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Www Irs Gov Form 1040x

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Www Irs Gov Form 1040x

Www irs gov form 1040x 28. Www irs gov form 1040x   Miscellaneous Deductions Table of Contents What's New Introduction Useful Items - You may want to see: Deductions Subject to the 2% LimitUnreimbursed Employee Expenses (Line 21) Tax Preparation Fees (Line 22) Other Expenses (Line 23) Deductions Not Subject to the 2% LimitList of Deductions Nondeductible ExpensesList of Nondeductible Expenses What's New Standard mileage rate. Www irs gov form 1040x  The 2013 rate for business use of a vehicle is 56½ cents per mile. Www irs gov form 1040x Introduction This chapter explains which expenses you can claim as miscellaneous itemized deductions on Schedule A (Form 1040). Www irs gov form 1040x You must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income. Www irs gov form 1040x This chapter covers the following topics. Www irs gov form 1040x Deductions subject to the 2% limit. Www irs gov form 1040x Deductions not subject to the 2% limit. Www irs gov form 1040x Expenses you cannot deduct. Www irs gov form 1040x You must keep records to verify your deductions. Www irs gov form 1040x You should keep receipts, canceled checks, substitute checks, financial account statements, and other documentary evidence. Www irs gov form 1040x For more information on recordkeeping, get Publication 552, Record- keeping for Individuals. Www irs gov form 1040x Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) 946 How To Depreciate Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses Deductions Subject to the 2% Limit You can deduct certain expenses as miscellaneous itemized deductions on Schedule A (Form 1040). Www irs gov form 1040x You can claim the amount of expenses that is more than 2% of your adjusted gross income. Www irs gov form 1040x You figure your deduction on Schedule A by subtracting 2% of your adjusted gross income from the total amount of these expenses. Www irs gov form 1040x Your adjusted gross income is the amount on Form 1040, line 38. Www irs gov form 1040x Generally, you apply the 2% limit after you apply any other deduction limit. Www irs gov form 1040x For example, you apply the 50% (or 80%) limit on business-related meals and entertainment (discussed in chapter 26) before you apply the 2% limit. Www irs gov form 1040x Deductions subject to the 2% limit are discussed in the three categories in which you report them on Schedule A (Form 1040). Www irs gov form 1040x Unreimbursed employee expenses (line 21). Www irs gov form 1040x Tax preparation fees (line 22). Www irs gov form 1040x Other expenses (line 23). Www irs gov form 1040x Unreimbursed Employee Expenses (Line 21) Generally, you can deduct on Schedule A (Form 1040), line 21, unreimbursed employee expenses that are: Paid or incurred during your tax year, For carrying on your trade or business of being an employee, and Ordinary and necessary. Www irs gov form 1040x An expense is ordinary if it is common and accepted in your trade, business, or profession. Www irs gov form 1040x An expense is necessary if it is appropriate and helpful to your business. Www irs gov form 1040x An expense does not have to be required to be considered necessary. Www irs gov form 1040x Examples of unreimbursed employee expenses are listed next. Www irs gov form 1040x The list is followed by discussions of additional unreimbursed employee expenses. Www irs gov form 1040x Business bad debt of an employee. Www irs gov form 1040x Education that is work related. Www irs gov form 1040x (See chapter 27. Www irs gov form 1040x ) Legal fees related to your job. Www irs gov form 1040x Licenses and regulatory fees. Www irs gov form 1040x Malpractice insurance premiums. Www irs gov form 1040x Medical examinations required by an employer. Www irs gov form 1040x Occupational taxes. Www irs gov form 1040x Passport for a business trip. Www irs gov form 1040x Subscriptions to professional journals and trade magazines related to your work. Www irs gov form 1040x Travel, transportation, entertainment, and gifts related to your work. Www irs gov form 1040x (See chapter 26. Www irs gov form 1040x ) Business Liability Insurance You can deduct insurance premiums you paid for protection against personal liability for wrongful acts on the job. Www irs gov form 1040x Damages for Breach of Employment Contract If you break an employment contract, you can deduct damages you pay your former employer that are attributable to the pay you received from that employer. Www irs gov form 1040x Depreciation on Computers You can claim a depreciation deduction for a computer that you use in your work as an employee if its use is: For the convenience of your employer, and Required as a condition of your employment. Www irs gov form 1040x For more information about the rules and exceptions to the rules affecting the allowable deductions for a home computer, see Publication 529. Www irs gov form 1040x Dues to Chambers of Commerce and Professional Societies You may be able to deduct dues paid to professional organizations (such as bar associations and medical associations) and to chambers of commerce and similar organizations, if membership helps you carry out the duties of your job. Www irs gov form 1040x Similar organizations include: Boards of trade, Business leagues, Civic or public service organizations, Real estate boards, and Trade associations. Www irs gov form 1040x Lobbying and political activities. Www irs gov form 1040x   You may not be able to deduct that part of your dues that is for certain lobbying and political activities. Www irs gov form 1040x See Dues used for lobbying under Nondeductible Expenses, later. Www irs gov form 1040x Educator Expenses If you were an eligible educator in 2013, you can deduct up to $250 of qualified expenses you paid in 2013 as an adjustment to gross income on Form 1040, line 23, rather than as a miscellaneous itemized deduction. Www irs gov form 1040x If you file Form 1040A, you can deduct these expenses on line 16. Www irs gov form 1040x If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. Www irs gov form 1040x However, neither spouse can deduct more than $250 of his or her qualified expenses. Www irs gov form 1040x Home Office If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home. Www irs gov form 1040x You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively: As your principal place of business for any trade or business, As a place to meet or deal with your patients, clients, or customers in the normal course of your trade or business, or In the case of a separate structure not attached to your home, in connection with your trade or business. Www irs gov form 1040x The regular and exclusive business use must be for the convenience of your employer and not just appropriate and helpful in your job. Www irs gov form 1040x See Publication 587 for more detailed information and a worksheet. Www irs gov form 1040x Job Search Expenses You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job. Www irs gov form 1040x You cannot deduct these expenses if: You are looking for a job in a new occupation, There was a substantial break between the ending of your last job and your looking for a new one, or You are looking for a job for the first time. Www irs gov form 1040x Employment and outplacement agency fees. Www irs gov form 1040x   You can deduct employment and outplacement agency fees you pay in looking for a new job in your present occupation. Www irs gov form 1040x Employer pays you back. Www irs gov form 1040x   If, in a later year, your employer pays you back for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year. Www irs gov form 1040x (See Recoveries in chapter 12. Www irs gov form 1040x ) Employer pays the employment agency. Www irs gov form 1040x   If your employer pays the fees directly to the employment agency and you are not responsible for them, you do not include them in your gross income. Www irs gov form 1040x Résumé. Www irs gov form 1040x   You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers if you are looking for a new job in your present occupation. Www irs gov form 1040x Travel and transportation expenses. Www irs gov form 1040x   If you travel to an area and, while there, you look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. Www irs gov form 1040x You can