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How To Amend Taxes

How to amend taxes Publication 3 - Main Content Table of Contents Gross IncomeForeign Source Income Military Spouses Residency Relief Act (MSRRA) Community Property Form W-2 Codes Adjustments to IncomeArmed Forces Reservists Individual Retirement Arrangements Moving Expenses Combat Zone ExclusionCombat Zone Serving in a Combat Zone Amount of Exclusion Alien StatusResident Aliens Nonresident Aliens Dual-Status Aliens Sale of HomePeriod of suspension. How to amend taxes Qualified official extended duty. How to amend taxes ForeclosuresLump Sum Portion of Settlement Payment. How to amend taxes Interest Payment on Lump Sum Portion of Settlement Payment. How to amend taxes Lost Equity Portion of Settlement Payment. How to amend taxes The rules that apply to a lost equity payment you received for the foreclosure of a property that was not your main home are different. How to amend taxes Interest Payment on Lost Equity Portion of Settlement Payment. How to amend taxes Itemized DeductionsEmployee Business Expenses Repayments CreditsFirst-Time Homebuyer Credit Child Tax Credit Earned Income Credit Credit for Excess Social Security Tax Withheld Forgiveness of Decedent's Tax LiabilityCombat Zone Related Forgiveness Terrorist or Military Action Related Forgiveness Claims for Tax Forgiveness Filing ReturnsSame-Sex Marriage Where To File When To File Signing Returns Extension of DeadlinesService That Qualifies for an Extension of Deadline Length of Extension Actions for Which Deadlines Are Extended Deferral of Payment Maximum Rate of Interest How To Get Tax HelpLow Income Taxpayer Clinics Gross Income Members of the Armed Forces receive many different types of pay and allowances. How to amend taxes Some are included in gross income while others are excluded from gross income. How to amend taxes Included items (Table 1) are subject to tax and must be reported on your tax return. How to amend taxes Excluded items (Table 2) are not subject to tax, but may have to be shown on your tax return. How to amend taxes For information on the exclusion of pay for service in a combat zone and other tax benefits for combat zone participants, see Combat Zone Exclusion and Extension of Deadlines , later. How to amend taxes Table 1. How to amend taxes Included Items These items are included in gross income, unless the pay is for service in a combat zone. How to amend taxes Basic pay • Active duty   Bonus pay • Career status   • Attendance at a designated service school     • Enlistment  • Officer   • Back wages     • Overseas extension   • CONUS COLA       • Reenlistment   • Drills         • Reserve training         • Training duty   Other pay  • Accrued leave          • High deployment per diem Special • Aviation career incentives      • Personal money allowances paid to pay • Career sea     high-ranking officers   • Diving duty      • Student loan repayment from programs   • Foreign duty (outside the 48 contiguous     such as the Department of Defense   states and the District of Columbia)     Educational Loan Repayment Program   • Foreign language proficiency     when year's service (requirement) is not   • Hardship duty     attributable to a combat zone   • Hostile fire or imminent danger         • Medical and dental officers   Incentive pay  • Submarine   • Nuclear-qualified officers      • Flight   • Optometry      • Hazardous duty   • Pharmacy      • High altitude/Low Opening (HALO)   • Special compensation for assistance with activities of daily living (SCAADL)         • Special duty assignment pay         • Veterinarian         • Voluntary Separation Incentive       Basic allowance for housing (BAH). How to amend taxes   You can still deduct mortgage interest and real estate taxes on your home if you pay these expenses with your BAH. How to amend taxes Table 2. How to amend taxes Excluded Items The exclusion for certain items applies whether the item is furnished in kind or is a reimbursement or allowance. How to amend taxes There is no exclusion for the personal use of a government-provided vehicle. How to amend taxes Combat  zone pay • Compensation for active service while in a combat zone Note: Limited amount for officers     • Housing and cost-of-living allowances abroad paid by the U. How to amend taxes S. How to amend taxes Government or by a foreign government         • OHA (Overseas Housing Allowance)                     Other pay • Defense counseling         • Disability, including payments received for injuries incurred as a direct result of a terrorist or military action         • Group-term life insurance   Moving • Dislocation   • Professional education   allowances • Military base realignment and   • ROTC educational and subsistence     closure benefit    allowances     (the exclusion is limited as   • State bonus pay for service in a     described above)   combat zone     • Move-in housing   • Survivor and retirement protection     • Moving household and   plan premiums     personal items   • Uniform allowances     • Moving trailers or mobile homes   • Uniforms furnished to enlisted     • Storage   personnel     • Temporary lodging and         temporary lodging expenses                 Travel • Annual round trip for dependent Death • Burial services   allowances students allowances • Death gratuity payments to     • Leave between consecutive   eligible survivors     overseas tours   • Travel of dependents to burial site     • Reassignment in a dependent         restricted status Family • Certain educational expenses for     • Transportation for you or your allowances dependents     dependents during ship overhaul   • Emergencies     or inactivation   • Evacuation to a place of safety     • Per diem   • Separation             In-kind military • Dependent-care assistance program Living • BAH (Basic Allowance for Housing)   benefits • Legal assistance allowances • BAS (Basic Allowance for Subsistence)     • Medical/dental care         • Commissary/exchange discounts         • Space-available travel on government aircraft           Death gratuity. How to amend taxes   Any death gratuity paid to a survivor of a member of the Armed Forces is excluded from gross income. How to amend taxes Differential wage payments. How to amend taxes   Differential wage payments are any payments made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and that represent all or a portion of the wages the individual would have received from the employer if the individual was performing services for the employer. How to amend taxes These amounts are taxable and cannot be excluded as combat pay. How to amend taxes Military base realignment and closure benefit. How to amend taxes   Payments made under the Homeowners Assistance Program (HAP) generally are excluded from income. How to amend taxes However, the excludable amount cannot be more than the maximum amount described in subsection (c) of 42 USC 3374 as in effect on November 6, 2009. How to amend taxes Any part of the payment that is more than this limit is included in gross income. How to amend taxes For more information about the HAP, see http://hap. How to amend taxes usace. How to amend taxes army. How to amend taxes mil/Overview. How to amend taxes html. How to amend taxes Qualified reservist distribution (QRD). How to amend taxes   A QRD is a distribution to an individual of all or part of the individual's balance in a cafeteria plan or health flexible spending arrangement if: The individual was a reservist who was ordered or called to active duty for more than 179 days or for an indefinite period, and The distribution is made no sooner than the date the reservist was ordered or called to active duty and no later than the last day reimbursements could otherwise be made under the arrangement for the plan year which includes the date of the order or the call to duty. How to amend taxes A QRD is included in gross income and is subject to employment taxes. How to amend taxes The employer must include the QRD (reduced by after-tax contributions to the health flexible spending arrangement) as wages on Form W-2, Wage and Tax Statement. How to amend taxes Thrift Savings Plan (TSP) distributions. How to amend taxes   If you participate in the Uniformed Services TSP and receive a distribution from your account, the distribution is generally included in your taxable income. How to amend taxes   If your contributions included tax-exempt combat zone pay, the part of the distribution attributable to those contributions is tax exempt. How to amend taxes However, the earnings on the tax-exempt portion of the distribution are taxable. How to amend taxes The TSP will provide a statement showing the taxable and non-taxable portions of the distribution. How to amend taxes Roth Thrift Savings Plan (TSP) balance. How to amend taxes   You may be able to contribute to a designated Roth Account through the TSP known as the Roth TSP. How to amend taxes Roth TSP contributions are after-tax contributions, subject to the same contribution limits as the traditional TSP. How to amend taxes Qualified distributions from a Roth TSP are not included in your income. How to amend taxes For more details, see Thrift Savings Accounts in Part II of Publication 721, Tax Guide to U. How to amend taxes S. How to amend taxes Civil Service Retirement Benefits. How to amend taxes State bonus payments. How to amend taxes   Bonus payments made by a state (or a political subdivision thereof) to a member or former member of the uniformed services of the United States or to a dependent of such member are considered combat pay (and therefore may not be taxable) if the payments are made only because of the member's service in a combat zone. How to amend taxes See Combat Zone , later, for a list of designated combat zones. How to amend taxes Foreign Source Income If you are a U. How to amend taxes S. How to amend taxes citizen with income from sources outside the United States (foreign income), you must report all of that income (except for amounts that U. How to amend taxes S. How to amend taxes law allows you to exclude) on your tax return. How to amend taxes This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2 or a Form 1099. How to amend taxes This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). How to amend taxes Certain taxpayers can exclude income earned in foreign countries. How to amend taxes For 2013, this exclusion amount can be as much as $97,600. How to amend taxes However, the foreign earned income exclusion does not apply to the wages and salaries of military and civilian employees of the U. How to amend taxes S. How to amend taxes Government. How to amend taxes Employees of the U. How to amend taxes S. How to amend taxes Government include those who work at United States Armed Forces exchanges, commissioned and noncommissioned officers' messes, Armed Forces motion picture services, and similar personnel. How to amend taxes Other foreign income earned by military personnel or their spouses may be eligible for the foreign earned income exclusion. How to amend taxes For more information on the exclusion, see Publication 54. How to amend taxes Residents of American Samoa may be able to exclude income from American Samoa. How to amend taxes This possession exclusion does not apply to wages and salaries of military and civilian employees of the U. How to amend taxes S. How to amend taxes Government. How to amend taxes If you need information on the possession exclusion, see Publication 570, Tax Guide for Individuals With Income From U. How to amend taxes S. How to amend taxes Possessions. How to amend taxes Military Spouses Residency Relief Act (MSRRA) If you are the civilian spouse of an active duty U. How to amend taxes S. How to amend taxes military servicemember and your domicile is the same as the servicemember's, you can choose to keep your prior residence or domicile for tax purposes when you accompany the servicemember spouse, who is relocating under military orders to a new duty station in one of the 50 states, the District of Columbia, or a U. How to amend taxes S. How to amend taxes possession. How to amend taxes See Publication 570 for more information. How to amend taxes Domicile. How to amend taxes   Your domicile is the permanent legal home you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. How to amend taxes It is not always where you presently live. How to amend taxes Community Property The pay you earn as a member of the Armed Forces may be subject to community property laws depending on your marital status, your domicile, and the nature of the payment. How to amend taxes The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. How to amend taxes Marital status. How to amend taxes   Community property rules apply to married persons whose domicile during the tax year was in a community property state. How to amend taxes The rules may affect your tax liability if you file separate returns or are divorced during the year. How to amend taxes Nevada, Washington, and California domestic partners. How to amend taxes   A registered domestic partner in Nevada, Washington, or California generally must report half the combined income of the individual and his or her domestic partner. How to amend taxes See Form 8958 and Publication 555, Community Property. How to amend taxes Nature of the payment. How to amend taxes   Active duty military pay is subject to community property laws. How to amend taxes Armed Forces retired or retainer pay may be subject to community property laws. How to amend taxes   For more information on community property laws, see Publication 555. How to amend taxes Form W-2 Codes Form W-2 shows your total pay and other compensation and the income tax, social security tax, and Medicare tax that was withheld during the year. How to amend taxes Form W-2 also shows other amounts that you may find important in box 12. How to amend taxes The amounts shown in box 12 are generally preceded by a code. How to amend taxes A list of codes used in box 12 is shown, next. How to amend taxes Form W-2 Reference Guide for Box 12 Codes A Uncollected social security or RRTA J Nontaxable sick pay T Adoption benefits   tax on tips             K 20% excise tax on excess golden V Income from exercise of B Uncollected Medicare tax on tips   parachute payments   nonstatutory stock option(s)             C Taxable cost of group-term life L Substantiated employee business W Employer contributions (including   insurance over $50,000   expense reimbursements   employee contributions through a           cafeteria plan) to an employee's D Elective deferrals under a section M Uncollected social security or RRTA   health savings account (HSA)   401(k) cash or deferred arrangement   tax on taxable cost of group-term life       plan (including a SIMPLE 401(k)   insurance over $50,000 (former Y Deferrals under a section 409A   arrangement)   employees only)   nonqualified deferred           compensation plan E Elective deferrals under a section N Uncollected Medicare tax on taxable       403(b) salary reduction agreement   cost of group-term life insurance Z Income under section 409A on a       over $50,000 (former employees only)   nonqualified deferred F Elective deferrals under a section       compensation plan   408(k)(6) salary reduction SEP P Excludable moving expense           reimbursements paid directly to AA Designated Roth contributions G Elective deferrals and employer   employee   under a section 401(k) plan   contributions (including