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1040x 2010

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1040x 2010

1040x 2010 2. 1040x 2010   Source of Income Table of Contents Introduction Topics - This chapter discusses: Resident Aliens Nonresident AliensInterest Income Dividends Guarantee of Indebtedness Personal Services Transportation Income Scholarships, Grants, Prizes, and Awards Pensions and Annuities Rents or Royalties Real Property Personal Property Community Income Introduction After you have determined your alien status, you must determine the source of your income. 1040x 2010 This chapter will help you determine the source of different types of income you may receive during the tax year. 1040x 2010 This chapter also discusses special rules for married individuals who are domiciled in a country with community property laws. 1040x 2010 Topics - This chapter discusses: Income source rules, and Community income. 1040x 2010 Resident Aliens A resident alien's income is generally subject to tax in the same manner as a U. 1040x 2010 S. 1040x 2010 citizen. 1040x 2010 If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U. 1040x 2010 S. 1040x 2010 tax return. 1040x 2010 You must report these amounts from sources within and outside the United States. 1040x 2010 Nonresident Aliens A nonresident alien usually is subject to U. 1040x 2010 S. 1040x 2010 income tax only on U. 1040x 2010 S. 1040x 2010 source income. 1040x 2010 Under limited circumstances, certain foreign source income is subject to U. 1040x 2010 S. 1040x 2010 tax. 1040x 2010 See Foreign Income in chapter 4. 1040x 2010 The general rules for determining U. 1040x 2010 S. 1040x 2010 source income that apply to most nonresident aliens are shown in Table 2-1. 1040x 2010 The following discussions cover the general rules as well as the exceptions to these rules. 1040x 2010 Not all items of U. 1040x 2010 S. 1040x 2010 source income are taxable. 1040x 2010 See chapter 3. 1040x 2010 Interest Income Generally, U. 1040x 2010 S. 1040x 2010 source interest income includes the following items. 1040x 2010 Interest on bonds, notes, or other interest-bearing obligations of U. 1040x 2010 S. 1040x 2010 residents or domestic corporations. 1040x 2010 Interest paid by a domestic or foreign partnership or foreign corporation engaged in a U. 1040x 2010 S. 1040x 2010 trade or business at any time during the tax year. 1040x 2010 Original issue discount. 1040x 2010 Interest from a state, the District of Columbia, or the U. 1040x 2010 S. 1040x 2010 Government. 1040x 2010 The place or manner of payment is immaterial in determining the source of the income. 1040x 2010 A substitute interest payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as the interest on the transferred security. 1040x 2010 Exceptions. 1040x 2010   U. 1040x 2010 S. 1040x 2010 source interest income does not include the following items. 1040x 2010 Interest paid by a resident alien or a domestic corporation on obligations issued before August 10, 2010, if for the 3-year period ending with the close of the payer's tax year preceding the interest payment, at least 80% of the payer's total gross income: Is from sources outside the United States, and Is attributable to the active conduct of a trade or business by the individual or corporation in a foreign country or a U. 1040x 2010 S. 1040x 2010 possession. 1040x 2010 However, the interest will be considered U. 1040x 2010 S. 1040x 2010 source interest income if either of the following apply. 1040x 2010 The recipient of the interest is related to the resident alien or domestic corporation. 1040x 2010 See section 954(d)(3) for the definition of related person. 1040x 2010 The terms of the obligation are significantly modified after August 9, 2010. 1040x 2010 Any extension of the term of the obligation is considered a significant modification. 1040x 2010 Interest paid by a foreign branch of a domestic corporation or a domestic partnership on deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law if the interest paid or credited can be deducted by the association. 1040x 2010 Interest on deposits with a foreign branch of a domestic corporation or domestic partnership, but only if the branch is in the commercial banking business. 1040x 2010 Dividends In most cases, dividend income received from domestic corporations is U. 1040x 2010 S. 1040x 2010 source income. 1040x 2010 Dividend income from foreign corporations is usually foreign source income. 1040x 2010 Exceptions to both of these rules are discussed below. 1040x 2010 A substitute dividend payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as a distribution on the transferred security. 1040x 2010 Dividend equivalent payments. 1040x 2010   U. 1040x 2010 S. 1040x 2010 source dividends also include all dividend equivalent payments. 1040x 2010 Dividend equivalent payments include substitute dividends, payments made pursuant to a specified notional principal contract, and all similar payments that, directly or indirectly, are contingent on or determined by reference to, the payment of a dividend from U. 1040x 2010 S. 1040x 2010 sources. 1040x 2010    The Internal Revenue Service has issued final regulations that would affect the treatment of dividend equivalent payments and specified notional principal contracts. 1040x 2010 You can view this regulation at www. 1040x 2010 irs. 1040x 2010 gov/irb/2013-52_IRB/ar08. 1040x 2010 html. 1040x 2010 First exception. 1040x 2010   Dividends received from a domestic corporation are not U. 1040x 2010 S. 1040x 2010 source income if the corporation elects to take the American Samoa economic development credit. 1040x 2010 Second exception. 1040x 2010   Part of the dividends received from a foreign corporation is U. 1040x 2010 S. 1040x 2010 source income if 25% or more of its total gross income for the 3-year period ending with the close of its tax year preceding the declaration of dividends was effectively connected with a trade or business in the United States. 1040x 2010 If the corporation was formed less than 3 years before the declaration, use its total gross income from the time it was formed. 1040x 2010 Determine the part that is U. 1040x 2010 S. 1040x 2010 source income by multiplying the dividend by the following fraction. 1040x 2010   Foreign corporation's gross income connected with a U. 1040x 2010 S. 1040x 2010 trade or business for the 3-year period     Foreign corporation's gross income from all sources for that period   Guarantee of Indebtedness Certain amounts received directly or indirectly, for the provision of a guarantee of indebtedness issued after September 27, 2010, are U. 1040x 2010 S. 1040x 2010 source income. 1040x 2010 They must be paid by a noncorporate resident or U. 1040x 2010 S. 1040x 2010 corporation or by any foreign person if the amounts are effectively connected with the conduct of a U. 1040x 2010 S. 1040x 2010 trade or business. 1040x 2010 For more information, see Internal Revenue Code sections 861(a)(9) and 862(a)(9). 1040x 2010 Personal Services All wages and any other compensation for services performed in the United States are considered to be from sources in the United States. 1040x 2010 The only exceptions to this rule are discussed in chapter 3 under Employees of foreign persons, organizations, or offices, and under Crew members. 1040x 2010 If you are an employee and receive compensation for labor or personal services performed both inside and outside the United States, special rules apply in determining the source of the compensation. 1040x 2010 Compensation (other than certain fringe benefits) is sourced on a time basis. 1040x 2010 Certain fringe benefits (such as housing and education) are sourced on a geographical basis. 1040x 2010 Or, you may be permitted to use an alternative basis to determine the source of compensation. 1040x 2010 See Alternative Basis , later. 1040x 2010 Multi-level marketing. 1040x 2010   Certain companies sell products through a multi-level marketing arrangement, such that an upper-tier distributor, who has sponsored a lower-tier distributor, is entitled to a payment from the company based on certain activities of that lower-tier distributor. 1040x 2010 Generally, depending on the facts, payments from such multi-level marketing companies to independent (non-employee) distributors (upper-tier distributors) that are based on the sales or purchases of persons whom they have sponsored (lower-tier distributors) constitute income for the performance of personal services in recruiting, training, and supporting the lower-tier distributors. 1040x 2010 The source of such income is generally based on where the services of the upper-tier distributor are performed, and may, depending on the facts, be considered multi-year compensation, with the source of income determined over the period to which such compensation is attributable. 1040x 2010 Self-employed individuals. 1040x 2010   If you are self-employed, you determine the source of compensation for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. 1040x 2010 In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. 1040x 2010 Time Basis Use a time basis to figure your U. 1040x 2010 S. 1040x 2010 source compensation (other than the fringe benefits discussed later). 1040x 2010 Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed services in the United States during the year     Total number of days you performed services during the year   You can use a unit of time less than a day in the above fraction, if appropriate. 1040x 2010 The time period for which the compensation is made does not have to be a year. 1040x 2010 Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. 1040x 2010 Example 1. 1040x 2010 Christina Brooks, a resident of the Netherlands, worked 240 days for a U. 1040x 2010 S. 1040x 2010 company during the tax year. 1040x 2010 She received $80,000 in compensation. 1040x 2010 None of it was for fringe benefits. 1040x 2010 Christina performed services in the United States for 60 days and performed services in the Netherlands for 180 days. 1040x 2010 Using the time basis for determining the source of compensation, $20,000 ($80,000 × 60/240) is her U. 1040x 2010 S. 1040x 2010 source income. 1040x 2010 Example 2. 1040x 2010 Rob Waters, a resident of South Africa, is employed by a corporation. 1040x 2010 His annual salary is $100,000. 1040x 2010 None of it is for fringe benefits. 1040x 2010 During the first quarter of the year he worked entirely within the United States. 1040x 2010 On April 1, Rob was transferred to Singapore for the remainder of the year. 1040x 2010 Rob is able to establish that the first quarter of the year and the last 3 quarters of the year are two separate, distinct, and continuous periods of time. 1040x 2010 Accordingly, $25,000 of Rob's annual salary is attributable to the first quarter of the year (. 1040x 2010 25 × $100,000). 1040x 2010 All of it is U. 1040x 2010 S. 1040x 2010 source income because he worked entirely within the United States during that quarter. 1040x 2010 The remaining $75,000 is attributable to the last three quarters of the year. 1040x 2010 During those quarters, he worked 150 days in Singapore and 30 days in the United States. 1040x 2010 His periodic performance of services in the United States did not result in distinct, separate, and continuous periods of time. 1040x 2010 Of this $75,000, $12,500 ($75,000 × 30/180) is U. 1040x 2010 S. 1040x 2010 source income. 1040x 2010 Multi-year compensation. 1040x 2010   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. 1040x 2010 Multi-year compensation is compensation that is included in your income in one tax year but that is attributable to a period that includes two or more tax years. 1040x 2010   You determine the period to which the compensation is attributable based on the facts and circumstances of your case. 1040x 2010 For example, an amount of compensation that specifically relates to a period of time that includes several calendar years is attributable to the entire multi-year period. 1040x 2010   The amount of compensation treated as from U. 1040x 2010 S. 1040x 2010 sources is figured by multiplying the total multi-year compensation by a fraction. 1040x 2010 The numerator of the fraction is the number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in the United States in connection with the project. 1040x 2010 The denominator of the fraction is the total number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in connection with the project. 1040x 2010 Geographical Basis Compensation you receive as an employee in the form of the following fringe benefits is sourced on a geographical basis. 1040x 2010 Housing. 1040x 2010 Education. 1040x 2010 Local transportation. 1040x 2010 Tax reimbursement. 1040x 2010 Hazardous or hardship duty pay as defined in Regulations section 1. 1040x 2010 861-4(b)(2)(ii)(D)(5). 1040x 2010 Moving expense reimbursement. 1040x 2010 The amount of fringe benefits must be reasonable and you must substantiate them by adequate records or by sufficient evidence. 1040x 2010 Principal place of work. 1040x 2010   The above fringe benefits, except for tax reimbursement and hazardous or hardship duty pay, are sourced based on your principal place of work. 1040x 2010 Your principal place of work is usually the place where you spend most of your working time. 1040x 2010 This could be your office, plant, store, shop, or other location. 1040x 2010 If there is no one place where you spend most of your working time, your main job location is the place where your work is centered, such as where you report for work or are otherwise required to “base” your work. 1040x 2010   If you have more than one job at any time, your main job location depends on the facts in each case. 1040x 2010 The more important factors to be considered are: The total time you spend at each place, The amount of work you do at each place, and How much money you earn at each place. 1040x 2010 Housing. 1040x 2010   The source of a housing fringe benefit is determined based on the location of your principal place of work. 1040x 2010 A housing fringe benefit includes payments to you or on your behalf (and your family's if your family resides with you) only for the following. 1040x 2010 Rent. 1040x 2010 Utilities (except telephone charges). 1040x 2010 Real and personal property insurance. 1040x 2010 Occupancy taxes not deductible under section 164 or 216(a). 1040x 2010 Nonrefundable fees for securing a leasehold. 1040x 2010 Rental of furniture and accessories. 1040x 2010 Household repairs. 1040x 2010 Residential parking. 1040x 2010 Fair rental value of housing provided in kind by your employer. 1040x 2010   A housing fringe benefit does not include: Deductible interest and taxes (including deductible interest and taxes of a tenant-stockholder in a cooperative housing corporation), The cost of buying property, including principal payments on a mortgage, The cost of domestic labor (maids, gardeners, etc. 1040x 2010 ), Pay television subscriptions, Improvements and other expenses that increase the value or appreciably prolong the life of property, Purchased furniture or accessories, Depreciation or amortization of property or improvements, The value of meals or lodging that you exclude from gross income, or The value of meals or lodging that you deduct as moving expenses. 1040x 2010 Education. 1040x 2010   The source of an education fringe benefit for the education expenses of your dependents is determined based on the location of your principal place of work. 1040x 2010 An education fringe benefit includes payments only for the following expenses for education at an elementary or secondary school. 1040x 2010 Tuition, fees, academic tutoring, special needs services for a special needs student, books, supplies, and other equipment. 1040x 2010 Room and board and uniforms that are required or provided by the school in connection with enrollment or attendance. 1040x 2010 Local transportation. 1040x 2010   The source of a local transportation fringe benefit is determined based on the location of your principal place of work. 1040x 2010 Your local transportation fringe benefit is the amount that you receive as compensation for local transportation for you or your spouse or dependents at the location of your principal place of work. 1040x 2010 The amount treated as a local transportation fringe benefit is limited to actual expenses incurred for local transportation and the fair rental value of any employer-provided vehicle used predominantly by you, your spouse, or your dependents for local transportation. 1040x 2010 Actual expenses do not include the cost (including interest) of any vehicle purchased by you or on your behalf. 1040x 2010 Tax reimbursement. 1040x 2010   The source of a tax reimbursement fringe benefit is determined based on the location of the jurisdiction that imposed the tax for which you are reimbursed. 1040x 2010 Moving expense reimbursement. 