Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Vita Irs

Federal 1040 Ez Form2012 Tax Preparation SoftwareH R Block TaxHow To Fill Out 1040x Form1040ez 2011 Online FormI Need To File 2009 Tax Return1040ez 2013 InstructionsTurbo Tax FilingFree E File State TaxesHow To Fill Out 1040ezIrs 2012 Tax Forms 1040 InstructionsFederal And State Taxes FreeFree Tax FilingHow To File A Amended Tax Return For 2011Free Federal State Tax Filing1040x H&r BlockHr Block FreeWww.irs.gov1040xHow To File State Tax ReturnHow To File 2010 Taxes In 20121040nrFree File State Tax OnlyWhere's My Amended ReturnIrs 1040 Form1040 Tax Forms PrintableHrblock At HomeFile 1040ez For FreeFile Your State Taxes For FreeIrs 2012 Tax Forms 1040 Ez1040ez File Online Free1040z1040ez File On LineTax Act 20111040 Ez FileTax Form 1040Free Turbo Tax FilingTurbotax Business Fed E File 2012How To File An Amended Tax Return For 2012Free E File State Tax ReturnFree Tax Filing For State

Vita Irs

Vita irs 8. Vita irs   Gains and Losses Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesDetermining Gain or Loss Like-Kind Exchanges Transfer to Spouse Ordinary or Capital Gain or LossCapital Assets Noncapital Assets Hedging (Commodity Futures) Livestock Converted Wetland and Highly Erodible Cropland Timber Sale of a Farm Foreclosure or Repossession Abandonment Introduction This chapter explains how to figure, and report on your tax return, your gain or loss on the disposition of your property or debt and whether such gain or loss is ordinary or capital. Vita irs Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. Vita irs Dispositions discussed in this chapter include sales, exchanges, foreclosures, repossessions, canceled debts, hedging transactions, and elections to treat cutting of timber as a sale or exchange. Vita irs Topics - This chapter discusses: Sales and exchanges Ordinary or capital gain or loss Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 523 Selling Your Home 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 908 Bankruptcy Tax Guide Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8949 Sales and Other Dispositions of Capital Assets See chapter 16 for information about getting publications and forms. Vita irs Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. Vita irs This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. Vita irs A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Vita irs An exchange is a transfer of property for other property or services. Vita irs Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. Vita irs If the amount you realize from a sale or exchange of property is more than its adjusted basis, you will have a gain. Vita irs If the adjusted basis of the property is more than the amount you realize, you will have a loss. Vita irs Basis and adjusted basis. Vita irs   The basis of property you buy is usually its cost. Vita irs The adjusted basis of property is basis plus certain additions and minus certain deductions. Vita irs See chapter 6 for more information about basis and adjusted basis. Vita irs Amount realized. Vita irs   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (FMV) (defined in chapter 6) of all property or services you receive. Vita irs The amount you realize also includes any of your liabilities assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Vita irs   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. Vita irs Amount recognized. Vita irs   Your gain or loss realized from a sale or exchange of certain property is usually a recognized gain or loss for tax purposes. Vita irs A recognized gain is a gain you must include in gross income and report on your income tax return. Vita irs A recognized loss is a loss you deduct from gross income. Vita irs However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. Vita irs See Like-Kind Exchanges next. Vita irs Also, a loss from the disposition of property held for personal use is not deductible. Vita irs Like-Kind Exchanges Certain exchanges of property are not taxable. Vita irs This means any gain from the exchange is not recognized, and any loss cannot be deducted. Vita irs Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Vita irs The exchange of property for the same kind of property is the most common type of nontaxable exchange. Vita irs To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. Vita irs Qualifying property. Vita irs Like-kind property. Vita irs These two requirements are discussed later. Vita irs Multiple-party transactions. Vita irs   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. Vita irs Any part of these multiple-party transactions can qualify as a like-kind exchange if it meets all the requirements described in this section. Vita irs Receipt of title from third party. Vita irs   If you receive property in a like-kind exchange and the other party who transfers the property to you does not give you the title, but a third party does, you can still treat this transaction as a like-kind exchange if it meets all the requirements. Vita irs Basis of property received. Vita irs   If you receive property in a like-kind exchange, the basis of the property will be the same as the basis of the property you gave up. Vita irs See chapter 6 for more information. Vita irs Money paid. Vita irs   If, in addition to giving up like-kind property, you pay money in a like-kind exchange, you still have no recognized gain or loss. Vita irs The basis of the property received is the basis of the property given up, increased by the money paid. Vita irs Example. Vita irs You traded an old tractor with an adjusted basis of $15,000 for a new one. Vita irs The new tractor costs $300,000. Vita irs You were allowed $80,000 for the old tractor and paid $220,000 cash. Vita irs You have no recognized gain or loss on the transaction regardless of the adjusted basis of your old tractor and the basis of the new tractor is $235,000, the adjusted basis of the old tractor plus the cash paid ($15,000 + $220,000). Vita irs If you had sold the old tractor to a third party for $80,000 and bought a new one, you would have a recognized gain or loss on the sale of your old tractor equal to the difference between the amount realized and the adjusted basis of the old tractor. Vita irs In this case, the taxable gain would be $65,000 ($80,000 − $15,000) and the basis of the new tractor would be $300,000. Vita irs Reporting the exchange. Vita irs   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. Vita irs The Instructions for Form 8824 explain how to report the details of the exchange. Vita irs   If you have any recognized gain because you received money or unlike property, report it on Schedule D (Form 1040) or Form 4797, whichever applies. Vita irs You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. Vita irs See chapter 9 for more information. Vita irs Qualifying property. Vita irs   In a like-kind exchange, both the property you give up and the property you receive must be held by you for investment or for productive use in your trade or business. Vita irs Machinery, buildings, land, trucks, breeding livestock, rental houses, and certain mutual ditch, reservoir, or irrigation company stock are examples of property that may qualify. Vita irs Nonqualifying property. Vita irs   The rules for like-kind exchanges do not apply to exchanges of the following property. Vita irs Property you use for personal purposes, such as your home and family car. Vita irs Stock in trade or other property held primarily for sale, such as crops and produce. Vita irs Stocks, bonds, or notes. Vita irs However, see Qualifying property above. Vita irs Other securities or evidences of indebtedness, such as accounts receivable. Vita irs Partnership interests. Vita irs However, you may have a nontaxable exchange under other rules. Vita irs See Other Nontaxable Exchanges in chapter 1 of Publication 544. Vita irs Like-kind property. Vita irs   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. Vita irs Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Vita irs Generally, real property exchanged for real property qualifies as an exchange of like-kind property. Vita irs For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. Vita irs   An exchange of a tractor for a new tractor is an exchange of like-kind property, and so is an exchange of timber land for crop acreage. Vita irs An exchange of a tractor for acreage, however, is not an exchange of like-kind property. Vita irs The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. Vita irs For example, the exchange of a bull for a cow is not a like-kind exchange. Vita irs An exchange of the assets of a business for the assets of a similar business cannot be treated as an