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Military State Income Tax

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Military State Income Tax

Military state income tax Internal Revenue Bulletin:  2012-14  April 2, 2012  Rev. Military state income tax Proc. Military state income tax 2012-23 Table of Contents SECTION 1. Military state income tax PURPOSE SECTION 2. Military state income tax BACKGROUND SECTION 3. Military state income tax SCOPE SECTION 4. Military state income tax APPLICATION. Military state income tax 01 Limitations on Depreciation Deductions for Certain Automobiles. Military state income tax . Military state income tax 02 Inclusions in Income of Lessees of Passenger Automobiles. Military state income tax SECTION 5. Military state income tax EFFECTIVE DATE SECTION 6. Military state income tax DRAFTING INFORMATION SECTION 1. Military state income tax PURPOSE This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2012, including separate tables of limitations on depreciation deductions for trucks and vans; and (2) the amounts that must be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2012, including a separate table of inclusion amounts for lessees of trucks and vans. Military state income tax The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code. Military state income tax SECTION 2. Military state income tax BACKGROUND . Military state income tax 01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year the taxpayer places the passenger automobile in service and for each succeeding year. Military state income tax For passenger automobiles placed in service after 1988, § 280F(d)(7) requires the Internal Revenue Service to increase the amounts allowable as depreciation deductions by a price inflation adjustment amount. Military state income tax The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. Military state income tax This change reflects the higher rate of price inflation for trucks and vans since 1988. Military state income tax . Military state income tax 02 Section 401(a) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. Military state income tax L. Military state income tax No. Military state income tax 111-312, 124 Stat. Military state income tax 3296 (Dec. Military state income tax 17, 2010) (the “Act”) extended the 50 percent additional first year depreciation deduction under § 168(k) to qualified property acquired by the taxpayer after December 31, 2007, and before January 1, 2013, if no written binding contract for the acquisition of the property existed before January 1, 2008, and if the taxpayer places the property in service generally before January 1, 2013. Military state income tax Section 168(k)(2)(F)(i) increases the first year depreciation allowed under § 280F(a)(1)(A)(i) by $8,000 for passenger automobiles to which the additional first year depreciation deduction under § 168(k) (hereinafter, referred to as “§ 168(k) additional first year depreciation deduction”) applies. Military state income tax . Military state income tax 03 Section 168(k)(2)(D)(i) provides that the § 168(k) additional first year depreciation deduction does not apply to any property required to be depreciated under the alternative depreciation system of § 168(g), including property described in § 280F(b)(1). Military state income tax Section 168(k)(2)(D)(iii) permits a taxpayer to elect out of the § 168(k) additional first year depreciation deduction for any class of property. Military state income tax Section 168(k)(4), as amended by the Act, permits a corporation to elect to increase the alternative minimum tax (“AMT”) credit limitation under § 53(c), instead of claiming the § 168(k) additional first year depreciation deduction for all eligible qualified property placed in service after December 31, 2010, that is round 2 extension property (as defined in § 168(k)(4)(I)(iv)). Military state income tax Accordingly, this revenue procedure provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction applies. Military state income tax This revenue procedure also provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction does not apply, either because taxpayer (1) purchased the passenger automobile used; (2) did not use the passenger automobile during 2012 more than 50 percent for business purposes; (3) elected out of the § 168(k) additional first year depreciation deduction pursuant to § 168(k)(2)(D)(iii); or (4) elected to increase the § 53 AMT credit limitation in lieu of claiming § 168(k) additional first year depreciation. Military state income tax . Military state income tax 04 Section 280F(c) requires a reduction in the deduction allowed to the lessee of a leased passenger automobile. Military state income tax The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Military state income tax Under § 1. Military state income tax 280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an amount determined by applying a formula to the amount obtained from a table. Military state income tax One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. Military state income tax Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased. Military state income tax SECTION 3. Military state income tax SCOPE . Military state income tax 01 The limitations on depreciation deductions in section 4. Military state income tax 01(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2012, and continue to apply for each taxable year that the passenger automobile remains in service. Military state income tax . Military state income tax 02 The tables in section 4. Military state income tax 02 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2012. Military state income tax Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. Military state income tax See Rev. Military state income tax Proc. Military state income tax 2007-30, 2007-1 C. Military state income tax B. Military state income tax 1104, for passenger automobiles first leased during calendar year 2007; Rev. Military state income tax Proc. Military state income tax 2008-22, 2008-1 C. Military state income tax B. Military state income tax 658, for passenger automobiles first leased during calendar year 2008; Rev. Military state income tax Proc. Military state income tax 2009-24, 2009-17 I. Military state income tax R. Military state income tax B. Military state income tax 885, for passenger automobiles first leased during calendar year 2009; Rev. Military state income tax Proc. Military state income tax 2010-18, 2010-9 I. Military state income tax R. Military state income tax B. Military state income tax 427, as amplified and modified by section 4. Military state income tax 03 of Rev. Military state income tax Proc. Military state income tax 2011-21, 2011-12 I. Military state income tax R. Military state income tax B. Military state income tax 560, for passenger automobiles first leased during calendar year 2010; and Rev. Military state income tax Proc. Military state income tax 2011-21, for passenger automobiles first leased during calendar year 2011. Military state income tax SECTION 4. Military state income tax APPLICATION . Military state income tax 01 Limitations on Depreciation Deductions for Certain Automobiles. Military state income tax (1) Amount of the inflation adjustment. Military state income tax (a) Passenger automobiles (other than trucks or vans). Military state income tax Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. Military state income tax Section 280F(d)(7)(B)(ii) defines the term “CPI automobile component” as the automobile component of the Consumer Price Index for all Urban Consumers published by the Department of Labor. Military state income tax The new car component of the CPI was 115. Military state income tax 2 for October 1987 and 143. Military state income tax 419 for October 2011. Military state income tax The October 2011 index exceeded the October 1987 index by 28. Military state income tax 219. Military state income tax Therefore, the automobile price inflation adjustment for 2012 for passenger automobiles (other than trucks and vans) is 24. Military state income tax 5 percent (28. Military state income tax 219/115. Military state income tax 2 x 100%). Military state income tax The dollar limitations in § 280F(a) are multiplied by a factor of 0. Military state income tax 245, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2012. Military state income tax This adjustment applies to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2012. Military state income tax (b) Trucks and vans. Military state income tax To determine the dollar limitations for trucks and vans first placed