1040x 2010   The source of a moving expense reimbursement is generally based on the location of your new principal place of work. 1040x 2010 However, the source is determined based on the location of your former principal place of work if you provide sufficient evidence that such determination of source is more appropriate under the facts and circumstances of your case. 1040x 2010 Sufficient evidence generally requires an agreement between you and your employer, or a written statement of company policy, which is reduced to writing before the move and which is entered into or established to induce you or other employees to move to another country. 1040x 2010 The written statement or agreement must state that your employer will reimburse you for moving expenses that you incur to return to your former principal place of work regardless of whether you continue to work for your employer after returning to that location. 1040x 2010 It may contain certain conditions upon which the right to reimbursement is determined as long as those conditions set forth standards that are definitely ascertainable and can only be fulfilled prior to, or through completion of, your return move to your former principal place of work. 1040x 2010 Alternative Basis If you are an employee, you can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your compensation than the time or geographical basis. 1040x 2010 If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your compensation. 1040x 2010 Also, if your total compensation from all sources is $250,000 or more, check “Yes” to both questions on line K on page 5 of Form 1040NR, and attach a written statement to your tax return that sets forth all of the following. 1040x 2010 Your name and social security number (written across the top of the statement). 1040x 2010 The specific compensation income, or the specific fringe benefit, for which you are using the alternative basis. 1040x 2010 For each item in (2), the alternative basis of allocation of source used. 1040x 2010 For each item in (2), a computation showing how the alternative allocation was computed. 1040x 2010 A comparison of the dollar amount of the U. 1040x 2010 S. 1040x 2010 compensation and foreign compensation sourced under both the alternative basis and the time or geographical basis discussed earlier. 1040x 2010 Transportation Income Transportation income is income from the use of a vessel or aircraft or for the performance of services directly related to the use of any vessel or aircraft. 1040x 2010 This is true whether the vessel or aircraft is owned, hired, or leased. 1040x 2010 The term “vessel or aircraft” includes any container used in connection with a vessel or aircraft. 1040x 2010 All income from transportation that begins and ends in the United States is treated as derived from sources in the United States. 1040x 2010 If the transportation begins or ends in the United States, 50% of the transportation income is treated as derived from sources in the United States. 1040x 2010 For transportation income from personal services, 50% of the income is U. 1040x 2010 S. 1040x 2010 source income if the transportation is between the United States and a U. 1040x 2010 S. 1040x 2010 possession. 1040x 2010 For nonresident aliens, this only applies to income derived from, or in connection with, an aircraft. 1040x 2010 For information on how U. 1040x 2010 S. 1040x 2010 source transportation income is taxed, see chapter 4. 1040x 2010 Scholarships, Grants, Prizes, and Awards Generally, the source of scholarships, fellowship grants, grants, prizes, and awards is the residence of the payer regardless of who actually disburses the funds. 1040x 2010 However, see Activities to be performed outside the United States , later. 1040x 2010 For example, payments for research or study in the United States made by the United States, a noncorporate U. 1040x 2010 S. 1040x 2010 resident, or a domestic corporation, are from U. 1040x 2010 S. 1040x 2010 sources. 1040x 2010 Similar payments from a foreign government or foreign corporation are foreign source payments even though the funds may be disbursed through a U. 1040x 2010 S. 1040x 2010 agent. 1040x 2010 Payments made by an entity designated as a public international organization under the International Organizations Immunities Act are from foreign sources. 1040x 2010 Activities to be performed outside the United States. 1040x 2010   Scholarships, fellowship grants, targeted grants, and achievement awards received by nonresident aliens for activities performed, or to be performed, outside the United States are not U. 1040x 2010 S. 1040x 2010 source income. 1040x 2010    These rules do not apply to amounts paid as salary or other compensation for services. 1040x 2010 See Personal Services, earlier, for the source rules that apply. 1040x 2010 Pensions and Annuities If you receive a pension from a domestic trust for services performed both in and outside the United States, part of the pension payment is from U. 1040x 2010 S. 1040x 2010 sources. 1040x 2010 That part is the amount attributable to earnings of the pension plan and the employer contributions made for services performed in the United States. 1040x 2010 This applies whether the distribution is made under a qualified or nonqualified stock bonus, pension, profit-sharing, or annuity plan (whether or not funded). 1040x 2010 If you performed services as an employee of the United States, you may receive a distribution from the U. 1040x 2010 S. 1040x 2010 Government under a plan, such as the Civil Service Retirement System, that is treated as a qualified pension plan. 1040x 2010 Your U. 1040x 2010 S. 1040x 2010 source income is the otherwise taxable amount of the distribution that is attributable to your total U. 1040x 2010 S. 1040x 2010 Government basic pay other than tax-exempt pay for services performed outside the United States. 1040x 2010 Rents or Royalties Your U. 1040x 2010 S. 1040x 2010 source income includes rent and royalty income received during the tax year from property located in the United States or from any interest in that property. 1040x 2010 U. 1040x 2010 S. 1040x 2010 source income also includes rents or royalties for the use of, or for the privilege of using, in the United States, intangible property such as patents, copyrights, secret processes and formulas, goodwill, trademarks, franchises, and similar property. 1040x 2010 Real Property Real property is land and buildings and generally anything built on, growing on, or attached to land. 1040x 2010 Gross income from sources in the United States includes gains, profits, and income from the sale or other disposition of real property located in the United States. 1040x 2010 Natural resources. 1040x 2010   The income from the sale of products of any farm, mine, oil or gas well, other natural deposit, or timber located in the United States and sold in a foreign country, or located in a foreign country and sold in the United States, is partly from sources in the United States. 1040x 2010 For information on determining that part, see section 1. 1040x 2010 863-1(b) of the regulations. 1040x 2010 Table 2-1. 1040x 2010 Summary of Source Rules for Income of Nonresident Aliens Item of income Factor determining source Salaries, wages, other compensation Where services performed Business income:   Personal services Where services performed Sale of inventory—purchased Where sold Sale of inventory—produced Allocation Interest Residence of payer Dividends Whether a U. 1040x 2010 S. 1040x 2010 or foreign corporation* Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. 1040x 2010 Where property is used Sale of real property Location of property Sale of personal property Seller's tax home (but see Personal Property , later, for exceptions) Pension distributions attributable to contributions Where services were performed that earned the pension Investment earnings on pension contributions Location of pension trust Sale of natural resources Allocation based on fair market value of product at export terminal. 1040x 2010 For more information, see section 1. 1040x 2010 863-1(b) of the regulations. 1040x 2010 *Exceptions include: a) Dividends paid by a U. 1040x 2010 S. 1040x 2010 corporation are foreign source if the corporation elects the  American Samoa economic development credit. 1040x 2010  b) Part of a dividend paid by a foreign corporation is U. 1040x 2010 S. 1040x 2010 source if at least 25% of the  corporation's gross income is effectively connected with a U. 1040x 2010 S. 1040x 2010 trade or business for the  3 tax years before the year in which the dividends are declared. 1040x 2010 Personal Property Personal property is property, such as machinery, equipment, or furniture, that is not real property. 1040x 2010 Gain or loss from the sale or exchange of personal property generally has its source in the United States if you have a tax home in the United States. 1040x 2010 If you do not have a tax home in the United States, the gain or loss generally is considered to be from sources outside the United States. 1040x 2010 Tax home. 1040x 2010   Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. 1040x 2010 Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual. 1040x 2010 If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. 1040x 2010 If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. 1040x 2010 Inventory property. 1040x 2010   Inventory property is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. 1040x 2010 Income from the sale of inventory that you purchased is sourced where the property is sold. 1040x 2010 Generally, this is where title to the property passes to the buyer. 1040x 2010 For example, income from the sale of inventory in the United States is U. 1040x 2010 S. 1040x 2010 source income, whether you purchased it in the United States or in a foreign country. 1040x 2010   Income from the sale of inventory property that you produced in the United States and sold outside the United States (or vice versa) is partly from sources in the United States and partly from sources outside the United States. 1040x 2010 For information on making this allocation, see section 1. 1040x 2010 863-3 of the regulations. 1040x 2010   These rules apply even if your tax home is not in the United States. 1040x 2010 Depreciable property. 1040x 2010   To determine the source of any gain from the sale of depreciable personal property, you must first figure the part of the gain that is not more than the total depreciation adjustments on the property. 1040x 2010 You allocate this part of the gain to sources in the United States based on the ratio of U. 1040x 2010 S. 1040x 2010 depreciation adjustments to total depreciation adjustments. 1040x 2010 The rest of this part of the gain is considered to be from sources outside the United States. 1040x 2010   For this purpose, “U. 1040x 2010 S. 1040x 2010 depreciation adjustments” are the depreciation adjustments to the basis of the property that are allowable in figuring taxable income from U. 1040x 2010 S. 1040x 2010 sources. 1040x 2010 However, if the property is used predominantly in the United States during a tax year, all depreciation deductions allowable for that year are treated as U. 1040x 2010 S. 1040x 2010 depreciation adjustments. 1040x 2010 But there are some exceptions for certain transportation, communications, and other property used internationally. 1040x 2010   Gain from the sale of depreciable property that is more than the total depreciation adjustments on the property is sourced as if the property were inventory property, as discussed above. 1040x 2010   A loss is sourced in the same way as the depreciation deductions were sourced. 1040x 2010 However, if the property was used predominantly in the United States, the entire loss reduces U. 1040x 2010 S. 1040x 2010 source income. 1040x 2010   The basis of property usually means the cost (money plus the fair market value of other property or services) of property you acquire. 1040x 2010 Depreciation is an amount deducted to recover the cost or other basis of a trade or business asset. 1040x 2010 The amount you can deduct depends on the property's cost, when you began using the property, how long it will take to recover your cost, and which depreciation method you use. 1040x 2010 A depreciation deduction is any deduction for depreciation or amortization or any other allowable deduction that treats a capital expenditure as a deductible expense. 1040x 2010 Intangible property. 1040x 2010   Intangible property includes patents, copyrights, secret processes or formulas, goodwill, trademarks, trade names, or other like property. 1040x 2010 The gain from the sale of amortizable or depreciable intangible property, up to the previously allowable amortization or depreciation deductions, is sourced in the same way as the original deductions were sourced. 1040x 2010 This is the same as the source rule for gain from the sale of depreciable property. 1040x 2010 See Depreciable property , earlier, for details on how to apply this rule. 1040x 2010   Gain in excess of the amortization or depreciation deductions is sourced in the country where the property is used if the income from the sale is contingent on the productivity, use, or disposition of that property. 1040x 2010 If the income is not contingent on the productivity, use, or disposition of the property, the income is sourced according to your tax home as discussed earlier. 1040x 2010 If payments for goodwill do not depend on its productivity, use, or disposition, their source is the country in which the goodwill was generated. 1040x 2010 Sales through offices or fixed places of business. 1040x 2010   Despite any of the earlier rules, if you do not have a tax home in the United States, but you maintain an office or other fixed place of business in the United States, treat the income from any sale of personal property (including inventory property) that is attributable to that office or place of business as U. 1040x 2010 S. 1040x 2010 source income. 1040x 2010 However, this rule does not apply to sales of inventory property for use, disposition, or consumption outside the United States if your office or other fixed place of business outside the United States materially participated in the sale. 1040x 2010   If you have a tax home in the United States but maintain an office or other fixed place of business outside the United States, income from sales of personal property, other than inventory, depreciable property, or intangibles, that is attributable to that foreign office or place of business may be treated as U. 1040x 2010 S. 1040x 2010 source income. 1040x 2010 The income is treated as U. 1040x 2010 S. 1040x 2010 source income if an income tax of less than 10% of the income from the sale is paid to a foreign country. 1040x 2010 This rule also applies to losses if the foreign country would have imposed an income tax of less than 10% had the sale resulted in a gain. 1040x 2010 Community Income If you are married and you or your spouse is subject to the community property laws of a foreign country, a U. 1040x 2010 S. 1040x 2010 state, or a U. 1040x 2010 S. 1040x 2010 possession, you generally must follow those laws to determine the income of yourself and your spouse for U. 1040x 2010 S. 1040x 2010 tax purposes. 1040x 2010 But you must disregard certain community property laws if: Both you and your spouse are nonresident aliens, or One of you is a nonresident alien and the other is a U. 1040x 2010 S. 1040x 2010 citizen or resident and you do not both choose to be treated as U. 1040x 2010 S. 1040x 2010 residents as explained in chapter 1. 1040x 2010 In these cases, you and your spouse must report community income as explained later. 1040x 2010 Earned income. 1040x 2010   Earned income of a spouse, other than trade or business income and a partner's distributive share of partnership income, is treated as the income of the spouse whose services produced the income. 1040x 2010 That spouse must report all of it on his or her separate return. 1040x 2010 Trade or business income. 1040x 2010   Trade or business income, other than a partner's distributive share of partnership income, is treated as the income of the spouse carrying on the trade or business. 1040x 2010 That spouse must report all of it on his or her separate return. 1040x 2010 Partnership income (or loss). 1040x 2010   A partner's distributive share of partnership income (or loss) is treated as the income (or loss) of the partner. 1040x 2010 The partner must report all of it on his or her separate return. 1040x 2010 Separate property income. 1040x 2010   Income derived from the separate property of one spouse (and which is not earned income, trade or business income, or partnership distributive share income) is treated as the income of that spouse. 1040x 2010 That spouse must report all of it on his or her separate return. 1040x 2010 Use the appropriate community property law to determine what is separate property. 1040x 2010 Other community income. 1040x 2010   All other community income is treated as provided by the applicable community property laws. 1040x 2010 Prev  Up  Next   Home   More Online Publications
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The Premium Tax Credit