exchange of one property for another property. Vita irs    Note. Vita irs Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. Vita irs Personal property. Vita irs   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. Vita irs Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. Vita irs Property classified in any General Asset Class may not be classified within a Product Class. Vita irs Assets that are not in the same class will qualify as like-kind property if they are of the same nature or character. Vita irs General Asset Classes. Vita irs   General Asset Classes describe the types of property frequently used in many businesses. Vita irs They include, but are not limited to, the following property. Vita irs Office furniture, fixtures, and equipment (asset class 00. Vita irs 11). Vita irs Information systems, such as computers and peripheral equipment (asset class 00. Vita irs 12). Vita irs Data handling equipment except computers (asset class 00. Vita irs 13). Vita irs Automobiles and taxis (asset class 00. Vita irs 22). Vita irs Light general purpose trucks (asset class 00. Vita irs 241). Vita irs Heavy general purpose trucks (asset class 00. Vita irs 242). Vita irs Tractor units for use over-the-road (asset class 00. Vita irs 26). Vita irs Trailers and trailer-mounted containers (asset class 00. Vita irs 27). Vita irs Industrial steam and electric generation and/or distribution systems (asset class 00. Vita irs 4). Vita irs Product Classes. Vita irs   Product Classes include property listed in a 6-digit product class in sectors 31 through 33 of the North American Industry Classification System (NAICS) of the Executive Office of the President, Office of Management and Budget, United States, (NAICS Manual). Vita irs The latest version of the manual can be accessed at www. Vita irs census. Vita irs gov/eos/www/naics/. Vita irs Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. Vita irs ntis. Vita irs gov/products/naics. Vita irs aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. Vita irs A CD-ROM version with search and retrieval software is also available from NTIS. Vita irs    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. Vita irs Partially nontaxable exchange. Vita irs   If, in addition to like-kind property, you receive money or unlike property in an exchange on which you realize gain, you have a partially nontaxable exchange. Vita irs You are taxed on the gain you realize, but only to the extent of the money and the FMV of the unlike property you receive. Vita irs A loss is not deductible. Vita irs Example 1. Vita irs You trade farmland that cost $30,000 for $10,000 cash and other land to be used in farming with a FMV of $50,000. Vita irs You have a realized gain of $30,000 ($50,000 FMV of new land + $10,000 cash − $30,000 basis of old farmland = $30,000 realized gain). Vita irs However, only $10,000, the cash received, is recognized (included in income). Vita irs Example 2. Vita irs Assume the same facts as in Example 1, except that, instead of money, you received a tractor with a FMV of $10,000. Vita irs Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). Vita irs Example 3. Vita irs Assume in Example 1 that the FMV of the land you received was only $15,000. Vita irs Your $5,000 loss is not recognized. Vita irs Unlike property given up. Vita irs   If, in addition to like-kind property, you give up unlike property, you must recognize gain or loss on the unlike property you give up. Vita irs The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. Vita irs Like-kind exchanges between related persons. Vita irs   Special rules apply to like-kind exchanges between related persons. Vita irs These rules affect both direct and indirect exchanges. Vita irs Under these rules, if either person disposes of the property within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Vita irs The gain or loss on the original exchange must be recognized as of the date of the later disposition. Vita irs The 2-year holding period begins on the date of the last transfer of property that was part of the like-kind exchange. Vita irs Related persons. Vita irs   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. Vita irs ), you and a corporation in which you have more than 50% ownership, you and a partnership in which you directly or indirectly own more than a 50% interest of the capital or profits, and two partnerships in which you directly or indirectly own more than 50% of the capital interests or profits. Vita irs   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. Vita irs Example. Vita irs You used a grey pickup truck in your farming business. Vita irs Your sister used a red pickup truck in her landscaping business. Vita irs In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. Vita irs At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. Vita irs The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. Vita irs You realized a gain of $1,000 (the $7,200 FMV of the red pickup truck, minus the grey pickup truck's $6,000 adjusted basis, minus the $200 you paid). Vita irs Your sister realized a gain of $6,200 (the $7,000 FMV of the grey pickup truck plus the $200 you paid, minus the $1,000 adjusted basis of the red pickup truck). Vita irs However, because this was a like-kind exchange, you recognized no gain. Vita irs Your basis in the red pickup truck was $6,200 (the $6,000 adjusted basis of the grey pickup truck plus the $200 you paid). Vita irs She recognized gain only to the extent of the money she received, $200. Vita irs Her basis in the grey pickup truck was $1,000 (the $1,000 adjusted basis of the red pickup truck minus the $200 received, plus the $200 gain recognized). Vita irs In 2013, you sold the red pickup truck to a third party for $7,000. Vita irs Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Vita irs On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. Vita irs You also report a loss on the sale as $200 (the adjusted basis of the red pickup truck, $7,200 (its $6,200 basis plus the $1,000 gain recognized), minus the $7,000 realized from the sale). Vita irs In addition, your sister must report on her tax return for 2013 the $6,000 balance of her gain on the 2012 exchange. Vita irs Her adjusted basis in the grey pickup truck is increased to $7,000 (its $1,000 basis plus the $6,000 gain recognized). Vita irs Exceptions to the rules for related persons. Vita irs   The following property dispositions are excluded from these rules. Vita irs Dispositions due to the death of either related person. Vita irs Involuntary conversions. Vita irs Dispositions where it is established to the satisfaction of the IRS that neither the exchange nor the disposition has, as a main purpose, the avoidance of federal income tax. Vita irs Multiple property exchanges. Vita irs   Under the like-kind exchange rules, you must generally make a property-by-property comparison to figure your recognized gain and the basis of the property you receive in the exchange. Vita irs However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. Vita irs Transfer and receive properties in two or more exchange groups. Vita irs Transfer or receive more than one property within a single exchange group. Vita irs   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. Vita irs Deferred exchange. Vita irs   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. Vita irs A deferred exchange is an exchange in which you transfer property you use in business or hold for investment and later receive like-kind property you will use in business or hold for investment. Vita irs The property you receive is replacement property. Vita irs The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. Vita irs In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. Vita irs   For more information see Deferred Exchanges in chapter 1 of Publication 544. Vita irs Transfer to Spouse No gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or a former spouse if incident to divorce. Vita irs This rule does not apply if the recipient is a nonresident alien. Vita irs Nor does this rule apply to a transfer in trust to the extent the liabilities assumed and the liabilities on the property are more than the property's adjusted basis. Vita irs Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is not considered a sale or exchange. Vita irs The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Vita irs This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its FMV at the time of transfer or any consideration paid by the recipient. Vita irs This rule applies for determining loss as well as gain. Vita irs Any gain recognized on a transfer in trust increases the basis. Vita irs For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. Vita