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Turbotax 1040ez

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Turbotax 1040ez

Turbotax 1040ez 25. Turbotax 1040ez   Nonbusiness Casualty and Theft Losses Table of Contents What's New Introduction Useful Items - You may want to see: CasualtyFamily pet. Turbotax 1040ez Progressive deterioration. Turbotax 1040ez Damage from corrosive drywall. Turbotax 1040ez Theft Loss on Deposits Proof of Loss Figuring a LossDecrease in Fair Market Value Adjusted Basis Insurance and Other Reimbursements Single Casualty on Multiple Properties Deduction Limits$100 Rule 10% Rule When To Report Gains and LossesDisaster Area Loss How To Report Gains and Losses What's New New Section C of Form 4684 for Ponzi-type investment schemes. Turbotax 1040ez  Section C of Form 4684 is new for 2013. Turbotax 1040ez You must complete Section C if you are claiming a theft loss deduction due to a Ponzi-type investment scheme and are using Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58. Turbotax 1040ez Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Turbotax 1040ez You do not need to complete Appendix A. Turbotax 1040ez For details, see Losses from Ponzi-type investment schemes , in this chapter. Turbotax 1040ez Introduction This chapter explains the tax treatment of personal (not business or investment related) casualty losses, theft losses, and losses on deposits. Turbotax 1040ez The chapter also explains the following  topics. Turbotax 1040ez How to figure the amount of your loss. Turbotax 1040ez How to treat insurance and other reimbursements you receive. Turbotax 1040ez The deduction limits. Turbotax 1040ez When and how to report a casualty or theft. Turbotax 1040ez Forms to file. Turbotax 1040ez    When you have a casualty or theft, you have to file Form 4684. Turbotax 1040ez You will also have to file one or more of the following forms. Turbotax 1040ez Schedule A (Form 1040), Itemized Deductions Schedule D (Form 1040), Capital Gains and Losses Condemnations. Turbotax 1040ez   For information on condemnations of property, see Involuntary Conversions in chapter 1 of Publication 544, Sales and Other Disposition of Assets. Turbotax 1040ez Workbook for casualties and thefts. Turbotax 1040ez    Publication 584 is available to help you make a list of your stolen or damaged personal-use property and figure your loss. Turbotax 1040ez It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Turbotax 1040ez Business or investment-related losses. Turbotax 1040ez   For information on a casualty or theft loss of business or income-producing property, see Publication 547, Casualties, Disasters, and Thefts. Turbotax 1040ez Useful Items - You may want to see: Publication 544 Sales and Other Dispositions  of Assets 547 Casualties, Disasters, and   Thefts 584 Casualty, Disaster, and Theft   Loss Workbook (Personal-Use  Property) Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule D (Form 1040) Capital Gains and Losses 4684 Casualties and Thefts Casualty A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Turbotax 1040ez A sudden event is one that is swift, not gradual or progressive. Turbotax 1040ez An unexpected event is one that is ordinarily unanticipated and unintended. Turbotax 1040ez An unusual event is one that is not a day-to-day occurrence and that is not typical of the activity in which you were engaged. Turbotax 1040ez Deductible losses. Turbotax 1040ez   Deductible casualty losses can result from a number of different causes, including the following. Turbotax 1040ez Car accidents (but see Nondeductible losses , next, for exceptions). Turbotax 1040ez Earthquakes. Turbotax 1040ez Fires (but see Nondeductible losses , next, for exceptions). Turbotax 1040ez Floods. Turbotax 1040ez Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses in Publication 547. Turbotax 1040ez Mine cave-ins. Turbotax 1040ez Shipwrecks. Turbotax 1040ez Sonic booms. Turbotax 1040ez Storms, including hurricanes and tornadoes. Turbotax 1040ez Terrorist attacks. Turbotax 1040ez Vandalism. Turbotax 1040ez Volcanic eruptions. Turbotax 1040ez Nondeductible losses. Turbotax 1040ez   A casualty loss is not deductible if the damage or destruction is caused by the following. Turbotax 1040ez Accidentally breaking articles such as glassware or china under normal conditions. Turbotax 1040ez A family pet (explained below). Turbotax 1040ez A fire if you willfully set it or pay someone else to set it. Turbotax 1040ez A car accident if your willful negligence or willful act caused it. Turbotax 1040ez The same is true if the willful act or willful negligence of someone acting for you caused the accident. Turbotax 1040ez Progressive deterioration (explained later). Turbotax 1040ez Family pet. Turbotax 1040ez   Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed earlier under Casualty are met. Turbotax 1040ez Example. Turbotax 1040ez Your antique oriental rug was damaged by your new puppy before it was housebroken. Turbotax 1040ez Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss. Turbotax 1040ez Progressive deterioration. Turbotax 1040ez    Loss of property due to progressive deterioration is not deductible as a casualty loss. Turbotax 1040ez This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Turbotax 1040ez The following are examples of damage due to progressive deterioration. Turbotax 1040ez The steady weakening of a building due to normal wind and weather conditions. Turbotax 1040ez The deterioration and damage to a water heater that bursts. Turbotax 1040ez However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty. Turbotax 1040ez Most losses of property caused by droughts. Turbotax 1040ez To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit. Turbotax 1040ez Termite or moth damage. Turbotax 1040ez The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. Turbotax 1040ez However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss. Turbotax 1040ez Damage from corrosive drywall. Turbotax 1040ez   Under a special procedure, you may be able to claim a casualty loss deduction for amounts you paid to repair damage to your home and household appliances that resulted from corrosive drywall. Turbotax 1040ez For details, see Publication 547. Turbotax 1040ez Theft A theft is the taking and removing of money or property with