of them for a fee, the income is from your farming business. Help amending tax return You must enter it as Other income on Schedule F. Help amending tax return If you simply rent your pasture for a flat cash amount without providing services, report the income as rent on Part I of Schedule E (Form 1040), Supplemental Income and Loss. Help amending tax return Crop Shares You must include rent you receive in the form of crop shares in income in the year you convert the shares to money or the equivalent of money. Help amending tax return It does not matter whether you use the cash method of accounting or an accrual method of accounting. Help amending tax return If you materially participate in operating a farm from which you receive rent in the form of crop shares or livestock, the rental income is included in self-employment income. Help amending tax return See Landlord Participation in Farming in chapter 12. Help amending tax return Report the rental income on Schedule F. Help amending tax return If you do not materially participate in operating the farm, report this income on Form 4835 and carry the net income or loss to Schedule E (Form 1040). Help amending tax return The income is not included in self-employment income. Help amending tax return Crop shares you use to feed livestock. Help amending tax return   Crop shares you receive as a landlord and feed to your livestock are considered converted to money when fed to the livestock. Help amending tax return You must include the fair market value of the crop shares in income at that time. Help amending tax return You are entitled to a business expense deduction for the livestock feed in the same amount and at the same time you include the fair market value of the crop share as rental income. Help amending tax return Although these two transactions cancel each other for figuring adjusted gross income on Form 1040, they may be necessary to figure your self-employment tax. Help amending tax return See  chapter 12. Help amending tax return Crop shares you give to others (gift). Help amending tax return   Crop shares you receive as a landlord and give to others are considered converted to money when you make the gift. Help amending tax return You must report the fair market value of the crop share as income, even though someone else receives payment for the crop share. Help amending tax return Example. Help amending tax return A tenant farmed part of your land under a crop-share arrangement. Help amending tax return The tenant harvested and delivered the crop in your name to an elevator company. Help amending tax return Before selling any of the crop, you instructed the elevator company to cancel your warehouse receipt and make out new warehouse receipts in equal amounts of the crop in the names of your children. Help amending tax return They sell their crop shares in the following year and the elevator company makes payments directly to your children. Help amending tax return In this situation, you are considered to have received rental income and then made a gift of that income. Help amending tax return You must include the fair market value of the crop shares in your income for the tax year you gave the crop shares to your children. Help amending tax return Crop share loss. Help amending tax return   If you are involved in a rental or crop-share lease arrangement, any loss from these activities may be subject to the limits under the passive loss rules. Help amending tax return See Publication 925 for information on these rules. Help amending tax return Agricultural Program Payments You must include in income most government payments, such as those for approved conservation practices, direct payments, and counter-cyclical payments, whether you receive them in cash, materials, services, or commodity certificates. Help amending tax return However, you can exclude from income some payments you receive under certain cost-sharing conservation programs. Help amending tax return See Cost-Sharing Exclusion (Improvements) , later. Help amending tax return Report the agricultural program payment on the appropriate line of Schedule F, Part I. Help amending tax return Report the full amount even if you return a government check for cancellation, refund any of the payment you receive, or the government collects all or part of the payment from you by reducing the amount of some other payment or Commodity Credit Corporation (CCC) loan. Help amending tax return However, you can deduct the amount you refund or return or that reduces some other payment or loan to you. Help amending tax return Claim the deduction on Schedule F for the year of repayment or reduction. Help amending tax return Commodity Credit Corporation (CCC) Loans Generally, you do not report loans you receive as income. Help amending tax return However, if you pledge part or all of your production to secure a CCC loan, you can treat the loan as if it were a sale of the crop and report the loan proceeds as income in the year you receive them. Help amending tax return You do not need approval from the IRS to adopt this method of reporting CCC loans. Help amending tax return Once you report a CCC loan as income for the year received, you generally must report all CCC loans in that year and later years in the same way. Help amending tax return However, you can obtain for your tax year an automatic consent to change your method of accounting for loans received from the CCC, from including the loan amount in gross income for the tax year in which the loan is received to treating the loan amount as a loan. Help amending tax return For more information, see Part I of the Instructions for Form 3115 and Revenue Procedure 2008-52. Help amending tax return Revenue Procedure 2008-52, 2008-36 I. Help amending tax return R. Help amending tax return B. Help amending tax return 587, is available at  www. Help amending tax return irs. Help amending tax return gov/irb/2008-36_IRB/ar09. Help amending tax return html. Help amending tax return You can request income tax withholding from CCC loan payments you receive. Help amending tax return Use Form W-4V, Voluntary Withholding Request. Help amending tax return See chapter 16 for information about ordering the form. Help amending tax return To elect to report a CCC loan as income, include the loan proceeds as income on Schedule F, line 7a, for the year you receive it. Help amending tax return Attach a statement to your return showing the details of the loan. Help amending tax return You must file the statement and the return by the due date of the return, including extensions. Help amending tax return 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). Help amending tax return Attach the statement to the amended return and write “Filed pursuant to section 301. Help amending tax return 9100-2” at the top of the return. Help amending tax return File the amended return at the same address you filed the original return. Help amending tax return When you make this election, the amount you report as income becomes your basis in the commodity. Help amending tax return See chapter 6 for information on the basis of assets. Help amending tax return If you later repay the loan, redeem the pledged commodity, and sell it, you report as income at the time of sale the sale proceeds minus your basis in the commodity. Help amending tax return If the sale proceeds are less than your basis in the commodity, you can report the difference as a loss on Schedule F. Help amending tax return If you forfeit the pledged crops to the CCC in full payment of the loan, the forfeiture is treated for tax purposes as a sale of the crops. Help amending tax return If you did not report the loan proceeds as income for the year you received them, you must include them in your income for the year of the forfeiture. Help amending tax return Form 1099-A. Help amending tax return   If you forfeit pledged crops to the CCC in full payment of a loan, you may receive a Form 1099-A, Acquisition or Abandonment of Secured Property. Help amending tax