deduct the travel expenses if the trip is primarily to look for a new job. Www irs gov form 1040x The amount of time you spend on personal activity compared to the amount of time you spend in looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job. Www irs gov form 1040x   Even if you cannot deduct the travel expenses to and from an area, you can deduct the expenses of looking for a new job in your present occupation while in the area. Www irs gov form 1040x   You can choose to use the standard mileage rate to figure your car expenses. Www irs gov form 1040x The 2013 rate for business use of a vehicle is 56½ cents per mile. Www irs gov form 1040x See chapter 26 for more information. Www irs gov form 1040x Licenses and Regulatory Fees You can deduct the amount you pay each year to state or local governments for licenses and regulatory fees for your trade, business, or profession. Www irs gov form 1040x Occupational Taxes You can deduct an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. Www irs gov form 1040x If you are an employee, you can claim occupational taxes only as a miscellaneous deduction subject to the 2% limit; you cannot claim them as a deduction for taxes elsewhere on your return. Www irs gov form 1040x Repayment of Income Aid Payment An “income aid payment” is one that is received under an employer's plan to aid employees who lose their jobs because of lack of work. Www irs gov form 1040x If you repay a lump-sum income aid payment that you received and included in income in an earlier year, you can deduct the repayment. Www irs gov form 1040x Research Expenses of a College Professor If you are a college professor, you can deduct research expenses, including travel expenses, for teaching, lecturing, or writing and publishing on subjects that relate directly to your teaching duties. Www irs gov form 1040x You must have undertaken the research as a means of carrying out the duties expected of a professor and without expectation of profit apart from salary. Www irs gov form 1040x However, you cannot deduct the cost of travel as a form of education. Www irs gov form 1040x Tools Used in Your Work Generally, you can deduct amounts you spend for tools used in your work if the tools wear out and are thrown away within 1 year from the date of purchase. Www irs gov form 1040x You can depreciate the cost of tools that have a useful life substantially beyond the tax year. Www irs gov form 1040x For more information about depreciation, see Publication 946. Www irs gov form 1040x Union Dues and Expenses You can deduct dues and initiation fees you pay for union membership. Www irs gov form 1040x You can also deduct assessments for benefit payments to unemployed union members. Www irs gov form 1040x However, you cannot deduct the part of the assessments or contributions that provides funds for the payment of sick, accident, or death benefits. Www irs gov form 1040x Also, you cannot deduct contributions to a pension fund, even if the union requires you to make the contributions. Www irs gov form 1040x You may not be able to deduct amounts you pay to the union that are related to certain lobbying and political activities. Www irs gov form 1040x See Lobbying Expenses under Nondeductible Expenses, later. Www irs gov form 1040x Work Clothes and Uniforms You can deduct the cost and upkeep of work clothes if the following two requirements are met. Www irs gov form 1040x You must wear them as a condition of your employment. Www irs gov form 1040x The clothes are not suitable for everyday wear. Www irs gov form 1040x It is not enough that you wear distinctive clothing. Www irs gov form 1040x The clothing must be specifically required by your employer. Www irs gov form 1040x Nor is it enough that you do not, in fact, wear your work clothes away from work. Www irs gov form 1040x The clothing must not be suitable for taking the place of your regular clothing. Www irs gov form 1040x Examples of workers who may be able to deduct the cost and upkeep of work clothes are: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc. Www irs gov form 1040x ). Www irs gov form 1040x Musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear. Www irs gov form 1040x However, work clothing consisting of white cap, white shirt or white jacket, white bib overalls, and standard work shoes, which a painter is required by his union to wear on the job, is not distinctive in character or in the nature of a uniform. Www irs gov form 1040x Similarly, the costs of buying and maintaining blue work clothes worn by a welder at the request of a foreman are not deductible. Www irs gov form 1040x Protective clothing. Www irs gov form 1040x   You can deduct the cost of protective clothing required in your work, such as safety shoes or boots, safety glasses, hard hats, and work gloves. Www irs gov form 1040x   Examples of workers who may be required to wear safety items are: carpenters, cement workers, chemical workers, electricians, fishing boat crew members, machinists, oil field workers, pipe fitters, steamfitters, and truck drivers. Www irs gov form 1040x Military uniforms. Www irs gov form 1040x   You generally cannot deduct the cost of your uniforms if you are on full-time active duty in the armed forces. Www irs gov form 1040x However, if you are an armed forces reservist, you can deduct the unreimbursed cost of your uniform if military regulations restrict you from wearing it except while on duty as a reservist. Www irs gov form 1040x In figuring the deduction, you must reduce the cost by any nontaxable allowance you receive for these expenses. Www irs gov form 1040x   If local military rules do not allow you to wear fatigue uniforms when you are off duty, you can deduct the amount by which the cost of buying and keeping up these uniforms is more than the uniform allowance you receive. Www irs gov form 1040x   You can deduct the cost of your uniforms if you are a civilian faculty or staff member of a military school. Www irs gov form 1040x Tax Preparation Fees (Line 22) You can usually deduct tax preparation fees in the year you pay them. Www irs gov form 1040x Thus, on your 2013 return, you can deduct fees paid in 2013 for preparing your 2012 return. Www irs gov form 1040x These fees include the cost of tax preparation software programs and tax publications. Www irs gov form 1040x They also include any fee you paid for electronic filing of your return. Www irs gov form 1040x Other Expenses (Line 23) You can deduct certain other expenses as miscellaneous itemized deductions subject to the 2% limit. Www irs gov form 1040x On Schedule A (Form 1040), line 23, you can deduct expenses that you pay: To produce or collect income that must be included in your gross income, To manage, conserve, or maintain property held for producing such income, or To determine, contest, pay, or claim a refund of any tax. Www irs gov form 1040x You can deduct expenses you pay for the purposes in (1) and (2) above only if they are reasonably and closely related to these purposes. Www irs gov form 1040x Some of these other expenses are explained in the following discussions. Www irs gov form 1040x If the expenses you pay produce income that is only partially taxable, see Tax-Exempt Income Expenses , later, under Nondeductible Expenses. Www irs gov form 1040x Appraisal Fees You can deduct appraisal fees if you pay them to figure a casualty loss or the fair market value of donated property. Www irs gov form 1040x Casualty and Theft Losses You can deduct a casualty or theft loss as a miscellaneous itemized deduction subject to the 2% limit if you used the damaged or stolen property in performing services as an employee. Www irs gov form 1040x First report the loss in Section B of Form 4684, Casualties and Thefts. Www irs gov form 1040x You may also have to include the loss on Form 4797, Sales of Business Property, if you are otherwise required to file that form. Www irs gov form 1040x To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. Www irs gov form 1040x For other casualty and theft losses, see chapter 25. Www irs gov form 1040x Clerical Help and Office Rent You can deduct office expenses, such as rent and clerical help, that you have in connection with your investments and collecting the taxable income on them. Www irs gov form 1040x Credit or Debit Card Convenience Fees You can deduct the convenience fee charged by the card processor for paying your income tax (including estimated tax payments) by credit or debit card. Www irs gov form 1040x The fees are deductible in the year paid. Www irs gov form 1040x Depreciation on Home Computer You can deduct depreciation on your home computer if you use it to produce income (for example, to manage your investments that produce taxable income). Www irs gov form 1040x You generally must depreciate the computer using the straight line method over the Alternative Depreciation System (ADS) recovery period. Www irs gov form 1040x But if you work as an employee and also use the computer in that work, see Publication 946. Www irs gov form 1040x Excess Deductions of an Estate If an estate's total deductions in its last tax year are more than its gross income for that year, the beneficiaries succeeding to the estate's property can deduct the excess. Www irs gov form 1040x Do not include deductions for the estate's personal exemption and charitable contributions when figuring the estate's total deductions. Www irs gov form 1040x The beneficiaries can claim the deduction only for the tax year in which, or with which, the estate terminates, whether the year of termination is a normal year or a short tax year. Www irs gov form 1040x For more information, see Termination of Estate in Publication 559, Survivors, Executors, and Administrators. Www irs gov form 1040x Fees to Collect Interest and Dividends You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect your taxable bond interest or dividends on shares of stock. Www irs gov form 1040x But you cannot deduct a fee you pay to a broker to buy investment property, such as stocks or bonds. Www irs gov form 1040x You must add the fee to the cost of the property. Www irs gov form 1040x You cannot deduct the fee you pay to a broker to sell securities. Www irs gov form 1040x You can use the fee only to figure gain or loss from the sale. Www irs gov form 1040x See the Instructions for Form 8949 for information on how to report the fee. Www irs gov form 1040x Hobby Expenses You can generally deduct hobby expenses, but only up to the amount of hobby income. Www irs gov form 1040x A hobby is not a business because it is not carried on to make a profit. Www irs gov form 1040x See Activity not for profit in chapter 12 under Other Income. Www irs gov form 1040x Indirect Deductions of Pass-Through Entities Pass-through entities include partnerships, S corporations, and mutual funds that are not publicly offered. Www irs gov form 1040x Deductions of pass-through entities are passed through to the partners or shareholders. Www irs gov form 1040x The partners or shareholders can deduct their share of passed-through deductions for investment expenses as miscellaneous itemized deductions subject to the 2% limit. Www irs gov form 1040x Example. Www irs gov form 1040x You are a member of an investment club that is formed solely to invest in securities. Www irs gov form 1040x The club is treated as a partnership. Www irs gov form 1040x The partnership's income is solely from taxable dividends, interest, and gains from sales of securities. Www irs gov form 1040x In this case, you can deduct your share of the partnership's operating expenses as miscellaneous itemized deductions subject to the 2% limit. Www irs gov form 1040x However, if the investment club partnership has investments that also produce nontaxable income, you cannot deduct your share of the partnership's expenses that produce the nontaxable income. Www irs gov form 1040x Publicly offered mutual funds. Www irs gov form 1040x   Publicly offered mutual funds do not pass deductions for investment expenses through to shareholders. Www irs gov form 1040x A mutual fund is “publicly offered” if it is: Continuously offered pursuant to a public offering, Regularly traded on an established securities market, or Held by or for at least 500 persons at all times during the tax year. Www irs gov form 1040x   A publicly offered mutual fund will send you a Form 1099-DIV, Dividends and Distributions, or a substitute form, showing the net amount of dividend income (gross dividends minus investment expenses). Www irs gov form 1040x This net figure is the amount you report on your return as income. Www irs gov form 1040x You cannot further deduct investment expenses related to publicly offered mutual funds because they are already included as part of the net income amount. Www irs gov form 1040x Information returns. Www irs gov form 1040x   You should receive information returns from pass-through entities. Www irs gov form 1040x Partnerships and S corporations. Www irs gov form 1040x   These entities issue Schedule K-1, which lists the items and amounts you must report and identifies the tax return schedules and lines to use. Www irs gov form 1040x Nonpublicly offered mutual funds. Www irs gov form 1040x   These funds will send you a Form 1099-DIV, Dividends and Distributions, or a substitute form, showing your share of gross income and investment expenses. Www irs gov form 1040x You can claim the expenses only as a miscellaneous itemized deduction subject to the 2% limit. Www irs gov form 1040x Investment Fees and Expenses You can deduct investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income. Www irs gov form 1040x Legal Expenses You can usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax. Www irs gov form 1040x You can also deduct legal expenses that are: Related to either doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business, For tax advice related to a divorce, if the bill specifies how much is for tax advice and it is determined in a reasonable way, or To collect taxable alimony. Www irs gov form 1040x You can deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C or C-EZ), rentals or royalties (Schedule E), or farm income and expenses (Schedule F), on the appropriate schedule. Www irs gov form 1040x You deduct expenses of resolving nonbusiness tax issues on Schedule A (Form 1040). Www irs gov form 1040x See Tax Preparation Fees , earlier. Www irs gov form 1040x Loss on Deposits For information on whether, and if so, how, you may deduct a loss on your deposit in a qualified financial institution, see Loss on Deposits in chapter 25. Www irs gov form 1040x Repayments of Income If you had to repay an amount that you included in income in an earlier year, you may be able to deduct the amount you repaid. Www irs gov form 1040x If the amount you had to repay was ordinary income of $3,000 or less, the deduction is subject to the 2% limit. Www irs gov form 1040x If it was more than $3,000, see Repayments Under Claim of Right under Deductions Not Subject to the 2% Limit, later. Www irs gov form 1040x Repayments of Social Security Benefits For information on how to deduct your repayments of certain social security benefits, see Repayments More Than Gross Benefits in chapter 11. Www irs gov form 1040x Safe Deposit Box Rent You can deduct safe deposit box rent if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. Www irs gov form 1040x You cannot deduct the rent if you use the box only for jewelry, other personal items, or tax-exempt securities. Www irs gov form 1040x Service Charges on Dividend Reinvestment Plans You can deduct service charges you pay as a subscriber in a dividend reinvestment plan. Www irs gov form 1040x These service charges include payments for: Holding shares acquired through a plan, Collecting and reinvesting cash dividends, and Keeping individual records and providing detailed statements of accounts. Www irs gov form 1040x Trustee's Administrative Fees for IRA Trustee's administrative fees that are billed separately and paid by you in connection with your individual retirement arrangement (IRA) are deductible (if they are ordinary and necessary) as a miscellaneous itemized deduction subject to the 2% limit. Www irs gov form 1040x For more information about IRAs, see chapter 17. Www irs gov form 1040x Deductions Not Subject to the 2% Limit You can deduct the items listed below as miscellaneous itemized deductions. Www irs gov form 1040x They are not subject to the 2% limit. Www irs gov form 1040x Report these items on Schedule A (Form 1040), line 28. Www irs gov form 1040x List of Deductions Each of the following items is discussed in detail after the list (except where indicated). Www irs gov form 1040x Amortizable premium on taxable bonds. Www irs gov form 1040x Casualty and theft losses from income- producing