the intent to deprive the owner of it. Turbotax 1040ez The taking of property must be illegal under the laws of the state where it occurred and it must have been done with criminal intent. Turbotax 1040ez You do not need to show a conviction for theft. Turbotax 1040ez Theft includes the taking of money or property by the following means. Turbotax 1040ez Blackmail. Turbotax 1040ez Burglary. Turbotax 1040ez Embezzlement. Turbotax 1040ez Extortion. Turbotax 1040ez Kidnapping for ransom. Turbotax 1040ez Larceny. Turbotax 1040ez Robbery. Turbotax 1040ez The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Turbotax 1040ez Decline in market value of stock. Turbotax 1040ez   You cannot deduct as a theft loss the decline in market value of stock acquired on the open market for investment if the decline is caused by disclosure of accounting fraud or other illegal misconduct by the officers or directors of the corporation that issued the stock. Turbotax 1040ez However, you can deduct as a capital loss the loss you sustain when you sell or exchange the stock or the stock becomes completely worthless. Turbotax 1040ez You report a capital loss on Schedule D (Form 1040). Turbotax 1040ez For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Turbotax 1040ez Mislaid or lost property. Turbotax 1040ez   The simple disappearance of money or property is not a theft. Turbotax 1040ez However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. Turbotax 1040ez Sudden, unexpected, and unusual events are defined earlier. Turbotax 1040ez Example. Turbotax 1040ez A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Turbotax 1040ez The diamond falls from the ring and is never found. Turbotax 1040ez The loss of the diamond is a casualty. Turbotax 1040ez Losses from Ponzi-type investment schemes. Turbotax 1040ez   If you had a loss from a Ponzi-type investment scheme, see: Revenue Ruling 2009-9, 2009-14 I. Turbotax 1040ez R. Turbotax 1040ez B. Turbotax 1040ez 735 (available at www. Turbotax 1040ez irs. Turbotax 1040ez gov/irb/2009-14_IRB/ar07. Turbotax 1040ez html). Turbotax 1040ez Revenue Procedure 2009-20, 2009-14 I. Turbotax 1040ez R. Turbotax 1040ez B. Turbotax 1040ez 749 (available at www. Turbotax 1040ez irs. Turbotax 1040ez gov/irb/2009-14_IRB/ar11. Turbotax 1040ez html). Turbotax 1040ez Revenue Procedure 2011-58, 2011-50 I. Turbotax 1040ez R. Turbotax 1040ez B. Turbotax 1040ez 849 (available at www. Turbotax 1040ez irs. Turbotax 1040ez gov/irb/2011-50_IRB/ar11. Turbotax 1040ez html). Turbotax 1040ez If you qualify to use Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58, and you choose to follow the procedures in the guidance, first fill out Section C of Form 4684 to determine the amount to enter on Section B, line 28. Turbotax 1040ez Skip lines 19 to 27. Turbotax 1040ez Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Turbotax 1040ez You do not need to complete Appendix A. Turbotax 1040ez For more information, see the above revenue ruling and revenue procedures, and the Instructions for Form 4684. Turbotax 1040ez   If you choose not to use the procedures in Revenue Procedure 2009-20, you may claim your theft loss by filling out Section B, lines 19 to 39, as appropriate. Turbotax 1040ez Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. Turbotax 1040ez If you incurred this type of loss, you can choose one of the following ways to deduct the loss. Turbotax 1040ez As a casualty loss. Turbotax 1040ez As an ordinary loss. Turbotax 1040ez As a nonbusiness bad debt. Turbotax 1040ez Casualty loss or ordinary loss. Turbotax 1040ez   You can choose to deduct a loss on deposits as a casualty loss or as an ordinary loss for any year in which you can reasonably estimate how much of your deposits you have lost in an insolvent or bankrupt financial institution. Turbotax 1040ez The choice is generally made on the return you file for that year and applies to all your losses on deposits for the year in that particular financial institution. Turbotax 1040ez If you treat the loss as a casualty or ordinary loss, you cannot treat the same amount of the loss as a nonbusiness bad debt when it actually becomes worthless. Turbotax 1040ez However, you can take a nonbusiness bad debt deduction for any amount of loss that is more than the estimated amount you deducted as a casualty or ordinary loss. Turbotax 1040ez Once you make this choice, you cannot change it without permission from the Internal Revenue Service. Turbotax 1040ez   If you claim an ordinary loss, report it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Turbotax 1040ez The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately) reduced by any expected state insurance proceeds. Turbotax 1040ez Your loss is subject to the 2%-of-adjusted-gross-income limit. Turbotax 1040ez You cannot choose to claim an ordinary loss if any part of the deposit is federally insured. Turbotax 1040ez Nonbusiness bad debt. Turbotax 1040ez   If you do not choose to deduct the loss as a casualty loss or as an ordinary loss, you must wait until the year the actual loss is determined and deduct the loss as a nonbusiness bad debt in that year. Turbotax 1040ez How to report. Turbotax 1040ez   The kind of deduction you choose for your loss on deposits determines how you report your loss. Turbotax 1040ez If you choose: Casualty loss — report it on Form 4684 first and then on Schedule A (Form 1040). Turbotax 1040ez Ordinary loss — report it on Schedule A (Form 1040) as a miscellaneous itemized deduction. Turbotax 1040ez Nonbusiness bad debt — report it on Form 8949 first and then on Schedule D (Form 1040). Turbotax 1040ez More information. Turbotax 1040ez   For more information, see Special Treatment for Losses on Deposits in Insolvent or Bankrupt Financial Institutions in the Instructions for Form 4684 or Deposit in Insolvent or Bankrupt Financial Institution in Publication 550. Turbotax 1040ez Proof of Loss To deduct a casualty or theft loss, you must be able to prove that you had a casualty or theft. Turbotax 1040ez You also must be able to support the amount you take as a deduction. Turbotax 1040ez Casualty loss proof. Turbotax 1040ez   For a casualty loss, your records should show all the following. Turbotax 1040ez The type of casualty (car accident, fire, storm, etc. Turbotax 1040ez ) and when it occurred. Turbotax 1040ez