return “CCC” should be shown in box 6. Help amending tax return The amount of any CCC loan outstanding when you forfeited your commodity should also be indicated on the form. Help amending tax return Market Gain Under the CCC nonrecourse marketing assistance loan program, your repayment amount for a loan secured by your pledge of an eligible commodity is generally based on the lower of the loan rate or the prevailing world market price for the commodity on the date of repayment. Help amending tax return If you repay the loan when the world price is lower, the difference between that repayment amount and the original loan amount is market gain. Help amending tax return Whether you use cash or CCC certificates to repay the loan, you will receive a Form 1099-G showing the market gain you realized. Help amending tax return Market gain should be reported as follows. Help amending tax return If you elected to include the CCC loan in income in the year you received it, do not include the market gain in income. Help amending tax return However, adjust the basis of the commodity for the amount of the market gain. Help amending tax return If you did not include the CCC loan in income in the year received, include the market gain in your income. Help amending tax return The following examples show how to report market gain. Help amending tax return Example 1. Help amending tax return Mike Green is a cotton farmer. Help amending tax return He uses the cash method of accounting and files his tax return on a calendar year basis. Help amending tax return He has deducted all expenses incurred in producing the cotton and has a zero basis in the commodity. Help amending tax return In 2012, Mike pledged 1,000 pounds of cotton as collateral for a CCC loan of $2,000 (a loan rate of $2. Help amending tax return 00 per pound). Help amending tax return In 2013, he repaid the loan and redeemed the cotton for $1,500 when the world price was $1. Help amending tax return 50 per pound (lower than the loan amount). Help amending tax return Later in 2013, he sold the cotton for $2,500. Help amending tax return The market gain on the redemption was $. Help amending tax return 50 ($2. Help amending tax return 00 – $1. Help amending tax return 50) per pound. Help amending tax return Mike realized total market gain of $500 ($. Help amending tax return 50 x 1,000 pounds). Help amending tax return How he reports this market gain and figures his gain or loss from the sale of the cotton depends on whether he included CCC loans in income in 2012. Help amending tax return Included CCC loan. Help amending tax return   Mike reported the $2,000 CCC loan as income for 2012 on Schedule F, line 1b, so he is treated as if he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when he redeemed it. Help amending tax return The $500 market gain is not recognized on the redemption. Help amending tax return He reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. Help amending tax return   Mike's basis in the cotton after he redeemed it was $1,500, which is the redemption (repurchase) price paid for the cotton. Help amending tax return His gain from the sale is $1,000 ($2,500 – $1,500). Help amending tax return He reports the $1,000 gain as income for 2013 on Schedule F, line 1b. Help amending tax return Excluded CCC loan. Help amending tax return   Mike has income of $500 from market gain in 2013. Help amending tax return He reports it on Schedule F, lines 4a and 4b. Help amending tax return His basis in the cotton is zero, so his gain from its sale is $2,500. Help amending tax return He reports the $2,500 gain as income for 2013 on Schedule F, line 1b. Help amending tax return Example 2. Help amending tax return The facts are the same as in Example 1 except that, instead of selling the cotton for $2,500 after redeeming it, Mike entered into an option-to-purchase contract with a cotton buyer before redeeming the cotton. Help amending tax return Under that contract, Mike authorized the cotton buyer to pay the CCC loan on Mike's behalf. Help amending tax return In 2013, the cotton buyer repaid the loan for $1,500 and immediately exercised his option, buying the cotton for $1,500. Help amending tax return How Mike reports the $500 market gain on the redemption of the cotton and figures his gain or loss from its sale depends on whether he included CCC loans in income in 2012. Help amending tax return Included CCC loan. Help amending tax return   As in Example 1, Mike is treated as though he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when the cotton buyer redeemed it for him. Help amending tax return The $500 market gain is not recognized on the redemption. Help amending tax return Mike reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. Help amending tax return   Also, as in Example 1, Mike's basis in the cotton when the cotton buyer redeemed it for him was $1,500. Help amending tax return Mike has no gain or loss on its sale to the cotton buyer for that amount. Help amending tax return Excluded CCC loan. Help amending tax return   As in Example 1, Mike has income of $500 from market gain in 2013. Help amending tax return He reports it on Schedule F, lines 4a and 4b. Help amending tax return His basis in the cotton is zero, so his gain from its sale is $1,500. Help amending tax return He reports the $1,500 gain as income for 2013 on Schedule F, line 1b. Help amending tax return Conservation Reserve Program (CRP) Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a long-term contract with the USDA, agreeing to convert to a less intensive use of that cropland. Help amending tax return You must include the annual rental payments and any one-time incentive payment you receive under the program on Schedule F, lines 4a and 4b. Help amending tax return Cost-share payments you receive may qualify for the cost-sharing exclusion. Help amending tax return See Cost-Sharing Exclusion (Improvements) , later. Help amending tax return CRP payments are reported to you on Form 1099-G. Help amending tax return Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. Help amending tax return See the instructions for Schedule SE (Form 1040). Help amending tax return Crop Insurance and Crop Disaster Payments You must include in income any crop insurance proceeds you receive as the result of physical crop damage or reduction of crop revenue, or both. Help amending tax return You generally include them in the year you receive them. Help amending tax return Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops, because of drought, flood, or any other natural disaster. Help amending tax return You can request income tax withholding from crop disaster payments you receive from the federal government. Help amending tax return Use Form W-4V, Voluntary Withholding Request. Help amending tax return See chapter 16 for information about ordering the form. Help amending tax return Election to postpone reporting until the following year. Help amending tax return   You can postpone reporting some or all crop insurance proceeds as income until the year following the year the physical damage occurred if you meet all the following conditions. Help amending tax return You use the cash method of accounting. Help amending tax return You receive the crop insurance proceeds in the same tax year the crops are damaged. Help amending tax return You can show that under your normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred. Help amending tax return   Deferral is not permitted for proceeds received from revenue insurance policies. Help amending tax return   To postpone reporting some or all crop insurance proceeds received in 2013, report the amount you received on Schedule F, line 6a, but do not include it as a taxable amount on line 6b. Help amending tax return Check the box on line 8c and attach a statement to your tax return. Help amending tax return The statement must include your name and address and contain the following information. Help amending tax return A statement that you are making an election under