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Irs Extention Forms

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Irs Extention Forms

Irs extention forms 22. Irs extention forms   Taxes Table of Contents IntroductionIndian tribal government. Irs extention forms Useful Items - You may want to see: Tests To Deduct Any Tax Income TaxesState and Local Income Taxes Foreign Income Taxes General Sales TaxesMotor vehicles. Irs extention forms Real Estate TaxesReal estate taxes for prior years. Irs extention forms Examples. Irs extention forms Form 1099-S. Irs extention forms Real Estate-Related Items You Cannot Deduct Personal Property Taxes Taxes and Fees You Cannot Deduct Where To Deduct Introduction This chapter discusses which taxes you can deduct if you itemize deductions on Schedule A (Form 1040). Irs extention forms It also explains which taxes you can deduct on other schedules or forms and which taxes you cannot deduct. Irs extention forms This chapter covers the following topics. Irs extention forms Income taxes (federal, state, local, and foreign). Irs extention forms General sales taxes (state and local). Irs extention forms Real estate taxes (state, local, and foreign). Irs extention forms Personal property taxes (state and local). Irs extention forms Taxes and fees you cannot deduct. Irs extention forms Use Table 22-1 as a guide to determine which taxes you can deduct. Irs extention forms The end of the chapter contains a section that explains which forms you use to deduct different types of taxes. Irs extention forms Business taxes. Irs extention forms   You can deduct certain taxes only if they are ordinary and necessary expenses of your trade or business or of producing income. Irs extention forms For information on these taxes, see Publication 535, Business Expenses. Irs extention forms State or local taxes. Irs extention forms   These are taxes imposed by the 50 states, U. Irs extention forms S. Irs extention forms possessions, or any of their political subdivisions (such as a county or city), or by the District of Columbia. Irs extention forms Indian tribal government. Irs extention forms   An Indian tribal government recognized by the Secretary of the Treasury as performing substantial government functions will be treated as a state for purposes of claiming a deduction for taxes. Irs extention forms Income taxes, real estate taxes, and personal property taxes imposed by that Indian tribal government (or by any of its subdivisions that are treated as political subdivisions of a state) are deductible. Irs extention forms General sales taxes. Irs extention forms   These are taxes imposed at one rate on retail sales of a broad range of classes of items. Irs extention forms Foreign taxes. Irs extention forms   These are taxes imposed by a foreign country or any of its political subdivisions. Irs extention forms Useful Items - You may want to see: Publication 514 Foreign Tax Credit for Individuals 530 Tax Information for Homeowners Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule E (Form 1040) Supplemental Income and Loss 1116 Foreign Tax Credit Tests To Deduct Any Tax The following two tests must be met for you to deduct any tax. Irs extention forms The tax must be imposed on you. Irs extention forms You must pay the tax during your tax year. Irs extention forms The tax must be imposed on you. Irs extention forms   In general, you can deduct only taxes imposed on you. Irs extention forms   Generally, you can deduct property taxes only if you are an owner of the property. Irs extention forms If your spouse owns the property and pays the real estate taxes, the taxes are deductible on your spouse's separate return or on your joint return. Irs extention forms You must pay the tax during your tax year. Irs extention forms   If you are a cash basis taxpayer, you can deduct only those taxes you actually paid during your tax year. Irs extention forms If you pay your taxes by check, the day you mail or deliver the check is the date of payment, provided the check is honored by the financial institution. Irs extention forms If you use a pay-by-phone account (such as a credit card or electronic funds withdrawal), the date reported on the statement of the financial institution showing when payment was made is the date of payment. Irs extention forms If you contest a tax liability and are a cash basis taxpayer, you can deduct the tax only in the year you actually pay it (or transfer money or other property to provide for satisfaction of the contested liability). Irs extention forms See Publication 538, Accounting Periods and Methods, for details. Irs extention forms    If you use an accrual method of accounting, see Publication 538 for more information. Irs extention forms Income Taxes This section discusses the deductibility of state and local income taxes (including employee contributions to state benefit funds) and foreign income taxes. Irs extention forms State and Local Income Taxes You can deduct state and local income taxes. Irs extention forms However, you can elect to deduct state and local general sales taxes instead of state and local income taxes. Irs extention forms See General Sales Taxes , later. Irs extention forms Exception. Irs extention forms    You cannot deduct state and local income taxes you pay on income that is exempt from federal income tax, unless the exempt income is interest income. Irs extention forms For example, you cannot deduct the part of a state's income tax that is on a cost-of-living allowance exempt from federal income tax. Irs extention forms What To Deduct Your deduction may be for withheld taxes, estimated tax payments, or other tax payments as follows. Irs extention forms Withheld taxes. Irs extention forms   You can deduct state and local income taxes withheld from your salary in the year they are withheld. Irs extention forms Your Form(s) W-2 will show these amounts. Irs extention forms Forms W-2G, 1099-G, 1099-R, and 1099-MISC may also show state and local income taxes withheld. Irs extention forms Estimated tax payments. Irs extention forms   You can deduct estimated tax payments you made during the year to a state or local government. Irs extention forms However, you must have a reasonable basis for making the estimated tax payments. Irs extention forms Any estimated state or local tax payments that are not made in good faith at the time of payment are not deductible. Irs extention forms For example, you made an estimated state income tax payment. Irs extention forms However, the estimate of your state tax liability shows that you will get a refund of the full amount of your estimated payment. Irs extention forms You had no reasonable basis to believe you had any additional liability for state income taxes and you cannot deduct the estimated tax payment. Irs extention forms Refund applied to taxes. Irs extention forms   You can deduct any part of a refund of prior-year state or local income taxes that you chose to have credited to your 2013 estimated state or local income taxes. Irs extention forms    Do not reduce your deduction by either of the following items. Irs extention forms Any state or local income tax refund (or credit) you expect to receive for 2013. Irs extention forms Any refund of (or credit for) prior-year state and local income taxes you actually received in 2013. Irs extention forms   However, part or all of this refund (or credit) may be taxable. Irs extention forms See Refund (or credit) of state or local income taxes , later. Irs extention forms Separate federal returns. Irs extention forms   If you and your spouse file separate state, local, and federal income tax returns, you each can deduct on your federal return only the amount of your own state and local income tax that you paid during the tax year. Irs extention forms Joint state and local returns. Irs extention forms   If you and your spouse file joint state and local returns and separate federal returns, each of you can deduct on your separate federal return a part of the