 

Facts about the Premium Tax Credit

 

Publication 5120 –Your Credit, Your Choice – Get it Now or Get it Later   English | Spanish

 

Publication 5121 –Need help paying for health insurance premiums?   English | Spanish

 

NOTE - The following information does not affect your 2013 tax return that you are filing in 2014. You do not need to file a 2013 federal tax return solely to establish eligibility or qualify for advance payment of the premium tax credit.
 

Basic Information

Starting in 2014, if you get your health insurance coverage through the Health Insurance Marketplace, you may be eligible for the premium tax credit. This tax credit can help make purchasing health insurance coverage more affordable for people with moderate incomes. The open enrollment period to purchase health insurance coverage for 2014 through the Marketplace runs from Oct. 1, 2013, through March 31, 2014.

The Department of Health and Human Services administers the requirements for the Marketplace and the health plans they offer. For more information about your coverage options, financial assistance and the Marketplace, visit HealthCare.gov.

Eligibility

In general, you may be eligible for the credit if you meet all of the following:

  • buy health insurance through the Marketplace;
  • are ineligible for coverage through an employer or government plan;
  • are within certain income limits;
  • do not file a Married Filing Separately tax return (unless you meet the criteria in Notice 2014-23, which allows certain victims of domestic abuse to claim the premium tax credit using the Married Filing Separately filing status for the 2014 calendar year); and
  • cannot be claimed as a dependent by another person.

Filing Status

If you file your tax return using the filing status Single, Married Filing Jointly, Head of Household (including married individuals who qualify to use the Head of Household status) or Qualifying Widow/Widower, you may be eligible for the premium tax credit if you meet the other criteria. If you are married and you file your tax return using the filing status Married Filing Separately, you will not be eligible for the premium tax credit unless you meet the criteria in Notice 2014-23, which allows certain victims of domestic abuse to claim the premium tax credit using the Married Filing Separately filing status for the 2014 calendar year.

Getting the Credit

To qualify for the credit, you must get insurance through the Marketplace.

If you are eligible for the credit, you can choose to:

  • Get It Now: have some or all of the estimated credit paid in advance directly to your insurance company to lower what you pay out-of-pocket for your monthly premiums during 2014; or
  • Get It Later: wait to get all of the credit when you file your 2014 tax return in 2015.

During enrollment through the Marketplace, using information you provide about your projected income and family composition for 2014, the Marketplace will estimate the amount of the premium tax credit you will be able to claim for the 2014 tax year that you will file in 2015.

You will then decide whether you want to have all, some or none of your estimated credit paid in advance directly to your insurance company.

Change in Circumstances

Report income and family size changes to the Marketplace throughout the year. Reporting changes will help make sure you get the proper type and amount of financial assistance and will help you avoid getting too much or too little in advance. Receiving too much or too little in advance can affect your refund or balance due when you file your 2014 tax return in 2015.

For example, if you do not report income or family size changes to the Marketplace when they happen in 2014, the advance payments may not match your actual qualified credit amount on your federal tax return that you will file in 2015. This might result in a smaller refund or a balance due.

Claiming the Credit on Your Federal Tax Return

For any tax year, if you receive advance credit payments in any amount or if you plan to claim the premium tax credit, you must file a federal income tax return for that year. 

