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Online 1040ez

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Online 1040ez

Online 1040ez Publication 971 - Additional Material Table of Contents How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Online 1040ez Questions & AnswersThis section answers questions commonly asked by taxpayers about innocent spouse relief. Online 1040ez . Online 1040ez What is joint and several liability? . Online 1040ez How can I get relief from joint and several liability? . Online 1040ez What are the rules for innocent spouse relief? . Online 1040ez What are erroneous items? . Online 1040ez What is an understated tax? . Online 1040ez Will I qualify for innocent spouse relief in any situation where there is an understated tax? . Online 1040ez What are the rules for separation of liability relief? . Online 1040ez Why would a request for separation of liability relief be denied? . Online 1040ez What are the rules for equitable relief? . Online 1040ez How do state community property laws affect my ability to qualify for relief? . Online 1040ez How do I request relief? . Online 1040ez When should I file Form 8857? . Online 1040ez Where should I file Form 8857? . Online 1040ez I am currently undergoing an examination of my return. Online 1040ez How do I request innocent spouse relief? . Online 1040ez What if the IRS has given me notice that it will levy my account for the tax liability and I decide to request relief? . Online 1040ez What is injured spouse relief? . Online 1040ez What is joint and several liability? When you file a joint income tax return, the law makes both you and your spouse responsible for the entire tax liability. Online 1040ez This is called joint and several liability. Online 1040ez Joint and several liability applies not only to the tax liability you show on the return but also to any additional tax liability the IRS determines to be due, even if the additional tax is due to the income, deductions, or credits of your spouse or former spouse. Online 1040ez You remain jointly and severally liable for taxes, and the IRS still can collect from you, even if you later divorce and the divorce decree states that your former spouse will be solely responsible for the tax. Online 1040ez There are three types of relief for filers of joint returns: “innocent spouse relief,” “separation of liability relief,” and “equitable relief. Online 1040ez ” Each type has different requirements. Online 1040ez They are explained separately below. Online 1040ez To qualify for innocent spouse relief, you must meet all of the following conditions. Online 1040ez You must have filed a joint return which has an understated tax. Online 1040ez The understated tax must be due to erroneous items of your spouse (or former spouse). Online 1040ez You must establish that at the time you signed the joint return, you did not know, and had no reason to know, that there was an understated tax. Online 1040ez Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understated tax. Online 1040ez You must request relief within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. Online 1040ez Erroneous items are any deductions, credits, or bases that are incorrectly stated on the return, and any income that is not properly reported on the return. Online 1040ez You have an understated tax if the IRS determined that your total tax should be more than the amount actually shown on your return. Online 1040ez For example, you reported total tax on your 2008 return of $2,500. Online 1040ez IRS determined in an audit of your 2008 return that the total tax should be $3,000. Online 1040ez You have a $500 understated tax. Online 1040ez No. Online 1040ez There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. Online 1040ez For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. Online 1040ez You are not eligible for innocent spouse relief because you have knowledge of the understated tax. Online 1040ez Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). Online 1040ez The understated tax allocated to you is generally the amount you are responsible for. Online 1040ez To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. Online 1040ez You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. Online 1040ez (Under this rule, you are no longer married if you are widowed. Online 1040ez ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. Online 1040ez In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. Online 1040ez Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. Online 1040ez The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. Online 1040ez The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). Online 1040ez Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. Online 1040ez Equitable relief is only available if you meet all of the following conditions. Online 1040ez You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. Online 1040ez You have an understated tax or underpaid tax. Online 1040ez See Note later. Online 1040ez You did not pay the tax. Online 1040ez However, see Refunds , earlier, for exceptions. Online 1040ez The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. Online 1040ez You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. Online 1040ez Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. Online 1040ez You did not file or fail to file your return with the intent to commit fraud. Online 1040ez The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. Online 1040ez For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. Online 1040ez You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. Online 1040ez Note. Online 1040ez Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. Online 1040ez (An underpaid tax is tax that is properly shown on the return, but has not been paid. Online 1040ez ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Online 1040ez Generally, community property laws require you to allocate community income and expenses equally between both spouses. Online 1040ez However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Online 1040ez      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. Online 1040ez You must file an additional Form 8857 if you are requesting relief for more than three years. Online 1040ez If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. Online 1040ez If you are requesting equitable relief, see Exception for equitable relief. Online 1040ez under How To Request Relief, earlier, for when to file Form 8857. Online 1040ez If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. Online 1040ez Use the address or fax number shown in the Instructions for Form 8857. Online 1040ez