nonelective           deferrals) to a section 457(b) Q Nontaxable combat pay BB Designated Roth contributions   deferred compensation plan       under a section 403(b) plan     R Employer contributions to an Archer     H Elective deferrals to a section   MSA DD Cost of employer-sponsored   501(c)(18)(D) tax-exempt       health coverage   organization plan S Employee salary reduction contributions under a section 408(p) SIMPLE  EE  Designated Roth contributions under a governmental section 457(b) plan  Note. How to amend taxes For more information on these codes, see your Form(s) W-2. How to amend taxes Adjustments to Income Adjusted gross income is your total income minus certain adjustments. How to amend taxes The following adjustments are of particular interest to members of the Armed Forces. How to amend taxes Armed Forces Reservists If you are a member of a reserve component of the Armed Forces and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct your unreimbursed travel expenses as an adjustment to income on line 24 of Form 1040, U. How to amend taxes S. How to amend taxes Individual Income Tax Return, rather than as a miscellaneous itemized deduction. How to amend taxes Include all unreimbursed expenses from the time you leave home until the time you return home. How to amend taxes The deduction is limited to the amount the federal government generally reimburses its employees for travel expenses. How to amend taxes For more information about this limit, see Per Diem and Car Allowances in chapter 6 of Publication 463. How to amend taxes Member of a reserve component. How to amend taxes   You are a member of a reserve component of the Armed Forces if you are in the Army, Navy, Marine Corps, Air Force, or Coast Guard Reserve, the Army National Guard of the United States, the Air National Guard of the United States, or the Reserve Corps of the Public Health Service. How to amend taxes How to report. How to amend taxes   If you have reserve-related travel that takes you more than 100 miles from home, you should first complete Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses. How to amend taxes Then enter on Form 1040, line 24, the part of your expenses, up to the federal rate, included on Form 2106, line 10, or Form 2106-EZ, line 6, that is for reserve-related travel more than 100 miles from your home. How to amend taxes Subtract this amount from the total on Form 2106, line 10, or Form 2106-EZ, line 6, and deduct the balance as an itemized deduction on Schedule A (Form 1040), line 21. How to amend taxes Example. How to amend taxes Captain Harris, a member of the Army Reserve, traveled to a location 220 miles from his home to perform his work in the reserves in April 2013. How to amend taxes He incurred $1,549 of unreimbursed expenses consisting of $249 for mileage (440 miles × 56. How to amend taxes 5 cents per mile), $300 for meals, and $1,000 for lodging. How to amend taxes He also had other deductible mileage expenses of $110 for several trips to a location 20 miles from his home. How to amend taxes Only 50% of his meal expenses are deductible. How to amend taxes He shows his total deductible travel expenses of $1,509 ($249 + $150 (50% of $300) + $1,000 + $110) on Form 2106, line 10. How to amend taxes He enters the $1,399 ($249 + $150 + $1,000) for travel over 100 miles from home on Form 1040, line 24. How to amend taxes He then subtracts that $1,399 from the amount on Form 2106, $1,509, and enters $110 on Schedule A (Form 1040), line 21. How to amend taxes Individual Retirement Arrangements Generally, you can deduct the lesser of the contributions to your traditional individual retirement arrangement (IRA) for the year or the general limit (or spousal IRA limit, if applicable). How to amend taxes However, if you or your spouse was covered by an employer-maintained retirement plan at any time during the year for which contributions were made, you may not be able to deduct all of the contributions. How to amend taxes The Form W-2 you or your spouse receives from an employer has a box used to indicate whether you were covered for the year. How to amend taxes The “Retirement plan” box should have a mark in it if you were covered. How to amend taxes For purposes of a deduction for contributions to a traditional IRA, Armed Forces members (including reservists on active duty for more than 90 days during the year) are considered covered by an employer-maintained retirement plan. How to amend taxes Individuals serving in the U. How to amend taxes S. How to amend taxes Armed Forces or in support of the U. How to amend taxes S. How to amend taxes Armed Forces in designated combat zones have additional time to make a qualified retirement contribution to an IRA. How to amend taxes For more information on this extension of deadline provision, see Extension of Deadlines , later. How to amend taxes For more information on IRAs, see Publication 590. How to amend taxes Combat Pay For IRA purposes, your compensation includes nontaxable combat pay. How to amend taxes This means that even though you do not have to include the combat pay in your gross income, you do include it in your compensation when figuring the limits on contributions and deductions of contributions to IRAs. How to amend taxes Qualified Reservist Distributions A qualified reservist distribution is defined below. How to amend taxes It is not subject to the 10% additional tax on early distributions from certain retirement plans. How to amend taxes Definition. How to amend taxes   A distribution you receive is a qualified reservist distribution if the following requirements are met. How to amend taxes You were ordered or called to active duty after September 11, 2001. How to amend taxes You were ordered or called to active duty for a period of more than 179 days or for an indefinite period because you are a member of a reserve component (see Member of a reserve component , earlier, under Armed Forces Reservists. How to amend taxes ) The distribution is from an IRA or from amounts attributable to elective deferrals under a section 401(k) or 403(b) plan or a similar arrangement. How to amend taxes The distribution was made no earlier than the date of the order or call to active duty and no later than the close of the active duty period. How to amend taxes Qualified Reservist Repayments You may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions (defined earlier) you received. How to amend taxes You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. How to amend taxes You make these repayment contributions to an IRA, even if you received the qualified reservist distribution from a section 401(k) or 403(b) plan or a similar arrangement. How to amend taxes Limit. How to amend taxes   Your qualified reservist repayments cannot be more than your qualified reservist distributions. How to amend taxes When repayment contributions can be made. How to amend taxes   You cannot make these repayment contributions after the date that is 2 years after your active duty period ends. How to amend taxes No deduction. How to amend taxes   You cannot deduct qualified reservist repayments. How to amend taxes Figuring your IRA deduction. How to amend taxes   The repayment of qualified reservist distributions does not affect the amount you can deduct as an IRA contribution. How to amend taxes Reporting the repayment. How to amend taxes   If you repay a qualified reservist distribution, include the amount of the repayment with nondeductible contributions on line 1 of Form 8606, Nondeductible IRAs. How to amend taxes Moving Expenses To deduct moving expenses, you generally must meet certain time and distance tests. How to amend taxes However, if you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you do not have to meet these tests. How to amend taxes You can deduct your unreimbursed moving expenses on Form 3903. How to amend taxes Permanent change of station. How to amend taxes   A permanent change of station includes: A move from your home to your first post of active duty, A move from one permanent post of duty to another, and A move from your last post of duty to your home or to a nearer point in the United States. How to amend taxes The move must occur within 1 year of ending your active duty or within the period allowed under the Joint Federal Travel Regulations. How to amend taxes Spouse and dependents. How to amend taxes   If you are the spouse or dependent of a member of the Armed Forces who deserts, is imprisoned, or dies, a permanent change of station for you includes a move to: The member's place of enlistment or induction, Your, or the member's, home of record, or A nearer point in the United States. How to amend taxes   If the military moves you to or from a different location than the member, the moves are treated as a single move to your new main job location. How to amend taxes Services or reimbursements provided by the government. How to amend taxes   Do not include in your income the value of moving and storage services provided by the government because of a permanent change of station. How to amend taxes Similarly, do not include in income amounts received as a dislocation allowance, temporary lodging expense, temporary lodging allowance, or move-in housing allowance. How to amend taxes   Generally, if the total reimbursements or allowances that you receive from the government because of the move are more than your actual moving expenses, the excess is included in your wages on Form W-2. How to amend taxes However, if any reimbursements or allowances (other than dislocation, temporary lodging, temporary lodging expense, or move-in housing allowances) exceed the cost of moving and the excess is not included in your wages on Form W-2, the excess still must be included in gross income on Form 1040, line 7. How to amend taxes   Use Form 3903 to deduct qualified expenses that exceed your reimbursements and allowances (including dislocation, temporary lodging, temporary lodging expense, or move-in housing allowances that are excluded from gross income). How to amend taxes   If you must relocate and your spouse and dependents move to or from a different location, do not include in income reimbursements, allowances, or the value of moving and storage services provided by the government to move you and your spouse and dependents to and from the separate locations. How to amend taxes   Do not deduct any expenses for moving services that were provided by the government. How to amend taxes Also, do not deduct any expenses that were reimbursed by an allowance you did not include in income. How to amend taxes Deductible Moving Expenses If you move because of a permanent change of station, you can deduct the reasonable unreimbursed expenses of moving you and members of your household. How to amend taxes You can deduct expenses (if not reimbursed or furnished in kind) for: Moving household goods and personal effects, and Travel. How to amend taxes Moving household goods and personal effects. How to amend taxes   You can deduct the expenses of moving your household goods and personal effects, including expenses for hauling a trailer, packing, crating, in-transit storage, and insurance. How to amend taxes You cannot deduct expenses for moving furniture or other goods you bought on the way from your old home to your new home. How to amend taxes Storing and insuring household goods and personal effects. How to amend taxes   You can include only the cost of storing and insuring your household goods and personal effects within any period of 30 consecutive days after the day these goods and effects are moved from your former home and before they are delivered to your new home. How to amend taxes Travel. How to amend taxes   You can deduct the expenses of traveling (including lodging but not meals) from your old home to your new home, including car expenses and air fare. How to amend taxes You can deduct as car expenses either: Your actual out-of-pocket expenses such as gas and oil, or The standard mileage rate of 24 cents a mile. How to amend taxes   You can add parking fees and tolls to the amount claimed under either method. How to amend taxes You cannot deduct any expenses for meals. How to amend taxes You cannot deduct the cost of unnecessary side trips or lavish and extravagant lodging. How to amend taxes Member of your household. How to amend taxes   A member of your household is anyone who has both your former home and your new home as his or her main home. How to amend taxes It does not include a tenant or employee unless you can claim that person as a dependent. How to amend taxes Foreign Moves A foreign move is a move from the United States or its possessions to a foreign country or from one foreign country to another foreign country. How to amend taxes A move from a foreign country to the United States or its possessions is not a foreign move. How to amend taxes For a foreign move, the deductible moving expenses described earlier are expanded to include the reasonable expenses of: Moving your household goods and personal effects to and from storage, and Storing these items for part or all of the time the new job location remains your main job location. How to amend taxes The new job location must be outside the United States. How to amend taxes Reporting Moving Expenses Figure moving expense deductions on Form 3903. How to amend taxes Carry the deduction from Form 3903 to Form 1040, line 26. How to amend taxes For more information, see Publication 521 and Form 3903. How to amend taxes Combat Zone Exclusion If you are a member of the U. How to amend taxes S. How to amend taxes Armed Forces who serves in a combat zone (defined later), you can exclude certain pay from your income. How to amend taxes This pay is generally referred to as “combat pay. How to amend taxes ” You do not actually need to show the exclusion on your tax return because income that qualifies for the combat zone exclusion is not included in the wages reported on your Form W-2. How to amend taxes (See Form W-2 , later. How to amend taxes ) The month for which you receive the pay must be a month in which you either served in a combat zone or were hospitalized as a result of wounds, disease, or injury incurred while serving in the combat zone. How to amend taxes You do not have to receive the excluded pay while you are in a combat zone, are hospitalized, or in the same year you served in a combat zone. How to amend taxes If you are an enlisted member, warrant officer, or commissioned warrant officer, you can exclude the following amounts from your income. How to amend taxes (Other officer personnel are discussed under Amount of Exclusion , later. How to amend taxes ) Active duty pay earned in any month you served in a combat zone. How to amend taxes Imminent danger/hostile fire pay. How to amend taxes A reenlistment bonus if the voluntary extension or reenlistment occurs in a month you served in a combat zone. How to amend taxes Pay for accrued leave earned in any month you served in a combat zone. How to amend taxes The Department of Defense must determine that the unused leave was earned during that period. How to amend taxes Pay received for duties as a member of the Armed Forces in clubs, messes, post and station theaters, and other nonappropriated fund activities. How to amend taxes The pay must be earned in a month you served in a combat zone. How to amend taxes Awards for suggestions, inventions, or scientific achievements you are entitled to because of a submission you made