property. Www irs gov form 1040x Federal estate tax on income in respect of a decedent. Www irs gov form 1040x Gambling losses up to the amount of gambling winnings. Www irs gov form 1040x Impairment-related work expenses of persons with disabilities. Www irs gov form 1040x Loss from other activities from Schedule K-1 (Form 1065-B), box 2. Www irs gov form 1040x Losses from Ponzi-type investment schemes. Www irs gov form 1040x See Losses from Ponzi-type investment schemes under Theft in chapter 25. Www irs gov form 1040x Repayments of more than $3,000 under a claim of right. Www irs gov form 1040x Unrecovered investment in an annuity. Www irs gov form 1040x Amortizable Premium on Taxable Bonds In general, if the amount you pay for a bond is greater than its stated principal amount, the excess is bond premium. Www irs gov form 1040x You can elect to amortize the premium on taxable bonds. Www irs gov form 1040x The amortization of the premium is generally an offset to interest income on the bond rather than a separate deduction item. Www irs gov form 1040x Part of the premium on some bonds may be a miscellaneous deduction not subject to the 2% limit. Www irs gov form 1040x For more information, see Amortizable Premium on Taxable Bonds in Publication 529, and Bond Premium Amortization in chapter 3 of Publication 550, Investment Income and Expenses. Www irs gov form 1040x Casualty and Theft Losses of Income-Producing Property You can deduct a casualty or theft loss as a miscellaneous itemized deduction not subject to the 2% limit if the damaged or stolen property was income-producing property (property held for investment, such as stocks, notes, bonds, gold, silver, vacant lots, and works of art). Www irs gov form 1040x First, report the loss in Form 4684, Section B. Www irs gov form 1040x You may also have to include the loss on Form 4797, Sales of Business Property if you are otherwise required to file that form. Www irs gov form 1040x To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. Www irs gov form 1040x For more information on casualty and theft losses, see chapter 25. Www irs gov form 1040x Federal Estate Tax on Income in Respect of a Decedent You can deduct the federal estate tax attributable to income in respect of a decedent that you as a beneficiary include in your gross income. Www irs gov form 1040x Income in respect of the decedent is gross income that the decedent would have received had death not occurred and that was not properly includible in the decedent's final income tax return. Www irs gov form 1040x See Publication 559 for more information. Www irs gov form 1040x Gambling Losses Up to the Amount of Gambling Winnings You must report the full amount of your gambling winnings for the year on Form 1040, line 21. Www irs gov form 1040x You deduct your gambling losses for the year on Schedule A (Form 1040), line 28. Www irs gov form 1040x You cannot deduct gambling losses that are more than your winnings. Www irs gov form 1040x You cannot reduce your gambling winnings by your gambling losses and report the difference. Www irs gov form 1040x You must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. Www irs gov form 1040x Therefore, your records should show your winnings separately from your losses. Www irs gov form 1040x Diary of winnings and losses. Www irs gov form 1040x You must keep an accurate diary or similar record of your losses and winnings. Www irs gov form 1040x Your diary should contain at least the following information. Www irs gov form 1040x The date and type of your specific wager or wagering activity. Www irs gov form 1040x The name and address or location of the gambling establishment. Www irs gov form 1040x The names of other persons present with you at the gambling establishment. Www irs gov form 1040x The amount(s) you won or lost. Www irs gov form 1040x See Publication 529 for more information. Www irs gov form 1040x Impairment-Related Work Expenses If you have a physical or mental disability that limits your being employed, or substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, and working, you can deduct your impairment-related work expenses. Www irs gov form 1040x Impairment-related work expenses are ordinary and necessary business expenses for attendant care services at your place of work and for other expenses in connection with your place of work that are necessary for you to be able to work. Www irs gov form 1040x Self-employed. Www irs gov form 1040x   If you are self-employed, enter your impairment-related work expenses on the appropriate form (Schedule C, C-EZ, E, or F) used to report your business income and expenses. Www irs gov form 1040x Loss From Other Activities From Schedule K-1 (Form 1065-B), Box 2 If the amount reported in Schedule K-1 (Form 1065-B), box 2, is a loss, report it on Schedule A (Form 1040), line 28. Www irs gov form 1040x It is not subject to the passive activity limitations. Www irs gov form 1040x Repayments Under Claim of Right If you had to repay more than $3,000 that you included in your income in an earlier year because at the time you thought you had an unrestricted right to it, you may be able to deduct the amount you repaid or take a credit against your tax. Www irs gov form 1040x See Repayments in chapter 12 for more information. Www irs gov form 1040x Unrecovered Investment in Annuity A retiree who contributed to the cost of an annuity can exclude from income a part of each payment received as a tax-free return of the retiree's investment. Www irs gov form 1040x If the retiree dies before the entire investment is recovered tax free, any unrecovered investment can be deducted on the retiree's final income tax return. Www irs gov form 1040x See chapter 10 for more information about the tax treatment of pensions and annuities. Www irs gov form 1040x Nondeductible Expenses Examples of nondeductible expenses are listed next. Www irs gov form 1040x The list is followed by discussions of additional nondeductible expenses. Www irs gov form 1040x List of Nondeductible Expenses Broker's commissions that you paid in connection with your IRA or other investment property. Www irs gov form 1040x Burial or funeral expenses, including the cost of a cemetery lot. Www irs gov form 1040x Capital expenses. Www irs gov form 1040x Fees and licenses, such as car licenses, marriage licenses, and dog tags. Www irs gov form 1040x Hobby losses, but see Hobby Expenses , earlier. Www irs gov form 1040x Home repairs, insurance, and rent. Www irs gov form 1040x Illegal bribes and kickbacks. Www irs gov form 1040x See Bribes and kickbacks in chapter 11 of Publication 535. Www irs gov form 1040x Losses from the sale of your home, furniture, personal car, etc. Www irs gov form 1040x Personal disability insurance premiums. Www irs gov form 1040x Personal, living, or family expenses. Www irs gov form 1040x The value of wages never received or lost vacation time. Www irs gov form 1040x Adoption Expenses You cannot deduct the expenses of adopting a child, but you may be able to take a credit for those expenses. Www irs gov form 1040x See chapter 37. Www irs gov form 1040x Campaign Expenses You cannot deduct campaign expenses of a candidate for any office, even if the candidate is running for reelection to the office. Www irs gov form 1040x These include qualification and registration fees for primary elections. Www irs gov form 1040x Legal fees. Www irs gov form 1040x   You cannot deduct legal fees paid to defend charges that arise from participation in a political campaign. Www irs gov form 1040x Check-Writing Fees on Personal Account If you have a personal checking account, you cannot deduct fees charged by the bank for the privilege of writing checks, even if the account pays interest. Www irs gov form 1040x Club Dues Generally, you cannot deduct the cost of membership in any club organized for business, pleasure, recreation, or other social purpose. Www irs gov form 1040x This includes business, social, athletic, luncheon, sporting, airline, hotel, golf, and country clubs. Www irs gov form 1040x You cannot deduct dues paid to an organization if one of its main purposes is to: Conduct entertainment activities for members or their guests, or Provide members or their guests with access to entertainment facilities. Www irs gov form 1040x Dues paid to airline, hotel, and luncheon clubs are not deductible. Www irs gov form 1040x Commuting Expenses You