irs Ordinary or Capital Gain or Loss Generally, you will have a capital gain or loss if you sell or exchange a capital asset (defined below). Vita irs You may also have a capital gain if your section 1231 transactions result in a net gain. Vita irs See Section 1231 Gains and Losses in  chapter 9. Vita irs To figure your net capital gain or loss, you must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). Vita irs Your net capital gains may be taxed at a lower tax rate than ordinary income. Vita irs See Capital Gains Tax Rates , later. Vita irs Your deduction for a net capital loss may be limited. Vita irs See Treatment of Capital Losses , later. Vita irs Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. Vita irs The following items are examples of capital assets. Vita irs A home owned and occupied by you and your family. Vita irs Household furnishings. Vita irs A car used for pleasure. Vita irs If your car is used both for pleasure and for farm business, it is partly a capital asset and partly a noncapital asset, defined later. Vita irs Stocks and bonds. Vita irs However, there are special rules for gains on qualified small business stock. Vita irs For more information on this subject, see Gains on Qualified Small Business Stock and Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. Vita irs Personal-use property. Vita irs   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. Vita irs Loss from the sale or exchange of personal-use property is not deductible. Vita irs You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Vita irs For information on casualties and thefts, see chapter 11. Vita irs Long and Short Term Where you report a capital gain or loss depends on how long you own the asset before you sell or exchange it. Vita irs The time you own an asset before disposing of it is the holding period. Vita irs If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. Vita irs Report it in Part I of Schedule D (Form 1040). Vita irs If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. Vita irs Report it in Part II of Schedule D (Form 1040). Vita irs Holding period. Vita irs   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. Vita irs The day you disposed of the property is part of your holding period. Vita irs Example. Vita irs If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Vita irs If you sold the asset on June 19, 2013, your holding period is not longer than 1 year, but if you sold it on June 20, 2013, your holding period is longer than 1 year. Vita irs Inherited property. Vita irs   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Vita irs This rule does not apply to livestock used in a farm business. Vita irs See Holding period under Livestock , later. Vita irs Nonbusiness bad debt. Vita irs   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. Vita irs See chapter 4 of Publication 550. Vita irs Nontaxable exchange. Vita irs   If you acquire an asset in exchange for another asset and your basis for the new asset is figured, in whole or in part, by using your basis in the old property, the holding period of the new property includes the holding period of the old property. Vita irs That is, it begins on the same day as your holding period for the old property. Vita irs Gift. Vita irs   If you receive a gift of property and your basis in it is figured using the donor's basis, your holding period includes the donor's holding period. Vita irs Real property. Vita irs   To figure how long you held real property, start counting on the day after you received title to it or, if earlier, on the day after you took possession of it and assumed the burdens and privileges of ownership. Vita irs   However, taking possession of real property under an option agreement is not enough to start the holding period. Vita irs The holding period cannot start until there is an actual contract of sale. Vita irs The holding period of the seller cannot end before that time. Vita irs Figuring Net Gain or Loss The totals for short-term capital gains and losses and the totals for long-term capital gains and losses must be figured separately. Vita irs Net short-term capital gain or loss. Vita irs   Combine your short-term capital gains and losses. Vita irs Do this by adding all of your short-term capital gains. Vita irs Then add all of your short-term capital losses. Vita irs Subtract the lesser total from the greater. Vita irs The difference is your net short-term capital gain or loss. Vita irs Net long-term capital gain or loss. Vita irs   Follow the same steps to combine your long-term capital gains and losses. Vita irs The result is your net long-term capital gain or loss. Vita irs Net gain. Vita irs   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Vita irs However, part of your gain (but not more than your net capital gain) may be taxed at a lower rate than the rate of tax on your ordinary income. Vita irs See Capital Gains Tax Rates , later. Vita irs Net loss. Vita irs   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Vita irs But there are limits on how much loss you can deduct and when you can deduct it. Vita irs See Treatment of Capital Losses next. Vita irs Treatment of Capital Losses If your capital losses are more than your capital gains, you must claim the difference even if you do not have ordinary income to offset it. Vita irs For taxpayers other than corporations, the yearly limit on the capital loss you can deduct is $3,000 ($1,500 if you are married and file a separate return). Vita irs If your other income is low, you may not be able to use the full $3,000. Vita irs The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). Vita irs Capital loss carryover. Vita irs   Generally, you have a capital loss carryover if either of the following situations applies to you. Vita irs Your net loss on Schedule D (Form 1040), is more than the yearly limit. Vita irs Your taxable income without your deduction for exemptions is less than zero. Vita irs If either of these situations applies to you for 2013, see Capital Losses under Reporting Capital Gains and Losses in chapter 4 of Publication 550 to figure the amount you can carry over to 2014. Vita irs    To figure your capital loss carryover from 2013 to 2014, you will need a copy of your 2013 Form 1040 and Schedule D (Form 1040). Vita irs Capital Gains Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. Vita irs These lower rates are called the maximum capital gains rates. Vita irs The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. Vita irs See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). Vita irs Also see Publication 550. Vita irs Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. Vita irs A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). Vita irs Property held for sale in the ordinary course of your farm business. Vita irs   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. Vita irs Gain or loss from sales or other dispositions of this property is reported on Schedule F (Form 1040) (not on Schedule D (Form 1040) or Form 4797). Vita irs The treatment of this property is discussed in chapter 3. Vita irs Land and depreciable properties. Vita irs   Land and depreciable property you use in farming are not capital assets. Vita irs Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. Vita irs However, your gains and losses from sales and exchanges of your farmland and depreciable properties must be considered together with certain other transactions to determine whether the gains and losses are treated as capital or ordinary gains and losses. Vita irs The sales of these business assets are reported on Form 4797. Vita irs See chapter 9 for more information. Vita irs Hedging (Commodity Futures) Hedging transactions are transactions that you enter into in the normal course of business primarily to manage the risk of interest rate or price changes, or currency fluctuations, with respect to borrowings, ordinary property, or ordinary obligations. Vita irs Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. Vita irs A commodity futures contract is a standardized, exchange-traded contract for the sale or purchase of a fixed amount of a commodity at a future date for a fixed price. Vita irs The holder of an option on a futures contract has the right (but not the obligation) for a specified period of time to enter into a futures contract to buy or sell at a particular price. Vita irs A forward contract is generally similar to a futures contract except that the terms are not standardized and the contract is not exchange traded. Vita irs Businesses may enter into commodity futures contracts or forward contracts and may acquire options on commodity futures contracts as