in a month you served in a combat zone. How to amend taxes Student loan repayments. How to amend taxes If the entire year of service required to earn the repayment was performed in a combat zone, the entire repayment made because of that year of service is excluded. How to amend taxes If only part of that year of service was performed in a combat zone, only part of the repayment qualifies for exclusion. How to amend taxes For example, if you served in a combat zone for 5 months, 5/12 of your repayment qualifies for exclusion. How to amend taxes Retirement pay and pensions do not qualify for the combat zone exclusion. How to amend taxes Partial (month) service. How to amend taxes   If you serve in a combat zone for any part of one or more days during a particular month, you are entitled to an exclusion for that entire month. How to amend taxes Form W-2. How to amend taxes   The wages shown in box 1 of your 2013 Form W-2 should not include military pay excluded from your income under the combat zone exclusion provisions. How to amend taxes If it does, you will need to get a corrected Form W-2 from your finance office. How to amend taxes   You cannot exclude as combat pay any wages shown in box 1 of Form W-2. How to amend taxes Combat Zone A combat zone is any area the President of the United States designates by Executive Order as an area in which the U. How to amend taxes S. How to amend taxes Armed Forces are engaging or have engaged in combat. How to amend taxes An area usually becomes a combat zone and ceases to be a combat zone on the dates the President designates by Executive Order. How to amend taxes Afghanistan area. How to amend taxes   By Executive Order No. How to amend taxes 13239, Afghanistan (and airspace above) was designated as a combat zone beginning September 19, 2001. How to amend taxes On December 14, 2001, the following countries were certified by the Department of Defense for combat zone tax benefits due to their direct support of military operations in the Afghanistan combat zone. How to amend taxes Djibouti. How to amend taxes Jordan. How to amend taxes Kyrgyzstan. How to amend taxes Pakistan. How to amend taxes Somalia. How to amend taxes Syria. How to amend taxes Tajikistan. How to amend taxes Uzbekistan. How to amend taxes Yemen. How to amend taxes The Philippines. How to amend taxes  Note. How to amend taxes For the Philippines only, the personnel must be deployed in conjunction with Operation Enduring Freedom supporting military operations in the Afghanistan combat zone. How to amend taxes The Kosovo area. How to amend taxes   By Executive Order No. How to amend taxes 13119, the following locations (including airspace above) were designated as a combat zone beginning March 24, 1999. How to amend taxes Federal Republic of Yugoslavia (Serbia/Montenegro). How to amend taxes Albania. How to amend taxes Kosovo. How to amend taxes The Adriatic Sea. How to amend taxes The Ionian Sea—north of the 39th parallel. How to amend taxes Note. How to amend taxes The combat zone designation for Montenegro and Kosovo (previously a province within Serbia) under Executive Order 13119 remains in force even though Montenegro and Kosovo became independent nations since EO 13119 was signed. How to amend taxes Arabian peninsula. How to amend taxes   By Executive Order No. How to amend taxes 12744, the following locations (and airspace above) were designated as a combat zone beginning January 17, 1991. How to amend taxes The Persian Gulf. How to amend taxes The Red Sea. How to amend taxes The Gulf of Oman. How to amend taxes The part of the Arabian Sea that is north of 10 degrees north latitude and west of 68 degrees east longitude. How to amend taxes The Gulf of Aden. How to amend taxes The total land areas of Iraq, Kuwait, Saudi Arabia, Oman, Bahrain, Qatar, and the United Arab Emirates. How to amend taxes Jordan which is in direct support of the Arabian Peninsula. How to amend taxes Serving in a Combat Zone You are considered to be serving in a combat zone if you are either assigned on official temporary duty to a combat zone or you qualify for hostile fire/imminent danger pay while in a combat zone. How to amend taxes Service in a combat zone includes any periods you are absent from duty because of sickness, wounds, or leave. How to amend taxes If, as a result of serving in a combat zone, a person becomes a prisoner of war or is missing in action, that person is considered to be serving in the combat zone so long as he or she keeps that status for military pay purposes. How to amend taxes Hospitalized While Serving in a Combat Zone If you are hospitalized while serving in a combat zone, the wound, disease, or injury causing the hospitalization will be presumed to have been incurred while serving in the combat zone unless there is clear evidence to the contrary. How to amend taxes Example. How to amend taxes You are hospitalized for a specific disease in a combat zone where you have been serving for 3 weeks, and the disease for which you are hospitalized has an incubation period of 2 to 4 weeks. How to amend taxes The disease is presumed to have been incurred while you were serving in the combat zone. How to amend taxes On the other hand, if the incubation period of the disease is 1 year, the disease would not have been incurred while you were serving in the combat zone. How to amend taxes Hospitalized After Leaving a Combat Zone In some cases, the wound, disease, or injury may have been incurred while you were serving in the combat zone, even though you were not hospitalized until after you left. How to amend taxes In that case, you can exclude military pay earned while you are hospitalized as a result of the wound, disease, or injury. How to amend taxes Example. How to amend taxes You were hospitalized for a specific disease 3 weeks after you left the combat zone. How to amend taxes The incubation period of the disease is from 2 to 4 weeks. How to amend taxes The disease is presumed to have been incurred while serving in the combat zone. How to amend taxes Nonqualifying Presence in Combat Zone None of the following types of military service qualify as service in a combat zone. How to amend taxes Presence in a combat zone while on leave from a duty station located outside the combat zone. How to amend taxes Passage over or through a combat zone during a trip between two points that are outside a combat zone. How to amend taxes Presence in a combat zone solely for your personal convenience. How to amend taxes Service Outside Combat Zone Considered Service in Combat Zone Military service outside a combat zone is considered to be performed in a combat zone if: The Department of Defense designates that the service is in direct support of military operations in the combat zone, and The service qualifies you for special military pay for duty subject to hostile fire or imminent danger. How to amend taxes Military pay received for this service will qualify for the combat zone exclusion if all of the requirements (other than service in a combat zone) are met and the pay is verifiable by reference to military pay records. How to amend taxes Amount of Exclusion If you are an enlisted member, warrant officer, or commissioned warrant officer and you serve in a combat zone during any part of a month, you can exclude all of your military pay for that month. How to amend taxes It should not be included in the wages reported on your Form W-2. How to amend taxes You also can exclude military pay earned while you are hospitalized as a result of wounds, disease, or injury incurred in the combat zone. How to amend taxes If you are hospitalized, you cannot exclude any military pay received for any month of service that begins more than 2 years after the end of combat activities in the combat zone. How to amend taxes Your hospitalization does not have to be in the combat zone. How to amend taxes If you are a commissioned officer (other than a commissioned warrant officer), you can exclude your pay according to the rules just discussed. How to amend taxes However, the amount of your exclusion is limited to the highest rate of enlisted pay (plus imminent danger/hostile fire pay you received) for each month during any part of which you served in a combat zone or were hospitalized as a result of your service there. How to amend taxes Alien Status For tax purposes, an alien is an individual who is not a U. How to amend taxes S. How to amend taxes citizen. How to amend taxes An alien is in one of three categories: resident, nonresident, or dual-status. How to amend taxes Placement in the correct category is crucial in determining what income to report and what forms to file. How to amend taxes Under peacetime enlistment rules, you generally cannot enlist in the Armed Forces unless you are a citizen or have been legally admitted to the United States for permanent residence. How to amend taxes If you are an alien enlistee in the Armed Forces, you are probably a resident alien. How to amend taxes If, under an income tax treaty, you are considered a resident of a foreign country, see your base legal officer. How to amend taxes Other aliens who are in the United States only because of military assignments and who have a home outside the United States are nonresident aliens. How to amend taxes Guam and Puerto Rico have special rules. How to amend taxes Residents of those areas should contact their taxing authority with their questions. How to amend taxes Most members of the Armed Forces are U. How to amend taxes S. How to amend taxes citizens or resident aliens. How to amend taxes However, if you have questions about your alien status or the alien status of your dependents or spouse, you should read the information in the following paragraphs and see Publication 519. How to amend taxes Resident Aliens You are considered a resident alien of the United States for tax purposes if you meet either the “green card test” or the “substantial presence test” for the calendar year (January 1–December 31). How to amend taxes If you meet the substantial presence test for 2014, you did not meet either the green card test or the substantial presence test for 2012 or 2013, and you did not choose to be treated as a resident for part of 2012, you may be able to choose to be treated as a U. How to amend taxes S. How to amend taxes resident for part of 2013. How to amend taxes See First-Year Choice in Publication 519. How to amend taxes These tests are explained in Publication 519. How to amend taxes Generally, resident aliens are taxed on their worldwide income and file the same tax forms as U. How to amend taxes S. How to amend taxes citizens. How to amend taxes Treating nonresident alien spouse as resident alien. How to amend taxes   A nonresident alien spouse can be treated as a resident alien if all the following conditions are met. How to amend taxes One spouse is a U. How to amend taxes S. How to amend taxes citizen or resident alien at the end of the tax year. How to amend taxes That spouse is married to the nonresident alien at the end of the tax year. How to amend taxes You both choose to treat the nonresident alien spouse as a resident alien. How to amend taxes Making the choice. How to amend taxes   Both you and your spouse must sign a statement and attach it to your joint return for the first tax year for which the choice applies. How to amend taxes Include in the statement: A declaration that one spouse was a nonresident alien and the other was a U. How to amend taxes S. How to amend taxes citizen or resident alien on the last day of the year, A declaration that both spouses choose to be treated as U. How to amend taxes S. How to amend taxes residents for the entire tax year, and The name, address, and taxpayer identification number (social security number or individual taxpayer identification number) of each spouse. How to amend taxes If the nonresident alien spouse is not eligible to get a social security number, he or she should file Form W-7, Application for IRS Individual Taxpayer Identification Number. How to amend taxes    Once you make this choice, the nonresident alien spouse's worldwide income is subject to U. How to amend taxes S. How to amend taxes tax. How to amend taxes If the nonresident alien spouse has substantial foreign income, there may be no advantage to making this choice. How to amend taxes Ending the choice. How to amend taxes   Once you make this choice, it applies to all later years unless one of the following situations occurs. How to amend taxes You or your spouse revokes the choice. How to amend taxes You or your spouse dies. How to amend taxes You and your spouse become legally separated under a decree of divorce or separate maintenance. How to amend taxes The Internal Revenue Service ends the choice because you or your spouse kept inadequate records. How to amend taxes For specific details on these situations, see Publication 519. How to amend taxes   If the choice is ended for any of these reasons, neither spouse can make the choice for any later year. How to amend taxes Choice not made. How to amend taxes   If you and your nonresident alien spouse do not make this choice: You cannot file a joint return. How to amend taxes You can file as married filing separately, or head of household if you qualify. How to amend taxes You can claim an exemption for your nonresident alien spouse if he or she has no gross income for U. How to amend taxes S. How to amend taxes tax purposes and is not another taxpayer's dependent. How to amend taxes The nonresident alien spouse generally does not have to file a federal income tax return if he or she had no income from sources in the United States. How to amend taxes If a return has to be filed, see the next discussion. How to amend taxes The nonresident alien spouse is not eligible for the earned income credit if he or she has to file a return. How to amend taxes Nonresident Aliens If you are an alien who does not meet the requirements discussed earlier to be a resident alien, you are a nonresident alien. How to amend taxes If you are required to file a federal tax return, you must file either Form 1040NR, U. How to amend taxes S. How to amend taxes Nonresident Alien Income Tax Return, or Form 1040NR-EZ, U. How to amend taxes S. How to amend taxes Income Tax Return for Certain Nonresident Aliens With No Dependents. How to amend taxes See the form instructions for information on who must file and filing status. How to amend taxes If you are a nonresident alien, you generally must pay tax on income from sources in the United States. How to amend taxes Your income from conducting a trade or business in the United States is taxed at graduated U. How to amend taxes S. How to amend taxes tax rates. How to amend taxes Other income from U. How to amend taxes S. How to amend taxes sources is taxed at a flat 30% (or lower treaty) rate. How to amend taxes For example, dividends from a U. How to amend taxes S. How to amend taxes corporation paid to a nonresident alien generally are subject to a 30% (or lower treaty) rate. How to amend taxes Dual-Status Aliens You can be both a nonresident and resident alien during the same tax year. How to amend taxes This usually occurs in the year you arrive in or depart from the United States. How to amend taxes If you are a dual-status alien, you are taxed on income from all sources for the part of the year you are a resident alien. How to amend taxes Generally, for the part of the year you are a nonresident alien, you are taxed only on income from sources