File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. Online 1040ez Do not file it with the employee assigned to examine your return. Online 1040ez Generally, the IRS has 10 years to collect an amount you owe. Online 1040ez This is the collection statute of limitations. Online 1040ez By law, the IRS is not allowed to collect from you after the 10-year period ends. Online 1040ez If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. Online 1040ez But interest and penalties continue to accrue. Online 1040ez Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. Online 1040ez This includes the time the Tax Court is considering your request. Online 1040ez After your case is resolved, the IRS can begin or resume collecting from you. Online 1040ez The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. Online 1040ez See Publication 594 for more information. Online 1040ez Injured spouse relief is different from innocent spouse relief. Online 1040ez When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. Online 1040ez The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. Online 1040ez You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). Online 1040ez You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. Online 1040ez You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. Online 1040ez Note. Online 1040ez If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. Online 1040ez . Online 1040ez How can I get relief from joint and several liability? There are three types of relief for filers of joint returns: “innocent spouse relief,” “separation of liability relief,” and “equitable relief. Online 1040ez ” Each type has different requirements. Online 1040ez They are explained separately below. Online 1040ez To qualify for innocent spouse relief, you must meet all of the following conditions. Online 1040ez You must have filed a joint return which has an understated tax. Online 1040ez The understated tax must be due to erroneous items of your spouse (or former spouse). Online 1040ez You must establish that at the time you signed the joint return, you did not know, and had no reason to know, that there was an understated tax. Online 1040ez Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understated tax. Online 1040ez You must request relief within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. Online 1040ez Erroneous items are any deductions, credits, or bases that are incorrectly stated on the return, and any income that is not properly reported on the return. Online 1040ez You have an understated tax if the IRS determined that your total tax should be more than the amount actually shown on your return. Online 1040ez For example, you reported total tax on your 2008 return of $2,500. Online 1040ez IRS determined in an audit of your 2008 return that the total tax should be $3,000. Online 1040ez You have a $500 understated tax. Online 1040ez No. Online 1040ez There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. Online 1040ez For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. Online 1040ez You are not eligible for innocent spouse relief because you have knowledge of the understated tax. Online 1040ez Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). Online 1040ez The understated tax allocated to you is generally the amount you are responsible for. Online 1040ez To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. Online 1040ez You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. Online 1040ez (Under this rule, you are no longer married if you are widowed. Online 1040ez ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. Online 1040ez In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. Online 1040ez Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. Online 1040ez The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. Online 1040ez The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). Online 1040ez Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. Online 1040ez Equitable relief is only available if you meet all of the following conditions. Online 1040ez You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. Online 1040ez You have an understated tax or underpaid tax. Online 1040ez See Note later. Online 1040ez You did not pay the tax. Online 1040ez However, see Refunds , earlier, for exceptions. Online 1040ez The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. Online 1040ez You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. Online 1040ez Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. Online 1040ez You did not file or fail to file your return with the intent to commit fraud. Online 1040ez The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. Online 1040ez For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. Online 1040ez You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. Online 1040ez Note. Online 1040ez Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. Online 1040ez (An underpaid tax is tax that is properly shown on the return, but has not been paid. Online 1040ez ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Online 1040ez Generally, community property laws require you to allocate community income and expenses equally between both spouses. Online 1040ez However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Online 1040ez      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. Online 1040ez You must file an additional Form 8857 if you are requesting relief for more than three years. Online 1040ez If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. Online 1040ez If you are requesting equitable relief, see Exception for equitable relief. Online 1040ez under How To Request Relief, earlier, for when to file Form 8857. Online 1040ez If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. Online 1040ez Use the address or fax number shown in the Instructions for Form 8857. Online 1040ez File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. Online 1040ez Do not file it with the employee assigned to examine your return. Online 1040ez Generally, the IRS has 10 years to collect an amount you owe. Online 1040ez This is the collection statute of limitations. Online 1040ez By law, the IRS is not allowed to collect from you after the 10-year period ends. Online 1040ez If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. Online 1040ez But interest and penalties continue to accrue. Online 1040ez Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. Online 1040ez This includes the time the Tax Court is considering your request. Online 1040ez After your case is resolved, the IRS can begin or resume collecting from you. Online 1040ez The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. Online 1040ez See