If you choose to get it now: When you file your 2014 tax return in 2015, you will subtract the total advance payments you received during the year from the amount of the premium tax credit calculated on your tax return. If the premium tax credit computed on the return is more than the advance payments made on your behalf during the year, the difference will increase your refund or lower the amount of tax you owe. If the advance credit payments are more than the premium tax credit, the difference will increase the amount you owe and result in either a smaller refund or a balance due.

If you choose to get it later: You will claim the full amount of the premium tax credit when you file your 2014 tax return in 2015. This will either increase your refund or lower your balance due.

More Information

More detailed information about the credit is available in our Questions and Answers.
The Department of the Treasury and the IRS issued the following legal guidance related to the premium tax credit:

  • Final regulations on the rules for individuals who enroll in qualified health plans through Marketplaces and claim the premium tax credit.
  • Final regulations on the premium tax credit affordability test for related individuals.
  • Proposed regulations on determining minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit.
  • Notice 2013-41 on determining whether or when individuals are considered eligible for coverage under certain Medicaid, Medicare, CHIP, TRICARE, student health or state high risk pool programs.

An electronic flyer (Publication 5120 English | Spanish ) and trifold (Publication 5121 English | Spanish ) entitled Facts about the Premium Tax Credit are available for public use and distribution.

 

Page Last Reviewed or Updated: 26-Mar-2014

The 1040x 2010

1040x 2010 3. 1040x 2010   Farm Income Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Schedule F (Form 1040) Sales of Farm ProductsSchedule F. 1040x 2010 Form 4797. 1040x 2010 Sales Caused by Weather-Related Conditions Rents (Including Crop Shares)Crop Shares Agricultural Program PaymentsCommodity Credit Corporation (CCC) Loans Conservation Reserve Program (CRP) Crop Insurance and Crop Disaster Payments Feed Assistance and Payments Cost-Sharing Exclusion (Improvements) Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 Tobacco Quota Buyout Program Payments Other Payments Payment to More Than One Person Income From CooperativesPatronage Dividends Per-Unit Retain Certificates Cancellation of DebtGeneral Rule Exceptions Exclusions Income From Other SourcesSod. 1040x 2010 Granting the right to remove deposits. 1040x 2010 Income Averaging for FarmersElected Farm Income (EFI) How To Figure the Tax Effect on Other Tax Determinations Tax for Certain Children Who Have Unearned Income Alternative Minimum Tax (AMT) Schedule J Introduction You may receive income from many sources. 1040x 2010 You must report the income from all the different sources on your tax return, unless it is excluded by law. 1040x 2010 Where you report the income on your tax return depends on its source. 1040x 2010 This chapter discusses farm income you report on Schedule F (Form 1040), Profit or Loss From Farming. 1040x 2010 For information on where to report other income, see the Instructions for Form 1040, U. 1040x 2010 S. 1040x 2010 Individual Income Tax Return. 1040x 2010 Accounting method. 1040x 2010   The rules discussed in this chapter assume you use the cash method of accounting. 1040x 2010 Under the cash method, you generally include an item of income in gross income in the year you receive it. 1040x 2010 See Cash Method in chapter 2. 1040x 2010   If you use an accrual method of accounting, different rules may apply to your situation. 1040x 2010 See Accrual Method in chapter 2. 1040x 2010 Topics - This chapter discusses: Schedule F Sales of farm products Rents (including crop shares) Agricultural program payments Income from cooperatives Cancellation of debt Income from other sources Income averaging for farmers Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 550 Investment Income and Expenses 908 Bankruptcy Tax Guide 925 Passive Activity and At-Risk Rules 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness Sch E (Form 1040) Supplemental Income and Loss Sch J (Form 1040) Income Averaging for Farmers and Fishermen 1099-G Certain Government Payments 1099-PATR Taxable Distributions Received From Cooperatives 4797 Sales of Business Property 4835 Farm Rental Income and Expenses See chapter 16 for information about getting publications and forms. 1040x 2010 Schedule F (Form 1040) Individuals, trusts, and partnerships report farm income on Schedule F (Form 1040), Profit or Loss From Farming. 1040x 2010 Use this schedule to figure the net profit or loss from regular farming operations. 1040x 2010 Income from farming reported on Schedule F includes amounts you receive from cultivating, operating, or managing a farm for gain or profit, either as owner or tenant. 1040x 2010 This includes income from operating a stock, dairy, poultry, fish, fruit, or truck farm and income from operating a plantation, ranch, range, or orchard. 1040x 2010 It also includes income from the sale of crop shares if you materially participate in producing the crop. 1040x 2010 See Rents (Including Crop Shares) , later. 1040x 2010 Income received from operating a nursery, which specializes in growing ornamental plants, is considered to be income from farming. 1040x 2010 Income reported on Schedule F does not include gains or losses from sales or other dispositions of the following farm assets. 1040x 2010 Land. 1040x 2010 Depreciable farm equipment. 1040x 2010 Buildings and structures. 1040x 2010 Livestock held for draft, breeding, sport, or dairy purposes. 1040x 2010 Gains and losses from most dispositions of farm assets are discussed in chapters 8 and 9. 1040x 2010 Gains and losses from casualties, thefts, and condemnations are discussed in chapter 11. 1040x 2010 Sales of Farm Products Where to report. 1040x 2010    Table 3-1 shows where to report the sale of farm products on your tax return. 1040x 2010 Schedule F. 1040x 2010   Amounts received from the sales of products you raised on your farm for sale (or bought for resale), such as livestock, produce, or grains, are reported on Schedule F. 1040x 2010 This includes money and the fair market value of any property or services you receive. 1040x 2010 When you sell farm products bought for resale, your profit or loss is the difference between your selling price (money plus the fair market value of any property) and your basis in the item (usually the cost). 1040x 2010 See chapter 6 for information on the basis of assets. 1040x 2010 You generally report these amounts on Schedule F for the year you receive payment. 1040x 2010 Example. 1040x 2010 In 2012, you bought 20 feeder calves for $11,000 for resale. 1040x 2010 You sold them in 2013 for $21,000. 1040x 2010 You report the $21,000 sales price on Schedule F, line 1b, subtract your $11,000 basis on line 1d, and report the resulting $10,000 profit on line 1e. 1040x 2010 Form 4797. 1040x 2010   Sales of livestock held for draft, breeding, sport, or dairy purposes may result in ordinary or capital gains or losses, depending on the circumstances. 1040x 2010 In either case, you should always report these sales on Form 4797 instead of Schedule F. 1040x 2010 See Livestock under Ordinary or Capital Gain or Loss in chapter 8. 1040x 2010 Animals you do not hold primarily for sale are considered business assets of your farm. 1040x 2010 Table 3-1. 1040x 2010 Where To Report Sales of Farm Products Item Sold Schedule F Form 4797 Farm products raised for sale X   Farm products bought for resale X   Farm assets not held primarily for sale, such as livestock held for draft, breeding, sport, or dairy purposes (bought or raised)   X Sale by agent. 1040x 2010   If your agent sells your farm products, you have constructive receipt of the income when your agent receives payment and you must include the net proceeds from the sale in gross income for the year the agent receives payment. 1040x 2010 This applies even if your agent pays you in a later year. 1040x 2010 For a discussion on constructive receipt of income, see Cash Method under Accounting Methods in chapter 2. 1040x 2010 Sales Caused by Weather-Related Conditions If you sell or exchange more livestock, including poultry, than you normally would in a year because of a drought, flood, or other weather-related condition, you may be able to postpone reporting the gain from the additional animals until the next year. 1040x 2010 You must meet all the following conditions to qualify. 1040x 2010 Your principal trade or business is farming. 1040x 2010 You use the cash method of accounting. 1040x 2010 You can show that, under your usual business practices, you would not have sold or exchanged the additional animals this year except for the weather-related condition. 1040x 2010 The weather-related condition caused an area to be designated as eligible for assistance by the federal government. 1040x 2010 Sales or exchanges made before an area became eligible for federal assistance qualify if the weather-related condition that caused the sale or exchange also caused the area to be designated as eligible for federal assistance. 1040x 2010 The designation can be made by the President, the Department of Agriculture (or any of its agencies), or by other federal departments or agencies. 1040x 2010 A weather-related sale or exchange of livestock (other than poultry) held for draft, breeding, or dairy purposes may be an involuntary conversion. 1040x 2010 See Other Involuntary Conversions in chapter 11. 1040x 2010 Usual business practice. 1040x 2010   You must determine the number of animals you would have sold had you followed your usual business practice in the absence of the weather-related condition. 1040x 2010 Do this by considering all the facts and circumstances, but do not take into account your sales in any earlier year for which you postponed the gain. 1040x 2010 If you have not yet established a usual business practice, rely on the usual business practices of similarly situated farmers in your general region. 1040x 2010 Connection with affected area. 1040x 2010   The livestock does not have to be raised or sold in an area affected by a weather-related condition for the postponement to apply. 1040x 2010 However, the sale must occur solely because of a weather-related condition that affected the water, grazing, or other requirements of the livestock. 1040x 2010 This requirement generally will not be met if the costs of feed, water, or other requirements of the livestock affected by the weather-related condition are not substantial in relation to the total costs of holding the livestock. 1040x 2010 Classes of livestock. 1040x 2010   You must figure the amount to be postponed separately for each generic class of animals—for example, hogs, sheep, and cattle. 1040x 2010 Do not separate animals into classes based on age, sex, or breed. 1040x 2010 Amount to be postponed. 1040x 2010   Follow these steps to figure the amount of gain to be postponed for each class of animals. 1040x 2010 Divide the total income realized from the sale of all livestock in the class during the tax year by the total number of such livestock sold. 1040x 2010 For this purpose, do not treat any postponed gain from the previous year as income received from the sale of livestock. 1040x 2010 Multiply the result in (1) by the excess number of such livestock sold solely because of weather-related conditions. 1040x 2010 Example. 1040x 2010 You are a calendar year taxpayer and you normally sell 100 head of beef cattle a year. 1040x 2010 As a result of drought, you sold 135 head during 2012. 1040x 2010 You realized $70,200 from the sale. 1040x 2010 On August 9, 2012, as a result of drought, the affected area was declared a disaster area eligible for federal assistance. 1040x 2010 The income you can postpone until 2013 is $18,200 [($70,200 ÷ 135) × 35]. 1040x 2010 How to postpone gain. 1040x 2010   To postpone gain, attach a statement to your tax return for the year of the sale. 1040x 2010 The statement must include your name and address and give the following information for each class of livestock for which you are postponing gain. 1040x 2010 A statement that you are postponing gain under Internal Revenue Code (IRC) section 451(e). 