either of the following. Vita irs Hedging transactions. Vita irs Transactions that are not hedging transactions. Vita irs Futures transactions with exchange-traded commodity futures contracts that are not hedging transactions, generally, result in capital gain or loss and are subject to the mark-to-market rules discussed in Publication 550. Vita irs There is a limit on the amount of capital losses you can deduct each year. Vita irs Hedging transactions are not subject to the mark-to-market rules. Vita irs If, as a farmer-producer, to protect yourself from the risk of unfavorable price fluctuations, you enter into commodity forward contracts, futures contracts, or options on futures contracts and the contracts cover an amount of the commodity within your range of production, the transactions are generally considered hedging transactions. Vita irs They can take place at any time you have the commodity under production, have it on hand for sale, or reasonably expect to have it on hand. Vita irs The gain or loss on the termination of these hedges is generally ordinary gain or loss. Vita irs Farmers who file their income tax returns on the cash method report any profit or loss on the hedging transaction on Schedule F, line 8. Vita irs Gains or losses from hedging transactions that hedge supplies of a type regularly used or consumed in the ordinary course of your trade or business may be ordinary gains or losses. Vita irs Examples include fuel and feed. Vita irs If you have numerous transactions in the commodity futures market during the year, you must be able to show which transactions are hedging transactions. Vita irs Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. Vita irs It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. Vita irs Retain the identification of each hedging transaction with your books and records. Vita irs Also, identify the item(s) or aggregate risk that is being hedged in your records. Vita irs Although the identification of the hedging transaction must be made before the end of the day it was entered into, you have 35 days after entering into the transaction to identify the hedged item(s) or risk. Vita irs For more information on the tax treatment of futures and options contracts, see Commodity Futures and Section 1256 Contracts Marked to Market in Publication 550. Vita irs Accounting methods for hedging transactions. Vita irs   The accounting method you use for a hedging transaction must clearly reflect income. Vita irs This means that your accounting method must reasonably match the timing of income, deduction, gain, or loss from a hedging transaction with the timing of income, deduction, gain, or loss from the item or items being hedged. Vita irs There are requirements and limits on the method you can use for certain hedging transactions. Vita irs See Regulations section 1. Vita irs 446-4(e) for those requirements and limits. Vita irs   Hedging transactions must be accounted for under the rules stated above unless the transaction is subject to mark-to-market accounting under section 475 or you use an accounting method other than the following methods. Vita irs Cash method. Vita irs Farm-price method. Vita irs Unit-livestock-price method. Vita irs   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. Vita irs   Your books and records must describe the accounting method used for each type of hedging transaction. Vita irs They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. Vita irs You must make the additional identification no more than 35 days after entering into the hedging transaction. Vita irs Example of a hedging transaction. Vita irs   You file your income tax returns on the cash method. Vita irs On July 2 you anticipate a yield of 50,000 bushels of corn this year. Vita irs The December futures price is $5. Vita irs 75 a bushel, but there are indications that by harvest time the price will drop. Vita irs To protect yourself against a drop in the price, you enter into the following hedging transaction. Vita irs You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. Vita irs 75 a bushel. Vita irs   The price did not drop as anticipated but rose to $6 a bushel. Vita irs In November, you sell your crop at a local elevator for $6 a bushel. Vita irs You also close out your futures position by buying ten December contracts for $6 a bushel. Vita irs You paid a broker's commission of $1,400 ($70 per contract) for the complete in and out position in the futures market. Vita irs   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. Vita irs Your loss on the hedge is 25 cents a bushel. Vita irs In effect, the net selling price of your corn is $5. Vita irs 75 a bushel. Vita irs   Report the results of your futures transactions and your sale of corn separately on Schedule F. Vita irs See the instructions for the 2013 Schedule F (Form 1040). Vita irs   The loss on your futures transactions is $13,900, figured as follows. Vita irs July 2 - Sold December corn futures (50,000 bu. Vita irs @$5. Vita irs 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Vita irs @$6 plus $1,400 broker's commission) 301,400 Futures loss ($13,900) This loss is reported as a negative figure on Schedule F, Part I, line 8, as other income. Vita irs   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. Vita irs × $6). Vita irs Report it on Schedule F, Part I, line 2, as income from sales of products you raised. Vita irs   Assume you were right and the price went down 25 cents a bushel. Vita irs In effect, you would still net $5. Vita irs 75 a bushel, figured as follows. Vita irs Sold cash corn, per bushel $5. Vita irs 50 Gain on hedge, per bushel . Vita irs 25 Net price, per bushel $5. Vita irs 75       The gain on your futures transactions would have been $11,100, figured as follows. Vita irs July 2 - Sold December corn futures (50,000 bu. Vita irs @$5. Vita irs 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Vita irs @$5. Vita irs 50 plus $1,400 broker's commission) 276,400 Futures gain $11,100 The $11,100 is reported on Schedule F, Part I, line 8, as other income. Vita irs   The proceeds from the sale of your corn at the local elevator, $275,000, are reported on Schedule F, Part I, line 2, as income from sales of products you raised. Vita irs Livestock This part discusses the sale or exchange of livestock used in your farm business. Vita irs Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. Vita irs However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. Vita irs See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. Vita irs The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. Vita irs The sale of this livestock is reported on Schedule F. Vita irs See chapter 3. Vita irs Also, special rules apply to sales or exchanges caused by weather-related conditions. Vita irs See chapter 3. Vita irs Holding period. Vita irs   The sale or exchange of livestock used in your farm business (defined below) qualifies as a section 1231 transaction if you held the livestock for 12 months or more (24 months or more for horses and cattle). Vita irs Livestock. Vita irs   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. Vita irs Also, for section 1231 transactions, livestock does not include chickens, turkeys, pigeons, geese, emus, ostriches, rheas, or other birds, fish, frogs, reptiles, etc. Vita irs Livestock used in farm business. Vita irs   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. Vita irs The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. Vita irs An animal is not held for draft, breeding, dairy, or sporting purposes merely because it is suitable for that purpose, or because it is held for sale to other persons for use by them for that purpose. Vita irs However, a draft, breeding, or sporting purpose may be present if an animal is disposed of within a reasonable time after it is prevented from its intended use or made undesirable as a result of an accident, disease, drought, or unfitness of the animal. Vita irs Example 1. Vita irs You discover an animal that you intend to use for breeding purposes is sterile. Vita irs You dispose of it within a reasonable time. Vita irs This animal was held for breeding purposes. Vita irs Example 2. Vita irs You retire and sell your entire herd, including young animals that you would have used for breeding or dairy purposes had you remained in business. Vita irs These young animals were held for breeding or dairy purposes. Vita irs Also, if you sell young animals to reduce your breeding or dairy herd because of drought, these animals are treated as having been held for breeding or dairy purposes. Vita irs See Sales Caused by Weather-Related Conditions in chapter 3. Vita irs Example 3. Vita irs You are in