That the loss was a direct result of the casualty. Turbotax 1040ez That you were the owner of the property or, if you leased the property from someone else, that you were contractually liable to the owner for the damage. Turbotax 1040ez Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Turbotax 1040ez Theft loss proof. Turbotax 1040ez   For a theft loss, your records should show all the following. Turbotax 1040ez When you discovered that your property was missing. Turbotax 1040ez That your property was stolen. Turbotax 1040ez That you were the owner of the property. Turbotax 1040ez Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Turbotax 1040ez It is important that you have records that will prove your deduction. Turbotax 1040ez If you do not have the actual records to support your deduction, you can use other satisfactory evidence to support it. Turbotax 1040ez Figuring a Loss Figure the amount of your loss using the following steps. Turbotax 1040ez Determine your adjusted basis in the property before the casualty or theft. Turbotax 1040ez Determine the decrease in fair market value of the property as a result of the casualty or theft. Turbotax 1040ez From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. Turbotax 1040ez For personal-use property and property used in performing services as an employee, apply the deduction limits, discussed later, to determine the amount of your deductible loss. Turbotax 1040ez Gain from reimbursement. Turbotax 1040ez   If your reimbursement is more than your adjusted basis in the property, you have a gain. Turbotax 1040ez This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. Turbotax 1040ez If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. Turbotax 1040ez See Publication 547 for more information on how to treat a gain from a reimbursement for a casualty or theft. Turbotax 1040ez Leased property. Turbotax 1040ez   If you are liable for casualty damage to property you lease, your loss is the amount you must pay to repair the property minus any insurance or other reimbursement you receive or expect to receive. Turbotax 1040ez Decrease in Fair Market Value Fair market value (FMV) is the price for which you could sell your property to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts. Turbotax 1040ez The decrease in FMV used to figure the amount of a casualty or theft loss is the difference between the property's fair market value immediately before and immediately after the casualty or theft. Turbotax 1040ez FMV of stolen property. Turbotax 1040ez   The FMV of property immediately after a theft is considered to be zero, since you no longer have the property. Turbotax 1040ez Example. Turbotax 1040ez Several years ago, you purchased silver dollars at face value for $150. Turbotax 1040ez This is your adjusted basis in the property. Turbotax 1040ez Your silver dollars were stolen this year. Turbotax 1040ez The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. Turbotax 1040ez Your theft loss is $150. Turbotax 1040ez Recovered stolen property. Turbotax 1040ez   Recovered stolen property is your property that was stolen and later returned to you. Turbotax 1040ez If you recovered property after you had already taken a theft loss deduction, you must refigure your loss using the smaller of the property's adjusted basis (explained later) or the decrease in FMV from the time just before it was stolen until the time it was recovered. Turbotax 1040ez Use this amount to refigure your total loss for the year in which the loss was deducted. Turbotax 1040ez   If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. Turbotax 1040ez But report the difference only up to the amount of the loss that reduced your tax. Turbotax 1040ez For more information on the amount to report, see Recoveries in chapter 12. Turbotax 1040ez Figuring Decrease in FMV— Items To Consider To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. Turbotax 1040ez However, other measures can also be used to establish certain decreases. Turbotax 1040ez Appraisal. Turbotax 1040ez   An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser. Turbotax 1040ez The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Turbotax 1040ez This information is needed to limit any deduction to the actual loss resulting from damage to the property. Turbotax 1040ez   Several factors are important in evaluating the accuracy of an appraisal, including the following. Turbotax 1040ez The appraiser's familiarity with your property before and after the casualty or theft. Turbotax 1040ez The appraiser's knowledge of sales of comparable property in the area. Turbotax 1040ez The appraiser's knowledge of conditions in the area of the casualty. Turbotax 1040ez The appraiser's method of appraisal. Turbotax 1040ez    You may be able to use an appraisal that you used to get a federal loan (or a federal loan guarantee) as the result of a federally declared disaster to establish the amount of your disaster loss. Turbotax 1040ez For more information on disasters, see Disaster Area Losses, in Pub. Turbotax 1040ez 547. Turbotax 1040ez Cost of cleaning up or making repairs. Turbotax 1040ez   The cost of repairing damaged property is not part of a casualty loss. Turbotax 1040ez Neither is the cost of cleaning up after a casualty. Turbotax 1040ez But you can use the cost of cleaning up or making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions. Turbotax 1040ez The repairs are actually made. Turbotax 1040ez The repairs are necessary to bring the property back to its condition before the casualty. Turbotax 1040ez The amount spent for repairs is not excessive. Turbotax 1040ez The repairs take care of the damage only. Turbotax 1040ez The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Turbotax 1040ez Landscaping. Turbotax 1040ez   The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. Turbotax 1040ez You may be able to measure your loss by what you spend on the following. Turbotax 1040ez Removing destroyed or damaged trees and shrubs minus any salvage you receive. Turbotax 1040ez Pruning and other measures taken to preserve damaged trees and shrubs. Turbotax 1040ez Replanting necessary to restore the property to its approximate value before the casualty. Turbotax 1040ez Car value. Turbotax 1040ez    Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. Turbotax 