in the United States. How to amend taxes Sale of Home You may not have to pay tax on all or part of the gain from the sale of your main home. How to amend taxes Usually, your main home is the one you live in most of the time. How to amend taxes It can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. How to amend taxes You generally can exclude up to $250,000 of gain ($500,000, in most cases, if married filing a joint return) realized on the sale or exchange of a main home in 2013. How to amend taxes The exclusion is allowed each time you sell or exchange a main home, but generally not more than once every 2 years. How to amend taxes To be eligible, during the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years (the ownership test), and lived in the home as your main home for at least 2 years (the use test). How to amend taxes Exception to ownership and use tests. How to amend taxes   You can exclude gain, but the maximum amount of gain you can exclude will be reduced if you do not meet the ownership and use tests due to a move to a new permanent duty station. How to amend taxes 5-year test period suspended. How to amend taxes   You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on qualified official extended duty as a member of the Armed Forces. How to amend taxes This means that you may be able to meet the 2-year use test even if, because of your service, you did not actually live in your home for at least the required 2 years during the 5-year period ending on the date of sale. How to amend taxes Example. How to amend taxes David bought and moved into a home in 2005. How to amend taxes He lived in it as his main home for 2½ years. How to amend taxes For the next 6 years, he did not live in it because he was on qualified official extended duty with the Army. How to amend taxes He then sold the home at a gain in 2013. How to amend taxes To meet the use test, David chooses to suspend the 5-year test period for the 6 years he was on qualifying official extended duty. How to amend taxes This means he can disregard those 6 years. How to amend taxes Therefore, David's 5-year test period consists of the 5 years before he went on qualifying official extended duty. How to amend taxes He meets the ownership and use tests because he owned and lived in the home for 2½ years during this test period. How to amend taxes Period of suspension. How to amend taxes   The period of suspension cannot last more than 10 years. How to amend taxes You cannot suspend the 5-year period for more than one property at a time. How to amend taxes You can revoke your choice to suspend the 5-year period at any time. How to amend taxes Qualified official extended duty. How to amend taxes   You are on qualified official extended duty if you serve on extended duty either: At a duty station at least 50 miles from your main home, or While you live in Government quarters under Government orders. How to amend taxes   You are on extended duty when you are called or ordered to active duty for a period of more than 90 days or for an indefinite period. How to amend taxes Property used for rental or business. How to amend taxes   You may be able to exclude your gain from the sale of a home that you have used as a rental property or for business. How to amend taxes However, you must meet the ownership and use tests discussed in Publication 523. How to amend taxes Nonqualified use. How to amend taxes   If the sale of your main home results in a gain that is allocated to one or more period(s) of nonqualified use, you cannot exclude that gain from your income. How to amend taxes   Nonqualified use means any period after 2008 when neither you nor your spouse (or your former spouse) used the property as a main home, with certain exceptions. How to amend taxes For example, a period of nonqualified use does not include any period (not to exceed a total of 10 years) during which you or your spouse is serving on qualified official extended duty. How to amend taxes Loss. How to amend taxes   You cannot deduct a loss from the sale of your main home. How to amend taxes More information. How to amend taxes   For more information, see Publication 523. How to amend taxes Foreclosures There may be tax consequences as a result of compensation payments for foreclosures. How to amend taxes Payments made for violations of the Service Members Civil Relief Act (SCRA). How to amend taxes   All service members who received a settlement payment reported on a Form 1099 may need to report the amount on their tax return. How to amend taxes Generally, you must include settlement payments in income. How to amend taxes However, the tax treatment of settlement payments will depend on the facts and circumstances. How to amend taxes Lump Sum Portion of Settlement Payment. How to amend taxes    Generally, you must include the lump sum payment in gross income. How to amend taxes In limited circumstances you may be able to exclude part or all of the lump sum payment from gross income. How to amend taxes For example, you may qualify to exclude part or all of the payment from gross income if you can show that the payment was made to reimburse specific nondeductible expenses (such as living expenses) you incurred because of the SCRA violation. How to amend taxes Interest Payment on Lump Sum Portion of Settlement Payment. How to amend taxes    You must include any interest on the lump sum portion of your settlement payment in your income. How to amend taxes Lost Equity Portion of Settlement Payment. How to amend taxes    If you lost your main home in foreclosure, you should treat the lost equity payment as an additional amount you received on the foreclosure of the home. How to amend taxes You will have a gain on the foreclosure only if the sum of the lost equity payment and the value of the main home at foreclosure is more than what you paid for the home. How to amend taxes In many cases, this gain may be excluded from income. How to amend taxes For more information on the rules for excluding all or part of any gain from the sale (including a foreclosure) of a main home, see Pub. How to amend taxes 523, Selling Your Home. How to amend taxes The rules that apply to a lost equity payment you received for the foreclosure of a property that was not your main home are different. How to amend taxes    To find rules for reporting gain or loss on the foreclosure of property that was not your main home, see Pub. How to amend taxes 544, Sales and Other Dispositions of Assets. How to amend taxes Interest Payment on Lost Equity Portion of Settlement Payment. How to amend taxes    You must include any interest on the lost equity portion of your settlement payment in your income. How to amend taxes Itemized Deductions To figure your taxable income, you must subtract either your standard deduction or your itemized deductions from adjusted gross income. How to amend taxes For information on the standard deduction, see Publication 501. How to amend taxes Itemized deductions are figured on Schedule A (Form 1040). How to amend taxes This chapter discusses miscellaneous itemized deductions of particular interest to members of the Armed Forces. How to amend taxes For information on other itemized deductions, see the publications listed below. How to amend taxes Publication 502, Medical and Dental Expenses. How to amend taxes Publication 526, Charitable Contributions. How to amend taxes Publication 547, Casualties, Disasters, and Thefts. How to amend taxes Publication 550, Investment Income and Expenses. How to amend taxes You must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income. How to amend taxes For information on deductions that are not subject to the 2% limit, see Publication 529. How to amend taxes Employee Business Expenses Deductible employee business expenses generally are miscellaneous itemized deductions subject to the 2% limit. How to amend taxes Certain employee business expenses are deductible as adjustments to income. How to amend taxes For information on many employee business expenses, see Publication 463. How to amend taxes Generally, you must file Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses, to claim these expenses. How to amend taxes You do not have to file Form 2106 or Form 2106-EZ if you are claiming only unreimbursed expenses for uniforms, professional society dues, and work-related educational expenses (all discussed later). How to amend taxes You can deduct these expenses directly on Schedule A (Form 1040). How to amend taxes Reimbursement. How to amend taxes   Generally, to receive advances, reimbursements, or other allowances from the government, you must adequately account for your expenses and return any excess reimbursement. How to amend taxes Your reimbursed expenses are not deductible. How to amend taxes   If your expenses are more than your reimbursement, the excess expenses are deductible (subject to the 2% limit) if you can prove them. How to amend taxes You must file Form 2106 to report these expenses. How to amend taxes   You can use the shorter Form 2106-EZ if you meet all three of the following conditions. How to amend taxes You are an employee deducting expenses related to your job. How to amend taxes You were not reimbursed by your employer for your expenses. How to amend taxes (Amounts included in box 1 of Form W-2 are not considered reimbursements. How to amend taxes ) If you claim car expenses, you use the standard mileage rate. How to amend taxes    For 2013, the standard mileage rate is 56. How to amend taxes 5 cents a mile for all business miles driven. How to amend taxes This rate is adjusted periodically. How to amend taxes Travel Expenses You can deduct unreimbursed travel expenses only if they are incurred while you are traveling away from home. How to amend taxes If you are a member of the U. How to amend taxes S. How to amend taxes Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. How to amend taxes You cannot deduct your expenses for meals and lodging while at your permanent duty station. How to amend taxes You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. How to amend taxes A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a home aboard ship for travel expense purposes. How to amend taxes To be deductible, your travel expenses must be work related. How to amend taxes You cannot deduct any expenses for personal travel, such as visits to family while on furlough, leave, or liberty. How to amend taxes Away from home. How to amend taxes   Home is your permanent duty station (which can be a ship or base), regardless of where you or your family live. How to amend taxes You are away from home if you are away from your permanent duty station substantially longer than an ordinary day's work and you need to get sleep or rest to meet the demands of your work while away from home. How to amend taxes   Examples of deductible travel expenses include: Expenses for business-related meals (generally limited to 50% of your unreimbursed cost), lodging, taxicabs, business telephone calls, tips, laundry, and dry cleaning while you are away from home on temporary duty or temporary additional duty, and Expenses of carrying out official business while on “No Cost” orders. How to amend taxes    You cannot deduct any expenses for travel away from home if the temporary assignment in a single location is realistically expected to last (and does in fact last) for more than 1 year. How to amend taxes This rule may not apply if you are participating in a federal crime investigation or prosecution. How to amend taxes For more information, see Publication 463 and the Form 2106 instructions. How to amend taxes Transportation Expenses These expenses include the ordinary and necessary costs of: Getting from one workplace to another when you are not away from home, Going to a business meeting away from your regular workplace, and Getting from your home to a temporary workplace when you have a regular place of work. How to amend taxes These expenses include the costs of transportation by air, bus, rail, taxi, and driving and maintaining your car. How to amend taxes Transportation expenses incurred while traveling away from home are included with your travel expenses, discussed earlier. How to amend taxes However, if you use your car while traveling away from home overnight, see the rules in chapter 4 of Publication 463 to figure your car expense deduction. How to amend taxes If you must go from one workplace to another while on duty (for example, as a courier or to attend meetings) without being away from home, your unreimbursed transportation expenses are deductible. How to amend taxes However, the expenses of getting to and from your regular place of work (commuting) are not deductible. How to amend taxes Temporary work location. How to amend taxes   If you have one or more regular places of business away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location. How to amend taxes   Generally, if your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary. How to amend taxes   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. How to amend taxes If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. How to amend taxes    If you do not have a regular place of business, but you ordinarily work in the metropolitan area where you live, you can deduct daily transportation expenses between your home and a temporary work site outside your metropolitan area. How to amend taxes However, you cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. How to amend taxes These are nondeductible commuting costs. How to amend taxes Armed Forces reservists. How to amend taxes   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. How to amend taxes You can deduct the expense of getting from one workplace to the other. How to amend taxes You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. How to amend taxes In this case, your transportation generally is a nondeductible commuting expense. How to amend taxes However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. How to amend taxes   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. How to amend taxes If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. How to amend taxes See Armed Forces Reservists under Adjustments to Income, earlier. How to amend taxes Uniforms You usually cannot deduct the expenses for uniform cost and upkeep. How to amend taxes Generally, you must wear uniforms when on duty and you are allowed to wear them when off duty. How to amend taxes If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of the uniforms, but you must reduce your expenses by any allowance or reimbursement you receive. How to amend taxes Unreimbursed expenses for the cost and upkeep of the following articles are deductible. How to amend taxes Military battle dress uniforms and utility uniforms that you cannot wear when off duty. How to amend taxes Articles not replacing regular clothing, including insignia of rank, corps devices, epaulets, aiguillettes, and swords. How to amend taxes Reservists' uniforms if you can wear the uniform only while performing duties as a reservist. How to amend taxes Professional Dues You can deduct unreimbursed dues paid to professional societies directly related to your military position. How to amend taxes However, you cannot deduct amounts paid to an officers' club or a noncommissioned officers' club. How to amend taxes Example. How to amend taxes Lieutenant Margaret Allen, an electrical engineer at Maxwell Air Force Base, can deduct professional dues paid