total state and local income taxes paid during the tax year. Irs extention forms You can deduct only the amount of the total taxes that is proportionate to your gross income compared to the combined gross income of you and your spouse. Irs extention forms However, you cannot deduct more than the amount you actually paid during the year. Irs extention forms You can avoid this calculation if you and your spouse are jointly and individually liable for the full amount of the state and local income taxes. Irs extention forms If so, you and your spouse can deduct on your separate federal returns the amount you each actually paid. Irs extention forms Joint federal return. Irs extention forms   If you file a joint federal return, you can deduct the total of the state and local income taxes both of you paid. Irs extention forms Contributions to state benefit funds. Irs extention forms    As an employee, you can deduct mandatory contributions to state benefit funds withheld from your wages that provide protection against loss of wages. Irs extention forms For example, certain states require employees to make contributions to state funds providing disability or unemployment insurance benefits. Irs extention forms Mandatory payments made to the following state benefit funds are deductible as state income taxes on Schedule A (Form 1040), line 5. Irs extention forms Alaska Unemployment Compensation Fund. Irs extention forms California Nonoccupational Disability Benefit Fund. Irs extention forms New Jersey Nonoccupational Disability Benefit Fund. Irs extention forms New Jersey Unemployment Compensation Fund. Irs extention forms New York Nonoccupational Disability Benefit Fund. Irs extention forms Pennsylvania Unemployment Compensation Fund. Irs extention forms Rhode Island Temporary Disability Benefit Fund. Irs extention forms Washington State Supplemental Workmen's Compensation Fund. Irs extention forms    Employee contributions to private or voluntary disability plans are not deductible. Irs extention forms Refund (or credit) of state or local income taxes. Irs extention forms   If you receive a refund of (or credit for) state or local income taxes in a year after the year in which you paid them, you may have to include the refund in income on Form 1040, line 10, in the year you receive it. Irs extention forms This includes refunds resulting from taxes that were overwithheld, applied from a prior year return, not figured correctly, or figured again because of an amended return. Irs extention forms If you did not itemize your deductions in the previous year, do not include the refund in income. Irs extention forms If you deducted the taxes in the previous year, include all or part of the refund on Form 1040, line 10, in the year you receive the refund. Irs extention forms For a discussion of how much to include, see Recoveries in chapter 12. Irs extention forms Foreign Income Taxes Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. Irs extention forms S. Irs extention forms possession. Irs extention forms However, you cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. Irs extention forms S. Irs extention forms tax under the foreign earned income exclusion or the foreign housing exclusion. Irs extention forms For information on these exclusions, see Publication 54, Tax Guide for U. Irs extention forms S. Irs extention forms Citizens and Resident Aliens Abroad. Irs extention forms For information on the foreign tax credit, see Publication 514. Irs extention forms General Sales Taxes You can elect to deduct state and local general sales taxes, instead of state and local income taxes, as an itemized deduction on Schedule A (Form 1040), line 5b. Irs extention forms You can use either your actual expenses or the state and local sales tax tables to figure your sales tax deduction. Irs extention forms Actual expenses. Irs extention forms   Generally, you can deduct the actual state and local general sales taxes (including compensating use taxes) if the tax rate was the same as the general sales tax rate. Irs extention forms However, sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate. Irs extention forms If you paid sales tax on a motor vehicle at a rate higher than the general sales tax rate, you can deduct only the amount of tax that you would have paid at the general sales tax rate on that vehicle. Irs extention forms If you use the actual expenses method, you must have receipts to show the general sales taxes paid. Irs extention forms Do not include sales taxes paid on items used in your trade or business. Irs extention forms Motor vehicles. Irs extention forms   For purposes of this section, motor vehicles include cars, motorcycles, motor homes, recreational vehicles, sport utility vehicles, trucks, vans, and off-road vehicles. Irs extention forms This also includes sales taxes on a leased motor vehicle, but not on vehicles used in your trade or business. Irs extention forms Optional sales tax tables. Irs extention forms   Instead of using your actual expenses, you can figure your state and local general sales tax deduction using the state and local sales tax tables in the Instructions for Schedule A (Form 1040). Irs extention forms You may also be able to add the state and local general sales taxes paid on certain specified items. Irs extention forms   Your applicable table amount is based on the state where you live, your income, and the number of exemptions claimed on your tax return. Irs extention forms Your income is your adjusted gross income plus any nontaxable items such as the following. Irs extention forms Tax-exempt interest. Irs extention forms Veterans' benefits. Irs extention forms Nontaxable combat pay. Irs extention forms Workers' compensation. Irs extention forms Nontaxable part of social security and railroad retirement benefits. Irs extention forms Nontaxable part of IRA, pension, or annuity distributions, excluding rollovers. Irs extention forms Public assistance payments. Irs extention forms If you lived in different states during the same tax year, you must prorate your applicable table amount for each state based on the days you lived in each state. Irs extention forms See the Instructions for Schedule A (Form 1040), line 5, for details. Irs extention forms Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real property levied for the general public welfare. Irs extention forms You can deduct these taxes only if they are based on the assessed value of the real property and charged uniformly against all property under the jurisdiction of the taxing authority. Irs extention forms Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. Irs extention forms They also do not include itemized charges for services (such as trash collection) assessed against specific property or certain people, even if the charge is paid to the taxing authority. Irs extention forms For more information about taxes and charges that are not deductible, see Real Estate-Related Items You Cannot Deduct , later. Irs extention forms Tenant-shareholders in a cooperative housing corporation. Irs extention forms   Generally, if you are a tenant-stockholder in a cooperative housing corporation, you can deduct the amount paid to the corporation that represents your share of the real estate taxes the corporation paid or incurred for your dwelling unit. Irs extention forms The corporation should provide you with a statement showing your share of the taxes. Irs extention forms For more information, see Special Rules for Cooperatives in Publication 530. Irs extention forms Division of real estate taxes between buyers and sellers. Irs extention forms   If you bought or sold real estate during the year, the real estate taxes must be divided between the buyer and the seller. Irs extention forms   The buyer and the seller must divide the real estate taxes according to the number of days in the real property tax year (the period to which the tax is imposed relates) that each owned the property. Irs extention forms The seller is treated as