1040ez You can use the book's retail values and modify them by such factors as mileage and the condition of your car to figure its value. Turbotax 1040ez The prices are not official, but they may be useful in determining value and suggesting relative prices for comparison with current sales and offerings in your area. Turbotax 1040ez If your car is not listed in the books, determine its value from other sources. Turbotax 1040ez A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value. Turbotax 1040ez Figuring Decrease in FMV— Items Not To Consider You generally should not consider the following items when attempting to establish the decrease in FMV of your property. Turbotax 1040ez Cost of protection. Turbotax 1040ez   The cost of protecting your property against a casualty or theft is not part of a casualty or theft loss. Turbotax 1040ez The amount you spend on insurance or to board up your house against a storm is not part of your loss. Turbotax 1040ez   If you make permanent improvements to your property to protect it against a casualty or theft, add the cost of these improvements to your basis in the property. Turbotax 1040ez An example would be the cost of a dike to prevent flooding. Turbotax 1040ez Exception. Turbotax 1040ez   You cannot increase your basis in the property by, or deduct as a business expense, any expenditures you made with respect to qualified disaster mitigation payments. Turbotax 1040ez See Disaster Area Losses in Publication 547. Turbotax 1040ez Incidental expenses. Turbotax 1040ez   Any incidental expenses you have due to a casualty or theft, such as expenses for the treatment of personal injuries, for temporary housing, or for a rental car, are not part of your casualty or theft loss. Turbotax 1040ez Replacement cost. Turbotax 1040ez   The cost of replacing stolen or destroyed property is not part of a casualty or theft loss. Turbotax 1040ez Sentimental value. Turbotax 1040ez   Do not consider sentimental value when determining your loss. Turbotax 1040ez If a family portrait, heirloom, or keepsake is damaged, destroyed, or stolen, you must base your loss on its FMV, as limited by your adjusted basis in the property. Turbotax 1040ez Decline in market value of property in or near casualty area. Turbotax 1040ez   A decrease in the value of your property because it is in or near an area that suffered a casualty, or that might again suffer a casualty, is not to be taken into consideration. Turbotax 1040ez You have a loss only for actual casualty damage to your property. Turbotax 1040ez However, if your home is in a federally declared disaster area, see Disaster Area Losses in Publication 547. Turbotax 1040ez Costs of photographs and appraisals. Turbotax 1040ez    Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. Turbotax 1040ez Photographs showing the condition of the property after it was repaired, restored, or replaced may also be helpful. Turbotax 1040ez    Appraisals are used to figure the decrease in FMV because of a casualty or theft. Turbotax 1040ez See Appraisal , earlier, under Figuring Decrease in FMV — Items To Consider, for information about appraisals. Turbotax 1040ez   The costs of photographs and appraisals used as evidence of the value and condition of property damaged as a result of a casualty are not a part of the loss. Turbotax 1040ez You can claim these costs as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross-income limit on Schedule A (Form 1040). Turbotax 1040ez For information about miscellaneous deductions, see chapter 28. Turbotax 1040ez Adjusted Basis Adjusted basis is your basis in the property (usually cost) increased or decreased by various events, such as improvements and casualty losses. Turbotax 1040ez For more information, see chapter 13. Turbotax 1040ez Insurance and Other Reimbursements If you receive an insurance payment or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Turbotax 1040ez You do not have a casualty or theft loss to the extent you are reimbursed. Turbotax 1040ez If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Turbotax 1040ez You must reduce your loss even if you do not receive payment until a later tax year. Turbotax 1040ez See Reimbursement Received After Deducting Loss , later. Turbotax 1040ez Failure to file a claim for reimbursement. Turbotax 1040ez   If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. Turbotax 1040ez Otherwise, you cannot deduct this loss as a casualty or theft loss. Turbotax 1040ez However, this rule does not apply to the portion of the loss not covered by insurance (for example, a deductible). Turbotax 1040ez Example. Turbotax 1040ez You have a car insurance policy with a $1,000 deductible. Turbotax 1040ez Because your insurance did not cover the first $1,000 of an auto collision, the $1,000 would be deductible (subject to the deduction limits discussed later). Turbotax 1040ez This is true even if you do not file an insurance claim, because your insurance policy would never have reimbursed you for the deductible. Turbotax 1040ez Types of Reimbursements The most common type of reimbursement is an insurance payment for your stolen or damaged property. Turbotax 1040ez Other types of reimbursements are discussed next. Turbotax 1040ez Also see the Instructions for Form 4684. Turbotax 1040ez Employer's emergency disaster fund. Turbotax 1040ez   If you receive money from your employer's emergency disaster fund and you must use that money to rehabilitate or replace property on which you are claiming a casualty loss deduction, you must take that money into consideration in computing the casualty loss deduction. Turbotax 1040ez Take into consideration only the amount you used to replace your destroyed or damaged property. Turbotax 1040ez Example. Turbotax 1040ez Your home was extensively damaged by a tornado. Turbotax 1040ez Your loss after reimbursement from your insurance company was $10,000. Turbotax 1040ez Your employer set up a disaster relief fund for its employees. Turbotax 1040ez Employees receiving money from the fund had to use it to rehabilitate or replace their damaged or destroyed property. Turbotax 1040ez You received $4,000 from the fund and spent the entire amount on repairs to your home. Turbotax 1040ez In figuring your casualty loss, you must reduce your unreimbursed loss ($10,000) by the $4,000 you received from your employer's fund. Turbotax 1040ez Your casualty loss before applying the deduction limits discussed later is $6,000. Turbotax 1040ez Cash gifts. Turbotax 1040ez   If you receive excludable cash gifts as a disaster victim and there are no limits on how you can use the money, you do not reduce your casualty loss by these excludable cash gifts. Turbotax 1040ez This applies even if you use the money to pay for repairs to property damaged in the disaster. Turbotax 1040ez Example. Turbotax 1040ez Your home was damaged by a hurricane. Turbotax 1040ez Relatives and neighbors made cash gifts to you that were excludable from your income. Turbotax 1040ez You used part of the cash gifts to pay for repairs to your home. Turbotax 1040ez There were no limits or restrictions on how you could use the cash gifts. Turbotax 1040ez Because it was an excludable gift, the money you received and used to pay for repairs to your home does not reduce your casualty loss on the damaged home. Turbotax 1040ez Insurance payments for living expenses. Turbotax 1040ez   You do not reduce your casualty loss by insurance payments you receive to cover living expenses in either of the following situations. Turbotax 1040ez You lose the use of your main home because of a casualty. Turbotax 1040ez Government authorities do not allow you access to your main home because of a casualty or threat of one. Turbotax 1040ez Inclusion in income. Turbotax 1040ez   If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. Turbotax 1040ez Report this amount on Form 1040, line 21. Turbotax 1040ez However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. Turbotax 1040ez See Qualified disaster relief payments, under Disaster Area Losses in Publication 547. Turbotax 1040ez   A temporary increase in your living expenses is the difference between the actual living expenses you and your family incurred during the period you could not use your home and your normal living expenses for that period. Turbotax 1040ez Actual living expenses are the reasonable and necessary expenses incurred because of the loss of your main home. Turbotax 1040ez Generally, these expenses include the amounts you pay for the following. Turbotax 1040ez Rent for suitable housing. Turbotax 1040ez Transportation. Turbotax 1040ez Food. Turbotax 1040ez Utilities. Turbotax 1040ez Miscellaneous services. Turbotax 1040ez Normal living expenses consist of these same expenses that you would have incurred but did not because of the casualty or the threat of one. Turbotax 1040ez Example. Turbotax 1040ez As a result of a fire, you vacated your apartment for a month and moved to a motel. Turbotax 1040ez You normally pay $525 a month for rent. Turbotax 1040ez None was charged for the month the apartment was vacated. Turbotax 1040ez Your motel rent for this month was $1,200. Turbotax 1040ez You normally pay $200 a month for food. Turbotax 1040ez Your food expenses for the month you lived in the motel were $400. Turbotax 1040ez You received $1,100 from your insurance company to cover your living expenses. Turbotax 1040ez You determine the payment you must include in income as follows. Turbotax 1040ez 1) Insurance payment for living expenses $1,100 2) Actual expenses during the month you are unable to use your home because of fire 1,600   3) Normal living expenses 725   4) Temporary increase in living  expenses: Subtract line 3 from line 2 875 5) Amount of payment includible  in income: Subtract line 4  from line 1 $ 225 Tax year of inclusion. Turbotax 1040ez   You include the taxable part of the insurance payment in income for the year you regain the use of your main home or, if later, for the year you receive the taxable part of the insurance payment. Turbotax 1040ez Example. Turbotax 1040ez Your main home was destroyed by a tornado in August 2011. Turbotax 1040ez You regained use of your home in November 2012. Turbotax 1040ez The insurance payments you received in 2011 and 2012 were $1,500 more than the temporary increase in your living expenses during those years. Turbotax 1040ez You include this amount in income on your 2012 Form 1040. Turbotax 1040ez If, in 2013, you receive further payments to cover the living expenses you had in 2011 and 2012, you must include those payments in income on your 2013 Form 1040. Turbotax 1040ez Disaster relief. Turbotax 1040ez   Food, medical supplies, and other forms of assistance you receive do not reduce your casualty loss unless they are replacements for lost or destroyed property. Turbotax 1040ez Qualified disaster relief payments you receive for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Turbotax 1040ez For more information, see Disaster Area Losses in Publication 547. Turbotax 1040ez Disaster unemployment assistance payments are unemployment benefits that are taxable. Turbotax 1040ez Generally, disaster relief grants and qualified disaster mitigation payments made under the Robert T. Turbotax 1040ez Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not includible in your income. Turbotax 1040ez See Disaster Area Losses in Publication 547. Turbotax 1040ez Reimbursement Received After Deducting Loss If you figured your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you receive your actual reimbursement. Turbotax 1040ez This section explains the adjustment you may have to make. Turbotax 1040ez Actual reimbursement less than expected. Turbotax 1040ez   If you later receive less reimbursement than you expected, include that difference as a loss with your other losses (if any) on your return for the year in which you can reasonably expect no more reimbursement. Turbotax 1040ez Example. Turbotax 1040ez Your personal car had an FMV of $2,000 when it was destroyed in a collision with another car in 2012. Turbotax 1040ez The accident was due to the negligence of the other driver. Turbotax 1040ez At the end of 2012, there was a reasonable prospect that the owner of the other car would reimburse you in full. Turbotax 1040ez You did not have a deductible loss in 2012. Turbotax 1040ez In January 2013, the court awarded you a judgment of $2,000. Turbotax 1040ez However, in July it became apparent that you will be unable to collect any amount from the other driver. Turbotax 1040ez You can deduct the loss in 2013 subject to the limits discussed later. Turbotax 