the business of raising hogs for slaughter. Vita irs Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. Vita irs You sell the brood sows after obtaining the litter. Vita irs Even though you hold these brood sows for ultimate sale to customers in the ordinary course of your business, they are considered to be held for breeding purposes. Vita irs Example 4. Vita irs You are in the business of raising registered cattle for sale to others for use as breeding cattle. Vita irs The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. Vita irs Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. Vita irs Such use does not demonstrate that you are holding the cattle for breeding purposes. Vita irs However, those cattle you held as additions or replacements to your own breeding herd to produce calves are considered to be held for breeding purposes, even though they may not actually have produced calves. Vita irs The same applies to hog and sheep breeders. Vita irs Example 5. Vita irs You breed, raise, and train horses for racing purposes. Vita irs Every year you cull horses from your racing stable. Vita irs In 2013, you decided that to prevent your racing stable from getting too large to be effectively operated, you must cull six horses that had been raced at public tracks in 2012. Vita irs These horses are all considered held for sporting purposes. Vita irs Figuring gain or loss on the cash method. Vita irs   Farmers or ranchers who use the cash method of accounting figure their gain or loss on the sale of livestock used in their farming business as follows. Vita irs Raised livestock. Vita irs   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. Vita irs Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. Vita irs The basis of the animal sold is zero if the costs of raising it were deducted during the years the animal was being raised. Vita irs However, see Uniform Capitalization Rules in chapter 6. Vita irs Purchased livestock. Vita irs   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. Vita irs Example. Vita irs A farmer sold a breeding cow on January 8, 2013, for $1,250. Vita irs Expenses of the sale were $125. Vita irs The cow was bought July 2, 2009, for $1,300. Vita irs Depreciation (not less than the amount allowable) was $867. Vita irs Gross sales price $1,250 Cost (basis) $1,300   Minus: Depreciation deduction 867   Unrecovered cost (adjusted basis) $ 433   Expense of sale 125 558 Gain realized $ 692 Converted Wetland and Highly Erodible Cropland Special rules apply to dispositions of land converted to farming use after March 1, 1986. Vita irs Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. Vita irs Any loss on the disposition of such property is treated as a long-term capital loss. Vita irs Converted wetland. Vita irs   This is generally land that was drained or filled to make the production of agricultural commodities possible. Vita irs It includes converted wetland held by the person who originally converted it or held by any other person who used the converted wetland at any time after conversion for farming. Vita irs   A wetland (before conversion) is land that meets all the following conditions. Vita irs It is mostly soil that, in its undrained condition, is saturated, flooded, or ponded long enough during a growing season to develop an oxygen-deficient state that supports the growth and regeneration of plants growing in water. Vita irs It is saturated by surface or groundwater at a frequency and duration sufficient to support mostly plants that are adapted for life in saturated soil. Vita irs It supports, under normal circumstances, mostly plants that grow in saturated soil. Vita irs Highly erodible cropland. Vita irs   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. Vita irs Generally, highly erodible cropland is land currently classified by the Department of Agriculture as Class IV, VI, VII, or VIII under its classification system. Vita irs Highly erodible cropland also includes land that would have an excessive average annual erosion rate in relation to the soil loss tolerance level, as determined by the Department of Agriculture. Vita irs Successor. Vita irs   Converted wetland or highly erodible cropland is also land held by any person whose basis in the land is figured by reference to the adjusted basis of a person in whose hands the property was converted wetland or highly erodible cropland. Vita irs Timber Standing timber you held as investment property is a capital asset. Vita irs Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. Vita irs If you held the timber primarily for sale to customers, it is not a capital asset. Vita irs Gain or loss on its sale is ordinary business income or loss. Vita irs It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). Vita irs See the Instructions for Schedule F (Form 1040). Vita irs Farmers who cut timber on their land and sell it as logs, firewood, or pulpwood usually have no cost or other basis for that timber. Vita irs Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. Vita irs , are ordinary farm income and expenses reported on Schedule F. Vita irs Different rules apply if you owned the timber longer than 1 year and elect to treat timber cutting as a sale or exchange or you enter into a cutting contract, discussed below. Vita irs Timber considered cut. Vita irs   Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Vita irs This is true whether the timber is cut under contract or whether you cut it yourself. Vita irs Christmas trees. Vita irs   Evergreen trees, such as Christmas trees, that are more than 6 years old when severed from their roots and sold for ornamental purposes are included in the term timber. Vita irs They qualify for both rules discussed below. Vita irs Election to treat cutting as a sale or exchange. Vita irs   Under the general rule, the cutting of timber results in no gain or loss. Vita irs It is not until a sale or exchange occurs that gain or loss is realized. Vita irs But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year it is cut. Vita irs Even though the cut timber is not actually sold or exchanged, you report your gain or loss on the cutting for the year the timber is cut. Vita irs Any later sale results in ordinary business income or loss. Vita irs See the example below. Vita irs   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or use in your trade or business. Vita irs Making the election. Vita irs   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of your gain or loss. Vita irs You do not have to make the election in the first year you cut the timber. Vita irs You can make it in any year to which the election would apply. Vita irs If the timber is partnership property, the election is made on the partnership return. Vita irs This election cannot be made on an amended return. Vita irs   Once you have made the election, it remains in effect for all later years unless you revoke it. Vita irs Election under section 631(a) may be revoked. Vita irs   If you previously elected for any tax year ending before October 23, 2004, to treat the cutting of timber as a sale or exchange under section 631(a), you may revoke this election without the consent of the IRS for any tax year ending after October 22, 2004. Vita irs The prior election (and revocation) is disregarded for purposes of making a subsequent election. Vita irs See Form T (Timber), Forest Activities Schedule, for more information. Vita irs Gain or loss. Vita irs   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its FMV on the first day of your tax year in which it is cut. Vita irs   Your adjusted basis for depletion of cut timber is based on the number of units (board feet, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. Vita irs Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 and Regulations section 1. Vita irs 611-3. Vita irs   Depletion of timber is discussed in chapter 7. Vita irs Example. Vita irs   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Vita irs It had an adjusted basis for depletion of $40 per MBF. Vita irs You are a calendar year taxpayer. Vita irs On January 1, 2013, the timber had a FMV of $350 per MBF. Vita irs It was cut in April for sale. Vita irs On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Vita irs You report the difference between the FMV and your adjusted basis for depletion as a gain. Vita irs This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as a capital gain or as ordinary gain. Vita irs You figure your gain as follows. Vita irs FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000   The FMV becomes your basis in the cut timber, and a later sale of the cut timber, including any by-product or tree tops, will result in ordinary business