1040x 2010 Evidence of the weather-related conditions that forced the early sale or exchange of the livestock and the date, if known, on which an area was designated as eligible for assistance by the federal government because of weather-related conditions. 1040x 2010 A statement explaining the relationship of the area affected by the weather-related condition to your early sale or exchange of the livestock. 1040x 2010 The number of animals sold in each of the 3 preceding years. 1040x 2010 The number of animals you would have sold in the tax year had you followed your normal business practice in the absence of weather-related conditions. 1040x 2010 The total number of animals sold and the number sold because of weather-related conditions during the tax year. 1040x 2010 A computation, as described above, of the income to be postponed for each class of livestock. 1040x 2010   Generally, you must file the statement and the return by the due date of the return, including extensions. 1040x 2010 However, for sales or exchanges treated as an involuntary conversion from weather-related sales of livestock in an area eligible for federal assistance (discussed in chapter 11), you can file this statement at any time during the replacement period. 1040x 2010 For other sales or exchanges, if you timely filed your return for the year without postponing gain, you can still postpone gain by filing an amended return within 6 months of the due date of the return (excluding extensions). 1040x 2010 Attach the statement to the amended return and write “Filed pursuant to section 301. 1040x 2010 9100-2” at the top of the amended return. 1040x 2010 File the amended return at the same address you filed the original return. 1040x 2010 Once you have filed the statement, you can cancel your postponement of gain only with the approval of the IRS. 1040x 2010 Rents (Including Crop Shares) The rent you receive for the use of your farmland is generally rental income, not farm income. 1040x 2010 However, if you materially participate in farming operations on the land, the rent is farm income. 1040x 2010 See Landlord Participation in Farming in chapter 12. 1040x 2010 Pasture income and rental. 1040x 2010   If you pasture someone else's livestock and take care of them for a fee, the income is from your farming business. 1040x 2010 You must enter it as Other income on Schedule F. 1040x 2010 If you simply rent your pasture for a flat cash amount without providing services, report the income as rent on Part I of Schedule E (Form 1040), Supplemental Income and Loss. 1040x 2010 Crop Shares You must include rent you receive in the form of crop shares in income in the year you convert the shares to money or the equivalent of money. 1040x 2010 It does not matter whether you use the cash method of accounting or an accrual method of accounting. 1040x 2010 If you materially participate in operating a farm from which you receive rent in the form of crop shares or livestock, the rental income is included in self-employment income. 1040x 2010 See Landlord Participation in Farming in chapter 12. 1040x 2010 Report the rental income on Schedule F. 1040x 2010 If you do not materially participate in operating the farm, report this income on Form 4835 and carry the net income or loss to Schedule E (Form 1040). 1040x 2010 The income is not included in self-employment income. 1040x 2010 Crop shares you use to feed livestock. 1040x 2010   Crop shares you receive as a landlord and feed to your livestock are considered converted to money when fed to the livestock. 1040x 2010 You must include the fair market value of the crop shares in income at that time. 1040x 2010 You are entitled to a business expense deduction for the livestock feed in the same amount and at the same time you include the fair market value of the crop share as rental income. 1040x 2010 Although these two transactions cancel each other for figuring adjusted gross income on Form 1040, they may be necessary to figure your self-employment tax. 1040x 2010 See  chapter 12. 1040x 2010 Crop shares you give to others (gift). 1040x 2010   Crop shares you receive as a landlord and give to others are considered converted to money when you make the gift. 1040x 2010 You must report the fair market value of the crop share as income, even though someone else receives payment for the crop share. 1040x 2010 Example. 1040x 2010 A tenant farmed part of your land under a crop-share arrangement. 1040x 2010 The tenant harvested and delivered the crop in your name to an elevator company. 1040x 2010 Before selling any of the crop, you instructed the elevator company to cancel your warehouse receipt and make out new warehouse receipts in equal amounts of the crop in the names of your children. 1040x 2010 They sell their crop shares in the following year and the elevator company makes payments directly to your children. 1040x 2010 In this situation, you are considered to have received rental income and then made a gift of that income. 1040x 2010 You must include the fair market value of the crop shares in your income for the tax year you gave the crop shares to your children. 1040x 2010 Crop share loss. 1040x 2010   If you are involved in a rental or crop-share lease arrangement, any loss from these activities may be subject to the limits under the passive loss rules. 1040x 2010 See Publication 925 for information on these rules. 1040x 2010 Agricultural Program Payments You must include in income most government payments, such as those for approved conservation practices, direct payments, and counter-cyclical payments, whether you receive them in cash, materials, services, or commodity certificates. 1040x 2010 However, you can exclude from income some payments you receive under certain cost-sharing conservation programs. 1040x 2010 See Cost-Sharing Exclusion (Improvements) , later. 1040x 2010 Report the agricultural program payment on the appropriate line of Schedule F, Part I. 1040x 2010 Report the full amount even if you return a government check for cancellation, refund any of the payment you receive, or the government collects all or part of the payment from you by reducing the amount of some other payment or Commodity Credit Corporation (CCC) loan. 1040x 2010 However, you can deduct the amount you refund or return or that reduces some other payment or loan to you. 1040x 2010 Claim the deduction on Schedule F for the year of repayment or reduction. 1040x 2010 Commodity Credit Corporation (CCC) Loans Generally, you do not report loans you receive as income. 1040x 2010 However, if you pledge part or all of your production to secure a CCC loan, you can treat the loan as if it were a sale of the crop and report the loan proceeds as income in the year you receive them. 1040x 2010 You do not need approval from the IRS to adopt this method of reporting CCC loans. 1040x 2010 Once you report a CCC loan as income for the year received, you generally must report all CCC loans in that year and later years in the same way. 1040x 2010 However, you can obtain for your tax year an automatic consent to change your method of accounting for loans received from the CCC, from including the loan amount in gross income for the tax year in which the loan is received to treating the loan amount as a loan. 1040x 2010 For more information, see Part I of the Instructions for Form 3115 and Revenue Procedure 2008-52. 1040x 2010 Revenue Procedure 2008-52, 2008-36 I. 1040x 2010 R. 1040x 2010 B. 1040x 2010 587, is available at  www. 1040x 2010 irs. 1040x 2010 gov/irb/2008-36_IRB/ar09. 1040x 2010 html. 1040x 2010 You can request income tax withholding from CCC loan payments you receive. 1040x 2010 Use Form W-4V, Voluntary Withholding Request. 1040x 2010 See chapter 16 for information about ordering the form. 1040x 2010 To elect to report a CCC loan as income, include the loan proceeds as income on Schedule F, line 7a, for the year you receive it. 1040x 2010 Attach a statement to your return showing the details of the loan. 1040x 2010 You must file the statement and the return by the due date of the return, including extensions. 1040x 2010 If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 1040x 2010 Attach the statement to the amended return and write “Filed pursuant to section 301. 1040x 2010 9100-2” at the top of the return. 1040x 2010 File the amended return at the same address you filed the original return. 1040x 2010 When you make this election, the amount you report as income becomes your basis in the commodity. 1040x 2010 See chapter 6 for information on the basis of assets. 1040x 2010 If you later repay the loan, redeem the pledged commodity, and sell it, you report as income at the time of sale the sale proceeds minus your basis in the commodity. 1040x 2010 If the sale proceeds are less than your basis in the commodity, you can report the difference as a loss on Schedule F. 1040x 2010 If you forfeit the pledged crops to the CCC in full payment of the loan, the forfeiture is treated for tax purposes as a sale of the crops. 1040x 2010 If you did not report the loan proceeds as income for the year you received them, you must include them in your income for the year of the forfeiture. 1040x 2010 Form 1099-A. 1040x 2010   If you forfeit pledged crops to the CCC in full payment of a loan, you may receive a Form 1099-A, Acquisition or Abandonment of Secured Property. 1040x 2010 “CCC” should be shown in box 6. 1040x 2010 The amount of any CCC loan outstanding when you forfeited your commodity should also be indicated on the form. 1040x 2010 Market Gain Under the CCC nonrecourse marketing assistance loan program, your repayment amount for a loan secured by your pledge of an eligible commodity is generally based on the lower of the loan rate or the prevailing world market price for the commodity on the date of repayment. 1040x 2010 If you repay the loan when the world price is lower, the difference between that repayment amount and the original loan amount is market gain. 1040x 2010 Whether you use cash or CCC certificates to repay the loan, you will receive a Form 1099-G showing the market gain you realized. 1040x 2010 Market gain should be reported as follows. 1040x 2010 If you elected to include the CCC loan in income in the year you received it, do not include the market gain in income. 1040x 2010 However, adjust the basis of the commodity for the amount of the market gain. 1040x 2010 If you did not include the CCC loan in income in the year received, include the market gain in your income. 1040x 2010 The following examples show how to report market gain. 1040x 2010 Example 1. 1040x 2010 Mike Green is a cotton farmer. 1040x 2010 He uses the cash method of accounting and files his tax return on a calendar year basis. 1040x 2010 He has deducted all expenses incurred in producing the cotton and has a zero basis in the commodity. 1040x 2010 In 2012, Mike pledged 1,000 pounds of cotton as collateral for a CCC loan of $2,000 (a loan rate of $2. 1040x 2010 00 per pound). 1040x 2010 In 2013, he repaid the loan and redeemed the cotton for $1,500 when the world price was $1. 1040x 2010 50 per pound (lower than the loan amount). 1040x 2010 Later in 2013, he sold the cotton for $2,500. 1040x 2010 The market gain on the redemption was $. 1040x 2010 50 ($2. 1040x 2010 00 – $1. 1040x 2010 50) per pound. 1040x 2010 Mike realized total market gain of $500 ($. 1040x 2010 50 x 1,000 pounds). 1040x 2010 How he reports this market gain and figures his gain or loss from the sale of the cotton depends on whether he included CCC loans in income in 2012. 1040x 2010 Included CCC loan. 1040x 2010   Mike reported the $2,000 CCC loan as income for 2012 on Schedule F, line 1b, so he is treated as if he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when he redeemed it. 1040x 2010 The $500 market gain is not recognized on the redemption. 1040x 2010 He reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. 1040x 2010   Mike's basis in the cotton after he redeemed it was $1,500, which is the redemption (repurchase) price paid for the cotton. 