1040ez Actual reimbursement more than expected. Turbotax 1040ez   If you later receive more reimbursement than you expected after you claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. Turbotax 1040ez However, if any part of the original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. Turbotax 1040ez You do not refigure your tax for the year you claimed the deduction. Turbotax 1040ez For more information, see Recoveries in chapter 12. Turbotax 1040ez If the total of all the reimbursements you receive is more than your adjusted basis in the destroyed or stolen property, you will have a gain on the casualty or theft. Turbotax 1040ez If you have already taken a deduction for a loss and you receive the reimbursement in a later year, you may have to include the gain in your income for the later year. Turbotax 1040ez Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. Turbotax 1040ez See Figuring a Gain in Publication 547 for more information on how to treat a gain from the reimbursement of a casualty or theft. Turbotax 1040ez Actual reimbursement same as expected. Turbotax 1040ez   If you receive exactly the reimbursement you expected to receive, you do not have to include any of the reimbursement in your income and you cannot deduct any additional loss. Turbotax 1040ez Example. Turbotax 1040ez In December 2013, you had a collision while driving your personal car. Turbotax 1040ez Repairs to the car cost $950. Turbotax 1040ez You had $100 deductible collision insurance. Turbotax 1040ez Your insurance company agreed to reimburse you for the rest of the damage. Turbotax 1040ez Because you expected a reimbursement from the insurance company, you did not have a casualty loss deduction in 2013. Turbotax 1040ez Due to the $100 rule (discussed later under Deduction Limits ), you cannot deduct the $100 you paid as the deductible. Turbotax 1040ez When you receive the $850 from the insurance company in 2014, do not report it as income. Turbotax 1040ez Single Casualty on Multiple Properties Personal property. Turbotax 1040ez   Personal property is any property that is not real property. Turbotax 1040ez If your personal property is stolen or is damaged or destroyed by a casualty, you must figure your loss separately for each item of property. Turbotax 1040ez Then combine these separate losses to figure the total loss from that casualty or theft. Turbotax 1040ez Example. Turbotax 1040ez A fire in your home destroyed an upholstered chair, an oriental rug, and an antique table. Turbotax 1040ez You did not have fire insurance to cover your loss. Turbotax 1040ez (This was the only casualty or theft you had during the year. Turbotax 1040ez ) You paid $750 for the chair and you established that it had an FMV of $500 just before the fire. Turbotax 1040ez The rug cost $3,000 and had an FMV of $2,500 just before the fire. Turbotax 1040ez You bought the table at an auction for $100 before discovering it was an antique. Turbotax 1040ez It had been appraised at $900 before the fire. Turbotax 1040ez You figure your loss on each of these items as follows:     Chair Rug Table 1) Basis (cost) $750 $3,000 $100 2) FMV before fire $500 $2,500 $900 3) FMV after fire –0– –0– –0– 4) Decrease in FMV $500 $2,500 $900 5) Loss (smaller of (1) or  (4)) $500 $2,500 $100           6) Total loss     $3,100 Real property. Turbotax 1040ez   In figuring a casualty loss on personal-use real property, treat the entire property (including any improvements, such as buildings, trees, and shrubs) as one item. Turbotax 1040ez Figure the loss using the smaller of the adjusted basis or the decrease in FMV of the entire property. Turbotax 1040ez Example. Turbotax 1040ez You bought your home a few years ago. Turbotax 1040ez You paid $160,000 ($20,000 for the land and $140,000 for the house). Turbotax 1040ez You also spent $2,000 for landscaping. Turbotax 1040ez This year a fire destroyed your home. Turbotax 1040ez The fire also damaged the shrubbery and trees in your yard. Turbotax 1040ez The fire was your only casualty or theft loss this year. Turbotax 1040ez Competent appraisers valued the property as a whole at $200,000 before the fire, but only $30,000 after the fire. Turbotax 1040ez (The loss to your household furnishings is not shown in this example. Turbotax 1040ez It would be figured separately on each item, as explained earlier under Personal property . Turbotax 1040ez ) Shortly after the fire, the insurance company paid you $155,000 for the loss. Turbotax 1040ez You figure your casualty loss as follows: 1) Adjusted basis of the entire property (land, building, and landscaping) $162,000 2) FMV of entire property before fire $200,000 3) FMV of entire property after fire 30,000 4) Decrease in FMV of entire  property $170,000 5) Loss (smaller of (1) or (4)) $162,000 6) Subtract insurance 155,000 7) Amount of loss after reimbursement $7,000 Deduction Limits After you have figured your casualty or theft loss, you must figure how much of the loss you can deduct. Turbotax 1040ez If the loss was to property for your personal use or your family's use, there are two limits on the amount you can deduct for your casualty or theft loss. Turbotax 1040ez You must reduce each casualty or theft loss by $100 ($100 rule). Turbotax 1040ez You must further reduce the total of all your casualty or theft losses by 10% of your adjusted gross income (10% rule). Turbotax 1040ez You make these reductions on Form 4684. Turbotax 1040ez These rules are explained next and Table 25-1 summarizes how to apply the $100 rule and the 10% rule in various situations. Turbotax 1040ez For more detailed explanations and examples, see Publication 547. Turbotax 1040ez Table 25-1. Turbotax 1040ez How To Apply the Deduction Limits for Personal-Use Property   $100 Rule 10% Rule General Application You must reduce each casualty or theft loss by $100 when figuring your deduction. Turbotax 1040ez Apply this rule after you have figured the amount of your loss. Turbotax 1040ez You must reduce your total casualty or theft loss by 10% of your adjusted gross income. Turbotax 1040ez Apply this rule after you reduce each loss by $100 (the $100 rule). Turbotax 1040ez Single Event Apply this rule only once, even if many pieces of property are affected. Turbotax 1040ez Apply this rule only once, even if many pieces of property are