in service during calendar year 2012, the Service uses the new truck component of the CPI instead of the new car component. Military state income tax The new truck component of the CPI was 112. Military state income tax 4 for October 1987 and 146. Military state income tax 607 for October 2011. Military state income tax The October 2011 index exceeded the October 1987 index by 34. Military state income tax 207. Military state income tax Therefore, the automobile price inflation adjustment for 2012 for trucks and vans is 30. Military state income tax 43 percent (34. Military state income tax 207/112. Military state income tax 4 x 100%). Military state income tax The dollar limitations in § 280F(a) are multiplied by a factor of 0. Military state income tax 3043, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations for trucks and vans. Military state income tax This adjustment applies to all trucks and vans that are first placed in service in calendar year 2012. Military state income tax (2) Amount of the limitation. Military state income tax Tables 1 through 4 contain the dollar amount of the depreciation limitation for each taxable year for passenger automobiles a taxpayer places in service in calendar year 2012. Military state income tax Use Table 1 for a passenger automobile (other than a truck or van), and Table 2 for a truck or van, placed in service in calendar year 2012 for which the § 168(k) additional first year depreciation deduction applies. Military state income tax Use Table 3 for a passenger automobile (other than a truck or van), and Table 4 for a truck or van, placed in service in calendar year 2012 for which the § 168(k) additional first year depreciation deduction does not apply. Military state income tax REV. Military state income tax PROC. Military state income tax 2012-23 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 REV. Military state income tax PROC. Military state income tax 2012-23 TABLE 2 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,360 2nd Tax Year $5,300 3rd Tax Year $3,150 Each Succeeding Year $1,875 REV. Military state income tax PROC. Military state income tax 2012-23 TABLE 3 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 REV. Military state income tax PROC. Military state income tax 2012-23 TABLE 4 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,360 2nd Tax Year $5,300 3rd Tax Year $3,150 Each Succeeding Year $1,875 . Military state income tax 02 Inclusions in Income of Lessees of Passenger Automobiles. Military state income tax A taxpayer must follow the procedures in § 1. Military state income tax 280F-7(a) for determining the inclusion amounts for passenger automobiles first leased in calendar year 2012. Military state income tax In applying these procedures, lessees of passenger automobiles other than trucks and vans should use Table 5 of this revenue procedure, while lessees of trucks and vans should use Table 6 of this revenue procedure. Military state income tax REV. Military state income tax PROC. Military state income tax 2012-23 TABLE 5 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2012 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later $18,500 $19,000 2 4 5 6 8 19,000 19,500 2 4 7 7 9 19,500 20,000 2 5 8 8 10 20,000 20,500 3 5 9 10 11 20,500 21,000 3 6 9 12 12 21,000 21,500 3 7 10 12 14 21,500 22,000 3 8 11 13 16 22,000 23,000 4 8 13 15 17 23,000 24,000 4 10 15 17 20 24,000 25,000 5 11 17 19 23 25,000 26,000 6 12 19 21 26 26,000 27,000 6 14 20 24 28 27,000 28,000 7 15 22 26 31 28,000 29,000 7 16 25 28 33 29,000 30,000 8 18 25 32 35 30,000 31,000 9 19 27 34 38 31,000 32,000 9 20 30 36 41 32,000 33,000 10 21 32 38 43 33,000 34,000 10 23 33 41 46 34,000 35,000 11 24 35 43 49 35,000 36,000 12 25 37 45 52 36,000 37,000 12 27 39 47 54 37,000 38,000 13 28 41 49 57 38,000 39,000 13 29 43 52 59 39,000 40,000 14 30 45 54 62 40,000 41,000 14 32 47 56 65 41,000 42,000 15 33 49 58 68 42,000 43,000 16 34 51 61 70 43,000 44,000 16 36 52 63 73 44,000 45,000 17 37 54 66 75 45,000 46,000 17 38 57 67 78 46,000 47,000 18 39 59 70 80 47,000 48,000 19 40 61 72 83 48,000 49,000 19 42 62 75 86 49,000 50,000 20 43 64 77 89 50,000 51,000 20 45 66 79 91 51,000 52,000 21 46 68 81 94 52,000 53,000 21 47 70 84 96 53,000 54,000 22 48 72 86 99 54,000 55,000 23 49 74 88 102 55,000 56,000 23 51 76 90 104 56,000 57,000 24 52 78 92 107 57,000 58,000 24 54 79 95 110 58,000 59,000 25 55 81 97 113 59,000 60,000 26 56 83 100 115 60,000 62,000 26 58 86 103 119 62,000 64,000 28 60 90 108 124 64,000 66,000 29 63 94 112 129 66,000 68,000 30 66 97 117 135 68,000 70,000 31 68 102 121 140 70,000 72,000 32 71 105 126 145 72,000 74,000 33 74 109 130 151 74,000 76,000 35 76 113 135 156 76,000 78,000 36 78 117 140 161 78,000 80,000 37 81 120 145 166 80,000 85,000 39 86 127 152 176 85,000 90,000 42 92 137 163 189 90,000 95,000 45 98 147 175 202 95,000 100,000 48 105 155 187 215 100,000 110,000 52 115 170 203 235 110,000 120,000 58 127 189 227 262 120,000 130,000 64 140 208 250 288 130,000 140,000 70 153 227 272 315 140,000 150,000 75 166 246 296 340 150,000 160,000 81 179 265 318 368 160,000 170,000 87 192 284 341 394 170,000 180,000 93 204 304 364 420 180,000 190,000 99 217 323 387 446 190,000 200,000 105 230 342 409 473 200,000 210,000 111 243 361 432 499 210,000 220,000 116 256 380 455 526 220,000 230,000 122 269 399 478 552 230,000 240,000 128 282 418 501 578 240,000 and up 134 294 437 524 605 REV. Military state income tax PROC. Military state income tax 2012-23 TABLE 6 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2012 Fair Market Value of Truck or Van Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later $19,000 $19,500 1 4 5 6 7 19,500 20,000 2 4 6 7 9 20,000 20,500 2 5 7 8 10 20,500 21,000 2 5 8 10 11 21,000 21,500 3 6 9 10 13 21,500 22,000 3 6 10 12 14 22,000 23,000 3 8 11 14 15 23,000 24,000 4 9 13 16 18 24,000 25,000 4 10 15 19 21 25,000 26,000 5 11 17 21 24 26,000 27,000 6 12 19 23 26 27,000 28,000 6 14 21 25 29 28,000 29,000 7 15 23 27 32 29,000 30,000 7 17 24 30 34 30,000 31,000 8 18 26 32 37 31,000 32,000 9 19 28 34 40 32,000 33,000 9 20 31 36 42 33,000 34,000 10 21 33 39 44 34,000 35,000 10 23 34 41 48 35,000 36,000 11 24 36 44 50 36,000 37,000 12 25 38 46 53 37,000 38,000 12 27 40 48 55 38,000 39,000 13 28 42 50 58 39,000 40,000 13 29 44 53 60 40,000 41,000 14 31 45 55 63 41,000 42,000 14 32 48 57 66 42,000 43,000 15 33 50 59 69 43,000 44,000 16 34 52 61 72 44,000 45,000 16 36 53 64 74 45,000 46,000 17 37 55 66 77 46,000 47,000 17 38 58 68 79 47,000 48,000 18 40 59 70 82 48,000 49,000 19 41 61 73 84 49,000 50,000 19 42 63 75 87 50,000 51,000 20 43 65 78 89 51,000 52,000 20 45 66 80 93 52,000 53,000 21 46 68 83 95 53,000 54,000 21 48 70 84 98 54,000 55,000 22 49 72 87 100 55,000 56,000 23 50 74 89 103 56,000 57,000 23 51 76 92 105 57,000 58,000 24 52 78 94 108 58,000 59,000 24 54 80 96 111 59,000 60,000 25 55 82 98 114 60,000 62,000 26 57 85 101 118 62,000 64,000 27 60 88 106 123 64,000 66,000 28 62 93 110 128 66,000 68,000 29 65 96 115 134 68,000 70,000 30 67 100 120 139 70,000 72,000 32 70 103 125 144 72,000 74,000 33 72 108 129 149 74,000 76,000 34 75 111 134 155 76,000 78,000 35 78 115 138 160 78,000 80,000 36 80 119 143 165 80,000 85,000 38 85 125 151 175 85,000 90,000 41 91 135 163 187 90,000 95,000 44 98 144 174 201 95,000 100,000 47 104 154 185 214 100,000 110,000 52 113 169 202 234 110,000 120,000 57 127 187 225 261 120,000 130,000 63 139 207 248 287 130,000 140,000 69 152 226 271 313 140,000 150,000 75 165 245 294 339 150,000 160,000 81 178 264 316 366 160,000 170,000 87 190 283 340 392 170,000 180,000 92 204 302 362 419 180,000 190,000 98 216 322 385 445 190,000 200,000 104 229 340 409 471 200,000 210,000 110 242 359 431 498 210,000 220,000 116 255 378 454 524 220,000 230,000 122 267 398 477 551 230,000 240,000 127 281 416 500 577 240,000 and up 133 294 435 523 603 SECTION 5. Military state income tax EFFECTIVE DATE This revenue procedure applies to passenger automobiles that a taxpayer first places in service or first leases during calendar year 2012. Military state income tax SECTION 6. Military state income tax DRAFTING INFORMATION The principal author of this revenue procedure is Bernard P. Military state income tax Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). Military state income tax For further information regarding this revenue procedure, contact Mr. Military state income tax Harvey at (202) 622-4930 (not a toll-free call). Military state income tax Prev  Up  Next   Home   More Internal Revenue Bulletins
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Tax Relief for Victims of Hurricane Sandy in New Jersey