paying the taxes up to, but not including, the date of sale. Irs extention forms The buyer is treated as paying the taxes beginning with the date of sale. Irs extention forms This applies regardless of the lien dates under local law. Irs extention forms Generally, this information is included on the settlement statement provided at the closing. Irs extention forms    If you (the seller) cannot deduct taxes until they are paid because you use the cash method of accounting, and the buyer of your property is personally liable for the tax, you are considered to have paid your part of the tax at the time of the sale. Irs extention forms This lets you deduct the part of the tax to the date of sale even though you did not actually pay it. Irs extention forms However, you must also include the amount of that tax in the selling price of the property. Irs extention forms The buyer must include the same amount in his or her cost of the property. Irs extention forms   You figure your deduction for taxes on each property bought or sold during the real property tax year as follows. Irs extention forms Worksheet 22-1. Irs extention forms Figuring Your Real Estate Tax Deduction 1. Irs extention forms Enter the total real estate taxes for the real property tax year   2. Irs extention forms Enter the number of days in the real property tax year that you owned the property   3. Irs extention forms Divide line 2 by 365 (for leap years, divide line 2 by 366) . Irs extention forms 4. Irs extention forms Multiply line 1 by line 3. Irs extention forms This is your deduction. Irs extention forms Enter it on Schedule A (Form 1040), line 6   Note. Irs extention forms Repeat steps 1 through 4 for each property you bought or sold during the real property tax year. Irs extention forms Your total deduction is the sum of the line 4 amounts for all of the properties. Irs extention forms Real estate taxes for prior years. Irs extention forms   Do not divide delinquent taxes between the buyer and seller if the taxes are for any real property tax year before the one in which the property is sold. Irs extention forms Even if the buyer agrees to pay the delinquent taxes, the buyer cannot deduct them. Irs extention forms The buyer must add them to the cost of the property. Irs extention forms The seller can deduct these taxes paid by the buyer. Irs extention forms However, the seller must include them in the selling price. Irs extention forms Examples. Irs extention forms   The following examples illustrate how real estate taxes are divided between buyer and seller. Irs extention forms Example 1. Irs extention forms Dennis and Beth White's real property tax year for both their old home and their new home is the calendar year, with payment due August 1. Irs extention forms The tax on their old home, sold on May 7, was $620. Irs extention forms The tax on their new home, bought on May 3, was $732. Irs extention forms Dennis and Beth are considered to have paid a proportionate share of the real estate taxes on the old home even though they did not actually pay them to the taxing authority. Irs extention forms On the other hand, they can claim only a proportionate share of the taxes they paid on their new property even though they paid the entire amount. Irs extention forms Dennis and Beth owned their old home during the real property tax year for 126 days (January 1 to May 6, the day before the sale). Irs extention forms They figure their deduction for taxes on their old home as follows. Irs extention forms Worksheet 22-1. Irs extention forms Figuring Your Real Estate Tax Deduction — Taxes on Old Home 1. Irs extention forms Enter the total real estate taxes for the real property tax year $620 2. Irs extention forms Enter the number of days in the real property tax year that you owned the property 126 3. Irs extention forms Divide line 2 by 365 (for leap years, divide line 2 by 366) . Irs extention forms 3452 4. Irs extention forms Multiply line 1 by line 3. Irs extention forms This is your deduction. Irs extention forms Enter it on Schedule A (Form 1040), line 6 $214 Since the buyers of their old home paid all of the taxes, Dennis and Beth also include the $214 in the selling price of the old home. Irs extention forms (The buyers add the $214 to their cost of the home. Irs extention forms ) Dennis and Beth owned their new home during the real property tax year for 243 days (May 3 to December 31, including their date of purchase). Irs extention forms They figure their deduction for taxes on their new home as follows. Irs extention forms Worksheet 22-1. Irs extention forms Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. Irs extention forms Enter the total real estate taxes for the real property tax year $732 2. Irs extention forms Enter the number of days in the real property tax year that you owned the property 243 3. Irs extention forms Divide line 2 by 365 (for leap years, divide line 2 by 366) . Irs extention forms 6658 4. Irs extention forms Multiply line 1 by line 3. Irs extention forms This is your deduction. Irs extention forms Enter it on Schedule A (Form 1040), line 6 $487 Since Dennis and Beth paid all of the taxes on the new home, they add $245 ($732 paid less $487 deduction) to their cost of the new home. Irs extention forms (The sellers add this $245 to their selling price and deduct the $245 as a real estate tax. Irs extention forms ) Dennis and Beth's real estate tax deduction for their old and new homes is the sum of $214 and $487, or $701. Irs extention forms They will enter this amount on Schedule A (Form 1040), line 6. Irs extention forms Example 2. Irs extention forms George and Helen Brown bought a new home on May 3, 2013. Irs extention forms Their real property tax year for the new home is the calendar year. Irs extention forms Real estate taxes for 2012 were assessed in their state on January 1, 2013. Irs extention forms The taxes became due on May 31, 2013, and October 31, 2013. Irs extention forms The Browns agreed to pay all taxes due after the date of purchase. Irs extention forms Real estate taxes for 2012 were $680. Irs extention forms They paid $340 on May 31, 2013, and $340 on October 31, 2013. Irs extention forms These taxes were for the 2012 real property tax year. Irs extention forms The Browns cannot deduct them since they did not own the property until 2013. Irs extention forms Instead, they must add $680 to the cost of their new home. Irs extention forms In January 2014, the Browns receive their 2013 property tax statement for $752, which they will pay in 2014. Irs extention forms The Browns owned their new home during the 2013 real property tax year for 243 days (May 3 to December 31). Irs extention forms They will figure their 2014 deduction for taxes as follows. Irs extention forms Worksheet 22-1. Irs extention forms Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. Irs extention forms Enter the total real estate taxes for the real property tax year $752 2. Irs extention forms Enter the number of days in the real property tax year that you owned the property 243 3. Irs extention forms Divide line 2 by 365 (for leap years, divide line 2 by 366) . Irs extention forms 6658 4. Irs extention forms Multiply line 1 by line 3. Irs extention forms This is your deduction. Irs extention forms Claim it on Schedule A (Form 1040), line 6 $501 The remaining $251 ($752 paid less $501 deduction) of taxes paid in 2014, along with the $680 paid in 2013, is added to the cost of their new home. Irs extention forms Because the taxes up to the date of sale are considered paid by the seller on the date of sale, the seller is entitled to a 2013 tax deduction of $931. Irs extention forms This is the sum of the $680 for 2012 and the $251 for the 122 days the seller owned the home in 2013. Irs extention forms The seller must also include the $931 in the selling price when he or she figures the gain or loss on the sale. Irs extention forms The seller should contact the Browns in January 2014 to find out how much real estate tax is due