cannot deduct commuting expenses (the cost of transportation between your home and your main or regular place of work). Www irs gov form 1040x If you haul tools, instruments, or other items, in your car to and from work, you can deduct only the additional cost of hauling the items such as the rent on a trailer to carry the items. Www irs gov form 1040x Fines or Penalties You cannot deduct fines or penalties you pay to a governmental unit for violating a law. Www irs gov form 1040x This includes an amount paid in settlement of your actual or potential liability for a fine or penalty (civil or criminal). Www irs gov form 1040x Fines or penalties include parking tickets, tax penalties, and penalties deducted from teachers' paychecks after an illegal strike. Www irs gov form 1040x Health Spa Expenses You cannot deduct health spa expenses, even if there is a job requirement to stay in excellent physical condition, such as might be required of a law enforcement officer. Www irs gov form 1040x Home Security System You cannot deduct the cost of a home security system as a miscellaneous deduction. Www irs gov form 1040x However, you may be able to claim a deduction for a home security system as a business expense if you have a home office. Www irs gov form 1040x See Home Office under Unreimbursed Employee Expenses, earlier, and Security System under Deducting Expenses in Publication 587. Www irs gov form 1040x Investment-Related Seminars You cannot deduct any expenses for attending a convention, seminar, or similar meeting for investment purposes. Www irs gov form 1040x Life Insurance Premiums You cannot deduct premiums you pay on your life insurance. Www irs gov form 1040x You may be able to deduct, as alimony, premiums you pay on life insurance policies assigned to your former spouse. Www irs gov form 1040x See chapter 18 for information on alimony. Www irs gov form 1040x Lobbying Expenses You generally cannot deduct amounts paid or incurred for lobbying expenses. Www irs gov form 1040x These include expenses to: Influence legislation, Participate or intervene in any political campaign for, or against, any candidate for public office, Attempt to influence the general public, or segments of the public, about elections, legislative matters, or referendums, or Communicate directly with covered executive branch officials in any attempt to influence the official actions or positions of those officials. Www irs gov form 1040x Lobbying expenses also include any amounts paid or incurred for research, preparation, planning, or coordination of any of these activities. Www irs gov form 1040x Dues used for lobbying. Www irs gov form 1040x   If a tax-exempt organization notifies you that part of the dues or other amounts you pay to the organization are used to pay nondeductible lobbying expenses, you cannot deduct that part. Www irs gov form 1040x See Lobbying Expenses in Publication 529 for information on exceptions. Www irs gov form 1040x Lost or Mislaid Cash or Property You cannot deduct a loss based on the mere disappearance of money or property. Www irs gov form 1040x 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. Www irs gov form 1040x See chapter 25. Www irs gov form 1040x Example. Www irs gov form 1040x A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Www irs gov form 1040x The diamond falls from the ring and is never found. Www irs gov form 1040x The loss of the diamond is a casualty. Www irs gov form 1040x Lunches with Co-workers You cannot deduct the expenses of lunches with co-workers, except while traveling away from home on business. Www irs gov form 1040x See chapter 26 for information on deductible expenses while traveling away from home. Www irs gov form 1040x Meals While Working Late You cannot deduct the cost of meals while working late. Www irs gov form 1040x However, you may be able to claim a deduction if the cost of meals is a deductible entertainment expense, or if you are traveling away from home. Www irs gov form 1040x See chapter 26 for information on deductible entertainment expenses and expenses while traveling away from home. Www irs gov form 1040x Personal Legal Expenses You cannot deduct personal legal expenses such as those for the following. Www irs gov form 1040x Custody of children. Www irs gov form 1040x Breach of promise to marry suit. Www irs gov form 1040x Civil or criminal charges resulting from a personal relationship. Www irs gov form 1040x Damages for personal injury, except for certain unlawful discrimination and whistleblower claims. Www irs gov form 1040x Preparation of a title (or defense or perfection of a title). Www irs gov form 1040x Preparation of a will. Www irs gov form 1040x Property claims or property settlement in a divorce. Www irs gov form 1040x You cannot deduct these expenses even if a result of the legal proceeding is the loss of income-producing property. Www irs gov form 1040x Political Contributions You cannot deduct contributions made to a political candidate, a campaign committee, or a newsletter fund. Www irs gov form 1040x Advertisements in convention bulletins and admissions to dinners or programs that benefit a political party or political candidate are not deductible. Www irs gov form 1040x Professional Accreditation Fees You cannot deduct professional accreditation fees such as the following. Www irs gov form 1040x Accounting certificate fees paid for the initial right to practice accounting. Www irs gov form 1040x Bar exam fees and incidental expenses in securing initial admission to the bar. Www irs gov form 1040x Medical and dental license fees paid to get initial licensing. Www irs gov form 1040x Professional Reputation You cannot deduct expenses of radio and TV appearances to increase your personal prestige or establish your professional reputation. Www irs gov form 1040x Relief Fund Contributions You cannot deduct contributions paid to a private plan that pays benefits to any covered employee who cannot work because of any injury or illness not related to the job. Www irs gov form 1040x Residential Telephone Service You cannot deduct any charge (including taxes) for basic local telephone service for the first telephone line to your residence, even if it is used in a trade or business. Www irs gov form 1040x Stockholders' Meetings You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you own stock but have no other interest. Www irs gov form 1040x You cannot deduct these expenses even if you are attending the meeting to get information that would be useful in making further investments. Www irs gov form 1040x Tax-Exempt Income Expenses You cannot deduct expenses to produce tax-exempt income. Www irs gov form 1040x You cannot deduct interest on a debt incurred or continued to buy or carry  tax-exempt securities. Www irs gov form 1040x If you have expenses to produce both taxable and tax-exempt income, but you cannot identify the expenses that produce each type of income, you must divide the expenses based on the amount of each type of income to determine the amount that you can deduct. Www irs gov form 1040x Example. Www irs gov form 1040x During the year, you received taxable interest of $4,800 and tax-exempt interest of $1,200. Www irs gov form 1040x In earning this income, you had total expenses of $500 during the year. Www irs gov form 1040x You cannot identify the amount of each expense item that is for each income item. Www irs gov form 1040x Therefore, 80% ($4,800/$6,000) of the expense is for the taxable interest and 20% ($1,200/$6,000) is for the tax-exempt interest. Www irs gov form 1040x You can deduct, subject to the 2% limit, expenses of $400 (80% of $500). Www irs gov form 1040x Travel Expenses for Another Individual You generally cannot deduct travel expenses you pay or incur for a spouse, dependent, or other individual who accompanies you (or your employee) on business or personal travel unless the spouse, dependent, or other individual is an employee of the taxpayer, the travel is for a bona fide business purpose, and such expenses would otherwise be deductible by the spouse, dependent, or other individual. Www irs gov form 1040x See chapter 26 for more information on deductible travel expenses. Www irs gov form 1040x Voluntary Unemployment Benefit Fund Contributions You cannot deduct voluntary unemployment benefit fund contributions you make to a union fund or a private fund. Www irs gov form 1040x However, you can deduct contributions as taxes if state law requires you to make them to a state unemployment fund that covers you for the loss of wages from unemployment caused by business conditions. Www irs gov form 1040x Wristwatches You cannot deduct the cost of a wristwatch, even if there is a job requirement that you know the correct time to properly perform your duties. Www irs gov form 1040x Prev  Up  Next   Home   More Online Publications