income or loss. Vita irs Outright sales of timber. Vita irs   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined later). Vita irs However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see Date of disposal below). Vita irs Cutting contract. Vita irs   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Vita irs You are the owner of the timber. Vita irs You held the timber longer than 1 year before its disposal. Vita irs You kept an economic interest in the timber. Vita irs   You have kept an economic interest in standing timber if, under the cutting contract, the expected return on your investment is conditioned on the cutting of the timber. Vita irs   The difference between the amount realized from the disposal of the timber and its adjusted basis for depletion is treated as gain or loss on its sale. Vita irs Include this amount on Form 4797 along with your other section 1231 gains or losses. Vita irs Date of disposal. Vita irs   The date of disposal is the date the timber is cut. Vita irs However, for outright sales by landowners or if you receive payment under the contract before the timber is cut, you can elect to treat the date of payment as the date of disposal. Vita irs   This election applies only to figure the holding period of the timber. Vita irs It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Vita irs   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Vita irs The statement must identify the advance payments subject to the election and the contract under which they were made. Vita irs   If you timely filed your return for the year you received payment without making the election, you can still make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). Vita irs Attach the statement to the amended return and write “Filed pursuant to section 301. Vita irs 9100-2” at the top of the statement. Vita irs File the amended return at the same address the original return was filed. Vita irs Owner. Vita irs   An owner is any person who owns an interest in the timber, including a sublessor and the holder of a contract to cut the timber. Vita irs You own an interest in timber if you have the right to cut it for sale on your own account or for use in your business. Vita irs Tree stumps. Vita irs   Tree stumps are a capital asset if they are on land held by an investor who is not in the timber or stump business as a buyer, seller, or processor. Vita irs Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Vita irs However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Vita irs Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Vita irs   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Vita irs Sale of a Farm The sale of your farm will usually involve the sale of both nonbusiness property (your home) and business property (the land and buildings used in the farm operation and perhaps machinery and livestock). Vita irs If you have a gain from the sale, you may be allowed to exclude the gain on your home. Vita irs For more information, see Publication 523, Selling Your Home. Vita irs The gain on the sale of your business property is taxable. Vita irs A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. Vita irs Your taxable gain or loss on the sale of property used in your farm business is taxed under the rules for section 1231 transactions. Vita irs See chapter 9. Vita irs Losses from personal-use property, other than casualty or theft losses, are not deductible. Vita irs If you receive payments for your farm in installments, your gain is taxed over the period of years the payments are received, unless you elect not to use the installment method of reporting the gain. Vita irs See chapter 10 for information about installment sales. Vita irs When you sell your farm, the gain or loss on each asset is figured separately. Vita irs The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. Vita irs Each of the assets sold must be classified as one of the following. Vita irs Capital asset held 1 year or less. Vita irs Capital asset held longer than 1 year. Vita irs Property (including real estate) used in your business and held 1 year or less (including draft, breeding, dairy, and sporting animals held less than the holding periods discussed earlier under Livestock ). Vita irs Property (including real estate) used in your business and held longer than 1 year (including only draft, breeding, dairy, and sporting animals held for the holding periods discussed earlier). Vita irs Property held primarily for sale or which is of the kind that would be included in inventory if on hand at the end of your tax year. Vita irs Allocation of consideration paid for a farm. Vita irs   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. Vita irs The residual method is required only if the group of assets sold constitutes a trade or business. Vita irs This method determines gain or loss from the transfer of each asset. Vita irs It also determines the buyer's basis in the business assets. Vita irs For more information, see Sale of a Business in chapter 2 of Publication 544. Vita irs Property used in farm operation. Vita irs   The rules for excluding the gain on the sale of your home, described later under Sale of your home , do not apply to the property used for your farming business. Vita irs Recognized gains and losses on business property must be reported on your return for the year of the sale. Vita irs If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). Vita irs Example. Vita irs You sell your farm, including your main home, which you have owned since December 2001. Vita irs You realize gain on the sale as follows. Vita irs   Farm   Farm   With Home Without   Home Only Home Selling price $382,000 $158,000 $224,000 Cost (or other basis) 240,000 110,000 130,000 Gain $142,000 $48,000 $94,000 You must report the $94,000 gain from the sale of the property used in your farm business. Vita irs All or a part of that gain may have to be reported as ordinary income from the recapture of depreciation or soil and water conservation expenses. Vita irs Treat the balance as section 1231 gain. Vita irs The $48,000 gain from the sale of your home is not taxable as long as you meet the requirements explained later under Sale of your home . Vita irs Partial sale. Vita irs   If you sell only part of your farm, you must report any recognized gain or loss on the sale of that part on your tax return for the year of the sale. Vita irs You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. Vita irs For a detailed discussion on installment sales, see Publication 544. Vita irs Adjusted basis of the part sold. Vita irs   This is the properly allocated part of your original cost or other basis of the entire farm plus or minus necessary adjustments for improvements, depreciation, etc. Vita irs , on the part sold. Vita irs If your home is on the farm, you must properly adjust the basis to exclude those costs from your farm asset costs, as discussed below under Sale of your home . Vita irs Example. Vita irs You bought a 600-acre farm for $700,000. Vita irs The farm included land and buildings. Vita irs The purchase contract designated $600,000 of the purchase price to the land. Vita irs You later sold 60 acres of land on which you had installed a fence. Vita irs Your adjusted basis for the part of your farm sold is $60,000 (1/10 of $600,000), plus any unrecovered cost (cost not depreciated) of the fence on the 60 acres at the time of sale. Vita irs Use this amount to determine your gain or loss on the sale of the 60 acres. Vita irs Assessed values for local property taxes. Vita irs   If you paid a flat sum for the entire farm and no other facts are available for properly allocating your original cost or other basis between the land and the buildings, you can use the assessed values for local property taxes for the year of purchase to allocate the costs. Vita irs Example. Vita irs Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. Vita irs However, in the year of purchase, local taxes on the entire property were based on assessed valuations of $420,000 for land and $140,000 for improvements, or a total of $560,000. Vita irs The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. Vita irs Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. Vita irs The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). Vita irs Sale of your home. Vita irs   Your home is a capital asset and not property used in the trade or business of farming. Vita irs If you sell a farm that includes a house you and your family occupy, you must determine the part of the selling price and the part of the cost or other basis allocable to your home. Vita irs Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. Vita irs   