for 2013. Irs extention forms Form 1099-S. Irs extention forms   For certain sales or exchanges of real estate, the person responsible for closing the sale (generally the settlement agent) prepares Form 1099-S, Proceeds From Real Estate Transactions, to report certain information to the IRS and to the seller of the property. Irs extention forms Box 2 of Form 1099-S is for the gross proceeds from the sale and should include the portion of the seller's real estate tax liability that the buyer will pay after the date of sale. Irs extention forms The buyer includes these taxes in the cost basis of the property, and the seller both deducts this amount as a tax paid and includes it in the sales price of the property. Irs extention forms   For a real estate transaction that involves a home, any real estate tax the seller paid in advance but that is the liability of the buyer appears on Form 1099-S, box 5. Irs extention forms The buyer deducts this amount as a real estate tax, and the seller reduces his or her real estate tax deduction (or includes it in income) by the same amount. Irs extention forms See Refund (or rebate) , later. Irs extention forms Taxes placed in escrow. Irs extention forms   If your monthly mortgage payment includes an amount placed in escrow (put in the care of a third party) for real estate taxes, you may not be able to deduct the total amount placed in escrow. Irs extention forms You can deduct only the real estate tax that the third party actually paid to the taxing authority. Irs extention forms If the third party does not notify you of the amount of real estate tax that was paid for you, contact the third party or the taxing authority to find the proper amount to show on your return. Irs extention forms Tenants by the entirety. Irs extention forms   If you and your spouse held property as tenants by the entirety and you file separate federal returns, each of you can deduct only the taxes each of you paid on the property. Irs extention forms Divorced individuals. Irs extention forms   If your divorce or separation agreement states that you must pay the real estate taxes for a home owned by you and your spouse, part of your payments may be deductible as alimony and part as real estate taxes. Irs extention forms See Taxes and insurance in chapter 18 for more information. Irs extention forms Ministers' and military housing allowances. Irs extention forms   If you are a minister or a member of the uniformed services and receive a housing allowance that you can exclude from income, you still can deduct all of the real estate taxes you pay on your home. Irs extention forms Refund (or rebate). Irs extention forms   If you received a refund or rebate in 2013 of real estate taxes you paid in 2013, you must reduce your deduction by the amount refunded to you. Irs extention forms If you received a refund or rebate in 2013 of real estate taxes you deducted in an earlier year (either as an itemized deduction or an increase to your standard deduction), you generally must include the refund or rebate in income in the year you receive it. Irs extention forms However, the amount you include in income is limited to the amount of the deduction that reduced your tax in the earlier year. Irs extention forms For more information, see Recoveries in chapter 12. Irs extention forms Table 22-1. Irs extention forms Which Taxes Can You Deduct? Type of Tax You Can Deduct You Cannot Deduct Fees and Charges Fees and charges that are expenses of your trade or business or of producing income. Irs extention forms Fees and charges that are not expenses of your trade or business or of producing income, such as fees for driver's licenses, car inspections, parking, or charges for water bills (see Taxes and Fees You Cannot Deduct ). Irs extention forms     Fines and penalties. Irs extention forms Income Taxes State and local income taxes. Irs extention forms Federal income taxes. Irs extention forms   Foreign income taxes. Irs extention forms     Employee contributions to state funds listed under Contributions to state benefit funds . Irs extention forms Employee contributions to private or voluntary disability plans. Irs extention forms     State and local general sales taxes if you choose to deduct state and local income taxes. Irs extention forms General Sales Taxes State and local general sales taxes, including compensating use taxes. Irs extention forms State and local income taxes if you choose to deduct state and local general sales taxes. Irs extention forms Other Taxes Taxes that are expenses of your trade or business. Irs extention forms Federal excise taxes, such as tax on gasoline, that are not expenses of your trade or business or of producing income. Irs extention forms   Taxes on property producing rent or royalty income. Irs extention forms Per capita taxes. Irs extention forms   Occupational taxes. Irs extention forms See chapter 28. Irs extention forms     One-half of self-employment tax paid. Irs extention forms   Personal Property Taxes State and local personal property taxes. Irs extention forms Customs duties that are not expenses of your trade or business or of producing income. Irs extention forms Real Estate Taxes State and local real estate taxes. Irs extention forms Real estate taxes that are treated as imposed on someone else (see Division of real estate taxes between buyers and sellers ). Irs extention forms   Foreign real estate taxes. Irs extention forms Taxes for local benefits (with exceptions). Irs extention forms See Real Estate-Related Items You Cannot Deduct . Irs extention forms   Tenant's share of real estate taxes paid by  cooperative housing corporation. Irs extention forms Trash and garbage pickup fees (with exceptions). Irs extention forms See Real Estate-Related Items You Cannot Deduct . Irs extention forms     Rent increase due to higher real estate taxes. Irs extention forms     Homeowners' association charges. Irs extention forms Real Estate-Related Items You Cannot Deduct Payments for the following items generally are not deductible as real estate taxes. Irs extention forms Taxes for local benefits. Irs extention forms Itemized charges for services (such as trash and garbage pickup fees). Irs extention forms Transfer taxes (or stamp taxes). Irs extention forms Rent increases due to higher real estate taxes. Irs extention forms Homeowners' association charges. Irs extention forms Taxes for local benefits. Irs extention forms   Deductible real estate taxes generally do not include taxes charged for local benefits and improvements tending to increase the value of your property. Irs extention forms These include assessments for streets, sidewalks, water mains, sewer lines, public parking facilities, and similar improvements. Irs extention forms You should increase the basis of your property by the amount of the assessment. Irs extention forms   Local benefit taxes are deductible only if they are for maintenance, repair, or interest charges related to those benefits. Irs extention forms If only a part of the taxes is for maintenance, repair, or interest, you must be able to show the amount of that part to claim the deduction. Irs extention forms If you cannot determine what part of the tax is for maintenance, repair, or interest, none of it is deductible. Irs extention forms    Taxes for local benefits may be included in your real estate tax bill. Irs extention forms If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. Irs extention forms You should use the rules above to determine if the local benefit tax is deductible. Irs extention forms Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. Irs extention forms Itemized charges for services. Irs extention forms    An itemized charge for services assessed against specific property or certain people is not a tax, even if the charge is paid to the taxing authority. Irs extention forms For example, you cannot deduct the charge as a real estate tax if it is: A unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use), A periodic charge