affected. Turbotax 1040ez More Than One Event Apply to the loss from each event. Turbotax 1040ez Apply to the total of all your losses from all events. Turbotax 1040ez More Than One Person— With Loss From the Same Event (other than a married couple filing jointly) Apply separately to each person. Turbotax 1040ez Apply separately to each person. Turbotax 1040ez Married Couple—With Loss From the Same Event Filing Jointly Apply as if you were one person. Turbotax 1040ez Apply as if you were one person. Turbotax 1040ez Filing Separately Apply separately to each spouse. Turbotax 1040ez Apply separately to each spouse. Turbotax 1040ez More Than One Owner (other than a married couple filing jointly) Apply separately to each owner of jointly owned property. Turbotax 1040ez Apply separately to each owner of jointly owned property. Turbotax 1040ez Property used partly for business and partly for personal purposes. Turbotax 1040ez   When property is used partly for personal purposes and partly for business or income-producing purposes, the casualty or theft loss deduction must be figured separately for the personal-use part and for the business or income-producing part. Turbotax 1040ez You must figure each loss separately because the $100 rule and the 10% rule apply only to the loss on the personal-use part of the property. Turbotax 1040ez $100 Rule After you have figured your casualty or theft loss on personal-use property, you must reduce that loss by $100. Turbotax 1040ez This reduction applies to each total casualty or theft loss. Turbotax 1040ez It does not matter how many pieces of property are involved in an event. Turbotax 1040ez Only a single $100 reduction applies. Turbotax 1040ez Example. Turbotax 1040ez A hailstorm damages your home and your car. Turbotax 1040ez Determine the amount of loss, as discussed earlier, for each of these items. Turbotax 1040ez Since the losses are due to a single event, you combine the losses and reduce the combined amount by $100. Turbotax 1040ez Single event. Turbotax 1040ez   Generally, events closely related in origin cause a single casualty. Turbotax 1040ez It is a single casualty when the damage is from two or more closely related causes, such as wind and flood damage caused by the same storm. Turbotax 1040ez 10% Rule You must reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. Turbotax 1040ez Apply this rule after you reduce each loss by $100. Turbotax 1040ez For more information, see the Form 4684 instructions. Turbotax 1040ez If you have both gains and losses from casualties or thefts, see Gains and losses , later in this discussion. Turbotax 1040ez Example 1. Turbotax 1040ez In June, you discovered that your house had been burglarized. Turbotax 1040ez Your loss after insurance reimbursement was $2,000. Turbotax 1040ez Your adjusted gross income for the year you discovered the theft is $29,500. Turbotax 1040ez You first apply the $100 rule and then the 10% rule. Turbotax 1040ez Figure your theft loss deduction as follows. Turbotax 1040ez 1) Loss after insurance $2,000 2) Subtract $100 100 3) Loss after $100 rule $1,900 4) Subtract 10% × $29,500 AGI 2,950 5) Theft loss deduction –0– You do not have a theft loss deduction because your loss after you apply the $100 rule ($1,900) is less than 10% of your adjusted gross income ($2,950). Turbotax 1040ez Example 2. Turbotax 1040ez In March, you had a car accident that totally destroyed your car. Turbotax 1040ez You did not have collision insurance on your car, so you did not receive any insurance reimbursement. Turbotax 1040ez Your loss on the car was $1,800. Turbotax 1040ez In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items stored there. Turbotax 1040ez Your loss on the basement items after reimbursement was $2,100. Turbotax 1040ez Your adjusted gross income for the year that the accident and fire occurred is $25,000. Turbotax 1040ez You figure your casualty loss deduction as follows. Turbotax 1040ez       Base-     Car ment 1) Loss $1,800 $2,100 2) Subtract $100 per incident 100 100 3) Loss after $100 rule $1,700 $2,000 4) Total loss $3,700 5) Subtract 10% × $25,000 AGI 2,500 6) Casualty loss deduction $1,200 Gains and losses. Turbotax 1040ez   If you had both gains and losses from casualties or thefts to personal-use property, you must compare your total gains to your total losses. Turbotax 1040ez Do this after you have reduced each loss by any reimbursements and by $100, but before you have reduced the losses by 10% of your adjusted gross income. Turbotax 1040ez Casualty or theft gains do not include gains you choose to postpone. Turbotax 1040ez See Publication 547 for information on the postponement of gain. Turbotax 1040ez Losses more than gains. Turbotax 1040ez   If your losses are more than your recognized gains, subtract your gains from your losses and reduce the result by 10% of your adjusted gross income. Turbotax 1040ez The rest, if any, is your deductible loss from personal-use property. Turbotax 1040ez Gains more than losses. Turbotax 1040ez   If your recognized gains are more than your losses, subtract your losses from your gains. Turbotax 1040ez The difference is treated as capital gain and must be reported on Schedule D (Form 1040). Turbotax 1040ez The 10% rule does not apply to your gains. Turbotax 1040ez When To Report Gains and Losses Gains. Turbotax 1040ez   If you receive an insurance or other reimbursement that is more than your adjusted basis in the destroyed or stolen property, you have a gain from the casualty or theft. Turbotax 1040ez You must include this gain in your income in the year you receive the reimbursement, unless you choose to postpone reporting the gain as explained in Publication 547. Turbotax 1040ez If you have a loss, see Table 25-2 . Turbotax 1040ez Table 25-2. Turbotax 1040ez When To Deduct a Loss IF you have a loss. Turbotax 1040ez . Turbotax 1040ez . Turbotax 1040ez THEN deduct it in the year. Turbotax 1040ez . Turbotax 1040ez . Turbotax 1040ez from a casualty, the loss occurred. Turbotax 1040ez in a federally declared disaster area, the disaster occurred or the year immediately before the disaster. Turbotax 1040ez from a theft, the theft was discovered. Turbotax 1040ez on a deposit treated as a:   • casualty or any ordinary loss, a reasonable estimate can be made. Turbotax 1040ez • bad debt, deposits