IRC section 451(d) and Regulations section 1. Help amending tax return 451-6. Help amending tax return The specific crop or crops physically destroyed or damaged. Help amending tax return A statement that under your normal business practice you would have included income from some or all of the destroyed or damaged crops in gross income for a tax year following the year the crops were destroyed or damaged. Help amending tax return The cause of the physical destruction or damage and the date or dates it occurred. Help amending tax return The total payments you received from insurance carriers, itemized for each specific crop, and the date you received each payment. Help amending tax return The name of each insurance carrier from whom you received payments. Help amending tax return   One election covers all crops representing a single trade or business. Help amending tax return If you have more than one farming business, make a separate election for each one. Help amending tax return For example, if you operate two separate farms on which you grow different crops and you keep separate books for each farm, you should make two separate elections to postpone reporting insurance proceeds you receive for crops grown on each of your farms. Help amending tax return   An election is binding for the year unless the IRS approves your request to change it. Help amending tax return To request IRS approval to change your election, write to the IRS at the following address giving your name, address, identification number, the year you made the election, and your reasons for wanting to change it. Help amending tax return Ogden Submission Processing Center P. Help amending tax return O. Help amending tax return Box 9941 Ogden, UT 84409 Feed Assistance and Payments The Disaster Assistance Act of 1988 authorizes programs to provide feed assistance, reimbursement payments, and other benefits to qualifying livestock producers if the Secretary of Agriculture determines that, because of a natural disaster, a livestock emergency exists. Help amending tax return These programs include partial reimbursement for the cost of purchased feed and for certain transportation expenses. Help amending tax return They also include the donation or sale at a below-market price of feed owned by the Commodity Credit Corporation. Help amending tax return Include in income: The market value of donated feed, The difference between the market value and the price you paid for feed you buy at below-market prices, and Any cost reimbursement you receive. Help amending tax return You must include these benefits in income in the year you receive them. Help amending tax return You cannot postpone reporting them under the rules explained earlier for weather-related sales of livestock or crop insurance proceeds. Help amending tax return Report the benefits on Schedule F, Part I, as agricultural program payments. Help amending tax return You can usually take a current deduction for the same amount as a feed expense. Help amending tax return Cost-Sharing Exclusion (Improvements) You can exclude from your income part or all of a payment you receive under certain federal or state cost-sharing conservation, reclamation, and restoration programs. Help amending tax return A payment is any economic benefit you get as a result of an improvement. Help amending tax return However, this exclusion applies only to that part of a payment that meets all three of the following tests. Help amending tax return It was for a capital expense. Help amending tax return You cannot exclude any part of a payment for an expense you can deduct in the year you pay or incur it. Help amending tax return You must include the payment for a deductible expense in income, and you can take any offsetting deduction. Help amending tax return See chapter 5 for information on deducting soil and water conservation expenses. Help amending tax return It does not substantially increase your annual income from the property for which it is made. Help amending tax return An increase in annual income is substantial if it is more than the greater of the following amounts. Help amending tax return 10% of the average annual income derived from the affected property before receiving the improvement. Help amending tax return $2. Help amending tax return 50 times the number of affected acres. Help amending tax return The Secretary of Agriculture certified that the payment was primarily made for conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. Help amending tax return Qualifying programs. Help amending tax return   If the three tests listed above are met, you can exclude part or all of the payments from the following programs. Help amending tax return The rural clean water program authorized by the Federal Water Pollution Control Act. Help amending tax return The rural abandoned mine program authorized by the Surface Mining Control and Reclamation Act of 1977. Help amending tax return The water bank program authorized by the Water Bank Act. Help amending tax return The emergency conservation measures program authorized by title IV of the Agricultural Credit Act of 1978. Help amending tax return The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act. Help amending tax return The great plains conservation program authorized by the Soil Conservation and Domestic Policy Act. Help amending tax return The resource conservation and development program authorized by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation and Domestic Allotment Act. Help amending tax return Certain small watershed programs, listed later. Help amending tax return Any program of a state, possession of the United States, a political subdivision of any of these, or of the District of Columbia under which payments are made to individuals primarily for conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. Help amending tax return Several state programs have been approved. Help amending tax return For information about the status of those programs, contact the state offices of the Farm Service Agency (FSA) and the Natural Resources and Conservation Service (NRCS). Help amending tax return Small watershed programs. Help amending tax return   If the three tests listed earlier are met, you can exclude part or all of the payments you receive under the following programs for improvements made in connection with a watershed. Help amending tax return The programs under the Watershed Protection and Flood Prevention Act. Help amending tax return The flood prevention projects under the Flood Control Act of 1944. Help amending tax return The Emergency Watershed Protection Program under the Flood Control Act of 1950. Help amending tax return Certain programs under the Colorado River Basin Salinity Control Act. Help amending tax return The Wetlands Reserve Program authorized by the Food Security Act of 1985, the Federal Agriculture Improvement and Reform Act of 1996 and the Farm Security and Rural Investment Act of 2002. Help amending tax return The Environmental Quality Incentives Program (EQIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. Help amending tax return The Wildlife Habitat Incentives Program (WHIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. Help amending tax return The Soil and Water Conservation Assistance Program authorized by the Agricultural Risk Protection Act of 2000. Help amending tax return The Agricultural Management Assistance Program authorized by the Agricultural Risk Protection Act of 2000. Help amending tax return The Conservation Reserve Program authorized by the Food Security Act of 1985 and the Federal Agriculture Improvement and Reform Act of 1996. Help amending tax return The Forest Land Enhancement Program authorized under the Farm Security and Rural Investment Act of 2002. Help amending tax return The Conservation Security Program authorized by the Food Security Act of 1985. Help amending tax return The Forest Health Protection Program (FHPP) authorized by the Cooperative Forestry Assistance Act of 1978. Help amending