for a residential service (such as a $20 per month or $240 annual fee charged to each homeowner for trash collection), or A flat fee charged for a single service provided by your government (such as a $30 charge for mowing your lawn because it was allowed to grow higher than permitted under your local ordinance). Irs extention forms    You must look at your real estate tax bill to determine if any nondeductible itemized charges, such as those listed above, are included in the bill. Irs extention forms If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. Irs extention forms Exception. Irs extention forms   Service charges used to maintain or improve services (such as trash collection or police and fire protection) are deductible as real estate taxes if: The fees or charges are imposed at a like rate against all property in the taxing jurisdiction, The funds collected are not earmarked; instead, they are commingled with general revenue funds, and Funds used to maintain or improve services are not limited to or determined by the amount of these fees or charges collected. Irs extention forms Transfer taxes (or stamp taxes). Irs extention forms   Transfer taxes and similar taxes and charges on the sale of a personal home are not deductible. Irs extention forms If they are paid by the seller, they are expenses of the sale and reduce the amount realized on the sale. Irs extention forms If paid by the buyer, they are included in the cost basis of the property. Irs extention forms Rent increase due to higher real estate taxes. Irs extention forms   If your landlord increases your rent in the form of a tax surcharge because of increased real estate taxes, you cannot deduct the increase as taxes. Irs extention forms Homeowners' association charges. Irs extention forms   These charges are not deductible because they are imposed by the homeowners' association, rather than the state or local government. Irs extention forms Personal Property Taxes Personal property tax is deductible if it is a state or local tax that is: Charged on personal property, Based only on the value of the personal property, and Charged on a yearly basis, even if it is collected more or less than once a year. Irs extention forms A tax that meets the above requirements can be considered charged on personal property even if it is for the exercise of a privilege. Irs extention forms For example, a yearly tax based on value qualifies as a personal property tax even if it is called a registration fee and is for the privilege of registering motor vehicles or using them on the highways. Irs extention forms If the tax is partly based on value and partly based on other criteria, it may qualify in part. Irs extention forms Example. Irs extention forms Your state charges a yearly motor vehicle registration tax of 1% of value plus 50 cents per hundredweight. Irs extention forms You paid $32 based on the value ($1,500) and weight (3,400 lbs. Irs extention forms ) of your car. Irs extention forms You can deduct $15 (1% × $1,500) as a personal property tax because it is based on the value. Irs extention forms The remaining $17 ($. Irs extention forms 50 × 34), based on the weight, is not deductible. Irs extention forms Taxes and Fees You Cannot Deduct Many federal, state, and local government taxes are not deductible because they do not fall within the categories discussed earlier. Irs extention forms Other taxes and fees, such as federal income taxes, are not deductible because the tax law specifically prohibits a deduction for them. Irs extention forms See Table 22-1. Irs extention forms Taxes and fees that are generally not deductible include the following items. Irs extention forms Employment taxes. Irs extention forms This includes social security, Medicare, and railroad retirement taxes withheld from your pay. Irs extention forms However, one-half of self-employment tax you pay is deductible. Irs extention forms In addition, the social security and other employment taxes you pay on the wages of a household worker may be included in medical expenses that you can deduct or child care expenses that allow you to claim the child and dependent care credit. Irs extention forms For more information, see chapters 21 and 32. Irs extention forms Estate, inheritance, legacy, or succession taxes. Irs extention forms However, you can deduct the estate tax attributable to income in respect of a decedent if you, as a beneficiary, must include that income in your gross income. Irs extention forms In that case, deduct the estate tax as a miscellaneous deduction that is not subject to the 2%-of-adjusted-gross-income limit. Irs extention forms For more information, see Publication 559, Survivors, Executors, and Administrators. Irs extention forms Federal income taxes. Irs extention forms This includes income taxes withheld from your pay. Irs extention forms Fines and penalties. Irs extention forms You cannot deduct fines and penalties paid to a government for violation of any law, including related amounts forfeited as collateral deposits. Irs extention forms Gift taxes. Irs extention forms License fees. Irs extention forms You cannot deduct license fees for personal purposes (such as marriage, driver's, and dog license fees). Irs extention forms Per capita taxes. Irs extention forms You cannot deduct state or local per capita taxes. Irs extention forms Many taxes and fees other than those listed above are also nondeductible, unless they are ordinary and necessary expenses of a business or income producing activity. Irs extention forms For other nondeductible items, see Real Estate-Related Items You Cannot Deduct , earlier. Irs extention forms Where To Deduct You deduct taxes on the following schedules. Irs extention forms State and local income taxes. Irs extention forms    These taxes are deducted on Schedule A (Form 1040), line 5, even if your only source of income is from business, rents, or royalties. Irs extention forms Check box a on line 5. Irs extention forms General sales taxes. Irs extention forms   Sales taxes are deducted on Schedule A (Form 1040), line 5. Irs extention forms You must check box b on line 5. Irs extention forms If you elect to deduct sales taxes, you cannot deduct state and local income taxes on Schedule A (Form 1040), line 5, box a. Irs extention forms Foreign income taxes. Irs extention forms   Generally, income taxes you pay to a foreign country or U. Irs extention forms S. Irs extention forms possession can be claimed as an itemized deduction on Schedule A (Form 1040), line 8, or as a credit against your U. Irs extention forms S. Irs extention forms income tax on Form 1040, line 47. Irs extention forms To claim the credit, you may have to complete and attach Form 1116. Irs extention forms For more information, see chapter 37, the Form 1040 instructions, or Publication 514. Irs extention forms Real estate taxes and personal property taxes. Irs extention forms    Real estate and personal property taxes are deducted on Schedule A (Form 1040), lines 6 and 7, respectively, unless they are paid on property used in your business, in which case they are deducted on Schedule C, Schedule C-EZ, or Schedule F (Form 1040). Irs extention forms Taxes on property that produces rent or royalty income are deducted on Schedule E (Form 1040). Irs extention forms Self-employment tax. Irs extention forms    Deduct one-half of your self-employment tax on Form 1040, line 27. Irs extention forms Other taxes. Irs extention forms    All other deductible taxes are deducted on Schedule A (Form 1040), line 8. Irs extention forms Prev  Up  Next   Home   More Online Publications
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Letter 1961C Frequently Asked Questions (FAQs)

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This letter is in response to an oral or written request for a Direct Debit Installment Agreement. It explains why your request for a Direct Debit could not be granted and the steps you need to take to qualify for a Direct Debit Installment Agreement.