Publication 594 for more information. Online 1040ez Injured spouse relief is different from innocent spouse relief. Online 1040ez When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. Online 1040ez The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. Online 1040ez You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). Online 1040ez You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. Online 1040ez You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. Online 1040ez Note. Online 1040ez If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. Online 1040ez . Online 1040ez What are the rules for innocent spouse relief? To qualify for innocent spouse relief, you must meet all of the following conditions. Online 1040ez You must have filed a joint return which has an understated tax. Online 1040ez The understated tax must be due to erroneous items of your spouse (or former spouse). Online 1040ez You must establish that at the time you signed the joint return, you did not know, and had no reason to know, that there was an understated tax. Online 1040ez Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understated tax. Online 1040ez You must request relief within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. Online 1040ez Erroneous items are any deductions, credits, or bases that are incorrectly stated on the return, and any income that is not properly reported on the return. Online 1040ez You have an understated tax if the IRS determined that your total tax should be more than the amount actually shown on your return. Online 1040ez For example, you reported total tax on your 2008 return of $2,500. Online 1040ez IRS determined in an audit of your 2008 return that the total tax should be $3,000. Online 1040ez You have a $500 understated tax. Online 1040ez No. Online 1040ez There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. Online 1040ez For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. Online 1040ez You are not eligible for innocent spouse relief because you have knowledge of the understated tax. Online 1040ez Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). Online 1040ez The understated tax allocated to you is generally the amount you are responsible for. Online 1040ez To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. Online 1040ez You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. Online 1040ez (Under this rule, you are no longer married if you are widowed. Online 1040ez ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. Online 1040ez In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. Online 1040ez Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. Online 1040ez The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. Online 1040ez The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). Online 1040ez Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. Online 1040ez Equitable relief is only available if you meet all of the following conditions. Online 1040ez You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. Online 1040ez You have an understated tax or underpaid tax. Online 1040ez See Note later. Online 1040ez You did not pay the tax. Online 1040ez However, see Refunds , earlier, for exceptions. Online 1040ez The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. Online 1040ez You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. Online 1040ez Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. Online 1040ez You did not file or fail to file your return with the intent to commit fraud. Online 1040ez The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. Online 1040ez For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. Online 1040ez You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. Online 1040ez Note. Online 1040ez Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. Online 1040ez (An underpaid tax is tax that is properly shown on the return, but has not been paid. Online 1040ez ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Online 1040ez Generally, community property laws require you to allocate community income and expenses equally between both spouses. Online 1040ez However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Online 1040ez      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. Online 1040ez You must file an additional Form 8857 if you are requesting relief for more than three years. Online 1040ez If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. Online 1040ez If you are requesting equitable relief, see Exception for equitable relief. Online 1040ez under How To Request Relief, earlier, for when to file Form 8857. Online 1040ez If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. Online 1040ez Use the address or fax number shown in the Instructions for Form 8857. Online 1040ez File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. Online 1040ez Do not file it with the employee assigned to examine your return. Online 1040ez Generally, the IRS has 10 years to collect an amount you owe. Online 1040ez This is the collection statute of limitations. Online 1040ez By law, the IRS is not allowed to collect from you after the 10-year period ends. Online 1040ez If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. Online 1040ez But interest and penalties continue to accrue. Online 1040ez Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. Online 1040ez This includes the time the Tax Court is considering your request. Online 1040ez After your case is resolved, the IRS can begin or resume collecting from you. Online 1040ez The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. Online 1040ez See Publication 594 for more information. Online 1040ez Injured spouse relief is different from innocent spouse relief. Online 1040ez When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. Online 1040ez The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. Online 1040ez You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). Online 1040ez You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. Online 1040ez You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. Online 1040ez Note. Online 1040ez If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. Online 1040ez . Online 1040ez What are “erroneous items”? Erroneous items are any deductions, credits, or bases that are incorrectly stated on the return, and any income that is not properly reported on the return. Online 1040ez You have an understated tax if the IRS determined that your total tax should be more than the amount actually shown on your return. Online 1040ez For example, you reported total tax on your 2008 return of $2,500. Online 1040ez IRS determined in an audit of your 2008 return that the total tax