If you use part of your home for business, you must make an appropriate adjustment to the basis for depreciation allowed or allowable. Vita irs For more information on basis, see chapter 6. Vita irs More information. Vita irs   For more information on selling your home, see Publication 523. Vita irs Gain from condemnation. Vita irs   If you have a gain from a condemnation or sale under threat of condemnation, you may use the preceding rules for excluding the gain, rather than the rules discussed under Postponing Gain in chapter 11. Vita irs However, any gain that cannot be excluded (because it is more than the limit) may be postponed under the rules discussed under Postponing Gain in chapter 11. Vita irs Foreclosure or Repossession If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Vita irs The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Vita irs This is true even if you voluntarily return the property to the lender. Vita irs You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. Vita irs Buyer's (borrower's) gain or loss. Vita irs   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Vita irs The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Vita irs See Determining Gain or Loss , earlier. Vita irs Worksheet 8-1. Vita irs Worksheet for Foreclosures andRepossessions Part 1. Vita irs Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Vita irs Complete this part only if you were personally liable for the debt. Vita irs Otherwise, go to Part 2. Vita irs   1. Vita irs Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable after the transfer of property   2. Vita irs Enter the Fair Market Value of the transferred property   3. Vita irs Ordinary income from cancellation of debt upon foreclosure or repossession. Vita irs * Subtract line 2 from line 1. Vita irs If zero or less, enter -0-   Part 2. Vita irs Figure your gain or loss from foreclosure or repossession. Vita irs   4. Vita irs If you completed Part 1, enter the smaller of line 1 or line 2. Vita irs If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. Vita irs Enter any proceeds you received from the foreclosure sale   6. Vita irs Add lines 4 and 5   7. Vita irs Enter the adjusted basis of the transferred property   8. Vita irs Gain or loss from foreclosure or repossession. Vita irs Subtract line 7  from line 6   * The income may not be taxable. Vita irs See Cancellation of debt . Vita irs    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. Vita irs Amount realized on a nonrecourse debt. Vita irs   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full amount of the debt canceled by the transfer. Vita irs The full canceled debt is included in the amount realized even if the fair market value of the property is less than the canceled debt. Vita irs Example 1. Vita irs Ann paid $200,000 for land used in her farming business. Vita irs She paid $15,000 down and borrowed the remaining $185,000 from a bank. Vita irs Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. Vita irs The bank foreclosed on the loan 2 years after Ann stopped making payments. Vita irs When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. Vita irs The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. Vita irs She figures her gain or loss on Form 4797, Part I, by comparing the amount realized ($180,000) with her adjusted basis ($200,000). Vita irs She has a $20,000 deductible loss. Vita irs Example 2. Vita irs Assume the same facts as in Example 1 except the FMV of the land was $210,000. Vita irs The result is the same. Vita irs The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. Vita irs Because her adjusted basis is $200,000, she has a deductible loss of $20,000, which she reports on Form 4797, Part I. Vita irs Amount realized on a recourse debt. Vita irs   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Vita irs   You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Vita irs The amount realized does not include the canceled debt that is your income from cancellation of debt. Vita irs See Cancellation of debt , later. Vita irs Example 3. Vita irs Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). Vita irs In this case, the amount she realizes is $170,000. Vita irs This is the canceled debt ($180,000) up to the FMV of the land ($170,000). Vita irs Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). Vita irs She has a $30,000 deductible loss, which she figures on Form 4797, Part I. Vita irs She is also treated as receiving ordinary income from cancellation of debt. Vita irs That income is $10,000 ($180,000 − $170,000). Vita irs This is the part of the canceled debt not included in the amount realized. Vita irs She reports this as other income on Schedule F, line 8. Vita irs Seller's (lender's) gain or loss on repossession. Vita irs   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Vita irs For more information, see Repossession in Publication 537, Installment Sales. Vita irs Cancellation of debt. Vita irs   If property that is repossessed or foreclosed upon secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the FMV of the property. Vita irs This income is separate from any gain or loss realized from the foreclosure or repossession. Vita irs Report the income from cancellation of a business debt on Schedule F, line 8. Vita irs Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Vita irs    You can use Worksheet 8-1 to figure your income from cancellation of debt. Vita irs   However, income from cancellation of debt is not taxed if any of the following apply. Vita irs The cancellation is intended as a gift. Vita irs The debt is qualified farm debt (see chapter 3). Vita irs The debt is qualified real property business debt (see chapter 5 of Publication 334). Vita irs You are insolvent or bankrupt (see  chapter 3). Vita irs The debt is qualified principal residence indebtedness (see chapter 3). Vita irs   Use Form 982 to report the income exclusion. Vita irs Abandonment The abandonment of property is a disposition of property. Vita irs You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership, but without passing it on to anyone else. Vita irs Business or investment property. Vita irs   Loss from abandonment of business or investment property is deductible as a loss. Vita irs Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Vita irs If your adjusted basis is more than the amount you realize (if any), then you have a loss. Vita irs If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Vita irs This rule also applies to leasehold improvements the lessor made for the lessee. Vita irs However, if the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed earlier under Foreclosure or Repossession . Vita irs   If the abandoned property is secured by debt, special rules apply. Vita irs The tax consequences of abandonment of property that secures a debt depend on whether you are personally liable for the debt (recourse debt) or were not personally liable for the debt (nonrecourse debt). Vita irs For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Vita irs The abandonment loss is deducted in the tax year in which the loss is sustained. Vita irs Report the loss on Form 4797, Part II, line 10. Vita irs Personal-use property. Vita irs   You cannot deduct any loss from abandonment of your home or other property held for personal use. Vita irs Canceled debt. Vita irs   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. Vita irs This income is separate from any loss realized from abandonment of the property. Vita irs Report income from cancellation of a debt related to a business or rental activity as business or rental income. Vita irs Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Vita irs   However, income from cancellation of debt is not taxed in certain circumstances. Vita irs See Cancellation of debt earlier under Foreclosure or Repossession . Vita irs Forms 1099-A and 1099-C. Vita irs   A lender who acquires an interest in your property in a foreclosure, repossession, or abandonment should send you Form 1099-A showing the information you need to figure your loss from the foreclosure, repossession, or abandonment. Vita irs However, if the lender cancels part of your debt and the lender must file Form 1099-C, the lender may include the information about the foreclosure, repossession, or abandonment on that form instead of Form 1099-A. Vita irs The lender must file Form 1099-C and send you a copy if the canceled debt is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Vita irs For foreclosures, repossessions, abandonments of property, and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Vita irs Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Your Civil Rights Are Protected