tax return Income realized. Help amending tax return   The gross income you realize upon getting an improvement under these cost-sharing programs is the value of the improvement reduced by the sum of the excludable portion and your share of the cost of the improvement (if any). Help amending tax return Value of the improvement. Help amending tax return   You determine the value of the improvement by multiplying its fair market value (defined in chapter 6) by a fraction. Help amending tax return The numerator of the fraction is the total cost of the improvement (all amounts paid either by you or by the government for the improvement) reduced by the sum of the following items. Help amending tax return Any government payments under a program not listed earlier. Help amending tax return Any part of a government payment under a program listed earlier that the Secretary of Agriculture has not certified as primarily for conservation. Help amending tax return Any government payment to you for rent or for your services. Help amending tax return The denominator of the fraction is the total cost of the improvement. Help amending tax return Excludable portion. Help amending tax return   The excludable portion is the present fair market value of the right to receive annual income from the affected acreage of the greater of the following amounts. Help amending tax return 10% of the prior average annual income from the affected acreage. Help amending tax return The prior average annual income is the average of the gross receipts from the affected acreage for the last 3 tax years before the tax year in which you started to install the improvement. Help amending tax return $2. Help amending tax return 50 times the number of affected acres. Help amending tax return The calculation of present fair market value of the right to receive annual income is too complex to discuss in this publication. Help amending tax return You may need to consult your tax advisor for assistance. Help amending tax return Example. Help amending tax return One hundred acres of your land was reclaimed under a rural abandoned mine program contract with the Natural Resources Conservation Service of the USDA. Help amending tax return The total cost of the improvement was $500,000. Help amending tax return The USDA paid $490,000. Help amending tax return You paid $10,000. Help amending tax return The value of the cost-sharing improvement is $15,000. Help amending tax return The present fair market value of the right to receive the annual income described in (1) above is $1,380, and the present fair market value of the right to receive the annual income described in (2) is $1,550. Help amending tax return The excludable portion is the greater amount, $1,550. Help amending tax return You figure the amount to include in gross income as follows: Value of cost-sharing improvement $15,000 Minus: Your share $10,000     Excludable portion 1,550 11,550 Amount included in income $ 3,450 Effects of the exclusion. Help amending tax return   When you figure the basis of property you acquire or improve using cost-sharing payments excluded from income, subtract the excluded payments from your capital costs. Help amending tax return Any payment excluded from income is not part of your basis. Help amending tax return In the example above, the increase in basis is $500,000 – $490,000 + $3,450 = $13,450. Help amending tax return   In addition, you cannot take depreciation, amortization, or depletion deductions for the part of the cost of the property for which you receive cost-sharing payments you exclude from income. Help amending tax return How to report the exclusion. Help amending tax return   Attach a statement to your tax return (or amended return) for the tax year you receive the last government payment for the improvement. Help amending tax return The statement must include the following information. Help amending tax return The dollar amount of the cost funded by the government payment. Help amending tax return The value of the improvement. Help amending tax return The amount you are excluding. Help amending tax return   Report the total cost-sharing payments you receive on Schedule F, line 4a, and the taxable amount on line 4b. Help amending tax return Recapture. Help amending tax return   If you dispose of the property within 20 years after you received the excluded payments, you must treat as ordinary income part or all of the cost-sharing payments you excluded. Help amending tax return In the above example, if the 100 acres were sold within 20 years of the exclusion for a gain of $2,000, $1,550 of that amount would be included in ordinary income. Help amending tax return You must report the recapture on Form 4797. Help amending tax return See Section 1255 property under Other Gains in chapter 9. Help amending tax return Electing not to exclude payments. Help amending tax return   You can elect not to exclude all or part of any payments you receive under these programs. Help amending tax return If you make this election for all of these payments, none of the above restrictions and rules apply. Help amending tax return You must make this election by the due date, including extensions, for filing your return. Help amending tax return In the example above, an election not to exclude payments results in $5,000 included in income and a $15,000 increase in basis. Help amending tax return 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). Help amending tax return Write “Filed pursuant to section 301. Help amending tax return 9100-2” at the top of the amended return and file it at the same address you filed the original return. Help amending tax return Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 The Farm Security and Rural Investment Act of 2002 created two new types of payments—direct and counter-cyclical payments. Help amending tax return You must include these payments on Schedule F, lines 4a and 4b. Help amending tax return The Food, Conservation, and Energy Act of 2008 provides for direct and counter-cyclical payments (DCP) as well as Average Crop Revenue Election (ACRE) payments. Help amending tax return You must include these payments on Schedule F, lines 6a and 6b. Help amending tax return The American Taxpayer Relief Act of 2012, enacted on January 2, 2013, amends the Food, Conservation, and Energy Act of 2008 and provided a one-year extension for these payments. Help amending tax return Tobacco Quota Buyout Program Payments The Fair and Equitable Tobacco Reform Act of 2004, title VI of the American Jobs Creation Act of 2004, terminated the tobacco marketing quota program and the tobacco price support program. Help amending tax return As a result, the USDA offered to enter into contracts with eligible tobacco quota holders and growers to provide compensation for the lost value of the quotas and related price support. Help amending tax return If you are an eligible tobacco quota holder, your contract entitles you to receive total payments of $7 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. Help amending tax return If you are an eligible tobacco grower, your contract entitles you to receive total payments of up to $3 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. Help amending tax return Tobacco Quota Holders Contract payments you receive are considered proceeds from a sale of your tobacco quota as of the date on which you and the USDA enter into the contract. Help amending tax return Your taxable gain or loss is the total amount received for your quota reduced by any amount treated as interest (discussed below), over your adjusted basis. Help amending tax return The gain or loss is capital or ordinary depending on how you used the quota. Help amending tax return See Capital or ordinary gain or loss , later. Help amending tax return Report the entire gain on your income tax return for the tax year that includes the date you entered into the contract if you elect not to use the installment method. Help amending tax return Adjusted basis. Help amending tax