1040x 2010 His gain from the sale is $1,000 ($2,500 – $1,500). 1040x 2010 He reports the $1,000 gain as income for 2013 on Schedule F, line 1b. 1040x 2010 Excluded CCC loan. 1040x 2010   Mike has income of $500 from market gain in 2013. 1040x 2010 He reports it on Schedule F, lines 4a and 4b. 1040x 2010 His basis in the cotton is zero, so his gain from its sale is $2,500. 1040x 2010 He reports the $2,500 gain as income for 2013 on Schedule F, line 1b. 1040x 2010 Example 2. 1040x 2010 The facts are the same as in Example 1 except that, instead of selling the cotton for $2,500 after redeeming it, Mike entered into an option-to-purchase contract with a cotton buyer before redeeming the cotton. 1040x 2010 Under that contract, Mike authorized the cotton buyer to pay the CCC loan on Mike's behalf. 1040x 2010 In 2013, the cotton buyer repaid the loan for $1,500 and immediately exercised his option, buying the cotton for $1,500. 1040x 2010 How Mike reports the $500 market gain on the redemption of the cotton and figures his gain or loss from its sale depends on whether he included CCC loans in income in 2012. 1040x 2010 Included CCC loan. 1040x 2010   As in Example 1, Mike is treated as though he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when the cotton buyer redeemed it for him. 1040x 2010 The $500 market gain is not recognized on the redemption. 1040x 2010 Mike reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. 1040x 2010   Also, as in Example 1, Mike's basis in the cotton when the cotton buyer redeemed it for him was $1,500. 1040x 2010 Mike has no gain or loss on its sale to the cotton buyer for that amount. 1040x 2010 Excluded CCC loan. 1040x 2010   As in Example 1, Mike has income of $500 from market gain in 2013. 1040x 2010 He reports it on Schedule F, lines 4a and 4b. 1040x 2010 His basis in the cotton is zero, so his gain from its sale is $1,500. 1040x 2010 He reports the $1,500 gain as income for 2013 on Schedule F, line 1b. 1040x 2010 Conservation Reserve Program (CRP) Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a long-term contract with the USDA, agreeing to convert to a less intensive use of that cropland. 1040x 2010 You must include the annual rental payments and any one-time incentive payment you receive under the program on Schedule F, lines 4a and 4b. 1040x 2010 Cost-share payments you receive may qualify for the cost-sharing exclusion. 1040x 2010 See Cost-Sharing Exclusion (Improvements) , later. 1040x 2010 CRP payments are reported to you on Form 1099-G. 1040x 2010 Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. 1040x 2010 See the instructions for Schedule SE (Form 1040). 1040x 2010 Crop Insurance and Crop Disaster Payments You must include in income any crop insurance proceeds you receive as the result of physical crop damage or reduction of crop revenue, or both. 1040x 2010 You generally include them in the year you receive them. 1040x 2010 Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops, because of drought, flood, or any other natural disaster. 1040x 2010 You can request income tax withholding from crop disaster payments you receive from the federal government. 1040x 2010 Use Form W-4V, Voluntary Withholding Request. 1040x 2010 See chapter 16 for information about ordering the form. 1040x 2010 Election to postpone reporting until the following year. 1040x 2010   You can postpone reporting some or all crop insurance proceeds as income until the year following the year the physical damage occurred if you meet all the following conditions. 1040x 2010 You use the cash method of accounting. 1040x 2010 You receive the crop insurance proceeds in the same tax year the crops are damaged. 1040x 2010 You can show that under your normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred. 1040x 2010   Deferral is not permitted for proceeds received from revenue insurance policies. 1040x 2010   To postpone reporting some or all crop insurance proceeds received in 2013, report the amount you received on Schedule F, line 6a, but do not include it as a taxable amount on line 6b. 1040x 2010 Check the box on line 8c and attach a statement to your tax return. 1040x 2010 The statement must include your name and address and contain the following information. 1040x 2010 A statement that you are making an election under IRC section 451(d) and Regulations section 1. 1040x 2010 451-6. 1040x 2010 The specific crop or crops physically destroyed or damaged. 1040x 2010 A statement that under your normal business practice you would have included income from some or all of the destroyed or damaged crops in gross income for a tax year following the year the crops were destroyed or damaged. 1040x 2010 The cause of the physical destruction or damage and the date or dates it occurred. 1040x 2010 The total payments you received from insurance carriers, itemized for each specific crop, and the date you received each payment. 1040x 2010 The name of each insurance carrier from whom you received payments. 1040x 2010   One election covers all crops representing a single trade or business. 1040x 2010 If you have more than one farming business, make a separate election for each one. 1040x 2010 For example, if you operate two separate farms on which you grow different crops and you keep separate books for each farm, you should make two separate elections to postpone reporting insurance proceeds you receive for crops grown on each of your farms. 1040x 2010   An election is binding for the year unless the IRS approves your request to change it. 1040x 2010 To request IRS approval to change your election, write to the IRS at the following address giving your name, address, identification number, the year you made the election, and your reasons for wanting to change it. 1040x 2010 Ogden Submission Processing Center P. 1040x 2010 O. 1040x 2010 Box 9941 Ogden, UT 84409 Feed Assistance and Payments The Disaster Assistance Act of 1988 authorizes programs to provide feed assistance, reimbursement payments, and other benefits to qualifying livestock producers if the Secretary of Agriculture determines that, because of a natural disaster, a livestock emergency exists. 1040x 2010 These programs include partial reimbursement for the cost of purchased feed and for certain transportation expenses. 1040x 2010 They also include the donation or sale at a below-market price of feed owned by the Commodity Credit Corporation. 1040x 2010 Include in income: The market value of donated feed, The difference between the market value and the price you paid for feed you buy at below-market prices, and Any cost reimbursement you receive. 1040x 2010 You must include these benefits in income in the year you receive them. 1040x 2010 You cannot postpone reporting them under the rules explained earlier for weather-related sales of livestock or crop insurance proceeds. 1040x 2010 Report the benefits on Schedule F, Part I, as agricultural program payments. 1040x 2010 You can usually take a current deduction for the same amount as a feed expense. 1040x 2010 Cost-Sharing Exclusion (Improvements) You can exclude from your income part or all of a payment you receive under certain federal or state cost-sharing conservation, reclamation, and restoration programs. 1040x 2010 A payment is any economic benefit you get as a result of an improvement. 1040x 2010 However, this exclusion applies only to that part of a payment that meets all three of the following tests. 1040x 2010 It was for a capital expense. 1040x 2010 You cannot exclude any part of a payment for an expense you can deduct in the year you pay or incur it. 1040x 2010 You must include the payment for a deductible expense in income, and you can take any offsetting deduction. 1040x 2010 See chapter 5 for information on deducting soil and water conservation expenses. 1040x 2010 It does not substantially increase your annual income from the property for which it is made. 1040x 2010 An increase in annual income is substantial if it is more than the greater of the following amounts. 1040x 2010 10% of the average annual income derived from the affected property before receiving the improvement. 1040x 2010 $2. 1040x 2010 50 times the number of affected acres. 1040x 2010 The Secretary of Agriculture certified that the payment was primarily made for conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. 1040x 2010 Qualifying programs. 1040x 2010   If the three tests listed above are met, you can exclude part or all of the payments from the following programs. 1040x 2010 The rural clean water program authorized by the Federal Water Pollution Control Act. 1040x 2010 The rural abandoned mine program authorized by the Surface Mining Control and Reclamation Act of 1977. 1040x 2010 The water bank program authorized by the Water Bank Act. 1040x 2010 The emergency conservation measures program authorized by title IV of the Agricultural Credit Act of 1978. 1040x 2010 The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act. 1040x 2010 The great plains conservation program authorized by the Soil Conservation and Domestic Policy Act. 1040x 2010 The resource conservation and development program authorized by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation and Domestic Allotment Act. 1040x 2010 Certain small watershed programs, listed later. 1040x 2010 Any program of a state, possession of the United States, a political subdivision of any of these, or of the District of Columbia under which payments are made to individuals primarily for conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. 1040x 2010 Several state programs have been approved. 1040x 2010 For information about the status of those programs, contact the state offices of the Farm Service Agency (FSA) and the Natural Resources and Conservation Service (NRCS). 1040x 2010 Small watershed programs. 1040x 2010   If the three tests listed earlier are met, you can exclude part or all of the payments you receive under the following programs for improvements made in connection with a watershed. 1040x 2010 The programs under the Watershed Protection and Flood Prevention Act. 1040x 2010 The flood prevention projects under the Flood Control Act of 1944. 1040x 2010 The Emergency Watershed Protection Program under the Flood Control Act of 1950. 1040x 2010 Certain programs under the Colorado River Basin Salinity Control Act. 1040x 2010 The Wetlands Reserve Program authorized by the Food Security Act of 1985, the Federal Agriculture Improvement and Reform Act of 1996 and the Farm Security and Rural Investment Act of 2002. 1040x 2010 The Environmental Quality Incentives Program (EQIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. 1040x 2010 The Wildlife Habitat Incentives Program (WHIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. 1040x 2010 The Soil and Water Conservation Assistance Program authorized by the Agricultural Risk Protection Act of 2000. 1040x 2010 The Agricultural Management Assistance Program authorized by the Agricultural Risk Protection Act of 2000. 1040x 2010 The Conservation Reserve Program authorized by the Food Security Act of 1985 and the Federal Agriculture Improvement and Reform Act of 1996. 1040x 2010 The Forest Land Enhancement Program authorized under the Farm Security and Rural Investment Act of 2002. 1040x 2010 The Conservation Security Program authorized by the Food Security Act of 1985. 1040x 2010 The Forest Health Protection Program (FHPP) authorized by the Cooperative Forestry Assistance Act of 1978. 1040x 2010 Income realized. 1040x 2010   The gross income you realize upon getting an improvement under these cost-sharing programs is the value of the improvement reduced by the sum of the excludable portion and your share of the cost of the improvement (if any). 1040x 2010 Value of the improvement. 1040x 2010   You determine the value of the improvement by multiplying its fair market value (defined in chapter 6) by a fraction. 1040x 2010 The numerator of the fraction is the total cost of the improvement (all amounts paid either by you or by the government for the improvement) reduced by the sum of the following items. 1040x 2010 Any government payments under a program not listed earlier. 