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Data current as of 3/3/2014

Number of Individuals with Current Preparer Tax Identification Numbers (PTINs) for 2014†

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The Www Irs Gov Form 1040x

Www irs gov form 1040x 9. Www irs gov form 1040x   Dispositions of Property Used in Farming Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. Www irs gov form 1040x Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sale Other Dispositions Other GainsExceptions. Www irs gov form 1040x Amount to report as ordinary income. Www irs gov form 1040x Applicable percentage. Www irs gov form 1040x Amount to report as ordinary income. Www irs gov form 1040x Applicable percentage. Www irs gov form 1040x Introduction When you dispose of property used in your farm business, your taxable gain or loss is usually treated as ordinary income (which is taxed at the same rates as wages and interest income) or capital gain (which is generally taxed at lower rates) under the rules for section 1231 transactions. Www irs gov form 1040x When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. Www irs gov form 1040x Any gain remaining after applying the depreciation recapture rules is a section 1231 gain, which may be taxed as a capital gain. Www irs gov form 1040x Gains and losses from property used in farming are reported on Form 4797, Sales of Business Property. Www irs gov form 1040x Table 9-1 contains examples of items reported on Form 4797 and refers to the part of that form on which they first should be reported. Www irs gov form 1040x Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Other gains Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. Www irs gov form 1040x Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (explained below). Www irs gov form 1040x Their treatment as ordinary or capital gains depends on whether you have a net gain or a net loss from all of your section 1231 transactions in the tax year. Www irs gov form 1040x Table 9-1. Www irs gov form 1040x Where to First Report Certain Items on Form 4797 Type of property Held 1 year  or less Held more than  1 year 1 Depreciable trade or business property:       a Sold or exchanged at a gain Part II Part III (1245, 1250)   b Sold or exchanged at a loss Part II Part I 2 Farmland held less than 10 years for which soil, water, or land clearing expenses were deducted:       a Sold at a gain Part II Part III (1252)   b Sold at a loss Part II Part I 3 All other farmland Part II Part I 4 Disposition of cost-sharing payment property described in section 126 Part II Part III (1255) 5 Cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less  than 24 mos. Www irs gov form 1040x Held 24 mos. Www irs gov form 1040x  or more   a Sold at a gain Part II Part III (1245)   b Sold at a loss Part II Part I   c Raised cattle and horses sold at a gain Part II Part I 6 Livestock other than cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less  than 12 mos. Www irs gov form 1040x Held 12 mos. Www irs gov form 1040x   or more   a Sold at a gain Part II Part III (1245)   b Sold at a loss Part II Part I   c Raised livestock sold at a gain Part II Part I If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). Www irs gov form 1040x Do not take that gain into account as section 1231 gain. Www irs gov form 1040x Section 1231 transactions. Www irs gov form 1040x   Gain or loss on the following transactions is subject to section 1231 treatment. Www irs gov form 1040x Sale or exchange of cattle and horses. Www irs gov form 1040x The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 24 months or longer. Www irs gov form 1040x Sale or exchange of other livestock. Www irs gov form 1040x This livestock must be held for draft, breeding, dairy, or sporting purposes and held for 12 months or longer. Www irs gov form 1040x Other livestock includes hogs, mules, sheep, goats, donkeys, and other fur-bearing animals. Www irs gov form 1040x Other livestock does not include poultry. Www irs gov form 1040x Sale or exchange of depreciable personal property. Www irs gov form 1040x This property must be used in your business and held longer than 1 year. Www irs gov form 1040x Generally, property held for the production of rents or royalties is considered to be used in a trade or business. Www irs gov form 1040x Examples of depreciable personal property include farm machinery and trucks. Www irs gov form 1040x It also includes amortizable section 197 intangibles. Www irs gov form 1040x Sale or exchange of real estate. Www irs gov form 1040x This property must be used in your business and held longer than 1 year. Www irs gov form 1040x Examples are your farm or ranch (including barns and sheds). Www irs gov form 1040x Sale or exchange of unharvested crops. Www irs gov form 1040x The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person, and the land must have been held longer than 1 year. Www irs gov form 1040x You cannot keep any right or option to reacquire the land directly or indirectly (other than a right customarily incident to a mortgage or other security transaction). Www irs gov form 1040x Growing crops sold with a leasehold on the land, even if sold to the same person in a single transaction, are not included. Www irs gov form 1040x Distributive share of partnership gains and losses. Www irs gov form 1040x Your distributive share must be from the sale or exchange of property listed above and held longer than 1 year (or for the required period for certain livestock). Www irs gov form 1040x Cutting or disposal of timber. Www irs gov form 1040x Special 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, as described in chapter 8 under Timber . Www irs gov form 1040x Condemnation. Www irs gov form 1040x The condemned property (defined in chapter 11) must have been held longer than 1 year. Www irs gov form 1040x It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. Www irs gov form 1040x It cannot be property held for personal use. Www irs gov form 1040x Casualty or theft. Www irs gov form 1040x The casualty or theft must have affected business property, property held for the production of rents or royalties, or investment property (such as notes and bonds). Www irs gov form 1040x You must have held the property longer than 1 year. Www irs gov form 1040x However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. Www irs gov form 1040x Section 1231 does not apply to personal casualty gains and losses. Www irs gov form 1040x See chapter 11 for information on how to treat those gains and losses. Www irs gov form 1040x If the property is not held for the required holding period, the transaction is not subject to section 1231 treatment, and any gain or loss is ordinary income reported in Part II of Form 4797. Www irs gov form 1040x See Table 9-1. Www irs gov form 1040x Property for sale to customers. Www irs gov form 1040x   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. Www irs gov form 1040x If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. Www irs gov form 1040x Treatment as ordinary or capital. Www irs gov form 1040x   To determine the treatment of section 1231 gains and losses, combine all of your section 1231 gains and losses for the year. Www irs gov form 1040x If you have a net section 1231 loss, it is an ordinary loss. Www irs gov form 1040x If you have a net section 1231 gain, it is ordinary income up to your nonrecaptured section 1231 losses from previous years, explained next. Www irs gov form 1040x The rest, if any, is long-term capital gain. Www irs gov form 1040x Nonrecaptured section 1231 losses. Www irs gov form 1040x   Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain by treating the gain as ordinary income. Www irs gov form 1040x These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. Www irs gov form 1040x Example. Www irs gov form 1040x In 2013, Ben has a $2,000 net section 1231 gain. Www irs gov form 1040x To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. Www