return   The adjusted basis of your quota is determined differently depending on how you obtained the quota. Help amending tax return The basis of a quota derived from an original grant by the federal government is zero. Help amending tax return The basis of a purchased quota is the purchase price. Help amending tax return The basis of a quota received as a gift is generally the same as the donor's basis. Help amending tax return However, under certain circumstances, the basis is increased by the amount of gift taxes paid. Help amending tax return If the basis is greater than the fair market value of the quota at the time of the gift, the basis for determining loss is the fair market value. Help amending tax return The basis of an inherited quota is generally the fair market value of the quota at the time of the decedent's death. Help amending tax return Reduction of basis. Help amending tax return   You are required to reduce the basis of your tobacco quota by the following amounts. Help amending tax return Deductions you took for amortization, depletion, or depreciation. Help amending tax return Amounts you previously deducted as a loss because of a reduction in the number of pounds of tobacco allowable under the quota. Help amending tax return The entire cost of a purchased quota you deducted in an earlier year (which reduces your basis to zero). Help amending tax return Amount treated as interest. Help amending tax return   You must reduce your tobacco quota buyout program payment by the amount treated as interest. Help amending tax return The interest is reportable as ordinary income. Help amending tax return If payments total $3,000 or less, your total quota buyout program payment does not include any amount treated as interest and you are not required to reduce the total payment you receive. Help amending tax return   In all other cases, a portion of each payment may be treated as interest for federal tax purposes. Help amending tax return You may be required to reduce your total quota buyout program payment before you calculate your gain or loss. Help amending tax return For more information, see Notice 2005-57, 2005-32 I. Help amending tax return R. Help amending tax return B. Help amending tax return 267, available at www. Help amending tax return irs. Help amending tax return gov/irb/2005-32_IRB/ar13. Help amending tax return html. Help amending tax return Installment method. Help amending tax return   You may use the installment method to report a gain if you receive at least one payment after the close of your tax year. Help amending tax return Under the installment method, a portion of the gain is taken into account in each year in which a payment is received. Help amending tax return See chapter 10 for more information. Help amending tax return Capital or ordinary gain or loss. Help amending tax return   Whether your gain or loss is ordinary or capital depends on how you used the quota. Help amending tax return Quota used in the trade or business of farming. Help amending tax return   If you used the quota in the trade or business of farming and you held it for more than one year, you report the transaction as a section 1231 transaction on Form 4797. Help amending tax return See Section 1231 transactions in the Instructions for Form 4797 for detailed information on reporting section 1231 transactions. Help amending tax return Quota held for investment. Help amending tax return   If you held the quota for investment purposes, any gain or loss is capital gain or loss. Help amending tax return The same result also applies if you held the quota for the production of income, though not connected with a trade or business. Help amending tax return Gain treated as ordinary income. Help amending tax return   If you previously deducted any of the following items, some or all of the capital gain must be recharacterized and reported as ordinary income. Help amending tax return Any resulting capital gain is taxed as ordinary income up to the amount previously deducted. Help amending tax return The cost of acquiring a quota. Help amending tax return Amounts for amortization, depletion, or depreciation. Help amending tax return Amounts to reflect a reduction in the quota pounds. Help amending tax return   You should include the ordinary income on your return for the tax year even if you use the installment method to report the remainder of the gain. Help amending tax return Self-employment income. Help amending tax return   The tobacco quota buyout payments are not self-employment income. Help amending tax return Income averaging for farmers. Help amending tax return   The gain or loss resulting from the quota payments does not qualify for income averaging. Help amending tax return A tobacco quota is considered an interest in land. Help amending tax return Income averaging is not available for gain or loss arising from the sale or other disposition of land. Help amending tax return Involuntary conversion. Help amending tax return   The buyout of the tobacco quota is not an involuntary conversion. Help amending tax return Form 1099-S. Help amending tax return   A tobacco quota is considered an interest in land, so the USDA will generally report the total amount you receive under a contract on Form 1099-S, Proceeds From Real Estate Transactions, if the amount is $600 or more. Help amending tax return The USDA will generally report any portion of a payment treated as interest of $600 or more to you on Form 1099-INT, Interest Income, for the year in which the payment is made. Help amending tax return Like-kind exchange of quota. Help amending tax return   You may postpone reporting the gain or loss from tobacco quota buyout payments by entering into a like-kind exchange if you comply with the requirements of section 1031 and the regulations thereunder. Help amending tax return See Notice 2005-57 for more information. Help amending tax return Tobacco Growers Contract payments you receive are determined by reference to the amount of quota under which you produced (or planted) quota tobacco during the 2002, 2003, and 2004 tobacco marketing years and are prorated based on the number of years that you produced (or planted) quota tobacco during those years. Help amending tax return Taxation of payments to tobacco growers. Help amending tax return   Payments to growers replace ordinary income that would have been earned had the tobacco marketing quota and price support programs continued. Help amending tax return Individuals will generally report the payments as an Agricultural program payment on Schedule F. Help amending tax return If you are a landowner who does not materially participate in the operation or management of the farm and are receiving the grower payment because your farm rental income is based on the tobacco grown by a tenant, the grower payment should be reported on Form 4835. Help amending tax return Self-employment income. Help amending tax return   Payments to growers generally represent self-employment income. Help amending tax return If the grower is an individual carrying on a trade or business and deriving income (other than farm rental income properly reported on Form 4835) from that trade or business, the payments are net earnings from self-employment. Help amending tax return Income averaging for farmers. Help amending tax return   Payments to growers who are individuals qualify for farm income averaging. Help amending tax return Form 1099-G. Help amending tax return   If the amount received in a taxable year is $600 or more, the amount will generally be reported by the USDA on a Form 1099-G. Help amending tax return Other Payments You must include most other government program payments in income. Help amending tax return Fertilizer and Lime Include in income the value of fertilizer or lime you receive under a government program. Help amending tax return How to claim the offsetting deduction is explained under Fertilizer and Lime in chapter 4. Help amending tax return Improvements If government payments are based on