The Internal Revenue Service will not tolerate discrimination against anyone because of race, color, national origin (including limited English proficiency), reprisal, disability, age or sex (in education programs or activities) by its employees or anyone who volunteers or works with taxpayers at one of these community partners:

  • Low Income Tax Clinics (LITC)
  • Volunteer Income Tax Assistance (VITA) and
  • Tax Counseling for the Elderly (TCE) sites

Other bases that apply in education or training programs or activities conducted by the IRS include religion, sexual orientation and status as a parent.

Accommodations

Persons with disabilities and/or limited English proficiency should be able to participate in or benefit from programs and services that IRS supports. Site Coordinators or Managers at the above sites are required to:

  • Provide a reasonable accommodation when a person with a disability makes a request.
  • Take steps to make sure Non-English speaking people have access to their programs or activities.
  • Language assistance services may include oral and written translation.

For Frequently Asked Questions about reasonable accommodation, please click here.

How to File a Complaint

If you believe you’ve been discriminated against, send a written complaint to:

Operations Director, Civil Rights Division
Department of the Treasury - Internal Revenue Service
Room 2413
1111 Constitution Avenue, NW
Washington, DC  20224

For questions about your civil rights, contact us at the above address or contact us by email.

Page Last Reviewed or Updated: 14-Mar-2014

The Vita Irs

Vita irs Tax Changes for Individuals Table of Contents 2001 ChangesNew 5-Year Carryback Rule for Net Operating Losses (NOLs) Wash Sale Rules Do Not Apply to Section 1256 Contracts Other 2001 Changes 2002 ChangesDeduction for Educator Expenses Personal Credits Still Allowed Against Alternative Minimum Tax Later ChangeChild and Dependent Care Expenses 2001 Changes New 5-Year Carryback Rule for Net Operating Losses (NOLs) If you have an NOL from a tax year ending during 2001 or 2002, you must generally carry back the entire amount of the NOL to the 5 tax years before the NOL year (the carryback period). Vita irs However, you can still choose to use the previous carryback period. Vita irs You also can choose not to carry back an NOL and only carry it forward. Vita irs Individuals, estates, and trusts can file Form 1045, Application for Tentative Refund. Vita irs The instructions for this form will be revised to reflect the new law. Vita irs Wash Sale Rules Do Not Apply to Section 1256 Contracts The wash sale rules that generally apply to losses from the sale of stock or securities, do not apply to any loss arising from a section 1256 contract. Vita irs A section 1256 contract is any: Regulated futures contract, Foreign currency contract, Nonequity option, Dealer equity option, or Dealer securities futures contract. Vita irs Wash sales and section 1256 contracts are explained in detail in Publication 550, Investment Income and Expenses. Vita irs Other 2001 Changes Other changes are discussed in the following chapters. Vita irs Chapter 4 Car Expenses Chapter 5 Depreciation 2002 Changes Deduction for Educator Expenses If you are an eligible educator, you can deduct as an adjustment to income up to $250 in qualified expenses. Vita irs You can deduct these expenses even if you do not itemize deductions on Schedule A (Form 1040). Vita irs This adjustment to income is for expenses paid or incurred in tax years beginning during 2002 or 2003. Vita irs Previously, these expenses were deductible only as a miscellaneous itemized deduction subject to the 2% of adjusted gross income limit. Vita irs Eligible educator. Vita irs   You are an eligible educator if, for the tax year, you meet the following requirements. Vita irs You are a kindergarten through grade 12: Teacher, Instructor, Counselor, Principal, or Aide. Vita irs You work at least 900 hours during a school year in a school that provides elementary or secondary education, as determined under state law. Vita irs Qualified expenses. Vita irs   These are unreimbursed expenses you paid or incurred for books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that you use in the classroom. Vita irs For courses in health and physical education, expenses for supplies are qualified expenses only if they are related to athletics. Vita irs   To be deductible as an adjustment to income, the qualified expenses must be more than the following amounts for the tax year. Vita irs The interest on qualified U. Vita irs S. Vita irs savings bonds that you excluded from income because you paid qualified higher education expenses, Any distribution from a qualified tuition program that you excluded from income, or Any tax-free withdrawals from your Coverdell education savings account. Vita irs Personal Credits Still Allowed Against Alternative Minimum Tax The provision that allowed certain nonrefundable personal credits to reduce both your regular tax and any alternative minimum tax (AMT) has been extended and will be in effect for 2002 and 2003. Vita irs This provision, as it applies to the AMT, was originally scheduled to expire after 2001. Vita irs Without the extension, these credits could not have been used to reduce any AMT in 2002 or 2003. Vita irs Later Change Child and Dependent Care Expenses For the purpose of figuring the child and dependent care credit, your spouse is treated as having at least a minimum amount of earned income for any month that he or she is a full-time student or not able to care for himself or herself. Vita irs Beginning in 2003, this amount is increased to $250 a month if there is one qualifying person and to $500 a month if there are two or more qualifying persons. Vita irs Before 2003, the amounts were $200 and $400. Vita irs The same rule applies for the exclusion of employer-provided dependent care benefits. Vita irs For more information about the credit and exclusion, see Publication 503, Child and Dependent Care Expenses. Vita irs Prev  Up  Next   Home   More Online Publications