irs gov form 1040x From 2008 through 2012 he had the following section 1231 gains and losses. Www irs gov form 1040x Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800   Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. Www irs gov form 1040x 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500)   3) Net section 1231 gain (2012) 1,800   4) Remaining net section 1231 loss from prior 5 years ($700)   5) Gain treated as  ordinary income $700 6) Gain treated as long-term  capital gain $1,300 His remaining net section 1231 loss from 2010 is completely recaptured in 2013. Www irs gov form 1040x Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if it is otherwise nontaxable) as ordinary income. Www irs gov form 1040x To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. Www irs gov form 1040x For more information, see chapter 3 of Publication 544. Www irs gov form 1040x Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable. Www irs gov form 1040x Any recognized gain that is more than the part that is ordinary income is a section 1231 gain. Www irs gov form 1040x See Treatment as ordinary or capital under Section 1231 Gains and Losses , earlier. Www irs gov form 1040x Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. Www irs gov form 1040x Personal property (either tangible or intangible). Www irs gov form 1040x Other tangible property (except buildings and their structural components) used as any of the following. Www irs gov form 1040x See Buildings and structural components below. Www irs gov form 1040x An integral part of manufacturing, production, or extraction, or of furnishing certain services. Www irs gov form 1040x A research facility in any of the activities in (a). Www irs gov form 1040x A facility in any of the activities in (a) above, for the bulk storage of fungible commodities (discussed later). Www irs gov form 1040x That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. Www irs gov form 1040x Amortization of certified pollution control facilities. Www irs gov form 1040x The section 179 expense deduction. Www irs gov form 1040x Deduction for clean-fuel vehicles and certain refueling property. Www irs gov form 1040x Expenditures to remove architectural and transportation barriers to the handicapped and elderly. Www irs gov form 1040x Certain reforestation expenditures (as described under Reforestation Costs in chapter 7. Www irs gov form 1040x Single purpose agricultural (livestock) or horticultural structures. Www irs gov form 1040x Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. Www irs gov form 1040x Buildings and structural components. Www irs gov form 1040x   Section 1245 property does not include buildings and structural components. Www irs gov form 1040x The term building includes a house, barn, warehouse, or garage. Www irs gov form 1040x The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. Www irs gov form 1040x   Do not treat a structure that is essentially machinery or equipment as a building or structural component. Www irs gov form 1040x Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. Www irs gov form 1040x   The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. Www irs gov form 1040x Structures such as oil and gas storage tanks, grain storage bins, and silos are not treated as buildings, but as section 1245 property. Www irs gov form 1040x Facility for bulk storage of fungible commodities. Www irs gov form 1040x   This is a facility used mainly for the bulk storage of fungible commodities. Www irs gov form 1040x Bulk storage means storage of a commodity in a large mass before it is used. Www irs gov form 1040x For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. Www irs gov form 1040x To be fungible, a commodity must be such that one part may be used in place of another. Www irs gov form 1040x Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. Www irs gov form 1040x The depreciation (which includes any section 179 deduction claimed) and amortization allowed or allowable on the property. Www irs gov form 1040x The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). Www irs gov form 1040x For any other disposition of section 1245 property, ordinary income is the lesser of (1) above or the amount by which its fair market value (FMV) is more than its adjusted basis. Www irs gov form 1040x For details, see chapter 3 of Publication 544. Www irs gov form 1040x Use Part III of Form 4797 to figure the ordinary income part of the gain. Www irs gov form 1040x Depreciation claimed on other property or claimed by other taxpayers. Www irs gov form 1040x   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. Www irs gov form 1040x Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. Www irs gov form 1040x For details on exchanges of property that are not taxable, see Like-Kind Exchanges in chapter 8. Www irs gov form 1040x Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift and part of the transfer is a sale or exchange). Www irs gov form 1040x Example. Www irs gov form 1040x Jeff Free paid $120,000 for a tractor in 2012. Www irs gov form 1040x On February 23, 2013, he traded it for a chopper and paid an additional $30,000. Www irs gov form 1040x To figure his depreciation deduction on the chopper for the current year, Jeff continues to use the basis of the tractor as he would have before the trade. Www irs gov form 1040x Jeff can also depreciate the additional $30,000 for the chopper. Www irs gov form 1040x Depreciation and amortization. Www irs gov form 1040x   Depreciation and amortization deductions that must be recaptured as ordinary income include (but are not limited to) the following items. Www irs gov form 1040x See Depreciation Recapture in chapter 3 of Publication 544 for more details. Www irs gov form 1040x Ordinary depreciation deductions. Www irs gov form 1040x Section 179 deduction (see chapter 7). Www irs gov form 1040x Any special depreciation allowance. Www irs gov form 1040x Amortization deductions for all the following costs. Www irs gov form 1040x Acquiring a lease. Www irs gov form 1040x Lessee improvements. Www irs gov form 1040x Pollution control facilities. Www irs gov form 1040x Reforestation expenses. Www irs gov form 1040x Section 197 intangibles. Www irs gov form 1040x Qualified disaster expenses. Www irs gov form 1040x Franchises, trademarks, and trade names acquired before August 11, 1993. Www irs gov form 1040x Example. Www irs gov form 1040x You file your returns on a calendar year basis. Www irs gov form 1040x In February 2011, you bought and placed in service for 100% use in your farming business a light-duty truck (5-year property) that cost $10,000. Www irs gov form 1040x You used the half-year convention and your MACRS deductions for the truck were $1,500 in 2011 and $2,550 in 2012. Www irs gov form 1040x You did not claim the section 179 expense deduction for the truck. Www irs gov form 1040x You sold it in May 2013 for $7,000. Www irs gov form 1040x The MACRS deduction in 2013, the year of sale, is $893 (½ of $1,785). Www irs gov form 1040x Figure the gain treated as ordinary income as follows. Www irs gov form 1040x 1) Amount realized $7,000 2) Cost (February 2011) $10,000   3) Depreciation allowed or allowable (MACRS deductions: $1,500 + $2,550 + $893) 4,943   4) Adjusted basis (subtract line 3 from line 2) $5,057 5) Gain realized (subtract line 4 from line 1) 1,943 6) Gain treated as ordinary income (lesser of line 3 or line 5) $1,943 Depreciation allowed or allowable. Www irs gov form 1040x   You generally use the greater of the depreciation allowed or allowable when figuring the part of gain to report as ordinary income. Www irs gov form 1040x If, in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. Www irs gov form 1040x If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. Www irs gov form 1040x This treatment applies only when figuring what part of the gain is treated as ordinary income under the rules for section 1245 depreciation recapture. Www irs gov form 1040x Disposition of plants and animals. Www irs gov form 1040x   If you elect not to use the uniform capitalization rules (see chapter 6), you must treat any plant you produce as section 1245 property. Www irs gov form 1040x If you have a gain on the property's disposition, you must recapture the pre-productive expenses you would have capitalized if you had not made the election by treating the gain, up to the