to the American Society of Electrical Engineers. How to amend taxes Educational Expenses You can deduct the unreimbursed costs of qualifying work-related education. How to amend taxes This is education that meets at least one of the following two tests. How to amend taxes The education is required by your employer or the law to keep your present salary, status, or job. How to amend taxes The required education must serve a bona fide business purpose of your employer. How to amend taxes The education maintains or improves skills needed in your present work. How to amend taxes However, even if the education meets one or both of the above tests, it is not qualifying education if it: Is needed to meet the minimum educational requirements of your present trade or business, or Is part of a program of study that will qualify you for a new trade or business. How to amend taxes You can deduct the expenses for qualifying work-related education even if the education could lead to a degree. How to amend taxes Example 1. How to amend taxes Lieutenant Colonel Mason has a degree in financial management and is in charge of base finances at her post of duty. How to amend taxes She took an advanced finance course. How to amend taxes She already meets the minimum qualifications for her job. How to amend taxes By taking the course, she is improving skills in her current position. How to amend taxes The course does not qualify her for a new trade or business. How to amend taxes She can deduct educational expenses that are more than the educational allowance she received. How to amend taxes Example 2. How to amend taxes Major Williams worked in the military base legal office as a legal intern. How to amend taxes He was placed in excess leave status by his employer to attend law school. How to amend taxes He paid all his educational expenses and was not reimbursed. How to amend taxes After obtaining his law degree, he passed the state bar exam and worked as a judge advocate. How to amend taxes His educational expenses are not deductible because the law degree qualified him for a new trade or business, even though the education maintained and improved his skills in his work. How to amend taxes Travel to obtain education. How to amend taxes   If your work-related education qualifies, you can deduct the costs of travel, including meals (subject to the 50% limit), and lodging, if the main purpose of the trip is to obtain the education. How to amend taxes   You cannot deduct the cost of travel that is itself a form of education, even if it is directly related to your duties in your work or business. How to amend taxes Transportation for education. How to amend taxes   If your work-related education qualifies for a deduction, you can deduct the costs of transportation to obtain that education. How to amend taxes However, you cannot deduct the cost of services provided in kind, such as base-provided transportation to or from class. How to amend taxes Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. How to amend taxes   If you need more information on educational expenses, see Publication 970. How to amend taxes Repayments If you had to repay to your employer an amount that you included in your income in an earlier year, you may be able to deduct the repaid amount from your income for the year in which you repaid it. How to amend taxes Repayment of $3,000 or less. How to amend taxes   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. How to amend taxes If you reported it as wages, deduct it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. How to amend taxes Repayment over $3,000. How to amend taxes   If the amount you repaid was more than $3,000, see Repayments in Publication 525. How to amend taxes Credits After you have figured your taxable income and tax liability, you can determine if you are entitled to any tax credits. How to amend taxes This publication discusses the first-time homebuyer credit, child tax credit, earned income credit, and credit for excess social security tax withheld. How to amend taxes For information on other credits, see your tax form instructions. How to amend taxes First-Time Homebuyer Credit The first-time homebuyer credit is not available for homes purchased after 2011. How to amend taxes In 2011, this credit had already expired for most taxpayers, however, certain members of the uniformed services and Foreign Service and certain employees of the intelligence community could claim the credit for homes purchased in 2011. How to amend taxes If you bought the home (and claimed the credit) after 2008, you generally must repay the credit if you dispose of the home or the home stops being your main home within the 36-month period beginning on the purchase date. How to amend taxes If the home continues to be your main home for at least 36 months beginning on the purchase date, you do not have to repay any of the credit. How to amend taxes If you bought your home in 2008, you generally must repay the credit over a 15-year period in 15 equal installments. How to amend taxes For more information, see Form 5405, Repayment of the First-Time Homebuyer Credit, and its instructions. How to amend taxes Child Tax Credit The child tax credit is a credit that may reduce your tax by as much as $1,000 for each of your qualifying children. How to amend taxes The additional child tax credit is a credit you may be able to take if you are not able to claim the full amount of the child tax credit. How to amend taxes The child tax credit is not the same as the credit for child and dependent care expenses. How to amend taxes See Publication 503 for information on the credit for child and dependent care expenses. How to amend taxes Qualifying Child A qualifying child for purposes of the child tax credit is a child who: Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Was under age 17 at the end of 2013, Did not provide over half of his or her own support for 2013, Lived with you for more than half of 2013 (see Exceptions to time lived with you, later), Is claimed as a dependent on your return, Does not file a joint return for the year (or files it only as a claim for refund), and Was a U. How to amend taxes S. How to amend taxes citizen, a U. How to amend taxes S. How to amend taxes national, or a U. How to amend taxes S. How to amend taxes resident alien. How to amend taxes If the child was adopted, see Adopted child . How to amend taxes For each qualifying child you must check the box on Form 1040 or Form 1040A, line 6c, column (4). How to amend taxes Exceptions to time lived with you. How to amend taxes   A child is considered to have lived with you for all of 2013 if the child was born or died in 2013 and your home was this child's home for the entire time he or she was alive. How to amend taxes Temporary absences by you or the child for special circumstances, such as school, vacation, business, medical care, military service, or detention in a juvenile facility, count as time the child lived with you. How to amend taxes   There are also exceptions for kidnapped children and children of divorced or separated parents. How to amend taxes For details, see Publication 501. How to amend taxes Qualifying child of more than one person. How to amend taxes   A special rule applies if your qualifying child is the qualifying child of more than one person. How to amend taxes For details, see Publication 501. How to amend taxes Adopted child. How to amend taxes   An adopted child is always treated as your own child. How to amend taxes An adopted child includes a child lawfully placed with you for legal adoption. How to amend taxes   If you are a U. How to amend taxes S. How to amend taxes citizen or U. How to amend taxes S. How to amend taxes national and your adopted child lived with you as a member of your household all year, that child meets condition (7) above to be a qualifying child for the child tax credit. How to amend taxes Amount of Credit The maximum amount you can claim for the credit is $1,000 for each qualifying child. How to amend taxes Limits on the credit. How to amend taxes   You must reduce your child tax credit if either (1) or (2), below, applies. How to amend taxes The amount on Form 1040, line 46, or Form 1040A, line 28, is less than the credit. How to amend taxes If the amount is zero, you cannot take this credit because there is no tax to reduce. How to amend taxes However, you may be able to take the additional child tax credit. How to amend taxes See Additional Child Tax Credit , later. How to amend taxes Your modified adjusted gross income (AGI) is more than the amount shown below for your filing status. How to amend taxes Married filing jointly — $110,000. How to amend taxes Single, head of household,  or qualifying widow(er) — $75,000. How to amend taxes Married filing separately — $55,000. How to amend taxes Modified AGI. How to amend taxes   For purposes of the child tax credit, your modified AGI is the amount on Form 1040, line 38, or Form 1040A, line 22, plus the following amounts that may apply to you. How to amend taxes Any amount excluded from income because of the exclusion of income from Puerto Rico. How to amend taxes Any amount on line 45 or line 50 of Form 2555, Foreign Earned Income. How to amend taxes Any amount on line 18 of Form 2555-EZ, Foreign Earned Income Exclusion. How to amend taxes Any amount on line 15 of Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa. How to amend taxes   If you do not have any of the above, your modified AGI is the same as your AGI. How to amend taxes Claiming the Credit To claim the child tax credit, you must file Form 1040 or Form 1040A. How to amend taxes For more information on the child tax credit, see the instructions for Form 1040 or Form 1040A. How to amend taxes Also attach Schedule 8812, Child Tax Credit, if required. How to amend taxes Additional Child Tax Credit This credit is for certain individuals who get less than the full amount of the child tax credit. How to amend taxes The additional child tax credit may give you a refund even if you do not owe any tax. How to amend taxes For more information, see the instructions for Form 1040 or Form 1040A, and Schedule 8812. How to amend taxes Earned Income Credit The earned income credit (EIC) is a cr
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How to amend taxes 8. How to amend taxes   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. How to amend taxes Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. How to amend taxes 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. How to amend taxes 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. How to amend taxes Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. How to amend taxes This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. How to amend taxes A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. How to amend taxes An exchange is a transfer of property for other property or services. How to amend taxes Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. How to amend taxes If the amount you realize from a sale or exchange of property is more than its adjusted basis, you will have a gain. How to amend taxes If the adjusted basis of the property is more than the amount you realize, you will have a loss. How to amend taxes Basis and adjusted basis. How to amend taxes   The basis of property you buy is usually its cost. How to amend taxes The adjusted basis of property is basis plus certain additions and minus certain deductions. How to amend taxes See chapter 6 for more information about basis and adjusted basis. How to amend taxes Amount realized. How to amend taxes   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. How to amend taxes 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. How to amend taxes   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. How to amend taxes Amount recognized. How to amend taxes   Your gain or loss realized from a sale or exchange of certain property is usually a recognized gain or loss for tax purposes. How to amend taxes A recognized gain is a gain you must include in gross income and report on your income tax return. How to amend taxes A recognized loss is a loss you deduct from gross income. How to amend taxes However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. How to amend taxes See Like-Kind Exchanges next. How to amend taxes Also, a loss from the disposition of property held for personal use is not deductible. How to amend taxes Like-Kind Exchanges Certain exchanges of property are not taxable. How to amend taxes This means any gain from the exchange is not recognized, and any loss cannot be deducted. How to amend taxes Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. How to amend taxes The exchange of property for the same kind of property is the most common type of nontaxable exchange. How to amend taxes To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. How to amend taxes Qualifying property. How to amend taxes Like-kind property. How to amend taxes These two requirements are discussed later. How to amend taxes Multiple-party transactions. How to amend taxes   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. How to amend taxes Any part of these multiple-party transactions can qualify as a like-kind exchange if it meets all the requirements described in this section. How to amend taxes Receipt of title from third party. How to amend taxes   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. How to amend taxes Basis of property received. How to amend taxes   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. How to amend taxes See chapter 6 for more information. How to amend taxes Money paid. How to amend taxes   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. How to amend taxes The basis of the property received is the basis of the property given up, increased by the money paid. How to amend taxes Example. How to amend taxes You traded an old tractor with an adjusted basis of $15,000 for a new one. How to amend taxes The new tractor costs $300,000. How to amend taxes You were allowed $80,000 for the old tractor and paid $220,000 cash. How to amend taxes 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). How to amend taxes 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. How to amend taxes 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. How to amend taxes Reporting the exchange. How to amend taxes   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. How to amend taxes The Instructions for Form 8824 explain how to report the details of the exchange. How to amend taxes   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. How to amend taxes You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. How to amend taxes See chapter 9 for more information. How to amend taxes Qualifying property. How to amend taxes   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. How to amend taxes Machinery, buildings, land, trucks, breeding livestock, rental houses, and certain mutual ditch, reservoir, or irrigation company stock are examples of property that may qualify. How to amend taxes Nonqualifying property. How to amend taxes   The rules for like-kind exchanges do not apply to exchanges of the following property. How to amend taxes Property you use for personal purposes, such as your home and family car. How to amend taxes Stock in trade or other property held primarily for sale, such as crops and produce. How to amend taxes Stocks, bonds, or notes. How to amend taxes However, see Qualifying