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You need to complete the Form 433 and return it to us with your bank account and routing numbers.

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You should return this information to us as soon as possible.

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If you do not make an arrangement to pay the balance you owe, enforced collection action may be taken to collect the amount you owe, including the filing of a Notice of Federal Tax Lien, or garnishment of your wages and/or bank accounts.

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If you have any questions about this letter, call us at the number printed in the letter. The person who answers the phone will assist you.

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If you do not agree with this letter, call us immediately at the number included. We will do our best to help you. If you have called us about this matter before, but we did not correct the problem, you may want to contact the Office of the Taxpayer Advocate.

Page Last Reviewed or Updated: 30-Jan-2014

The Irs Extention Forms

Irs extention forms 9. Irs extention forms   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. Irs extention forms Depletion unit. Irs extention forms Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. Irs extention forms The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Irs extention forms There are two ways of figuring depletion: cost depletion and percentage depletion. Irs extention forms For mineral property, you generally must use the method that gives you the larger deduction. Irs extention forms For standing timber, you must use cost depletion. Irs extention forms Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. Irs extention forms More than one person can have an economic interest in the same mineral deposit or timber. Irs extention forms In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Irs extention forms You have an economic interest if both the following apply. Irs extention forms You have acquired by investment any interest in mineral deposits or standing timber. Irs extention forms You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. Irs extention forms A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. Irs extention forms A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. Irs extention forms Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. Irs extention forms Basis adjustment for depletion. Irs extention forms   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. Irs extention forms Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). Irs extention forms For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. Irs extention forms You can treat two or more separate interests as one property or as separate properties. Irs extention forms See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. Irs extention forms There are two ways of figuring depletion on mineral property. Irs extention forms Cost depletion. Irs extention forms Percentage depletion. Irs extention forms Generally, you must use the method that gives you the larger deduction. Irs extention forms However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. Irs extention forms See Oil and Gas Wells , later. Irs extention forms Cost Depletion To figure cost depletion you must first determine the following. Irs extention forms The property's basis for depletion. Irs extention forms The total recoverable units of mineral in the property's natural deposit. Irs extention forms The number of units of mineral sold during the tax year. Irs extention forms Basis for depletion. Irs extention forms   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. Irs extention forms Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. Irs extention forms The residual value of land and improvements at the end of operations. Irs extention forms The cost or value of land acquired for purposes other than mineral production. Irs extention forms Adjusted basis. Irs extention forms   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. Irs extention forms Your adjusted basis can never be less than zero. Irs extention forms See Publication 551, Basis of Assets, for more information on adjusted basis. Irs extention forms Total recoverable units. Irs extention forms   The total recoverable units is the sum of the following. Irs extention forms The number of units of mineral remaining at the end of the year (including units recovered but not sold). Irs extention forms The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). Irs extention forms   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. Irs extention forms You must include ores and minerals that are developed, in sight, blocked out, or assured. Irs extention forms You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. Irs extention forms But see Elective safe harbor for owners of oil and gas property , later. Irs extention forms Number of units sold. Irs extention forms   You determine the number of units sold during the tax year based on your method of accounting. Irs extention forms Use the following table to make this determination. Irs extention forms    IF you  use . Irs extention forms . Irs extention forms . Irs extention forms THEN the units sold during the year are . Irs extention forms . Irs extention forms . Irs extention forms The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). Irs extention forms An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. Irs extention forms   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. Irs extention forms Figuring the cost depletion deduction. Irs extention forms   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. Irs extention forms Step Action Result 1 Divide your property's basis for depletion by total recoverable units. Irs extention forms Rate per unit. Irs extention forms 2 Multiply the rate per unit by units sold during the tax year. Irs extention forms Cost depletion deduction. Irs extention forms You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. Irs extention forms Elective safe harbor for owners of oil and gas property. Irs extention forms   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. Irs extention forms If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). Irs extention forms For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. Irs extention forms irs. Irs extention forms gov/pub/irs-irbs/irb04-10. Irs extention forms pdf. Irs extention forms   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. Irs extention forms The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. Irs extention forms The election, if made, is effective for the tax year in which it is made and all later years. Irs extention forms It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. Irs extention forms Once revoked, it cannot be re-elected for the next 5 years. Irs extention forms Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. Irs extention forms The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . Irs extention forms Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . Irs extention forms Gross income. Irs extention forms   When figuring percentage depletion, subtract from your gross income from the property the following amounts. Irs extention forms Any rents or royalties you paid or incurred for the property. Irs extention forms The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. Irs extention forms A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. Irs extention forms   Use the following fraction to figure the part of the bonus you must subtract. Irs extention forms No. Irs extention forms of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. Irs extention forms For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. Irs extention forms Taxable income limit. Irs extention forms   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. Irs extention forms   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. Irs extention forms These deductible items include, but are not limited to, the following. Irs extention forms Operating expenses. Irs extention forms Certain selling expenses. Irs extention forms Administrative and financial overhead. Irs extention forms Depreciation. Irs extention forms Intangible drilling and development costs. Irs extention forms Exploration and development expenditures. Irs extention forms Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. Irs extention forms Losses sustained. Irs extention forms   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. Irs extention forms Do not deduct any net operating loss deduction from the gross income from the property. Irs extention forms Corporations do not deduct charitable contributions from the gross income from the property. Irs extention forms If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. Irs extention forms See section 1. Irs extention forms 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. Irs extention forms Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. Irs extention forms You are either an independent producer or a royalty owner. Irs extention forms The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. Irs extention forms If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. Irs extention forms For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. Irs extention forms Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. Irs extention forms However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. Irs extention forms For information on figuring the deduction, see Figuring percentage depletion , later. Irs extention forms Refiners who cannot claim percentage depletion. Irs extention forms   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. Irs