Updated 2/4/13 The IRS announced additional tax relief, further extending certain tax deadlines until April 1 for Monmouth and Ocean counties. 

NJ-2012-47, Nov. 7, 2012

MOUNTAINSIDE, NJ — Victims of Hurricane Sandy that began on Oct. 26, 2012 in parts of New Jersey may qualify for tax relief from the Internal Revenue Service.

The President has declared Atlantic, Bergen, Burlington, Camden, Cape May, Cumberland, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Salem, Somerset, Sussex, Union and Warren counties a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Oct. 26, and on or before Feb. 1, have been postponed to Feb. 1, 2013.  

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Oct. 26, and on or before Nov. 26, as long as the deposits are made by Nov. 26, 2012.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area need to call the IRS disaster hotline at 866-562-5227 to request this tax relief.

For a full description of the relief being provided by the IRS to the victims of Hurricane Sandy, visit IRS.gov.

Covered Disaster Area

The counties above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Feb. 1 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Oct. 26 and on or before Feb. 1.

The IRS also gives affected taxpayers until Feb. 1 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Oct. 26 and on or before Feb. 1.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Oct. 26 and on or before Nov. 26 provided the taxpayer makes these deposits by Nov. 26.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “New Jersey/Hurricane Sandy” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 800-TAX-FORM (800-829-3676). The IRS toll-free number for general tax questions is 800-829-1040.