property above. How to amend taxes Other securities or evidences of indebtedness, such as accounts receivable. How to amend taxes Partnership interests. How to amend taxes However, you may have a nontaxable exchange under other rules. How to amend taxes See Other Nontaxable Exchanges in chapter 1 of Publication 544. How to amend taxes Like-kind property. How to amend taxes   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. How to amend taxes Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. How to amend taxes Generally, real property exchanged for real property qualifies as an exchange of like-kind property. How to amend taxes For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. How to amend taxes   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. How to amend taxes An exchange of a tractor for acreage, however, is not an exchange of like-kind property. How to amend taxes The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. How to amend taxes For example, the exchange of a bull for a cow is not a like-kind exchange. How to amend taxes 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. How to amend taxes    Note. How to amend taxes Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. How to amend taxes Personal property. How to amend taxes   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. How to amend taxes Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. How to amend taxes Property classified in any General Asset Class may not be classified within a Product Class. How to amend taxes Assets that are not in the same class will qualify as like-kind property if they are of the same nature or character. How to amend taxes General Asset Classes. How to amend taxes   General Asset Classes describe the types of property frequently used in many businesses. How to amend taxes They include, but are not limited to, the following property. How to amend taxes Office furniture, fixtures, and equipment (asset class 00. How to amend taxes 11). How to amend taxes Information systems, such as computers and peripheral equipment (asset class 00. How to amend taxes 12). How to amend taxes Data handling equipment except computers (asset class 00. How to amend taxes 13). How to amend taxes Automobiles and taxis (asset class 00. How to amend taxes 22). How to amend taxes Light general purpose trucks (asset class 00. How to amend taxes 241). How to amend taxes Heavy general purpose trucks (asset class 00. How to amend taxes 242). How to amend taxes Tractor units for use over-the-road (asset class 00. How to amend taxes 26). How to amend taxes Trailers and trailer-mounted containers (asset class 00. How to amend taxes 27). How to amend taxes Industrial steam and electric generation and/or distribution systems (asset class 00. How to amend taxes 4). How to amend taxes Product Classes. How to amend taxes   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). How to amend taxes The latest version of the manual can be accessed at www. How to amend taxes census. How to amend taxes gov/eos/www/naics/. How to amend taxes Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. How to amend taxes ntis. How to amend taxes gov/products/naics. How to amend taxes aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. How to amend taxes A CD-ROM version with search and retrieval software is also available from NTIS. How to amend taxes    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. How to amend taxes Partially nontaxable exchange. How to amend taxes   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. How to amend taxes 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. How to amend taxes A loss is not deductible. How to amend taxes Example 1. How to amend taxes 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. How to amend taxes 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). How to amend taxes However, only $10,000, the cash received, is recognized (included in income). How to amend taxes Example 2. How to amend taxes Assume the same facts as in Example 1, except that, instead of money, you received a tractor with a FMV of $10,000. How to amend taxes Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). How to amend taxes Example 3. How to amend taxes Assume in Example 1 that the FMV of the land you received was only $15,000. How to amend taxes Your $5,000 loss is not recognized. How to amend taxes Unlike property given up. How to amend taxes   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. How to amend taxes The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. How to amend taxes Like-kind exchanges between related persons. How to amend taxes   Special rules apply to like-kind exchanges between related persons. How to amend taxes These rules affect both direct and indirect exchanges. How to amend taxes Under these rules, if either person disposes of the property within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. How to amend taxes The gain or loss on the original exchange must be recognized as of the date of the later disposition. How to amend taxes The 2-year holding period begins on the date of the last transfer of property that was part of the like-kind exchange. How to amend taxes Related persons. How to amend taxes   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. How to amend taxes ), 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. How to amend taxes   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. How to amend taxes Example. How to amend taxes You used a grey pickup truck in your farming business. How to amend taxes Your sister used a red pickup truck in her landscaping business. How to amend taxes In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. How to amend taxes At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. How to amend taxes The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. How to amend taxes 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). How to amend taxes 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). How to amend taxes However, because this was a like-kind exchange, you recognized no gain. How to amend taxes 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). How to amend taxes She recognized gain only to the extent of the money she received, $200. How to amend taxes 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). How to amend taxes In 2013, you sold the red pickup truck to a third party for $7,000. How to amend taxes Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. How to amend taxes On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. How to amend taxes 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). How to amend taxes In addition, your sister must report on her tax return for 2013 the $6,000 balance of her gain on the 2012 exchange. How to amend taxes Her adjusted basis in the grey pickup truck is increased to $7,000 (its $1,000 basis plus the $6,000 gain recognized). How to amend taxes Exceptions to the rules for related persons. How to amend taxes   The following property dispositions are excluded from these rules. How to amend taxes Dispositions due to the death of either related person. How to amend taxes Involuntary conversions. How to amend taxes 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. How to amend taxes Multiple property exchanges. How to amend taxes   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. How to amend taxes However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. How to amend taxes Transfer and receive properties in two or more exchange groups. How to amend taxes Transfer or receive more than one property within a single exchange group. How to amend taxes   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. How to amend taxes Deferred exchange. How to amend taxes   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. How to amend taxes 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. How to amend taxes The property you receive is replacement property. How to amend taxes The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. How to amend taxes In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. How to amend taxes   For more information see Deferred Exchanges in chapter 1 of Publication 544. How to amend taxes 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. How to amend taxes This rule does not apply if the recipient is a nonresident alien. How to amend taxes 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. How to amend taxes 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. How to amend taxes The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. How to amend taxes 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. How to amend taxes This rule applies for determining loss as well as gain. How to amend taxes Any gain recognized on a transfer in trust increases the basis. How to amend taxes For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. How to amend taxes 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). How to amend taxes You may also have a capital gain if your section 1231 transactions result in a net gain. How to amend taxes See Section 1231 Gains and Losses in  chapter 9. How to amend taxes 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). How to amend taxes Your net capital gains may be taxed at a lower tax rate than ordinary income. How to amend taxes See Capital Gains Tax Rates , later. How to amend taxes Your deduction for a net capital loss may be limited. How to amend taxes See Treatment of Capital Losses , later. How to amend taxes Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. How to amend taxes The following items are examples of capital assets. How to amend taxes A home owned and occupied by you and your family. How to amend taxes Household furnishings. How to amend taxes A car used for pleasure. How to amend taxes 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. How to amend taxes Stocks and bonds. How to amend taxes However, there are special rules for gains on qualified small business stock. How to amend taxes 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. How to amend taxes Personal-use property. How to amend taxes   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. How to amend taxes Loss from the sale or exchange of personal-use property is not deductible. How to amend taxes You can deduct a loss relating to personal-use property only if it results from a casualty or theft. How to amend taxes For information on casualties and thefts, see chapter 11. How to amend taxes 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. How to amend taxes The time you own an asset before disposing of it is the holding period. How to amend taxes If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. How to amend taxes Report it in Part I of Schedule D (Form 1040). How to amend taxes If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. How to amend taxes Report it in Part II of Schedule D (Form 1040). How to amend taxes Holding period. How to amend taxes   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. How to amend taxes The day you disposed of the property is part of your holding period. How to amend taxes Example. How to amend taxes If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. How to amend taxes 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. How to amend taxes Inherited property. How to amend taxes   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. How to amend taxes This rule does not apply to livestock used in a farm business. How to amend taxes See Holding period under Livestock , later. How to amend taxes Nonbusiness bad debt. How to amend taxes   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. How to amend taxes See chapter 4 of Publication 550. How to amend taxes Nontaxable exchange. How to amend taxes   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. How to amend taxes That is, it begins on the same day as your holding period for the old property. How to amend taxes Gift. How to amend taxes   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. How to amend taxes Real property. How to amend taxes   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. How to amend taxes   However, taking possession of real property under an option agreement is not enough to start the holding period. How to amend taxes The holding period cannot start until there is an actual contract of sale. How to amend taxes The holding period of the seller cannot end before that time. How to amend taxes 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. How to amend taxes Net short-term capital gain or loss. How to amend taxes   Combine your short-term capital gains and losses. How to amend taxes Do this by adding all of your short-term capital gains. How to amend taxes Then add all of your short-term capital losses. How to amend taxes Subtract the lesser total from the greater. How to amend taxes The difference is your net short-term capital gain or loss. How to amend taxes Net long-term capital gain or loss. How to amend taxes   Follow the same steps to combine your long-term capital gains and losses. How to amend taxes The result is your net long-term capital gain or loss. How to amend taxes Net gain. How to amend taxes   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. How to amend taxes 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. How to amend taxes See Capital Gains Tax Rates , later. How to amend taxes Net loss. How to amend taxes   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. How to amend taxes But there are limits on how much loss you can deduct and when you can deduct it. How to amend taxes See Treatment of Capital Losses next. How to amend taxes 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. How to amend taxes 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). How to amend taxes If your other income is low, you may not be able to use the full $3,000. How to amend taxes The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). How to amend taxes Capital loss carryover. How to amend taxes   Generally, you have a capital loss carryover if either of the following situations applies to you. How to amend taxes Your net loss on Schedule D (Form 1040), is more than the yearly limit. How to amend taxes Your taxable income without your deduction for exemptions is less than zero. How to amend taxes 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. How to amend taxes    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). How to amend taxes 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. How to amend taxes These lower rates are called the maximum capital gains rates. How to amend taxes 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. How to amend taxes See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). How to amend taxes Also see Publication 550. How to amend taxes Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. How to amend taxes A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). How to amend taxes Property held for sale in the ordinary course of your farm business. How to amend taxes   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. How to amend taxes 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). How to amend taxes The treatment of this property is discussed in chapter 3. How to amend taxes Land and depreciable properties. How to amend taxes   Land and depreciable property you use in farming are not capital assets. How to amend taxes Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. How