extention forms The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. Irs extention forms Related person. Irs extention forms   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. Irs extention forms For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. Irs extention forms A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. Irs extention forms For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. Irs extention forms The value of the outstanding stock of a corporation. Irs extention forms The interest in the profits or capital of a partnership. Irs extention forms The beneficial interests in an estate or trust. Irs extention forms Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. Irs extention forms Retailers who cannot claim percentage depletion. Irs extention forms   You cannot claim percentage depletion if both the following apply. Irs extention forms You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. Irs extention forms Through a retail outlet operated by you or a related person. Irs extention forms To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. Irs extention forms To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. Irs extention forms The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. Irs extention forms   For the purpose of determining if this rule applies, do not count the following. Irs extention forms Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. Irs extention forms Bulk sales of aviation fuels to the Department of Defense. Irs extention forms Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. Irs extention forms Related person. Irs extention forms   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. Irs extention forms Sales through a related person. Irs extention forms   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. Irs extention forms   You are not considered to be selling through a related person who is a retailer if all the following apply. Irs extention forms You do not have a significant ownership interest in the retailer. Irs extention forms You sell your production to persons who are not related to either you or the retailer. Irs extention forms The retailer does not buy oil or natural gas from your customers or persons related to your customers. Irs extention forms There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. Irs extention forms Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. Irs extention forms Transferees who cannot claim percentage depletion. Irs extention forms   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. Irs extention forms For a definition of the term “transfer,” see section 1. Irs extention forms 613A-7(n) of the regulations. Irs extention forms For a definition of the term “interest in proven oil or gas property,” see section 1. Irs extention forms 613A-7(p) of the regulations. Irs extention forms Figuring percentage depletion. Irs extention forms   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. Irs extention forms If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. Irs extention forms If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. Irs extention forms   In addition, there is a limit on the percentage depletion deduction. Irs extention forms See Taxable income limit , later. Irs extention forms Average daily production. Irs extention forms   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. Irs extention forms Partial interest. Irs extention forms   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. Irs extention forms   You have a partial interest in the production from a property if you have a net profits interest in the property. Irs extention forms To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. Irs extention forms To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. Irs extention forms Then multiply the total production from the property by your percentage participation to figure your share of the production. Irs extention forms Example. Irs extention forms Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. Irs extention forms During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. Irs extention forms Javier had expenses of $90,000 attributable to the property. Irs extention forms The property generated a net profit of $110,000 ($200,000 − $90,000). Irs extention forms Pablo received income of $22,000 ($110,000 × . Irs extention forms 20) for his net profits interest. Irs extention forms Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). Irs extention forms Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). Irs extention forms Depletable oil or natural gas quantity. Irs extention forms   Generally, your depletable oil quantity is 1,000 barrels. Irs extention forms Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. Irs extention forms If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. Irs extention forms Example. Irs extention forms You have both oil and natural gas production. Irs extention forms To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. Irs extention forms Your depletable natural gas quantity is 2. Irs extention forms 16 million cubic feet of gas (360 × 6000). Irs extention forms You must reduce your depletable oil quantity to 640 barrels (1000 − 360). Irs extention forms If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. Irs extention forms Also, see Notice 2012-50, available at www. Irs extention forms irs. Irs extention forms gov/irb/2012–31_IRB/index. Irs extention forms html. Irs extention forms Business entities and family members. Irs extention forms   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. Irs extention forms Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). Irs extention forms You and your spouse and minor children. Irs extention forms A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. Irs extention forms Controlled group of corporations. Irs extention forms   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. Irs extention forms They share the depletable quantity. Irs extention forms A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. Irs extention forms ” Gross income from the property. Irs extention forms   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. Irs extention forms If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. Irs extention forms   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. Irs extention forms   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. Irs extention forms Average daily production exceeds depletable quantities. Irs extention forms   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. Irs extention forms Figure your average daily production of oil or natural gas for the year. Irs extention forms Figure your depletable oil or natural gas quantity for the year. Irs extention forms Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. Irs extention forms Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). Irs extention forms This is your depletion allowance for that property for the year. Irs extention forms Taxable income limit. Irs extention forms   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. Irs extention forms 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. Irs extention forms For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. Irs extention forms 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. Irs extention forms You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. Irs extention forms Add it to your depletion allowance (before applying any limits) for the following year. Irs extention forms Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. Irs extention forms (However, see Electing large partnerships must figure depletion allowance , later. Irs extention forms ) Each partner or shareholder must decide whether to use cost or percentage depletion. Irs extention forms If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. Irs extention forms Partner's or shareholder's adjusted basis. Irs extention forms   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. Irs extention forms The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. Irs extention forms   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. Irs extention forms However, in some cases, it is figured according to the partner's interest in partnership income. Irs extention forms   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. Irs extention forms Recordkeeping. Irs extention forms Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. Irs extention forms The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. Irs extention forms The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. Irs extention forms Reporting the deduction. Irs extention forms   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). Irs extention forms Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). Irs extention forms The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. Irs extention forms The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. Irs extention forms Form 6198, At-Risk Limitations. Irs extention forms Form 8582, Passive Activity Loss Limitations. Irs extention forms Electing large partnerships must figure depletion allowance. Irs extention forms   An electing large partnership, rather than each partner, generally must figure the depletion allowance. Irs extention forms The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. Irs extention forms Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. Irs extention forms   An electing large partnership is one that meets both the following requirements. Irs extention forms The partnership had 100 or more partners in the preceding year. Irs extention forms The partnership chooses to be an electing large partnership. Irs extention forms Disqualified