Related Information

Disaster Assistance and Emergency Relief for Individuals and Businesses

Recent IRS Disaster Relief Announcements

Page Last Reviewed or Updated: 04-Nov-2013

The Military State Income Tax

Military state income tax 8. Military state income tax   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. Military state income tax Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. Military state income tax 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. Military state income tax 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. Military state income tax Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. Military state income tax This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. Military state income tax A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Military state income tax An exchange is a transfer of property for other property or services. Military state income tax Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. Military state income tax If the amount you realize from a sale or exchange of property is more than its adjusted basis, you will have a gain. Military state income tax If the adjusted basis of the property is more than the amount you realize, you will have a loss. Military state income tax Basis and adjusted basis. Military state income tax   The basis of property you buy is usually its cost. Military state income tax The adjusted basis of property is basis plus certain additions and minus certain deductions. Military state income tax See chapter 6 for more information about basis and adjusted basis. Military state income tax Amount realized. Military state income tax   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. Military state income tax 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. Military state income tax   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. Military state income tax Amount recognized. Military state income tax   Your gain or loss realized from a sale or exchange of certain property is usually a recognized gain or loss for tax purposes. Military state income tax A recognized gain is a gain you must include in gross income and report on your income tax return. Military state income tax A recognized loss is a loss you deduct from gross income. Military state income tax However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. Military state income tax See Like-Kind Exchanges next. Military state income tax Also, a loss from the disposition of property held for personal use is not deductible. Military state income tax Like-Kind Exchanges Certain exchanges of property are not taxable. Military state income tax This means any gain from the exchange is not recognized, and any loss cannot be deducted. Military state income tax Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Military state income tax The exchange of property for the same kind of property is the most common type of nontaxable exchange. Military state income tax To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. Military state income tax Qualifying property. Military state income tax Like-kind property. Military state income tax These two requirements are discussed later. Military state income tax Multiple-party transactions. Military state income tax   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. Military state income tax Any part of these multiple-party transactions can qualify as a like-kind exchange if it meets all the requirements described in this section. Military state income tax Receipt of title from third party. Military state income tax   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. Military state income tax Basis of property received. Military state income tax   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. Military state income tax See chapter 6 for more information. Military state income tax Money paid. Military state income tax   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. Military state income tax The basis of the property received is the basis of the property given up, increased by the money paid. Military state income tax Example. Military state income tax You traded an old tractor with an adjusted basis of $15,000 for a new one. Military state income tax The new tractor costs $300,000. Military state income tax You were allowed $80,000 for the old tractor and paid $220,000 cash. Military state income tax 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). Military state income tax 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. Military state income tax 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. Military state income tax Reporting the exchange. Military state income tax   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. Military state income tax The Instructions for Form 8824 explain how to report the details of the exchange. Military state income tax   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. Military state income tax You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. Military state income tax See chapter 9 for more information. Military state income tax Qualifying property. Military state income tax   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. Military state income tax Machinery, buildings, land, trucks, breeding livestock, rental houses, and certain mutual ditch, reservoir, or irrigation company stock are examples of property that may qualify. Military state income tax Nonqualifying property. Military state income tax   The rules for like-kind exchanges do not apply to exchanges of the following property. Military state income tax Property you use for personal purposes, such as your home and family car. Military state income tax Stock in trade or other property held primarily for sale, such as crops and produce. Military state income tax Stocks, bonds, or notes. Military state income tax However, see Qualifying property above. Military state income tax Other securities or evidences of indebtedness, such as accounts receivable. Military state income tax Partnership interests. Military state income tax However, you may have a nontaxable exchange under other rules. Military state income tax See Other Nontaxable Exchanges in chapter 1 of Publication 544. Military state income tax Like-kind property. Military state income tax   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. Military state income tax Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Military state income tax Generally, real property exchanged for real property qualifies as an exchange of like-kind property. Military state income tax For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. Military state income tax   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. Military state income tax An exchange of a tractor for acreage, however, is not an exchange of like-kind property. Military state income tax The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. Military state income tax For example, the exchange of a bull for a cow is not a like-kind exchange. Military state income tax 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. Military state income tax    Note. Military state income tax Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. Military state income tax Personal property. Military state income tax   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. Military state income tax Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. Military state income tax Property classified in any General Asset Class may not be classified within a Product Class. Military state income tax Assets that are not in the same class will qualify as like-kind property if they are of the same nature or character. Military state income tax General Asset Classes. Military state income tax   General Asset Classes describe the types of property frequently used in many businesses. Military state income tax They include, but are not limited to, the following property. Military state income tax Office furniture, fixtures, and equipment (asset class 00. Military state income tax 11). Military state income tax Information systems, such as computers and peripheral equipment (asset class 00. Military state income tax 12). Military state income tax Data handling equipment except computers (asset class 00. Military state income tax 13). Military state income tax Automobiles and taxis (asset class 00. Military state income tax 22). Military state income tax Light general purpose trucks (asset class 00. Military state income tax 241). Military state income tax Heavy general purpose trucks (asset class 00. Military state income tax 242). Military state income tax Tractor units for use over-the-road (asset class 00. Military state income tax 26). Military state income tax Trailers and trailer-mounted containers (asset class 00. Military state income tax 27). Military state income tax Industrial steam and electric generation and/or distribution systems (asset class 00. Military state income tax 4). Military state income tax Product Classes. Military state income tax   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). Military state income tax The latest version of the manual can be accessed at www. Military state income tax census. Military state income tax gov/eos/www/naics/. Military state income tax Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. Military state income tax ntis. Military state income tax gov/products/naics. Military state income tax aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. Military state income tax A CD-ROM version with search and retrieval software is also available from NTIS. Military state income tax    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. Military state income tax Partially nontaxable exchange. Military state income tax   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. Military state income tax 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. Military state income tax A loss is not deductible. Military state income tax Example 1. Military state income tax 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. Military state income tax 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). Military state income tax However, only $10,000, the cash received, is recognized (included in income). Military state income tax Example 2. Military state income tax Assume the same facts as in Example 1, except that, instead of money, you received a tractor with a FMV of $10,000. Military state income tax Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). Military state income tax Example 3. Military state income tax Assume in Example 1 that the FMV of the land you received was only $15,000. Military state income tax Your $5,000 loss is not recognized. Military state income tax Unlike property given up. Military state income tax   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. Military state income tax The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. Military state income tax Like-kind exchanges between related persons. Military state income tax   Special rules apply to like-kind exchanges between related persons. Military state income tax These rules affect both direct and indirect exchanges. Military state income tax Under these rules, if either person disposes of the property within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Military