to amend taxes 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. How to amend taxes The sales of these business assets are reported on Form 4797. How to amend taxes See chapter 9 for more information. How to amend taxes 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. How to amend taxes Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. How to amend taxes 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. How to amend taxes 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. How to amend taxes A forward contract is generally similar to a futures contract except that the terms are not standardized and the contract is not exchange traded. How to amend taxes Businesses may enter into commodity futures contracts or forward contracts and may acquire options on commodity futures contracts as either of the following. How to amend taxes Hedging transactions. How to amend taxes Transactions that are not hedging transactions. How to amend taxes 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. How to amend taxes There is a limit on the amount of capital losses you can deduct each year. How to amend taxes Hedging transactions are not subject to the mark-to-market rules. How to amend taxes 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. How to amend taxes 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. How to amend taxes The gain or loss on the termination of these hedges is generally ordinary gain or loss. How to amend taxes 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. How to amend taxes 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. How to amend taxes Examples include fuel and feed. How to amend taxes If you have numerous transactions in the commodity futures market during the year, you must be able to show which transactions are hedging transactions. How to amend taxes Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. How to amend taxes It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. How to amend taxes Retain the identification of each hedging transaction with your books and records. How to amend taxes Also, identify the item(s) or aggregate risk that is being hedged in your records. How to amend taxes 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. How to amend taxes 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. How to amend taxes Accounting methods for hedging transactions. How to amend taxes   The accounting method you use for a hedging transaction must clearly reflect income. How to amend taxes 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. How to amend taxes There are requirements and limits on the method you can use for certain hedging transactions. How to amend taxes See Regulations section 1. How to amend taxes 446-4(e) for those requirements and limits. How to amend taxes   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. How to amend taxes Cash method. How to amend taxes Farm-price method. How to amend taxes Unit-livestock-price method. How to amend taxes   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. How to amend taxes   Your books and records must describe the accounting method used for each type of hedging transaction. How to amend taxes They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. How to amend taxes You must make the additional identification no more than 35 days after entering into the hedging transaction. How to amend taxes Example of a hedging transaction. How to amend taxes   You file your income tax returns on the cash method. How to amend taxes On July 2 you anticipate a yield of 50,000 bushels of corn this year. How to amend taxes The December futures price is $5. How to amend taxes 75 a bushel, but there are indications that by harvest time the price will drop. How to amend taxes To protect yourself against a drop in the price, you enter into the following hedging transaction. How to amend taxes You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. How to amend taxes 75 a bushel. How to amend taxes   The price did not drop as anticipated but rose to $6 a bushel. How to amend taxes In November, you sell your crop at a local elevator for $6 a bushel. How to amend taxes You also close out your futures position by buying ten December contracts for $6 a bushel. How to amend taxes You paid a broker's commission of $1,400 ($70 per contract) for the complete in and out position in the futures market. How to amend taxes   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. How to amend taxes Your loss on the hedge is 25 cents a bushel. How to amend taxes In effect, the net selling price of your corn is $5. How to amend taxes 75 a bushel. How to amend taxes   Report the results of your futures transactions and your sale of corn separately on Schedule F. How to amend taxes See the instructions for the 2013 Schedule F (Form 1040). How to amend taxes   The loss on your futures transactions is $13,900, figured as follows. How to amend taxes July 2 - Sold December corn futures (50,000 bu. How to amend taxes @$5. How to amend taxes 75) $287,500 November 6 - Bought December corn futures (50,000 bu. How to amend taxes @$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. How to amend taxes   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. How to amend taxes × $6). How to amend taxes Report it on Schedule F, Part I, line 2, as income from sales of products you raised. How to amend taxes   Assume you were right and the price went down 25 cents a bushel. How to amend taxes In effect, you would still net $5. How to amend taxes 75 a bushel, figured as follows. How to amend taxes Sold cash corn, per bushel $5. How to amend taxes 50 Gain on hedge, per bushel . How to amend taxes 25 Net price, per bushel $5. How to amend taxes 75       The gain on your futures transactions would have been $11,100, figured as follows. How to amend taxes July 2 - Sold December corn futures (50,000 bu. How to amend taxes @$5. How to amend taxes 75) $287,500 November 6 - Bought December corn futures (50,000 bu. How to amend taxes @$5. How to amend taxes 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. How to amend taxes   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. How to amend taxes Livestock This part discusses the sale or exchange of livestock used in your farm business. How to amend taxes Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. How to amend taxes However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. How to amend taxes See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. How to amend taxes The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. How to amend taxes The sale of this livestock is reported on Schedule F. How to amend taxes See chapter 3. How to amend taxes Also, special rules apply to sales or exchanges caused by weather-related conditions. How to amend taxes See chapter 3. How to amend taxes Holding period. How to amend taxes   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). How to amend taxes Livestock. How to amend taxes   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. How to amend taxes Also, for section 1231 transactions, livestock does not include chickens, turkeys, pigeons, geese, emus, ostriches, rheas, or other birds, fish, frogs, reptiles, etc. How to amend taxes Livestock used in farm business. How to amend taxes   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. How to amend taxes The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. How to amend taxes 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. How to amend taxes 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. How to amend taxes Example 1. How to amend taxes You discover an animal that you intend to use for breeding purposes is sterile. How to amend taxes You dispose of it within a reasonable time. How to amend taxes This animal was held for breeding purposes. How to amend taxes Example 2. How to amend taxes 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. How to amend taxes These young animals were held for breeding or dairy purposes. How to amend taxes 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. How to amend taxes See Sales Caused by Weather-Related Conditions in chapter 3. How to amend taxes Example 3. How to amend taxes You are in the business of raising hogs for slaughter. How to amend taxes Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. How to amend taxes You sell the brood sows after obtaining the litter. How to amend taxes 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. How to amend taxes Example 4. How to amend taxes You are in the business of raising registered cattle for sale to others for use as breeding cattle. How to amend taxes The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. How to amend taxes Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. How to amend taxes Such use does not demonstrate that you are holding the cattle for breeding purposes. How to amend taxes 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. How to amend taxes The same applies to hog and sheep breeders. How to amend taxes Example 5. How to amend taxes You breed, raise, and train horses for racing purposes. How to amend taxes Every year you cull horses from your racing stable. How to amend taxes 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. How to amend taxes These horses are all considered held for sporting purposes. How to amend taxes Figuring gain or loss on the cash method. How to amend taxes   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. How to amend taxes Raised livestock. How to amend taxes   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. How to amend taxes Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. How to amend taxes The basis of the animal sold is zero if the costs of raising it were deducted during the years the animal was being raised. How to amend taxes However, see Uniform Capitalization Rules in chapter 6. How to amend taxes Purchased livestock. How to amend taxes   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. How to amend taxes Example. How to amend taxes A farmer sold a breeding cow on January 8, 2013, for $1,250. How to amend taxes Expenses of the sale were $125. How to amend taxes The cow was bought July 2, 2009, for $1,300. How to amend taxes Depreciation (not less than the amount allowable) was $867. How to amend taxes 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. How to amend taxes Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. How to amend taxes Any loss on the disposition of such property is treated as a long-term capital loss. How to amend taxes Converted wetland. How to amend taxes   This is generally land that was drained or filled to make the production of agricultural commodities possible. How to amend taxes 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. How to amend taxes   A wetland (before conversion) is land that meets all the following conditions. How to amend taxes 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. How to amend taxes 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. How to amend taxes It supports, under normal circumstances, mostly plants that grow in saturated soil. How to amend taxes Highly erodible cropland. How to amend taxes   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. How to amend taxes Generally, highly erodible cropland is land currently classified by the Department of Agriculture as Class IV, VI, VII, or VIII under its classification system. How to amend taxes 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. How to amend taxes Successor. How to amend taxes   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. How to amend taxes Timber Standing timber you held as investment property is a capital asset. How to amend taxes Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. How to amend taxes If you held the timber primarily for sale to customers, it is not a capital asset. How to amend taxes Gain or loss on its sale is ordinary business income or loss. How to amend taxes It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). How to amend taxes See the Instructions for Schedule F (Form 1040). How to amend taxes 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. How to amend taxes Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. How to amend taxes , are ordinary farm income and expenses reported on Schedule F. How to amend taxes 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. How to amend taxes Timber considered cut. How to amend taxes   Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. How to amend taxes This is true whether the timber is cut under contract or whether you cut it yourself. How to amend taxes Christmas trees. How to amend taxes   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. How to amend taxes They qualify for both rules discussed below. How to amend taxes Election to treat cutting as a sale or exchange. How to amend taxes   Under the general rule, the cutting of timber results in no gain or loss. How to amend taxes It is not until a sale or exchange occurs that gain or loss is realized. How to amend taxes 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. How to amend taxes 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. How to amend taxes Any later sale results in ordinary business income or loss. How to amend taxes See the example below. How to amend taxes   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. How to amend taxes Making the election. How to amend taxes   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. How to amend taxes You do not have to make the election in the first year you cut the timber. How to amend taxes You can make it in any year to which the election would apply. How to amend taxes If the timber is partnership property, the election is made on the partnership return. How to amend taxes This election cannot be made on an amended return. How to amend taxes   Once you have made the election, it remains in effect for all later years unless you revoke it. How to amend taxes Election under section 631(a) may be revoked. How to amend taxes   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. How to amend taxes The prior election (and revocation) is disregarded for purposes of making a subsequent election. How to amend taxes See Form T (Timber), Forest Activities Schedule, for more information. How to amend taxes Gain or loss. How to amend taxes   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. How to amend taxes   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. How to amend taxes 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. How to amend taxes 611-3. How to amend taxes   Depletion of timber is discussed in chapter 7. How to amend taxes Example. How to amend taxes   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. How to amend taxes It had an adjusted basis for depletion of $40 per MBF. How to amend taxes You are a calendar year taxpayer. How to amend taxes On January 1, 2013, the timber had a FMV of $350 per MBF. How to amend taxes It was cut in April for sale. How to amend taxes On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. How to amend taxes You report the difference between the FMV and your adjusted basis for depletion as a gain. How to amend taxes 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. How to amend taxes You figure your gain as follows. How to amend taxes 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. How to amend taxes Outright sales of timber. How to amend