1040x 2010 Any part of a government payment under a program listed earlier that the Secretary of Agriculture has not certified as primarily for conservation. 1040x 2010 Any government payment to you for rent or for your services. 1040x 2010 The denominator of the fraction is the total cost of the improvement. 1040x 2010 Excludable portion. 1040x 2010   The excludable portion is the present fair market value of the right to receive annual income from the affected acreage of the greater of the following amounts. 1040x 2010 10% of the prior average annual income from the affected acreage. 1040x 2010 The prior average annual income is the average of the gross receipts from the affected acreage for the last 3 tax years before the tax year in which you started to install the improvement. 1040x 2010 $2. 1040x 2010 50 times the number of affected acres. 1040x 2010 The calculation of present fair market value of the right to receive annual income is too complex to discuss in this publication. 1040x 2010 You may need to consult your tax advisor for assistance. 1040x 2010 Example. 1040x 2010 One hundred acres of your land was reclaimed under a rural abandoned mine program contract with the Natural Resources Conservation Service of the USDA. 1040x 2010 The total cost of the improvement was $500,000. 1040x 2010 The USDA paid $490,000. 1040x 2010 You paid $10,000. 1040x 2010 The value of the cost-sharing improvement is $15,000. 1040x 2010 The present fair market value of the right to receive the annual income described in (1) above is $1,380, and the present fair market value of the right to receive the annual income described in (2) is $1,550. 1040x 2010 The excludable portion is the greater amount, $1,550. 1040x 2010 You figure the amount to include in gross income as follows: Value of cost-sharing improvement $15,000 Minus: Your share $10,000     Excludable portion 1,550 11,550 Amount included in income $ 3,450 Effects of the exclusion. 1040x 2010   When you figure the basis of property you acquire or improve using cost-sharing payments excluded from income, subtract the excluded payments from your capital costs. 1040x 2010 Any payment excluded from income is not part of your basis. 1040x 2010 In the example above, the increase in basis is $500,000 – $490,000 + $3,450 = $13,450. 1040x 2010   In addition, you cannot take depreciation, amortization, or depletion deductions for the part of the cost of the property for which you receive cost-sharing payments you exclude from income. 1040x 2010 How to report the exclusion. 1040x 2010   Attach a statement to your tax return (or amended return) for the tax year you receive the last government payment for the improvement. 1040x 2010 The statement must include the following information. 1040x 2010 The dollar amount of the cost funded by the government payment. 1040x 2010 The value of the improvement. 1040x 2010 The amount you are excluding. 1040x 2010   Report the total cost-sharing payments you receive on Schedule F, line 4a, and the taxable amount on line 4b. 1040x 2010 Recapture. 1040x 2010   If you dispose of the property within 20 years after you received the excluded payments, you must treat as ordinary income part or all of the cost-sharing payments you excluded. 1040x 2010 In the above example, if the 100 acres were sold within 20 years of the exclusion for a gain of $2,000, $1,550 of that amount would be included in ordinary income. 1040x 2010 You must report the recapture on Form 4797. 1040x 2010 See Section 1255 property under Other Gains in chapter 9. 1040x 2010 Electing not to exclude payments. 1040x 2010   You can elect not to exclude all or part of any payments you receive under these programs. 1040x 2010 If you make this election for all of these payments, none of the above restrictions and rules apply. 1040x 2010 You must make this election by the due date, including extensions, for filing your return. 1040x 2010 In the example above, an election not to exclude payments results in $5,000 included in income and a $15,000 increase in basis. 1040x 2010 If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 1040x 2010 Write “Filed pursuant to section 301. 1040x 2010 9100-2” at the top of the amended return and file it at the same address you filed the original return. 1040x 2010 Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 The Farm Security and Rural Investment Act of 2002 created two new types of payments—direct and counter-cyclical payments. 1040x 2010 You must include these payments on Schedule F, lines 4a and 4b. 1040x 2010 The Food, Conservation, and Energy Act of 2008 provides for direct and counter-cyclical payments (DCP) as well as Average Crop Revenue Election (ACRE) payments. 1040x 2010 You must include these payments on Schedule F, lines 6a and 6b. 1040x 2010 The American Taxpayer Relief Act of 2012, enacted on January 2, 2013, amends the Food, Conservation, and Energy Act of 2008 and provided a one-year extension for these payments. 1040x 2010 Tobacco Quota Buyout Program Payments The Fair and Equitable Tobacco Reform Act of 2004, title VI of the American Jobs Creation Act of 2004, terminated the tobacco marketing quota program and the tobacco price support program. 1040x 2010 As a result, the USDA offered to enter into contracts with eligible tobacco quota holders and growers to provide compensation for the lost value of the quotas and related price support. 1040x 2010 If you are an eligible tobacco quota holder, your contract entitles you to receive total payments of $7 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. 1040x 2010 If you are an eligible tobacco grower, your contract entitles you to receive total payments of up to $3 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. 1040x 2010 Tobacco Quota Holders Contract payments you receive are considered proceeds from a sale of your tobacco quota as of the date on which you and the USDA enter into the contract. 1040x 2010 Your taxable gain or loss is the total amount received for your quota reduced by any amount treated as interest (discussed below), over your adjusted basis. 1040x 2010 The gain or loss is capital or ordinary depending on how you used the quota. 1040x 2010 See Capital or ordinary gain or loss , later. 1040x 2010 Report the entire gain on your income tax return for the tax year that includes the date you entered into the contract if you elect not to use the installment method. 1040x 2010 Adjusted basis. 1040x 2010   The adjusted basis of your quota is determined differently depending on how you obtained the quota. 1040x 2010 The basis of a quota derived from an original grant by the federal government is zero. 1040x 2010 The basis of a purchased quota is the purchase price. 1040x 2010 The basis of a quota received as a gift is generally the same as the donor's basis. 1040x 2010 However, under certain circumstances, the basis is increased by the amount of gift taxes paid. 1040x 2010 If the basis is greater than the fair market value of the quota at the time of the gift, the basis for determining loss is the fair market value. 1040x 2010 The basis of an inherited quota is generally the fair market value of the quota at the time of the decedent's death. 1040x 2010 Reduction of basis. 1040x 2010   You are required to reduce the basis of your tobacco quota by the following amounts. 1040x 2010 Deductions you took for amortization, depletion, or depreciation. 1040x 2010 Amounts you previously deducted as a loss because of a reduction in the number of pounds of tobacco allowable under the quota. 1040x 2010 The entire cost of a purchased quota you deducted in an earlier year (which reduces your basis to zero). 1040x 2010 Amount treated as interest. 1040x 2010   You must reduce your tobacco quota buyout program payment by the amount treated as interest. 1040x 2010 The interest is reportable as ordinary income. 1040x 2010 If payments total $3,000 or less, your total quota buyout program payment does not include any amount treated as interest and you are not required to reduce the total payment you receive. 1040x 2010   In all other cases, a portion of each payment may be treated as interest for federal tax purposes. 1040x 2010 You may be required to reduce your total quota buyout program payment before you calculate your gain or loss. 1040x 2010 For more information, see Notice 2005-57, 2005-32 I. 1040x 2010 R. 1040x 2010 B. 1040x 2010 267, available at www. 1040x 2010 irs. 1040x 2010 gov/irb/2005-32_IRB/ar13. 1040x 2010 html. 1040x 2010 Installment method. 1040x 2010   You may use the installment method to report a gain if you receive at least one payment after the close of your tax year. 1040x 2010 Under the installment method, a portion of the gain is taken into account in each year in which a payment is received. 1040x 2010 See chapter 10 for more information. 1040x 2010 Capital or ordinary gain or loss. 1040x 2010   Whether your gain or loss is ordinary or capital depends on how you used the quota. 1040x 2010 Quota used in the trade or business of farming. 1040x 2010   If you used the quota in the trade or business of farming and you held it for more than one year, you report the transaction as a section 1231 transaction on Form 4797. 1040x 2010 See Section 1231 transactions in the Instructions for Form 4797 for detailed information on reporting section 1231 transactions. 1040x 2010 Quota held for investment. 1040x 2010   If you held the quota for investment purposes, any gain or loss is capital gain or loss. 1040x 2010 The same result also applies if you held the quota for the production of income, though not connected with a trade or business. 1040x 2010 Gain treated as ordinary income. 1040x 2010   If you previously deducted any of the following items, some or all of the capital gain must be recharacterized and reported as ordinary income. 1040x 2010 Any resulting capital gain is taxed as ordinary income up to the amount previously deducted. 1040x 2010 The cost of acquiring a quota. 1040x 2010 Amounts for amortization, depletion, or depreciation. 1040x 2010 Amounts to reflect a reduction in the quota pounds. 1040x 2010   You should include the ordinary income on your return for the tax year even if you use the installment method to report the remainder of the gain. 1040x 2010 Self-employment income. 1040x 2010   The tobacco quota buyout payments are not self-employment income. 1040x 2010 Income averaging for farmers. 1040x 2010   The gain or loss resulting from the quota payments does not qualify for income averaging. 1040x 2010 A tobacco quota is considered an interest in land. 1040x 2010 Income averaging is not available for gain or loss arising from the sale or other disposition of land. 1040x 2010 Involuntary conversion. 1040x 2010   The buyout of the tobacco quota is not an involuntary conversion. 1040x 2010 Form 1099-S. 1040x 2010   A tobacco quota is considered an interest in land, so the USDA will generally report the total amount you receive under a contract on Form 1099-S, Proceeds From Real Estate Transactions, if the amount is $600 or more. 1040x 2010 The USDA will generally report any portion of a payment treated as interest of $600 or more to you on Form 1099-INT, Interest Income, for the year in which the payment is made. 1040x 2010 Like-kind exchange of quota. 1040x 2010   You may postpone reporting the gain or loss from tobacco quota buyout payments by entering into a like-kind exchange if you comply with the requirements of section 1031 and the regulations thereunder. 1040x 2010 See Notice 2005-57 for more information. 1040x 2010 Tobacco Growers Contract payments you receive are determined by reference to the amount of quota under which you produced (or planted) quota tobacco during the 2002, 2003, and 2004 tobacco marketing years and are prorated based on the number of years that you produced (or planted) quota tobacco during those years. 1040x 2010 Taxation of payments to tobacco growers. 1040x 2010   Payments to growers replace ordinary income that would have been earned had the tobacco marketing quota and price support programs continued. 1040x 2010 Individuals will generally report the payments as an Agricultural program payment on Schedule F. 1040x 2010 If you are a landowner who does not materially participate in the operation or management of the farm and are receiving the grower payment because your farm rental income is based on the tobacco grown by a tenant, the grower payment should be reported on Form 4835. 