amount of these expenses, as ordinary income. Www irs gov form 1040x For section 1231 transactions, show these expenses as depreciation on Form 4797, Part III, line 22. Www irs gov form 1040x For plant sales that are reported on Schedule F (1040), Profit or Loss From Farming, this recapture rule does not change the reporting of income because the gain is already ordinary income. Www irs gov form 1040x You can use the farm-price method or the unit-livestock-price method discussed in  chapter 2 to figure these expenses. Www irs gov form 1040x Example. Www irs gov form 1040x Janet Maple sold her apple orchard in 2013 for $80,000. Www irs gov form 1040x Her adjusted basis at the time of sale was $60,000. Www irs gov form 1040x She bought the orchard in 2006, but the trees did not produce a crop until 2009. Www irs gov form 1040x Her pre-productive expenses were $6,000. Www irs gov form 1040x She elected not to use the uniform capitalization rules. Www irs gov form 1040x Janet must treat $6,000 of the gain as ordinary income. Www irs gov form 1040x Section 1250 Property Section 1250 property includes all real property subject to an allowance for depreciation that is not and never has been section 1245 property. Www irs gov form 1040x It includes buildings and structural components that are not section 1245 property (discussed earlier). Www irs gov form 1040x It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. Www irs gov form 1040x A fee simple interest in land is not section 1250 property because, like land, it is not depreciable. Www irs gov form 1040x Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable. Www irs gov form 1040x To determine the additional depreciation on section 1250 property, see Depreciation Recapture in chapter 3 of Publication 544. Www irs gov form 1040x You will not have additional depreciation if any of the following apply to the property disposed of. Www irs gov form 1040x You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method and you have held the property longer than 1 year. Www irs gov form 1040x You chose the alternate ACRS (straight line) method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. Www irs gov form 1040x The property was nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made) and you held it longer than 1 year. Www irs gov form 1040x These properties are depreciated using the straight line method. Www irs gov form 1040x Installment Sale If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. Www irs gov form 1040x This applies even if no payments are received in that year. Www irs gov form 1040x If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. Www irs gov form 1040x For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. Www irs gov form 1040x If you dispose of more than one asset in a single transaction, you must separately figure the gain on each asset so that it may be properly reported. Www irs gov form 1040x To do this, allocate the selling price and the payments you receive in the year of sale to each asset. Www irs gov form 1040x Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. Www irs gov form 1040x For more information on installment sales, see chapter 10. Www irs gov form 1040x Other Dispositions Chapter 3 of Publication 544 discusses the tax treatment of the following transfers of depreciable property. Www irs gov form 1040x By gift. Www irs gov form 1040x At death. Www irs gov form 1040x In like-kind exchanges. Www irs gov form 1040x In involuntary conversions. Www irs gov form 1040x Publication 544 also explains how to handle a single transaction involving multiple properties. Www irs gov form 1040x Other Gains This section discusses gain on the disposition of farmland for which you were allowed either of the following. Www irs gov form 1040x Deductions for soil and water conservation expenditures (section 1252 property). Www irs gov form 1040x Exclusions from income for certain cost sharing payments (section 1255 property). Www irs gov form 1040x Section 1252 property. Www irs gov form 1040x   If you disposed of farmland you held more than 1 year and less than 10 years at a gain and you were allowed deductions for soil and water conservation expenses for the land, as discussed in chapter 5, you must treat part of the gain as ordinary income and treat the balance as section 1231 gain. Www irs gov form 1040x Exceptions. Www irs gov form 1040x   Do not treat gain on the following transactions as gain on section 1252 property. Www irs gov form 1040x Disposition of farmland by gift. Www irs gov form 1040x Transfer of farm property at death (except for income in respect of a decedent). Www irs gov form 1040x For more information, see Regulations section 1. Www irs gov form 1040x 1252-2. Www irs gov form 1040x Amount to report as ordinary income. Www irs gov form 1040x   You report as ordinary income the lesser of the following amounts. Www irs gov form 1040x Your gain (determined by subtracting the adjusted basis from the amount realized from a sale, exchange, or involuntary conversion, or the FMV for all other dispositions). Www irs gov form 1040x The total deductions allowed for soil and water conservation expenses multiplied by the applicable percentage, discussed next. Www irs gov form 1040x Applicable percentage. Www irs gov form 1040x   The applicable percentage is based on the length of time you held the land. Www irs gov form 1040x If you dispose of your farmland within 5 years after the date you acquired it, the percentage is 100%. Www irs gov form 1040x If you dispose of the land within the 6th through 9th year after you acquired it, the applicable percentage is reduced by 20% a year for each year or part of a year you hold the land after the 5th year. Www irs gov form 1040x If you dispose of the land 10 or more years after you acquired it, the percentage is 0%, and the entire gain is a section 1231 gain. Www irs gov form 1040x Example. Www irs gov form 1040x You acquired farmland on January 19, 2005. Www irs gov form 1040x On October 3, 2013, you sold the land at a $30,000 gain. Www irs gov form 1040x Between January 1 and October 3, 2013, you incur soil and water conservation expenditures of $15,000 for the land that are fully deductible in 2013. Www irs gov form 1040x The applicable percentage is 40% since you sold the land within the 8th year after you acquired it. Www irs gov form 1040x You treat $6,000 (40% of $15,000) of the $30,000 gain as ordinary income and the $24,000 balance as a section 1231 gain. Www irs gov form 1040x Section 1255 property. Www irs gov form 1040x   If you receive certain cost-sharing payments on property and you exclude those payments from income (as discussed in chapter 3), you may have to treat part of any gain as ordinary income and treat the balance as a section 1231 gain. Www irs gov form 1040x If you chose not to exclude these payments, you will not have to recognize ordinary income under this provision. Www irs gov form 1040x Amount to report as ordinary income. Www irs gov form 1040x   You report as ordinary income the lesser of the following amounts. Www irs gov form 1040x The applicable percentage of the total excluded cost-sharing payments. Www irs gov form 1040x The gain on the disposition of the property. Www irs gov form 1040x You do not report ordinary income under this rule to the extent the gain is recognized as ordinary income under sections 1231 through 1254, 1256, and 1257. Www irs gov form 1040x However, if applicable, gain reported under this rule must be reported regardless of any contrary provisions (including nonrecognition provisions) under any other section. Www irs gov form 1040x Applicable percentage. Www irs gov form 1040x   The applicable percentage of the excluded cost-sharing payments to be reported as ordinary income is based on the length of time you hold the property after receiving the payments. Www irs gov form 1040x If the property is held less than 10 years after you receive the payments, the percentage is 100%. Www irs gov form 1040x After 10 years, the percentage is reduced by 10% a year, or part of a year, until the rate is 0%. Www irs gov form 1040x Form 4797, Part III. Www irs gov form 1040x   Use Form 4797, Part III, to figure the ordinary income part of a gain from the sale, exchange, or involuntary conversion of section 1252 property and section 1255 property. Www irs gov form 1040x Prev  Up  Next   Home   More Online Publications