should be $3,000. Online 1040ez You have a $500 understated tax. Online 1040ez No. Online 1040ez There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. Online 1040ez For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. Online 1040ez You are not eligible for innocent spouse relief because you have knowledge of the understated tax. Online 1040ez Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). Online 1040ez The understated tax allocated to you is generally the amount you are responsible for. Online 1040ez To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. Online 1040ez You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. Online 1040ez (Under this rule, you are no longer married if you are widowed. Online 1040ez ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. Online 1040ez In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. Online 1040ez Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. Online 1040ez The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. Online 1040ez The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). Online 1040ez Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. Online 1040ez Equitable relief is only available if you meet all of the following conditions. Online 1040ez You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. Online 1040ez You have an understated tax or underpaid tax. Online 1040ez See Note later. Online 1040ez You did not pay the tax. Online 1040ez However, see Refunds , earlier, for exceptions. Online 1040ez The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. Online 1040ez You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. Online 1040ez Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. Online 1040ez You did not file or fail to file your return with the intent to commit fraud. Online 1040ez The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. Online 1040ez For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. Online 1040ez You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. Online 1040ez Note. Online 1040ez Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. Online 1040ez (An underpaid tax is tax that is properly shown on the return, but has not been paid. Online 1040ez ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Online 1040ez Generally, community property laws require you to allocate community income and expenses equally between both spouses. Online 1040ez However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Online 1040ez      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. Online 1040ez You must file an additional Form 8857 if you are requesting relief for more than three years. Online 1040ez If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. Online 1040ez If you are requesting equitable relief, see Exception for equitable relief. Online 1040ez under How To Request Relief, earlier, for when to file Form 8857. Online 1040ez If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. Online 1040ez Use the address or fax number shown in the Instructions for Form 8857. Online 1040ez File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. Online 1040ez Do not file it with the employee assigned to examine your return. Online 1040ez Generally, the IRS has 10 years to collect an amount you owe. Online 1040ez This is the collection statute of limitations. Online 1040ez By law, the IRS is not allowed to collect from you after the 10-year period ends. Online 1040ez If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. Online 1040ez But interest and penalties continue to accrue. Online 1040ez Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. Online 1040ez This includes the time the Tax Court is considering your request. Online 1040ez After your case is resolved, the IRS can begin or resume collecting from you. Online 1040ez The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. Online 1040ez See Publication 594 for more information. Online 1040ez Injured spouse relief is different from innocent spouse relief. Online 1040ez When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. Online 1040ez The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. Online 1040ez You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). Online 1040ez You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. Online 1040ez You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. Online 1040ez Note. Online 1040ez If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. Online 1040ez . Online 1040ez What is an “understated tax”? You have an understated tax if the IRS determined that your total tax should be more than the amount actually shown on your return. Online 1040ez For example, you reported total tax on your 2008 return of $2,500. Online 1040ez IRS determined in an audit of your 2008 return that the total tax should be $3,000. Online 1040ez You have a $500 understated tax. Online 1040ez No. Online 1040ez There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. Online 1040ez For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. Online 1040ez You are not eligible for innocent spouse relief because you have knowledge of the understated tax. Online 1040ez Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). Online 1040ez The understated tax allocated to you is generally the amount you are responsible for. Online 1040ez To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. Online 1040ez You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. Online 1040ez (Under this rule, you are no longer married if you are widowed. Online 1040ez ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. Online 1040ez In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. Online 1040ez Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. Online 1040ez The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. Online 1040ez The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). Online 1040ez Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. Online 1040ez Equitable relief is only available if you meet all of the following conditions. Online 1040ez You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. Online 1040ez You have an understated tax or underpaid tax. Online 1040ez See Note later. Online 1040ez You did not pay the tax. Online 1040ez However, see Refunds , earlier, for exceptions. Online 1040ez The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. Online 1040ez You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. Online 1040ez Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. Online 1040ez You did not file or fail to file your return with the intent to commit fraud. Online 1040ez The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. Online 