state income tax The gain or loss on the original exchange must be recognized as of the date of the later disposition. Military state income tax The 2-year holding period begins on the date of the last transfer of property that was part of the like-kind exchange. Military state income tax Related persons. Military state income tax   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. Military state income tax ), 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. Military state income tax   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. Military state income tax Example. Military state income tax You used a grey pickup truck in your farming business. Military state income tax Your sister used a red pickup truck in her landscaping business. Military state income tax In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. Military state income tax At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. Military state income tax The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. Military state income tax 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). Military state income tax 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). Military state income tax However, because this was a like-kind exchange, you recognized no gain. Military state income tax 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). Military state income tax She recognized gain only to the extent of the money she received, $200. Military state income tax 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). Military state income tax In 2013, you sold the red pickup truck to a third party for $7,000. Military state income tax Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Military state income tax On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. Military state income tax 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). Military state income tax In addition, your sister must report on her tax return for 2013 the $6,000 balance of her gain on the 2012 exchange. Military state income tax Her adjusted basis in the grey pickup truck is increased to $7,000 (its $1,000 basis plus the $6,000 gain recognized). Military state income tax Exceptions to the rules for related persons. Military state income tax   The following property dispositions are excluded from these rules. Military state income tax Dispositions due to the death of either related person. Military state income tax Involuntary conversions. Military state income tax 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. Military state income tax Multiple property exchanges. Military state income tax   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. Military state income tax However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. Military state income tax Transfer and receive properties in two or more exchange groups. Military state income tax Transfer or receive more than one property within a single exchange group. Military state income tax   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. Military state income tax Deferred exchange. Military state income tax   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. Military state income tax 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. Military state income tax The property you receive is replacement property. Military state income tax The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. Military state income tax In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. Military state income tax   For more information see Deferred Exchanges in chapter 1 of Publication 544. Military state income tax 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. Military state income tax This rule does not apply if the recipient is a nonresident alien. Military state income tax 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. Military state income tax 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. Military state income tax The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Military state income tax 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. Military state income tax This rule applies for determining loss as well as gain. Military state income tax Any gain recognized on a transfer in trust increases the basis. Military state income tax For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. Military state income tax 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). Military state income tax You may also have a capital gain if your section 1231 transactions result in a net gain. Military state income tax See Section 1231 Gains and Losses in  chapter 9. Military state income tax 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). Military state income tax Your net capital gains may be taxed at a lower tax rate than ordinary income. Military state income tax See Capital Gains Tax Rates , later. Military state income tax Your deduction for a net capital loss may be limited. Military state income tax See Treatment of Capital Losses , later. Military state income tax Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. Military state income tax The following items are examples of capital assets. Military state income tax A home owned and occupied by you and your family. Military state income tax Household furnishings. Military state income tax A car used for pleasure. Military state income tax 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. Military state income tax Stocks and bonds. Military state income tax However, there are special rules for gains on qualified small business stock. Military state income tax 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. Military state income tax Personal-use property. Military state income tax   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. Military state income tax Loss from the sale or exchange of personal-use property is not deductible. Military state income tax You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Military state income tax For information on casualties and thefts, see chapter 11. Military state income tax 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. Military state income tax The time you own an asset before disposing of it is the holding period. Military state income tax If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. Military state income tax Report it in Part I of Schedule D (Form 1040). Military state income tax If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. Military state income tax Report it in Part II of Schedule D (Form 1040). Military state income tax Holding period. Military state income tax   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. Military state income tax The day you disposed of the property is part of your holding period. Military state income tax Example. Military state income tax If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Military state income tax 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. Military state income tax Inherited property. Military state income tax   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Military state income tax This rule does not apply to livestock used in a farm business. Military state income tax See Holding period under Livestock , later. Military state income tax Nonbusiness bad debt. Military state income tax   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. Military state income tax See chapter 4 of Publication 550. Military state income tax Nontaxable exchange. Military state income tax   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. Military state income tax That is, it begins on the same day as your holding period for the old property. Military state income tax Gift. Military state income tax   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. Military state income tax Real property. Military state income tax   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. Military state income tax   However, taking possession of real property under an option agreement is not enough to start the holding period. Military state income tax The holding period cannot start until there is an actual contract of sale. Military state income tax The holding period of the seller cannot end before that time. Military state income tax 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. Military state income tax Net short-term capital gain or loss. Military state income tax   Combine your short-term capital gains and losses. Military state income tax Do this by adding all of your short-term capital gains. Military state income tax Then add all of your short-term capital losses. Military state income tax Subtract the lesser total from the greater. Military state income tax The difference is your net short-term capital gain or loss. Military state income tax Net long-term capital gain or loss. Military state income tax   Follow the same steps to combine your long-term capital gains and losses. Military state income tax The result is your net long-term capital gain or loss. Military state income tax Net gain. Military state income tax   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Military state income tax 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. Military state income tax See Capital Gains Tax Rates , later. Military state income tax Net loss. Military state income tax   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Military state income tax But there are limits on how much loss you can deduct and when you can deduct it. Military state income tax See Treatment of Capital Losses next. Military state income tax 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. Military state income tax 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). Military state income tax If your other income is low, you may not be able to use the full $3,000. Military state income tax The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). Military state income tax Capital loss carryover. Military state income tax   Generally, you have a capital loss carryover if either of the following situations applies to you. Military state income tax Your net loss on Schedule D (Form 1040), is more than the yearly limit. Military state income tax Your taxable income without your deduction for exemptions is less than zero. Military state income tax 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. Military state income tax    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). Military state income tax 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. Military state income tax These lower rates are called the maximum capital gains rates. Military state income tax 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. Military state income tax See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). Military state income tax Also see Publication 550. Military state income tax Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. Military state income tax A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). Military state income tax Property held for sale in the ordinary course of your farm business. Military state income tax   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. Military state income tax 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). Military state income tax The treatment of this property is discussed in chapter 3. Military