taxes   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). How to amend taxes 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). How to amend taxes Cutting contract. How to amend taxes   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. How to amend taxes You are the owner of the timber. How to amend taxes You held the timber longer than 1 year before its disposal. How to amend taxes You kept an economic interest in the timber. How to amend taxes   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. How to amend taxes   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. How to amend taxes Include this amount on Form 4797 along with your other section 1231 gains or losses. How to amend taxes Date of disposal. How to amend taxes   The date of disposal is the date the timber is cut. How to amend taxes 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. How to amend taxes   This election applies only to figure the holding period of the timber. How to amend taxes It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). How to amend taxes   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. How to amend taxes The statement must identify the advance payments subject to the election and the contract under which they were made. How to amend taxes   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). How to amend taxes Attach the statement to the amended return and write “Filed pursuant to section 301. How to amend taxes 9100-2” at the top of the statement. How to amend taxes File the amended return at the same address the original return was filed. How to amend taxes Owner. How to amend taxes   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. How to amend taxes 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. How to amend taxes Tree stumps. How to amend taxes   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. How to amend taxes Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. How to amend taxes However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. How to amend taxes Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. How to amend taxes   See Form T (Timber) and its separate instructions for more information about dispositions of timber. How to amend taxes 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). How to amend taxes If you have a gain from the sale, you may be allowed to exclude the gain on your home. How to amend taxes For more information, see Publication 523, Selling Your Home. How to amend taxes The gain on the sale of your business property is taxable. How to amend taxes A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. How to amend taxes Your taxable gain or loss on the sale of property used in your farm business is taxed under the rules for section 1231 transactions. How to amend taxes See chapter 9. How to amend taxes Losses from personal-use property, other than casualty or theft losses, are not deductible. How to amend taxes 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. How to amend taxes See chapter 10 for information about installment sales. How to amend taxes When you sell your farm, the gain or loss on each asset is figured separately. How to amend taxes The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. How to amend taxes Each of the assets sold must be classified as one of the following. How to amend taxes Capital asset held 1 year or less. How to amend taxes Capital asset held longer than 1 year. How to amend taxes 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 ). How to amend taxes 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). How to amend taxes 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. How to amend taxes Allocation of consideration paid for a farm. How to amend taxes   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. How to amend taxes The residual method is required only if the group of assets sold constitutes a trade or business. How to amend taxes This method determines gain or loss from the transfer of each asset. How to amend taxes It also determines the buyer's basis in the business assets. How to amend taxes For more information, see Sale of a Business in chapter 2 of Publication 544. How to amend taxes Property used in farm operation. How to amend taxes   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. How to amend taxes Recognized gains and losses on business property must be reported on your return for the year of the sale. How to amend taxes If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). How to amend taxes Example. How to amend taxes You sell your farm, including your main home, which you have owned since December 2001. How to amend taxes You realize gain on the sale as follows. How to amend taxes   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. How to amend taxes 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. How to amend taxes Treat the balance as section 1231 gain. How to amend taxes 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 . How to amend taxes Partial sale. How to amend taxes   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. How to amend taxes You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. How to amend taxes For a detailed discussion on installment sales, see Publication 544. How to amend taxes Adjusted basis of the part sold. How to amend taxes   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. How to amend taxes , on the part sold. How to amend taxes 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 . How to amend taxes Example. How to amend taxes You bought a 600-acre farm for $700,000. How to amend taxes The farm included land and buildings. How to amend taxes The purchase contract designated $600,000 of the purchase price to the land. How to amend taxes You later sold 60 acres of land on which you had installed a fence. How to amend taxes 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. How to amend taxes Use this amount to determine your gain or loss on the sale of the 60 acres. How to amend taxes Assessed values for local property taxes. How to amend taxes   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. How to amend taxes Example. How to amend taxes Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. How to amend taxes 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. How to amend taxes The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. How to amend taxes Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. How to amend taxes The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). How to amend taxes Sale of your home. How to amend taxes   Your home is a capital asset and not property used in the trade or business of farming. How to amend taxes 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. How to amend taxes Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. How to amend taxes   If you use part of your home for business, you must make an appropriate adjustment to the basis for depreciation allowed or allowable. How to amend taxes For more information on basis, see chapter 6. How to amend taxes More information. How to amend taxes   For more information on selling your home, see Publication 523. How to amend taxes Gain from condemnation. How to amend taxes   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. How to amend taxes 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. How to amend taxes 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. How to amend taxes The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. How to amend taxes This is true even if you voluntarily return the property to the lender. How to amend taxes You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. How to amend taxes Buyer's (borrower's) gain or loss. How to amend taxes   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. How to amend taxes The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. How to amend taxes See Determining Gain or Loss , earlier. How to amend taxes Worksheet 8-1. How to amend taxes Worksheet for Foreclosures andRepossessions Part 1. How to amend taxes Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. How to amend taxes Complete this part only if you were personally liable for the debt. How to amend taxes Otherwise, go to Part 2. How to amend taxes   1. How to amend taxes 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. How to amend taxes Enter the Fair Market Value of the transferred property   3. How to amend taxes Ordinary income from cancellation of debt upon foreclosure or repossession. How to amend taxes * Subtract line 2 from line 1. How to amend taxes If zero or less, enter -0-   Part 2. How to amend taxes Figure your gain or loss from foreclosure or repossession. How to amend taxes   4. How to amend taxes If you completed Part 1, enter the smaller of line 1 or line 2. How to amend taxes If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. How to amend taxes Enter any proceeds you received from the foreclosure sale   6. How to amend taxes Add lines 4 and 5   7. How to amend taxes Enter the adjusted basis of the transferred property   8. How to amend taxes Gain or loss from foreclosure or repossession. How to amend taxes Subtract line 7  from line 6   * The income may not be taxable. How to amend taxes See Cancellation of debt . How to amend taxes    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. How to amend taxes Amount realized on a nonrecourse debt. How to amend taxes   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. How to amend taxes 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. How to amend taxes Example 1. How to amend taxes Ann paid $200,000 for land used in her farming business. How to amend taxes She paid $15,000 down and borrowed the remaining $185,000 from a bank. How to amend taxes Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. How to amend taxes The bank foreclosed on the loan 2 years after Ann stopped making payments. How to amend taxes When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. How to amend taxes The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. How to amend taxes She figures her gain or loss on Form 4797, Part I, by comparing the amount realized ($180,000) with her adjusted basis ($200,000). How to amend taxes She has a $20,000 deductible loss. How to amend taxes Example 2. How to amend taxes Assume the same facts as in Example 1 except the FMV of the land was $210,000. How to amend taxes The result is the same. How to amend taxes The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. How to amend taxes Because her adjusted basis is $200,000, she has a deductible loss of $20,000, which she reports on Form 4797, Part I. How to amend taxes Amount realized on a recourse debt. How to amend taxes   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. How to amend taxes   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. How to amend taxes The amount realized does not include the canceled debt that is your income from cancellation of debt. How to amend taxes See Cancellation of debt , later. How to amend taxes Example 3. How to amend taxes Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). How to amend taxes In this case, the amount she realizes is $170,000. How to amend taxes This is the canceled debt ($180,000) up to the FMV of the land ($170,000). How to amend taxes Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). How to amend taxes She has a $30,000 deductible loss, which she figures on Form 4797, Part I. How to amend taxes She is also treated as receiving ordinary income from cancellation of debt. How to amend taxes That income is $10,000 ($180,000 − $170,000). How to amend taxes This is the part of the canceled debt not included in the amount realized. How to amend taxes She reports this as other income on Schedule F, line 8. How to amend taxes Seller's (lender's) gain or loss on repossession. How to amend taxes   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. How to amend taxes For more information, see Repossession in Publication 537, Installment Sales. How to amend taxes Cancellation of debt. How to amend taxes   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. How to amend taxes This income is separate from any gain or loss realized from the foreclosure or repossession. How to amend taxes Report the income from cancellation of a business debt on Schedule F, line 8. How to amend taxes Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. How to amend taxes    You can use Worksheet 8-1 to figure your income from cancellation of debt. How to amend taxes   However, income from cancellation of debt is not taxed if any of the following apply. How to amend taxes The cancellation is intended as a gift. How to amend taxes The debt is qualified farm debt (see chapter 3). How to amend taxes The debt is qualified real property business debt (see chapter 5 of Publication 334). How to amend taxes You are insolvent or bankrupt (see  chapter 3). How to amend taxes The debt is qualified principal residence indebtedness (see chapter 3). How to amend taxes   Use Form 982 to report the income exclusion. How to amend taxes Abandonment The abandonment of property is a disposition of property. How to amend taxes 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. How to amend taxes Business or investment property. How to amend taxes   Loss from abandonment of business or investment property is deductible as a loss. How to amend taxes Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. How to amend taxes If your adjusted basis is more than the amount you realize (if any), then you have a loss. How to amend taxes If the amount you realize (if any) is more than your adjusted basis, then you have a gain. How to amend taxes This rule also applies to leasehold improvements the lessor made for the lessee. How to amend taxes 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 . How to amend taxes   If the abandoned property is secured by debt, special rules apply. How to amend taxes 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). How to amend taxes For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). How to amend taxes The abandonment loss is deducted in the tax year in which the loss is sustained. How to amend taxes Report the loss on Form 4797, Part II, line 10. How to amend taxes Personal-use property. How to amend taxes   You cannot deduct any loss from abandonment of your home or other property held for personal use. How to amend taxes Canceled debt. How to amend taxes   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. How to amend taxes This income is separate from any loss realized from abandonment of the property. How to amend taxes Report income from cancellation of a debt related to a business or rental activity as business or rental income. How to amend taxes Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. How to amend taxes   However, income from cancellation of debt is not taxed in certain circumstances. How to amend taxes See Cancellation of debt earlier under Foreclosure or Repossession . How to amend taxes Forms 1099-A and 1099-C. How to amend taxes   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. How to amend taxes 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. How to amend taxes 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. How to amend taxes For foreclosures, repossessions, abandonments of property, and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. How to amend taxes Prev  Up  Next   Home   More Online Publications