1040ez For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. Online 1040ez You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. Online 1040ez Note. Online 1040ez Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. Online 1040ez (An underpaid tax is tax that is properly shown on the return, but has not been paid. Online 1040ez ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Online 1040ez Generally, community property laws require you to allocate community income and expenses equally between both spouses. Online 1040ez However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Online 1040ez      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. Online 1040ez You must file an additional Form 8857 if you are requesting relief for more than three years. Online 1040ez If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. Online 1040ez If you are requesting equitable relief, see Exception for equitable relief. Online 1040ez under How To Request Relief, earlier, for when to file Form 8857. Online 1040ez If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. Online 1040ez Use the address or fax number shown in the Instructions for Form 8857. Online 1040ez File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. Online 1040ez Do not file it with the employee assigned to examine your return. Online 1040ez Generally, the IRS has 10 years to collect an amount you owe. Online 1040ez This is the collection statute of limitations. Online 1040ez By law, the IRS is not allowed to collect from you after the 10-year period ends. Online 1040ez If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. Online 1040ez But interest and penalties continue to accrue. Online 1040ez Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. Online 1040ez This includes the time the Tax Court is considering your request. Online 1040ez After your case is resolved, the IRS can begin or resume collecting from you. Online 1040ez The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. Online 1040ez See Publication 594 for more information. Online 1040ez Injured spouse relief is different from innocent spouse relief. Online 1040ez When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. Online 1040ez The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. Online 1040ez You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). Online 1040ez You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. Online 1040ez You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. Online 1040ez Note. Online 1040ez If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. Online 1040ez . Online 1040ez Will I qualify for innocent spouse relief in any situation where there is an understated tax? No. Online 1040ez There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. Online 1040ez For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. Online 1040ez You are not eligible for innocent spouse relief because you have knowledge of the understated tax. Online 1040ez Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). Online 1040ez The understated tax allocated to you is generally the amount you are responsible for. Online 1040ez To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. Online 1040ez You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. Online 1040ez (Under this rule, you are no longer married if you are widowed. Online 1040ez ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. Online 1040ez In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. Online 1040ez Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. Online 1040ez The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. Online 1040ez The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). Online 1040ez Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. Online 1040ez Equitable relief is only available if you meet all of the following conditions. Online 1040ez You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. Online 1040ez You have an understated tax or underpaid tax. Online 1040ez See Note later. Online 1040ez You did not pay the tax. Online 1040ez However, see Refunds , earlier, for exceptions. Online 1040ez The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. Online 1040ez You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. Online 1040ez Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. Online 1040ez You did not file or fail to file your return with the intent to commit fraud. Online 1040ez The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. Online 1040ez For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. Online 1040ez You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. Online 1040ez Note. Online 1040ez Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. Online 1040ez (An underpaid tax is tax that is properly shown on the return, but has not been paid. Online 1040ez ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Online 1040ez Generally, community property laws require you to allocate community income and expenses equally between both spouses. Online 1040ez However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Online 1040ez      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. Online 1040ez You must file an additional Form 8857 if you are requesting relief for more than three years. Online 1040ez If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. Online 1040ez If you are requesting equitable relief, see Exception for equitable relief. Online 1040ez under How To Request Relief, earlier, for when to file Form 8857. Online 1040ez If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. Online 1040ez Use the address or fax number shown in the Instructions for Form 8857. Online 1040ez File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. Online 1040ez Do not file it with the employee assigned to examine your return. Online 1040ez Generally, the IRS has 10 years to collect an amount you owe. Online 1040ez This is the collection statute of limitations. Online 1040ez By law, the IRS is not allowed to collect from you after the 10-year period ends. Online 1040ez If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. Online 1040ez But interest and penalties continue to accrue. Online 1040ez Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. Online 1040ez This includes the time the Tax Court is considering your request. Online 1040ez After your case is resolved, the IRS can begin or resume collecting from you. Online 1040ez The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. Online 1040ez See Publication 594 for more information. Online 1040ez Injured spouse relief is different from innocent spouse relief. Online 1040ez When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. Online 1040ez The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. Online 1040ez You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). Online 1040ez You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. Online 1040ez You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. Online 1040ez Note. Online 1040ez If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. Online 1040ez . Online 1040ez What are the rules for separation of liability relief? Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). Online 1040ez The understated tax allocated to you is generally the amount you are responsible for. Online 1040ez To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. Online 1040ez You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. Online 1040ez (Under this rule, you are no longer married if you are widowed. Online 1040ez ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. Online 1040ez In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. Online 1040ez Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. Online 1040ez The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. Online 1040ez The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). Online 1040ez Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. Online 1040ez Equitable relief is only available if you meet all of the following conditions. Online 1040ez You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. Online 1040ez You have an understated tax or underpaid tax. Online 1040ez See Note later. Online 1040ez You did not pay the tax. Online 1040ez However, see Refunds , earlier, for exceptions. Online 1040ez The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. Online 1040ez You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. Online 1040ez Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. Online 1040ez You did not file or fail to file your return with the intent to commit fraud. Online 1040ez The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. Online 1040ez For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. Online 1040ez You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. Online 1040ez Note. Online 1040ez Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. Online 1040ez (An underpaid tax is tax that is properly shown on the return, but has not been paid. Online 1040ez ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Online 1040ez Generally, community property laws require you to allocate community income and expenses equally between both spouses. Online 1040ez However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Online 1040ez      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. Online 1040ez You must file an additional Form 8857 if you are requesting relief for more than three years. Online 1040ez If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. Online 1040ez If you are requesting equitable relief, see Exception for equitable relief. Online 1040ez under How To Request Relief, earlier, for when to file Form 8857. Online 1040ez If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. Online 1040ez Use the address or fax number shown in the Instructions for Form 8857. Online 1040ez File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. Online 1040ez Do not file it with the employee assigned to examine your return. Online 1040ez Generally, the IRS has 10 years to collect an amount you owe. Online 1040ez This is the collection statute of limitations. Online 1040ez By law, the IRS is not allowed to collect from you after the 10-year period ends. Online 1040ez If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. Online 1040ez But interest and penalties continue to accrue. Online 1040ez Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. Online 1040ez This includes the time the Tax Court is considering your request. Online 1040ez After your case is resolved, the IRS can begin or resume collecting from you. Online 1040ez The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. Online 1040ez See Publication 594 for more information. Online 1040ez Injured spouse relief is different from innocent spouse relief. Online 1040ez When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. Online 1040ez The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. Online 1040ez You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). Online 1040ez You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. Online 1040ez You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. Online 1040ez Note. Online 1040ez If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. Online 1040ez . Online 1040ez Why would a request for separation of liability relief be denied? Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. Online 1040ez The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. Online 1040ez The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). Online 1040ez Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. Online 1040ez Equitable relief is only available if you meet all of the following conditions. Online 1040ez You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. Online 1040ez You have an understated tax or underpaid tax. Online 1040ez See Note later. Online 1040ez You did not pay the tax. Online 1040ez However, see Refunds , earlier, for exceptions. Online 1040ez The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. Online 1040ez You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. Online 1040ez Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. Online 1040ez You did not file or fail to file your return with the intent to commit fraud. Online 1040ez The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. Online 1040ez For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. Online 1040ez You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. Online 1040ez Note. Online 1040ez Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. Online 1040ez (An underpaid tax is tax that is properly shown on the return, but has not been paid. Online 1040ez ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Online 1040ez Generally, community property laws require you to allocate community income and expenses equally between both spouses. Online 1040ez However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Online 1040ez      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. Online 1040ez You must file an additional Form 8857 if you are requesting relief for more than three years. Online 1040ez If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. Online 1040ez If you are requesting equitable relief, see Exception for equitable relief. Online 1040ez under How To Request Relief, earlier, for when to file Form 