state income tax Land and depreciable properties. Military state income tax   Land and depreciable property you use in farming are not capital assets. Military state income tax Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. Military state income tax 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. Military state income tax The sales of these business assets are reported on Form 4797. Military state income tax See chapter 9 for more information. Military state income tax 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. Military state income tax Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. Military state income tax 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. Military state income tax 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. Military state income tax A forward contract is generally similar to a futures contract except that the terms are not standardized and the contract is not exchange traded. Military state income tax Businesses may enter into commodity futures contracts or forward contracts and may acquire options on commodity futures contracts as either of the following. Military state income tax Hedging transactions. Military state income tax Transactions that are not hedging transactions. Military state income tax 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. Military state income tax There is a limit on the amount of capital losses you can deduct each year. Military state income tax Hedging transactions are not subject to the mark-to-market rules. Military state income tax 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. Military state income tax 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. Military state income tax The gain or loss on the termination of these hedges is generally ordinary gain or loss. Military state income tax 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. Military state income tax 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. Military state income tax Examples include fuel and feed. Military state income tax If you have numerous transactions in the commodity futures market during the year, you must be able to show which transactions are hedging transactions. Military state income tax Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. Military state income tax It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. Military state income tax Retain the identification of each hedging transaction with your books and records. Military state income tax Also, identify the item(s) or aggregate risk that is being hedged in your records. Military state income tax 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. Military state income tax 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. Military state income tax Accounting methods for hedging transactions. Military state income tax   The accounting method you use for a hedging transaction must clearly reflect income. Military state income tax 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. Military state income tax There are requirements and limits on the method you can use for certain hedging transactions. Military state income tax See Regulations section 1. Military state income tax 446-4(e) for those requirements and limits. Military state income tax   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. Military state income tax Cash method. Military state income tax Farm-price method. Military state income tax Unit-livestock-price method. Military state income tax   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. Military state income tax   Your books and records must describe the accounting method used for each type of hedging transaction. Military state income tax They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. Military state income tax You must make the additional identification no more than 35 days after entering into the hedging transaction. Military state income tax Example of a hedging transaction. Military state income tax   You file your income tax returns on the cash method. Military state income tax On July 2 you anticipate a yield of 50,000 bushels of corn this year. Military state income tax The December futures price is $5. Military state income tax 75 a bushel, but there are indications that by harvest time the price will drop. Military state income tax To protect yourself against a drop in the price, you enter into the following hedging transaction. Military state income tax You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. Military state income tax 75 a bushel. Military state income tax   The price did not drop as anticipated but rose to $6 a bushel. Military state income tax In November, you sell your crop at a local elevator for $6 a bushel. Military state income tax You also close out your futures position by buying ten December contracts for $6 a bushel. Military state income tax You paid a broker's commission of $1,400 ($70 per contract) for the complete in and out position in the futures market. Military state income tax   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. Military state income tax Your loss on the hedge is 25 cents a bushel. Military state income tax In effect, the net selling price of your corn is $5. Military state income tax 75 a bushel. Military state income tax   Report the results of your futures transactions and your sale of corn separately on Schedule F. Military state income tax See the instructions for the 2013 Schedule F (Form 1040). Military state income tax   The loss on your futures transactions is $13,900, figured as follows. Military state income tax July 2 - Sold December corn futures (50,000 bu. Military state income tax @$5. Military state income tax 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Military state income tax @$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. Military state income tax   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. Military state income tax × $6). Military state income tax Report it on Schedule F, Part I, line 2, as income from sales of products you raised. Military state income tax   Assume you were right and the price went down 25 cents a bushel. Military state income tax In effect, you would still net $5. Military state income tax 75 a bushel, figured as follows. Military state income tax Sold cash corn, per bushel $5. Military state income tax 50 Gain on hedge, per bushel . Military state income tax 25 Net price, per bushel $5. Military state income tax 75       The gain on your futures transactions would have been $11,100, figured as follows. Military state income tax July 2 - Sold December corn futures (50,000 bu. Military state income tax @$5. Military state income tax 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Military state income tax @$5. Military state income tax 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. Military state income tax   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. Military state income tax Livestock This part discusses the sale or exchange of livestock used in your farm business. Military state income tax Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. Military state income tax However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. Military state income tax See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. Military state income tax The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. Military state income tax The sale of this livestock is reported on Schedule F. Military state income tax See chapter 3. Military state income tax Also, special rules apply to sales or exchanges caused by weather-related conditions. Military state income tax See chapter 3. Military state income tax Holding period. Military state income tax   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). Military state income tax Livestock. Military state income tax   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. Military state income tax Also, for section 1231 transactions, livestock does not include chickens, turkeys, pigeons, geese, emus, ostriches, rheas, or other birds, fish, frogs, reptiles, etc. Military state income tax Livestock used in farm business. Military state income tax   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. Military state income tax The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. Military state income tax 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. Military state income tax 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. Military state income tax Example 1. Military state income tax You discover an animal that you intend to use for breeding purposes is sterile. Military state income tax You dispose of it within a reasonable time. Military state income tax This animal was held for breeding purposes. Military state income tax Example 2. Military state income tax 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. Military state income tax These young animals were held for breeding or dairy purposes. Military state income tax 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. Military state income tax See Sales Caused by Weather-Related Conditions in chapter 3. Military state income tax Example 3. Military state income tax You are in the business of raising hogs for slaughter. Military state income tax Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. Military state income tax You sell the brood sows after obtaining the litter. Military state income tax 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. Military state income tax Example 4. Military state income tax You are in the business of raising registered cattle for sale to others for use as breeding cattle. Military state income tax The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. Military state income tax Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. Military state income tax Such use does not demonstrate that you are holding the cattle for breeding purposes. Military state income tax 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. Military state income tax The same applies to hog and sheep breeders. Military state income tax Example 5. Military state income tax You breed, raise, and train horses for racing purposes. Military state income tax Every year you cull horses from your racing stable. Military state income tax 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. Military state income tax These horses are all considered held for sporting purposes. Military state income tax Figuring gain or loss on the cash method. Military state income tax   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. Military state income tax Raised livestock. Military state income tax   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. Military state income tax Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. Military state income tax The basis of the animal sold is zero if the costs of raising it were deducted during the years the animal was being raised. Military state income tax However, see Uniform Capitalization Rules in chapter 6. Military state income tax Purchased livestock. Military state income tax   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. Military state income tax Example. Military state income tax A farmer sold a breeding cow on January 8, 2013, for $1,250. Military state income tax Expenses of the sale were $125. Military state income tax The cow was bought July 2, 2009, for $1,300. Military state income tax Depreciation (not less than the amount allowable) was $867. Military state income tax 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. Military state income tax Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. Military state income tax Any loss on the disposition of such property is treated as a long-term capital loss. Military state income tax Converted wetland. Military state income tax   This is generally land that was drained or filled to make the production of agricultural commodities possible. Military state income tax 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. Military state income tax   A wetland (before conversion) is land that meets all the following conditions. Military state income tax 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. Military state income tax 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. Military state income tax It supports, under normal circumstances, mostly plants that grow in saturated soil. Military state income tax Highly erodible cropland. Military state income tax   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. Military state income tax Generally, highly erodible cropland is land currently classified by the Department of Agriculture as Class IV, VI, VII, or VIII under its classification system. Military state income tax 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. Military state income tax Successor. Military state income tax   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. Military state income tax Timber Standing timber you held as investment property is a capital asset. Military state income tax Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. Military state income tax If you held the timber primarily for sale to customers, it is not a capital asset. Military state income tax Gain or loss on its sale is ordinary business income or loss. Military state income tax It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). Military state income tax See the Instructions for Schedule F (Form 1040). Military state income tax 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. Military state income tax Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. Military state income tax , are ordinary farm income and expenses reported on Schedule F. Military state income tax 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. Military state income tax Timber considered cut. Military state income tax   Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Military state income tax This is true whether the timber is cut under contract or whether you cut it yourself. Military state income tax Christmas trees. Military state income tax   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. Military state income tax They qualify for both rules discussed below. Military state income tax Election to treat cutting as a sale or exchange. Military state income tax   Under the general rule, the cutting of timber results in no gain or loss. Military state income tax It is not until a sale or exchange occurs that gain or loss is realized. Military state income tax 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. Military state income tax 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. Military state income tax Any later sale results in ordinary business income or loss. Military state income tax See the example below. Military state income tax   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. Military state income tax Making the election. Military state income tax   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. Military state income tax You do not have to make the election in the first year you cut the timber. Military state income tax You can make it in any year to which the election would apply. Military state income tax If the timber is partnership property, the election is made on the partnership return. Military state income tax This election cannot be made on an amended return. Military state income tax   Once you have made the election, it remains in effect for all later years unless you revoke it. Military state income tax Election under section 631(a) may be revoked. Military state income tax   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. Military state income tax The prior election (and revocation) is disregarded for purposes of making a subsequent election. Military state income tax See Form T (Timber), Forest Activities Schedule, for more information. Military state income tax Gain or loss. Military state income tax   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. Military state income tax   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. Military state income tax 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. Military state income tax 611-3. Military state income tax   Depletion of timber is discussed in chapter 7. Military state income tax Example. Military state income tax   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Military state income tax It had an adjusted basis for depletion of $40 per MBF. Military state income tax You are a calendar year taxpayer. Military state income tax On January 1, 2013, the timber had a FMV of $350 per MBF. Military state income tax It was cut in April for sale. Military state income tax On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Military state income tax You report the difference between the FMV and your adjusted basis for depletion as a gain. Military state income tax 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. Military state income tax You figure your gain as follows. Military state income tax 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. Military state income tax Outright sales of timber. Military state income tax   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). Military state income tax 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). Military state income tax Cutting contract. Military state income tax   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Military state income tax You are the owner of the timber. Military state income tax You held the timber longer than 1 year before its disposal. Military state income tax You kept an economic interest in the timber. Military state income tax   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. Military state income tax   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. Military state income tax Include this amount on Form 4797 along with your other section 1231 gains or losses. Military state income tax Date of disposal. Military state income tax   The date of disposal is the date the timber is cut. Military state income tax 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. Military state income tax   This election applies only to figure the holding period of the timber. Military state income tax It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Military state income tax   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Military state income tax The statement must identify the advance payments subject to the election and the contract under which they were made. Military state income tax   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). Military state income tax Attach the statement to the amended return and write “Filed pursuant to section 301. Military state income tax 9100-2” at the top of the statement. Military state income tax File the amended return at the same address the original return was filed. Military state income tax Owner. Military state income tax   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. Military state income tax 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. Military state income tax Tree stumps. Military state income tax   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. Military state income tax Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Military state income tax However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Military state income tax Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Military state income tax   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Military state income tax 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). Military state income tax If you have a gain from the sale, you may be allowed to exclude the gain on your home. Military state income tax For more information, see Publication 523, Selling Your Home. Military state income tax The gain on the sale of your business property is taxable. Military state income tax A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. Military state income tax Your taxable gain or loss on the sale of property used in your farm business is taxed under the rules for section 1231 transactions. Military state income tax See chapter 9. Military state income tax Losses from personal-use property, other than casualty or theft losses, are not deductible. Military state income tax 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. Military state income tax See chapter 10 for information about installment sales. Military state income tax When you sell your farm, the gain or loss on each asset is figured separately. Military state income tax The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. Military state income tax Each of the assets sold must be classified as one of the following. Military state income tax Capital asset held 1 year or less. Military state income tax Capital asset held longer than 1 year. Military state income tax 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 ). Military state income tax 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). Military state income tax 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. Military state income tax Allocation of consideration paid for a farm. Military state income tax   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. Military state income tax The residual method is required only if the group of assets sold constitutes a trade or business. Military state income tax This method determines gain or loss from the transfer of each asset. Military state income tax It also determines the buyer's basis in the business assets. Military state income tax For more information, see Sale of a Business in chapter 2 of Publication 544. Military state income tax Property used in farm operation. Military state income tax   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. Military state income tax Recognized gains and losses on business property must be reported on your return for the year of the sale. Military state income tax If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). Military state income tax Example. Military state income tax You sell your farm, including your main home, which you have owned since December 2001. Military state income tax You realize gain on the sale as follows. Military state income tax   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. Military state income tax 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. Military state income tax Treat the balance as section 1231 gain. Military state income tax 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 . Military state income tax Partial sale. Military state income tax   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. Military