persons. Irs extention forms   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. Irs extention forms Disqualified persons must figure it themselves, as explained earlier. Irs extention forms   All the following are disqualified persons. Irs extention forms Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Irs extention forms Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Irs extention forms Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. Irs extention forms Average daily production is discussed earlier. Irs extention forms Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. Irs extention forms Natural gas sold under a fixed contract. Irs extention forms   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. Irs extention forms This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. Irs extention forms The contract must have been in effect from February 1, 1975, until the date of sale of the gas. Irs extention forms Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. Irs extention forms Natural gas from geopressured brine. Irs extention forms   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. Irs extention forms This is natural gas that is both the following. Irs extention forms Produced from a well you began to drill after September 1978 and before 1984. Irs extention forms Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. Irs extention forms Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. Irs extention forms Mines and other natural deposits. Irs extention forms   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. Irs extention forms   The following is a list of the percentage depletion rates for the more common minerals. Irs extention forms DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. Irs extention forms Corporate deduction for iron ore and coal. Irs extention forms   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). Irs extention forms Gross income from the property. Irs extention forms   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. Irs extention forms Mining includes all the following. Irs extention forms Extracting ores or minerals from the ground. Irs extention forms Applying certain treatment processes described later. Irs extention forms Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. Irs extention forms Excise tax. Irs extention forms   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. Irs extention forms Extraction. Irs extention forms   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. Irs extention forms This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. Irs extention forms Treatment processes. Irs extention forms   The processes included as mining depend on the ore or mineral mined. Irs extention forms To qualify as mining, the treatment processes must be applied by the mine owner or operator. Irs extention forms For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. Irs extention forms Transportation of more than 50 miles. Irs extention forms   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. Irs extention forms    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. Irs extention forms Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. Irs extention forms For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. Irs extention forms irs. Irs extention forms gov/irb/2013-01_IRB/ar11. Irs extention forms html. Irs extention forms Disposal of coal or iron ore. Irs extention forms   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. Irs extention forms You disposed of it after holding it for more than 1 year. Irs extention forms You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. Irs extention forms Treat any gain on the disposition as a capital gain. Irs extention forms Disposal to related person. Irs extention forms   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. Irs extention forms A related person (as listed in chapter 2 of Publication 544). Irs extention forms A person owned or controlled by the same interests that own or control you. Irs extention forms Geothermal deposits. Irs extention forms   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. Irs extention forms A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. Irs extention forms For percentage depletion purposes, a geothermal deposit is not considered a gas well. Irs extention forms   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. Irs extention forms See Gross income from the property , earlier, under Oil and Gas Wells. Irs extention forms Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. Irs extention forms Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Irs extention forms A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. Irs extention forms Bonuses and advanced royalties. Irs extention forms   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. Irs extention forms If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. Irs extention forms Figuring cost depletion. Irs extention forms   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. Irs extention forms To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. Irs extention forms Figuring percentage depletion. Irs extention forms   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . Irs extention forms Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. Irs extention forms However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. Irs extention forms Ending the lease. Irs extention forms   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. Irs extention forms Do this for the year the lease ends or is abandoned. Irs extention forms Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. Irs extention forms   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. Irs extention forms Include this amount in income for the year the lease ends. Irs extention forms Increase your adjusted basis in the property by the amount you include in income. Irs extention forms Delay rentals. Irs extention forms   These are payments for deferring development of the property. Irs extention forms Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. Irs extention forms These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. Irs extention forms Timber You can figure timber depletion only by the cost method. Irs extention forms Percentage depletion does not apply to timber. Irs extention forms Base your depletion on your cost or other basis in the timber. Irs extention forms Your cost does not include the cost of land or any amounts recoverable through depreciation. Irs extention forms Depletion takes place when you cut standing timber. Irs extention forms You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. Irs extention forms Figuring cost depletion. Irs extention forms   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. Irs extention forms Timber units. Irs extention forms   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. Irs extention forms You measure the timber using board feet, log scale, cords, or other units. Irs extention forms If you later determine that you have more or less units of timber, you must adjust the original estimate. Irs extention forms   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. Irs extention forms Depletion unit. Irs extention forms   You figure your depletion unit each year by taking the following steps. Irs extention forms Determine your cost or adjusted basis of the timber on hand at the beginning of the year. Irs extention forms Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. Irs extention forms Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. Irs extention forms Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. Irs extention forms Divide the result of (2) by the result of (3). Irs extention forms This is your depletion unit. Irs extention forms Example. Irs extention forms You bought a timber tract for $160,000 and the land was worth as much as the timber. Irs extention forms Your basis for the timber is $80,000. Irs extention forms Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). Irs extention forms If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). Irs extention forms When to claim depletion. Irs extention forms   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). Irs extention forms Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. Irs extention forms The inventory is your basis for determining gain or loss in the tax year you sell the timber products. Irs extention forms Example. Irs extention forms The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. Irs extention forms You would deduct $20,000 of the $40,000 depletion that year. Irs extention forms You would add the remaining $20,000 depletion to your closing inventory of timber products. Irs extention forms Electing to treat the cutting of timber as a sale or exchange. Irs extention forms   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. Irs extention forms You must make the election on your income tax return for the tax year to which it applies. Irs extention forms If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. Irs extention forms You generally report the gain as long-term capital gain. Irs extention forms The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. Irs extention forms For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Irs extention forms   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. Irs extention forms The prior election (and revocation) is disregarded for purposes of making a subsequent election. Irs extention forms See Form T (Timber), Forest Activities Schedule, for more information. Irs extention forms Form T. Irs extention forms   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. Irs extention forms Prev  Up  Next   Home   More Online Publications