improvements, such as a pollution control facility, you must include them in income. Help amending tax return You must also capitalize the full cost of the improvement. Help amending tax return Since you have included the payments in income, they do not reduce your basis. Help amending tax return However, see Cost-Sharing Exclusion (Improvements) , earlier, for additional information. Help amending tax return National Tobacco Growers' Settlement Trust Fund Payments If you are a producer, landowner, or tobacco quota owner who receives money from the National Tobacco Growers' Settlement Trust Fund, you must report those payments as income. Help amending tax return You should receive a Form 1099-MISC, Miscellaneous Income, that shows the payment amount. Help amending tax return If you produce a tobacco crop, report the payments as income from farming on your Schedule F. Help amending tax return If you are a landowner or tobacco quota owner who leases tobacco-related property but you do not produce the crop, report the payments as farm rental income on Form 4835. Help amending tax return Payment to More Than One Person The USDA reports program payments to the IRS. Help amending tax return It reports a program payment intended for more than one person as having been paid to the person whose identification number is on record for that payment (payee of record). Help amending tax return If you, as the payee of record, receive a program payment belonging to someone else, such as your landlord, the amount belonging to the other person is a nominee distribution. Help amending tax return You should file Form 1099-G to report the identity of the actual recipient to the IRS. Help amending tax return You should also give this information to the recipient. Help amending tax return You can avoid the inconvenience of unnecessary inquiries about the identity of the recipient if you file this form. Help amending tax return Report the total amount reported to you as the payee of record on Schedule F, line 4a or 6a. Help amending tax return However, do not report as a taxable amount on line 4b or 6b any amount belonging to someone else. Help amending tax return See chapter 16 for information about ordering Form 1099-G. Help amending tax return Income From Cooperatives If you buy farm supplies through a cooperative, you may receive income from the cooperative in the form of patronage dividends (refunds). Help amending tax return If you sell your farm products through a cooperative, you may receive either patronage dividends or a per-unit retain certificate, explained later, from the cooperative. Help amending tax return Form 1099-PATR. Help amending tax return   The cooperative will report the income to you on Form 1099-PATR or a similar form and send a copy to the IRS. Help amending tax return Form 1099-PATR may also show an alternative minimum tax adjustment that you must include on Form 6251, Alternative Minimum Tax—Individuals, if you are required to file the form. Help amending tax return For information on the alternative minimum tax, see the Instructions for Form 6251. Help amending tax return Patronage Dividends You generally report patronage dividends as income on Schedule F, lines 3a and 3b, for the tax year you receive them. Help amending tax return They include the following items. Help amending tax return Money paid as a patronage dividend, including cash advances received (for example, from a marketing cooperative). Help amending tax return The stated dollar value of qualified written notices of allocation. Help amending tax return The fair market value of other property. Help amending tax return Do not report as income on line 3b any patronage dividends you receive from expenditures that were not deductible, such as buying personal or family items, capital assets, or depreciable property. Help amending tax return You must reduce the cost or other basis of these items by the amount of such patronage dividends received. Help amending tax return Personal items include fuel purchased for personal use, basic local telephone service, and personal long distance calls. Help amending tax return If you cannot determine what the dividend is for, report it as income on lines 3a and 3b. Help amending tax return Qualified written notice of allocation. Help amending tax return   If you receive a qualified written notice of allocation as part of a patronage dividend, you must generally include its stated dollar value in your income on Schedule F, lines 3a and 3b, in the year you receive it. Help amending tax return A written notice of allocation is qualified if at least 20% of the patronage dividend is paid in money or by qualified check and either of the following conditions is met. Help amending tax return The notice must be redeemable in cash for at least 90 days after it is issued, and you must have received a written notice of your right of redemption at the same time as the written notice of allocation. Help amending tax return You must have agreed to include the stated dollar value in income in the year you receive the notice by doing one of the following. Help amending tax return Signing and giving a written agreement to the cooperative. Help amending tax return Getting or keeping membership in the cooperative after it adopted a bylaw providing that membership constitutes agreement. Help amending tax return The cooperative must notify you in writing of this bylaw and give you a copy. Help amending tax return Endorsing and cashing a qualified check paid as part of the same patronage dividend. Help amending tax return You must cash the check by the 90th day after the close of the payment period for the cooperative's tax year for which the patronage dividend was paid. Help amending tax return Qualified check. Help amending tax return   A qualified check is any instrument that is redeemable in money and meets both of the following requirements. Help amending tax return It is part of a patronage dividend that also includes a qualified written notice of allocation for which you met condition 2(c), above. Help amending tax return It is imprinted with a statement that endorsing and cashing it constitutes the payee's consent to include in income the stated dollar value of any written notices of allocation paid as part of the same patronage dividend. Help amending tax return Loss on redemption. Help amending tax return   You can deduct on Schedule F, Part II, any loss incurred on the redemption of a qualified written notice of allocation you received in the ordinary course of your farming business. Help amending tax return The loss is the difference between the stated dollar amount of the qualified written notice you included in income and the amount you received when you redeemed it. Help amending tax return Nonqualified notice of allocation. Help amending tax return   Do not include the stated dollar value of any nonqualified notice of allocation in income when you receive it. Help amending tax return Your basis in the notice is zero. Help amending tax return You must include in income for the tax year of disposition any amount you receive from its sale, redemption, or other disposition. Help amending tax return Report that amount, up to the stated dollar value of the notice, on Schedule F, lines 3a and 3b. Help amending tax return However, do not include that amount in your income if the notice resulted from buying or selling capital assets or depreciable property or from buying personal items, as explained in the following discussions. Help amending tax return   If the amount you receive is more than the stated dollar value of the notice, report the excess as the type of income it represents. Help amending tax return For example, if it represents interest income, report it on your return as interest. Help amending tax return Buying or selling capital assets or depreciable property. Help amending tax return   Do not include in income patronage dividends from buying capital assets or depreciable property used in your business. Help amending tax return You