state income tax You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. Military state income tax For a detailed discussion on installment sales, see Publication 544. Military state income tax Adjusted basis of the part sold. Military state income tax   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. Military state income tax , on the part sold. Military state income tax 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 . Military state income tax Example. Military state income tax You bought a 600-acre farm for $700,000. Military state income tax The farm included land and buildings. Military state income tax The purchase contract designated $600,000 of the purchase price to the land. Military state income tax You later sold 60 acres of land on which you had installed a fence. Military state income tax 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. Military state income tax Use this amount to determine your gain or loss on the sale of the 60 acres. Military state income tax Assessed values for local property taxes. Military state income tax   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. Military state income tax Example. Military state income tax Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. Military state income tax 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. Military state income tax The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. Military state income tax Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. Military state income tax The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). Military state income tax Sale of your home. Military state income tax   Your home is a capital asset and not property used in the trade or business of farming. Military state income tax 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. Military state income tax Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. Military state income tax   If you use part of your home for business, you must make an appropriate adjustment to the basis for depreciation allowed or allowable. Military state income tax For more information on basis, see chapter 6. Military state income tax More information. Military state income tax   For more information on selling your home, see Publication 523. Military state income tax Gain from condemnation. Military state income tax   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. Military state income tax 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. Military state income tax 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. Military state income tax The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Military state income tax This is true even if you voluntarily return the property to the lender. Military state income tax You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. Military state income tax Buyer's (borrower's) gain or loss. Military state income tax   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. Military state income tax The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Military state income tax See Determining Gain or Loss , earlier. Military state income tax Worksheet 8-1. Military state income tax Worksheet for Foreclosures andRepossessions Part 1. Military state income tax Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Military state income tax Complete this part only if you were personally liable for the debt. Military state income tax Otherwise, go to Part 2. Military state income tax   1. Military state income tax 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. Military state income tax Enter the Fair Market Value of the transferred property   3. Military state income tax Ordinary income from cancellation of debt upon foreclosure or repossession. Military state income tax * Subtract line 2 from line 1. Military state income tax If zero or less, enter -0-   Part 2. Military state income tax Figure your gain or loss from foreclosure or repossession. Military state income tax   4. Military state income tax If you completed Part 1, enter the smaller of line 1 or line 2. Military state income tax If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. Military state income tax Enter any proceeds you received from the foreclosure sale   6. Military state income tax Add lines 4 and 5   7. Military state income tax Enter the adjusted basis of the transferred property   8. Military state income tax Gain or loss from foreclosure or repossession. Military state income tax Subtract line 7  from line 6   * The income may not be taxable. Military state income tax See Cancellation of debt . Military state income tax    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. Military state income tax Amount realized on a nonrecourse debt. Military state income tax   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. Military state income tax 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. Military state income tax Example 1. Military state income tax Ann paid $200,000 for land used in her farming business. Military state income tax She paid $15,000 down and borrowed the remaining $185,000 from a bank. Military state income tax Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. Military state income tax The bank foreclosed on the loan 2 years after Ann stopped making payments. Military state income tax When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. Military state income tax The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. Military state income tax She figures her gain or loss on Form 4797, Part I, by comparing the amount realized ($180,000) with her adjusted basis ($200,000). Military state income tax She has a $20,000 deductible loss. Military state income tax Example 2. Military state income tax Assume the same facts as in Example 1 except the FMV of the land was $210,000. Military state income tax The result is the same. Military state income tax The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. Military state income tax Because her adjusted basis is $200,000, she has a deductible loss of $20,000, which she reports on Form 4797, Part I. Military state income tax Amount realized on a recourse debt. Military state income tax   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. Military state income tax   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. Military state income tax The amount realized does not include the canceled debt that is your income from cancellation of debt. Military state income tax See Cancellation of debt , later. Military state income tax Example 3. Military state income tax Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). Military state income tax In this case, the amount she realizes is $170,000. Military state income tax This is the canceled debt ($180,000) up to the FMV of the land ($170,000). Military state income tax Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). Military state income tax She has a $30,000 deductible loss, which she figures on Form 4797, Part I. Military state income tax She is also treated as receiving ordinary income from cancellation of debt. Military state income tax That income is $10,000 ($180,000 − $170,000). Military state income tax This is the part of the canceled debt not included in the amount realized. Military state income tax She reports this as other income on Schedule F, line 8. Military state income tax Seller's (lender's) gain or loss on repossession. Military state income tax   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. Military state income tax For more information, see Repossession in Publication 537, Installment Sales. Military state income tax Cancellation of debt. Military state income tax   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. Military state income tax This income is separate from any gain or loss realized from the foreclosure or repossession. Military state income tax Report the income from cancellation of a business debt on Schedule F, line 8. Military state income tax Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Military state income tax    You can use Worksheet 8-1 to figure your income from cancellation of debt. Military state income tax   However, income from cancellation of debt is not taxed if any of the following apply. Military state income tax The cancellation is intended as a gift. Military state income tax The debt is qualified farm debt (see chapter 3). Military state income tax The debt is qualified real property business debt (see chapter 5 of Publication 334). Military state income tax You are insolvent or bankrupt (see  chapter 3). Military state income tax The debt is qualified principal residence indebtedness (see chapter 3). Military state income tax   Use Form 982 to report the income exclusion. Military state income tax Abandonment The abandonment of property is a disposition of property. Military state income tax 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. Military state income tax Business or investment property. Military state income tax   Loss from abandonment of business or investment property is deductible as a loss. Military state income tax Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Military state income tax If your adjusted basis is more than the amount you realize (if any), then you have a loss. Military state income tax If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Military state income tax This rule also applies to leasehold improvements the lessor made for the lessee. Military state income tax 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 . Military state income tax   If the abandoned property is secured by debt, special rules apply. Military state income tax 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). Military state income tax For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Military state income tax The abandonment loss is deducted in the tax year in which the loss is sustained. Military state income tax Report the loss on Form 4797, Part II, line 10. Military state income tax Personal-use property. Military state income tax   You cannot deduct any loss from abandonment of your home or other property held for personal use. Military state income tax Canceled debt. Military state income tax   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. Military state income tax This income is separate from any loss realized from abandonment of the property. Military state income tax Report income from cancellation of a debt related to a business or rental activity as business or rental income. Military state income tax Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Military state income tax   However, income from cancellation of debt is not taxed in certain circumstances. Military state income tax See Cancellation of debt earlier under Foreclosure or Repossession . Military state income tax Forms 1099-A and 1099-C. Military state income tax   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. Military state income tax 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. Military state income tax 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. Military state income tax For foreclosures, repossessions, abandonments of property, and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Military state income tax Prev  Up  Next   Home   More Online Publications