8857. Online 1040ez If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. Online 1040ez Use the address or fax number shown in the Instructions for Form 8857. Online 1040ez File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. Online 1040ez Do not file it with the employee assigned to examine your return. Online 1040ez Generally, the IRS has 10 years to collect an amount you owe. Online 1040ez This is the collection statute of limitations. Online 1040ez By law, the IRS is not allowed to collect from you after the 10-year period ends. Online 1040ez If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. Online 1040ez But interest and penalties continue to accrue. Online 1040ez Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. Online 1040ez This includes the time the Tax Court is considering your request. Online 1040ez After your case is resolved, the IRS can begin or resume collecting from you. Online 1040ez The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. Online 1040ez See Publication 594 for more information. Online 1040ez Injured spouse relief is different from innocent spouse relief. Online 1040ez When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. Online 1040ez The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. Online 1040ez You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). Online 1040ez You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. Online 1040ez You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. Online 1040ez Note. Online 1040ez If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. Online 1040ez . Online 1040ez What are the rules for equitable relief? Equitable relief is only available if you meet all of the following conditions. Online 1040ez You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. Online 1040ez You have an understated tax or underpaid tax. Online 1040ez See Note later. Online 1040ez You did not pay the tax. Online 1040ez However, see Refunds , earlier, for exceptions. Online 1040ez The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. Online 1040ez You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. Online 1040ez Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. Online 1040ez You did not file or fail to file your return with the intent to commit fraud. Online 1040ez The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. Online 1040ez For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. Online 1040ez You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. Online 1040ez Note. Online 1040ez Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. Online 1040ez (An underpaid tax is tax that is properly shown on the return, but has not been paid. Online 1040ez ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Online 1040ez Generally, community property laws require you to allocate community income and expenses equally between both spouses. Online 1040ez However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Online 1040ez      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. Online 1040ez You must file an additional Form 8857 if you are requesting relief for more than three years. Online 1040ez If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. Online 1040ez If you are requesting equitable relief, see Exception for equitable relief. Online 1040ez under How To Request Relief, earlier, for when to file Form 8857. Online 1040ez If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. Online 1040ez Use the address or fax number shown in the Instructions for Form 8857. Online 1040ez File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. Online 1040ez Do not file it with the employee assigned to examine your return. Online 1040ez Generally, the IRS has 10 years to collect an amount you owe. Online 1040ez This is the collection statute of limitations. Online 1040ez By law, the IRS is not allowed to collect from you after the 10-year period ends. Online 1040ez If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. Online 1040ez But interest and penalties continue to accrue. Online 1040ez Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. Online 1040ez This includes the time the Tax Court is considering your request. Online 1040ez After your case is resolved, the IRS can begin or resume collecting from you. Online 1040ez The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. Online 1040ez See Publication 594 for more information. Online 1040ez Injured spouse relief is different from innocent spouse relief. Online 1040ez When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. Online 1040ez The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. Online 1040ez You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). Online 1040ez You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. Online 1040ez You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. Online 1040ez Note. Online 1040ez If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. Online 1040ez . Online 1040ez How do state community property laws affect my ability to qualify for relief? Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Online 1040ez Generally, community property laws require you to allocate community income and expenses equally between both spouses. Online 1040ez However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Online 1040ez      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. Online 1040ez You must file an additional Form 8857 if you are requesting relief for more than three years. Online 1040ez If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. Online 1040ez If you are requesting equitable relief, see Exception for equitable relief. Online 1040ez under How To Request Relief, earlier, for when to file Form 8857. Online 1040ez If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. Online 1040ez Use the address or fax number shown in the Instructions for Form 8857. Online 1040ez File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. Online 1040ez Do not file it with the employee assigned to examine your return. Online 1040ez Generally, the IRS has 10 years to collect an amount you owe. Online 1040ez This is the collection statute of limitations. Online 1040ez By law, the IRS is not allowed to collect from you after the 10-year period ends. Online 1040ez If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. Online 1040ez But interest and penalties continue to accrue. Online 1040ez Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. Online 1040ez This includes the time the Tax Court is considering your request. Online 1040ez After your case is resolved, the IRS can begin or
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Contact My Local Office in Louisiana