are totally worthless. Turbotax 1040ez Losses. Turbotax 1040ez   Generally, you can deduct a casualty loss that is not reimbursable only in the tax year in which the casualty occurred. Turbotax 1040ez This is true even if you do not repair or replace the damaged property until a later year. Turbotax 1040ez   You can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Turbotax 1040ez   If you are not sure whether part of your casualty or theft loss will be reimbursed, do not deduct that part until the tax year when you become reasonably certain that it will not be reimbursed. Turbotax 1040ez Loss on deposits. Turbotax 1040ez   If your loss is a loss on deposits in an insolvent or bankrupt financial institution, see Loss on Deposits , earlier. Turbotax 1040ez Disaster Area Loss You generally must deduct a casualty loss in the year it occurred. Turbotax 1040ez However, if you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct the loss on your tax return or amended return for either of the following years. Turbotax 1040ez The year the disaster occurred. Turbotax 1040ez The year immediately preceding the year the disaster occurred. Turbotax 1040ez Gains. Turbotax 1040ez    Special rules apply if you choose to postpone reporting gain on property damaged or destroyed in a federally declared disaster area. Turbotax 1040ez For those special rules, see Publication 547. Turbotax 1040ez Postponed tax deadlines. Turbotax 1040ez   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Turbotax 1040ez The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. Turbotax 1040ez   If any tax deadline is postponed, the IRS will publicize the postponement in your area by publishing a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). Turbotax 1040ez Go to www. Turbotax 1040ez irs. Turbotax 1040ez gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Turbotax 1040ez Who is eligible. Turbotax 1040ez   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Turbotax 1040ez Any individual whose main home is located in a covered disaster area (defined next). Turbotax 1040ez Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Turbotax 1040ez Any individual who is a relief worker affiliated with a recognized government or philanthropic organization who is assisting in a covered disaster area. Turbotax 1040ez Any individual, business entity, or sole proprietorship whose records are needed to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Turbotax 1040ez The main home or principal place of business does not have to be located in the covered disaster area. Turbotax 1040ez Any estate or trust that has tax records necessary to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Turbotax 1040ez The spouse on a joint return with a taxpayer who is eligible for postponements. Turbotax 1040ez Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose records necessary to meet a postponed tax deadline are located in the covered disaster area. Turbotax 1040ez Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Turbotax 1040ez Any other person determined by the IRS to be affected by a federally declared disaster. Turbotax 1040ez Covered disaster area. Turbotax 1040ez   This is an area of a federally declared disaster in which the IRS has decided to postpone tax deadlines for up to 1 year. Turbotax 1040ez Abatement of interest and penalties. Turbotax 1040ez   The IRS may abate the interest and penalties on underpaid income tax for the length of any postponement of tax deadlines. Turbotax 1040ez More information. Turbotax 1040ez   For more information, see Disaster Area Losses in Publication 547. Turbotax 1040ez How To Report Gains and Losses Use Form 4684 to report a gain or a deductible loss from a casualty or theft. Turbotax 1040ez If you have more than one casualty or theft, use a separate Form 4684 to determine your gain or loss for each event. Turbotax 1040ez Combine the gains and losses on one Form 4684. Turbotax 1040ez Follow the form instructions as to which lines to fill out. Turbotax 1040ez In addition, you must use the appropriate schedule to report a gain or loss. Turbotax 1040ez The schedule you use depends on whether you have a gain or loss. Turbotax 1040ez If you have a: Report it on: Gain Schedule D (Form 1040) Loss Schedule A (Form 1040) Adjustments to basis. Turbotax 1040ez   If you have a casualty or theft loss, you must decrease your basis in the property by any insurance or other reimbursement you receive, and by any deductible loss. Turbotax 1040ez Amounts you spend to restore your property after a casualty increase your adjusted basis. Turbotax 1040ez See Adjusted Basis in chapter 13 for more information. Turbotax 1040ez Net operating loss (NOL). Turbotax 1040ez    If your casualty or theft loss deduction causes your deductions for the year to be more than your income for the year, you may have an NOL. Turbotax 1040ez You can use an NOL to lower your tax in an earlier year, allowing you to get a refund for tax you have already paid. Turbotax 1040ez Or, you can use it to lower your tax in a later year. Turbotax 1040ez You do not have to be in business to have an NOL from a casualty or theft loss. Turbotax 1040ez For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Turbotax 1040ez Prev  Up  Next   Home   More Online Publications
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Disposiciones Tributarias de la Ley de Cuidado de Salud a Bajo Precio

English

 

 Personas físicas
 y familias
 
 Empleadores
 
Otras organizaciones
 
La Ley de Cuidado de Salud, aborda las opciones de cobertura de seguro médico y ayuda financiera para personas físicas y familias, incluso el Crédito Tributario para Primas. El IRS, administra las disposiciones tributarias incluidas en la nueva ley. Visite CuidadoDeSalud.gov para más información sobre las opciones de cobertura y ayuda.
   
   
La Ley de Cuidado de Salud, contiene muchas disposiciones tributarias y otras para empleadores. El IRS administra las disposiciones tributarias incluidas en la ley. Visite CuidadoDeSalud.gov y SBA.gov/healthcare para más información sobre otras disposiciones.
 
 
  • Aseguradores
  • Ciertos Tipos de Negocios
  • Organizaciones Exentas y Gubernamentales

 

 

Page Last Reviewed or Updated: 26-Mar-2014

The Turbotax 1040ez

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