must, however, reduce the basis of these assets by the dividends. Help amending tax return This reduction is taken into account as of the first day of the tax year in which the dividends are received. Help amending tax return If the dividends are more than your unrecovered basis, reduce the unrecovered basis to zero and include the difference on Schedule F, line 3a, for the tax year you receive them. Help amending tax return   This rule and the exceptions explained below also apply to amounts you receive from the sale, redemption, or other disposition of a nonqualified notice of allocation that resulted from buying or selling capital assets or depreciable property. Help amending tax return Example. Help amending tax return On July 1, 2012, Mr. Help amending tax return Brown, a patron of a cooperative association, bought a machine for his dairy farm business from the association for $2,900. Help amending tax return The machine has a life of 7 years under MACRS (as provided in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946, Depreciation and Amortization). Help amending tax return Mr. Help amending tax return Brown files his return on a calendar year basis. Help amending tax return For 2012, he claimed a depreciation deduction of $311, using the 10. Help amending tax return 71% depreciation rate from the 150% declining balance, half-year convention table (shown in Table A-14 in Appendix A of Publication 946). Help amending tax return On July 2, 2013, the cooperative association paid Mr. Help amending tax return Brown a $300 cash patronage dividend for buying the machine. Help amending tax return Mr. Help amending tax return Brown adjusts the basis of the machine and figures his depreciation deduction for 2013 (and later years) as follows. Help amending tax return Cost of machine on July 1, 2012 $2,900 Minus: 2012 depreciation $311     2013 cash dividend 300 611 Adjusted basis for  depreciation for 2013: $2,289 Depreciation rate: 1 ÷ 6½ (remaining recovery period as of 1/1/2012) = 15. Help amending tax return 38% × 1. Help amending tax return 5 = 23. Help amending tax return 07% Depreciation deduction for 2013 ($2,289 × 23. Help amending tax return 07%) $528 Exceptions. Help amending tax return   If the dividends are for buying or selling capital assets or depreciable property you did not own at any time during the year you received the dividends, you must include them on Schedule F, lines 3a and 3b, unless one of the following rules applies. Help amending tax return If the dividends relate to a capital asset you held for more than 1 year for which a loss was or would have been deductible, treat them as gain from the sale or exchange of a capital asset held for more than 1 year. Help amending tax return If the dividends relate to a capital asset for which a loss was not or would not have been deductible, do not report them as income (ordinary or capital gain). Help amending tax return   If the dividends are for selling capital assets or depreciable property during the year you received the dividends, treat them as an additional amount received on the sale. Help amending tax return Personal purchases. Help amending tax return   Because you cannot deduct the cost of personal, living, or family items, such as supplies, equipment, or services not related to the production of farm income, you can omit from the taxable amount of patronage dividends on Schedule F, line 3b, any dividends from buying those items (and you must reduce the cost or other basis of those items by the amount of the dividends). Help amending tax return This rule also applies to amounts you receive from the sale, redemption, or other disposition of a nonqualified written notice of allocation resulting from these purchases. Help amending tax return Per-Unit Retain Certificates A per-unit retain certificate is any written notice that shows the stated dollar amount of a per-unit retain allocation made to you by the cooperative. Help amending tax return A per-unit retain allocation is an amount paid to patrons for products sold for them that is fixed without regard to the net earnings of the cooperative. Help amending tax return These allocations can be paid in money, other property, or qualified certificates. Help amending tax return Per-unit retain certificates issued by a cooperative generally receive the same tax treatment as patronage dividends, discussed earlier. Help amending tax return Qualified certificates. Help amending tax return   Qualified per-unit retain certificates are those issued to patrons who have agreed to include the stated dollar amount of these certificates in income in the year of receipt. Help amending tax return The agreement may be made in writing or by getting or keeping membership in a cooperative whose bylaws or charter states that membership constitutes agreement. Help amending tax return If you receive qualified per-unit retain certificates, include the stated dollar amount of the certificates in income on Schedule F, lines 3a and 3b, for the tax year you receive them. Help amending tax return Nonqualified certificates. Help amending tax return   Do not include the stated dollar value of a nonqualified per-unit retain certificate in income when you receive it. Help amending tax return Your basis in the certificate is zero. Help amending tax return You must include in income any amount you receive from its sale, redemption, or other disposition. Help amending tax return Report the amount you receive from the disposition as ordinary income on Schedule F, lines 3a and 3b, for the tax year of disposition. Help amending tax return Cancellation of Debt This section explains the general rule for including canceled debt in income and the exceptions to the general rule. Help amending tax return For more information on canceled debt, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Help amending tax return General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in gross income for tax purposes. Help amending tax return Discharge of qualified farm indebtedness (defined below) is one of the exceptions to the general rule. Help amending tax return It is excluded from taxable income (see Exclusions , later). Help amending tax return Report the canceled amount on Schedule F, line 8, if you incurred the debt in your farming business. Help amending tax return If the debt is a nonbusiness debt, report the canceled amount as other income on Form 1040, line 21. Help amending tax return Election to defer income from discharge of indebtedness. Help amending tax return   You can elect to defer income from a discharge of business indebtedness that occurred after 2008 and before 2011. Help amending tax return Generally, if the election is made, the deferred income is included in gross income ratably over a 5-year period beginning in 2014 (for calendar year taxpayers) and the exclusions listed below do not apply. Help amending tax return See IRC section 108(i) and Publication 4681 for details. Help amending tax return Form 1099-C. Help amending tax return   If a federal agency, financial institution, credit union, finance company, or credit card company cancels or forgives your debt of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. Help amending tax return The amount of debt canceled is shown in box 2. Help amending tax return Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Help amending tax return These exceptions apply before the exclusions discussed below. Help amending tax return Price reduced after purchase. Help amending tax return   If your purchase of property was financed by the seller and the seller reduces the amount of the debt at a time when you are not insolvent and the reduction does not occur in a chapter 11 bankruptcy case, the amount of the debt reduction will be treated as a reduction in the purchase price of the property. Help amending tax return Reduce your basis in the property by the amount of the reduction in the debt. Help amending tax return The rules that apply to bankruptcy and insolvency are explained below under Exclusions . Help amending tax return Deductible debt. Help amending tax return   You do not realize income from a canceled debt to the extent the payment of the debt would have been a deductible expense. Help amending tax return This exception applies before the price reduction exception discussed above and the bankruptcy and insolvency exclusions discussed next. Help amending tax return Example. Help amending tax return You get accounting services for your farm on credit. Help amending tax return Later, you have trouble paying your farm debts, but you are not bankrupt or insolvent. Help amending tax return Your accountant forgives part of the amount you owe for the accounting services. Help amending tax return How you treat the canceled debt depends on your method of accounting. Help amending tax return Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Help amending tax return Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Help amending tax return Exclusions Do not include canceled debt in income in the following situations. Help amending tax return The cancellation takes place in a bankruptcy case under title 11 of the U. Help amending tax return S. Help amending tax return Code. Help amending tax return The cancellation takes place when you are insolvent. Help amending tax return The canceled debt is a qualified farm debt. Help amending tax return The canceled debt is a qualified real property business debt (in the case of a taxpayer other than a C corporation). Help amending tax return See Publication 334, Tax Guide for Small Business, chapter 5. Help amending tax return The canceled debt is qualified principal residence indebtedness which is discharged after 2006 and before 2014. Help amending tax return The exclusions do not apply in the following situations: If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations (2), (3), (4), and (5) do not apply. Help amending tax return If a canceled debt is excluded from income because it takes place when you are insolvent, the exclusions in situations (3) and (4) do not apply to the extent you are insolvent. Help amending tax return If a canceled debt is excluded from income because it is qualified principal residence indebtedness, the exclusion in situation (2) does not apply unless you elect to apply situation (2) instead of the exclusion for qualified principal residence indebtedness. Help amending tax return See Form 982 , later, for information on how to claim an exclusion for a canceled debt. Help amending tax return Debt. Help amending tax return   For this discussion, debt includes any debt for which you are liable or that attaches to property you hold. Help amending tax return Bankruptcy and Insolvency You can exclude a canceled debt from income if you are bankrupt or to the extent you are insolvent. Help amending tax return Bankruptcy. Help amending tax return   A bankruptcy case is a case under title 11 of the U. Help amending tax return S. Help amending tax return Code if you are under the jurisdiction of the court and the cancellation of the debt is granted by the court or is the result of a plan approved by the court. Help amending tax return   Do not include debt canceled in a bankruptcy case in your income in the year it is canceled. Help amending tax return Instead, you must use the amount canceled to reduce your tax attributes, explained below under Reduction of tax attributes . Help amending tax return Insolvency. Help amending tax return   You are insolvent to the extent your liabilities are more than the fair market value of your assets immediately before the cancellation of debt. Help amending tax return   You can exclude canceled debt from gross income up to the amount by which you are insolvent. Help amending tax return If the canceled debt is more than this amount and the debt qualifies, you can apply the rules for qualified farm debt or qualified real property business debt to the difference. Help amending tax return Otherwise, you include the difference in gross income. Help amending tax return Use the amount excluded because of insolvency to reduce any tax attributes, as explained below under Reduction of tax attributes . Help amending tax return You must reduce the tax attributes under the insolvency rules before applying the rules for qualified farm debt or for qualified real property business debt. Help amending tax return Example. Help amending tax return You had a $15,000 debt that was not qualified principal residence debt canceled outside of bankruptcy. Help amending tax return Immediately before the cancellation, your liabilities totaled $80,000 and your assets totaled $75,000. Help amending tax return Since your liabilities were more than your assets, you were insolvent to the extent of $5,000 ($80,000 − $75,000). Help amending tax return You can exclude this amount from income. Help amending tax return The remaining canceled debt ($10,000) may be subject to the qualified farm debt or qualified real property business debt rules. Help amending tax return If not, you must include it in income. Help amending tax return Reduction of tax attributes. Help amending tax return   If you exclude canceled debt from income in a bankruptcy case or during insolvency, you must use the excluded debt to reduce certain tax attributes. Help amending tax return Order of reduction. Help amending tax return   You must use the excluded canceled debt to reduce the following tax attributes in the order listed unless you elect to reduce the basis of depreciable property first, as explained later. Help amending tax return Net operating loss (NOL). Help amending tax return Reduce any NOL for the tax year of the debt cancellation, and then any NOL carryover to that year. Help amending tax return Reduce the NOL or NOL carryover one dollar for each dollar of excluded canceled debt. Help amending tax return General business credit carryover. Help amending tax return Reduce the credit carryover to or from the tax year of the debt cancellation. Help amending tax return Reduce the carryover 331/3 cents for each dollar of excluded canceled debt. Help amending tax return Minimum tax credit. Help amending tax return Reduce the minimum tax credit available at the beginning of the tax year following the tax year of the debt cancellation. Help amending tax return Reduce the credit 331/3 cents for each dollar of excluded canceled debt. Help amending tax return Capital loss. Help amending tax return Reduce any net capital loss for the tax year of the debt cancellation, and then any capital loss carryover to that year. Help amending tax return Reduce the capital loss or loss carryover one dollar for each dollar of excluded canceled debt. Help amending tax return Basis. Help amending tax return Reduce the basis of the property you hold at the beginning of the tax year following the tax year of the debt cancellation in the following order. Help amending tax return Real property (except inventory) used in your trade or business or held for investment that secured the canceled debt. Help amending tax return Personal property (except inventory and accounts and notes receivable) used in your trade or business or held for investment that secured the canceled debt. Help amending tax return Other property (except inventory and accounts and notes receivable) used in your trade or business or held for investment. Help amending tax return Inventory and accounts and notes receivable. Help amending tax return Other property. Help amending tax return Reduce the basis one dollar for each dollar of excluded canceled debt. Help amending tax return However, the reduction cannot be more than the total basis of property and the amount of money you hold immediately after the debt cancellation minus your total liabilities immediately after the cancellation. Help amending tax return For allocation rules that apply to basis reductions for multiple canceled debts, see Regulations section 1. Help amending tax return 1017-1(b)(2). Help amending tax return Also see Electing to reduce the basis of depreciable property