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

City Street Address Days/Hours of Service Telephone*
Alexandria

3508 Government Street
Alexandria, LA. 71302

Monday -Friday - 8:30 a.m.-4:30 p.m. 
(Closed for lunch 12:00 noon- 1:00 p.m.)

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(318) 445-8028 

Alexandria/remote
Taxpayer Assistance
available at New Horizon
3717 Government Street
Alexandria, LA 71302

Monday-Friday - 8:30 a.m.-3:30 p.m.

 

Virtual Services Provided

(318) 445-8028
Baton Rouge 

2600 Citiplace Centre
Baton Rouge, LA. 70808 

Monday-Friday - 8:30 a.m.-4:30 p.m. 

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**
 

Services Provided

(225) 343-8625 

Houma 

423 Lafayette St.
Houma, LA 70360 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.)

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(985) 876-0949 

Lafayette  4021-A Ambassador
Caffery Parkway
Lafayette, LA 70503 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.) 

 

Services Provided

(337) 269-4036 

Lake Charles 

One Lake Shore Drive
Lake Charles, LA 70629
 
 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:30 p.m.-1:30 p.m.) 

 

Services Provided

(337) 433-1362 

Monroe 

1401 Hudson Ln.
Monroe, LA 71201 

Monday -  Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:30 p.m. - 1:30 p.m.)

 

Services Provided

(318) 322-6785

New Orleans 

1555 Poydras Street
New Orleans, LA 70112 

Monday - Friday - 8:30 a.m. - 4:30p.m 

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(504) 558-3344 

Shreveport 

3007 Knight St.
Shreveport, LA 71105 

Monday-Friday - 8:30 a.m.-4:30 p.m.
 

Services Provided

(318) 869-6310 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

For information on where to file your tax return please see Where to File Addresses.

The Taxpayer Advocate Service: Call (504)558- 3001 in New Orleans or 1-877-777-4778 elsewhere, or see  Publication 1546, The Taxpayer Advocate Service of the 0399 IRS.

For further information, see Tax Topic 104

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
1555 Poydras St., 
Attn: SPEC, Suite 220, Stop 5
New Orleans, LA 70112-3747

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

The Online 1040ez

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