1040x 2010 Self-employment income. 1040x 2010   Payments to growers generally represent self-employment income. 1040x 2010 If the grower is an individual carrying on a trade or business and deriving income (other than farm rental income properly reported on Form 4835) from that trade or business, the payments are net earnings from self-employment. 1040x 2010 Income averaging for farmers. 1040x 2010   Payments to growers who are individuals qualify for farm income averaging. 1040x 2010 Form 1099-G. 1040x 2010   If the amount received in a taxable year is $600 or more, the amount will generally be reported by the USDA on a Form 1099-G. 1040x 2010 Other Payments You must include most other government program payments in income. 1040x 2010 Fertilizer and Lime Include in income the value of fertilizer or lime you receive under a government program. 1040x 2010 How to claim the offsetting deduction is explained under Fertilizer and Lime in chapter 4. 1040x 2010 Improvements If government payments are based on improvements, such as a pollution control facility, you must include them in income. 1040x 2010 You must also capitalize the full cost of the improvement. 1040x 2010 Since you have included the payments in income, they do not reduce your basis. 1040x 2010 However, see Cost-Sharing Exclusion (Improvements) , earlier, for additional information. 1040x 2010 National Tobacco Growers' Settlement Trust Fund Payments If you are a producer, landowner, or tobacco quota owner who receives money from the National Tobacco Growers' Settlement Trust Fund, you must report those payments as income. 1040x 2010 You should receive a Form 1099-MISC, Miscellaneous Income, that shows the payment amount. 1040x 2010 If you produce a tobacco crop, report the payments as income from farming on your Schedule F. 1040x 2010 If you are a landowner or tobacco quota owner who leases tobacco-related property but you do not produce the crop, report the payments as farm rental income on Form 4835. 1040x 2010 Payment to More Than One Person The USDA reports program payments to the IRS. 1040x 2010 It reports a program payment intended for more than one person as having been paid to the person whose identification number is on record for that payment (payee of record). 1040x 2010 If you, as the payee of record, receive a program payment belonging to someone else, such as your landlord, the amount belonging to the other person is a nominee distribution. 1040x 2010 You should file Form 1099-G to report the identity of the actual recipient to the IRS. 1040x 2010 You should also give this information to the recipient. 1040x 2010 You can avoid the inconvenience of unnecessary inquiries about the identity of the recipient if you file this form. 1040x 2010 Report the total amount reported to you as the payee of record on Schedule F, line 4a or 6a. 1040x 2010 However, do not report as a taxable amount on line 4b or 6b any amount belonging to someone else. 1040x 2010 See chapter 16 for information about ordering Form 1099-G. 1040x 2010 Income From Cooperatives If you buy farm supplies through a cooperative, you may receive income from the cooperative in the form of patronage dividends (refunds). 1040x 2010 If you sell your farm products through a cooperative, you may receive either patronage dividends or a per-unit retain certificate, explained later, from the cooperative. 1040x 2010 Form 1099-PATR. 1040x 2010   The cooperative will report the income to you on Form 1099-PATR or a similar form and send a copy to the IRS. 1040x 2010 Form 1099-PATR may also show an alternative minimum tax adjustment that you must include on Form 6251, Alternative Minimum Tax—Individuals, if you are required to file the form. 1040x 2010 For information on the alternative minimum tax, see the Instructions for Form 6251. 1040x 2010 Patronage Dividends You generally report patronage dividends as income on Schedule F, lines 3a and 3b, for the tax year you receive them. 1040x 2010 They include the following items. 1040x 2010 Money paid as a patronage dividend, including cash advances received (for example, from a marketing cooperative). 1040x 2010 The stated dollar value of qualified written notices of allocation. 1040x 2010 The fair market value of other property. 1040x 2010 Do not report as income on line 3b any patronage dividends you receive from expenditures that were not deductible, such as buying personal or family items, capital assets, or depreciable property. 1040x 2010 You must reduce the cost or other basis of these items by the amount of such patronage dividends received. 1040x 2010 Personal items include fuel purchased for personal use, basic local telephone service, and personal long distance calls. 1040x 2010 If you cannot determine what the dividend is for, report it as income on lines 3a and 3b. 1040x 2010 Qualified written notice of allocation. 1040x 2010   If you receive a qualified written notice of allocation as part of a patronage dividend, you must generally include its stated dollar value in your income on Schedule F, lines 3a and 3b, in the year you receive it. 1040x 2010 A written notice of allocation is qualified if at least 20% of the patronage dividend is paid in money or by qualified check and either of the following conditions is met. 1040x 2010 The notice must be redeemable in cash for at least 90 days after it is issued, and you must have received a written notice of your right of redemption at the same time as the written notice of allocation. 1040x 2010 You must have agreed to include the stated dollar value in income in the year you receive the notice by doing one of the following. 1040x 2010 Signing and giving a written agreement to the cooperative. 1040x 2010 Getting or keeping membership in the cooperative after it adopted a bylaw providing that membership constitutes agreement. 1040x 2010 The cooperative must notify you in writing of this bylaw and give you a copy. 1040x 2010 Endorsing and cashing a qualified check paid as part of the same patronage dividend. 1040x 2010 You must cash the check by the 90th day after the close of the payment period for the cooperative's tax year for which the patronage dividend was paid. 1040x 2010 Qualified check. 1040x 2010   A qualified check is any instrument that is redeemable in money and meets both of the following requirements. 1040x 2010 It is part of a patronage dividend that also includes a qualified written notice of allocation for which you met condition 2(c), above. 1040x 2010 It is imprinted with a statement that endorsing and cashing it constitutes the payee's consent to include in income the stated dollar value of any written notices of allocation paid as part of the same patronage dividend. 1040x 2010 Loss on redemption. 1040x 2010   You can deduct on Schedule F, Part II, any loss incurred on the redemption of a qualified written notice of allocation you received in the ordinary course of your farming business. 1040x 2010 The loss is the difference between the stated dollar amount of the qualified written notice you included in income and the amount you received when you redeemed it. 1040x 2010 Nonqualified notice of allocation. 1040x 2010   Do not include the stated dollar value of any nonqualified notice of allocation in income when you receive it. 1040x 2010 Your basis in the notice is zero. 1040x 2010 You must include in income for the tax year of disposition any amount you receive from its sale, redemption, or other disposition. 1040x 2010 Report that amount, up to the stated dollar value of the notice, on Schedule F, lines 3a and 3b. 1040x 2010 However, do not include that amount in your income if the notice resulted from buying or selling capital assets or depreciable property or from buying personal items, as explained in the following discussions. 1040x 2010   If the amount you receive is more than the stated dollar value of the notice, report the excess as the type of income it represents. 1040x 2010 For example, if it represents interest income, report it on your return as interest. 1040x 2010 Buying or selling capital assets or depreciable property. 1040x 2010   Do not include in income patronage dividends from buying capital assets or depreciable property used in your business. 1040x 2010 You must, however, reduce the basis of these assets by the dividends. 1040x 2010 This reduction is taken into account as of the first day of the tax year in which the dividends are received. 1040x 2010 If the dividends are more than your unrecovered basis, reduce the unrecovered basis to zero and include the difference on Schedule F, line 3a, for the tax year you receive them. 1040x 2010   This rule and the exceptions explained below also apply to amounts you receive from the sale, redemption, or other disposition of a nonqualified notice of allocation that resulted from buying or selling capital assets or depreciable property. 1040x 2010 Example. 1040x 2010 On July 1, 2012, Mr. 1040x 2010 Brown, a patron of a cooperative association, bought a machine for his dairy farm business from the association for $2,900. 1040x 2010 The machine has a life of 7 years under MACRS (as provided in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946, Depreciation and Amortization). 1040x 2010 Mr. 1040x 2010 Brown files his return on a calendar year basis. 1040x 2010 For 2012, he claimed a depreciation deduction of $311, using the 10. 1040x 2010 71% depreciation rate from the 150% declining balance, half-year convention table (shown in Table A-14 in Appendix A of Publication 946). 1040x 2010 On July 2, 2013, the cooperative association paid Mr. 1040x 2010 Brown a $300 cash patronage dividend for buying the machine. 1040x 2010 Mr. 1040x 2010 Brown adjusts the basis of the machine and figures his depreciation deduction for 2013 (and later years) as follows. 1040x 2010 Cost of machine on July 1, 2012 $2,900 Minus: 2012 depreciation $311     2013 cash dividend 300 611 Adjusted basis for  depreciation for 2013: $2,289 Depreciation rate: 1 ÷ 6½ (remaining recovery period as of 1/1/2012) = 15. 1040x 2010 38% × 1. 1040x 2010 5 = 23. 1040x 2010 07% Depreciation deduction for 2013 ($2,289 × 23. 1040x 2010 07%) $528 Exceptions. 1040x 2010   If the dividends are for buying or selling capital assets or depreciable property you did not own at any time during the year you received the dividends, you must include them on Schedule F, lines 3a and 3b, unless one of the following rules applies. 1040x 2010 If the dividends relate to a capital asset you held for more than 1 year for which a loss was or would have been deductible, treat them as gain from the sale or exchange of a capital asset held for more than 1 year. 1040x 2010 If the dividends relate to a capital asset for which a loss was not or would not have been deductible, do not report them as income (ordinary or capital gain). 1040x 2010   If the dividends are for selling capital assets or depreciable property during the year you received the dividends, treat them as an additional amount received on the sale. 1040x 2010 Personal purchases. 1040x 2010   Because you cannot deduct the cost of personal, living, or family items, such as supplies, equipment, or services not related to the production of farm income, you can omit from the taxable amount of patronage dividends on Schedule F, line 3b, any dividends from buying those items (and you must reduce the cost or other basis of those items by the amount of the dividends). 1040x 2010 This rule also applies to amounts you receive from the sale, redemption, or other disposition of a nonqualified written notice of allocation resulting from these purchases. 1040x 2010 Per-Unit Retain Certificates A per-unit retain certificate is any written notice that shows the stated dollar amount of a per-unit retain allocation made to you by the cooperative. 1040x 2010 A per-unit retain allocation is an amount paid to patrons for products sold for them that is fixed without regard to the net earnings of the cooperative. 1040x 2010 These allocations can be paid in money, other property, or qualified certificates. 1040x 2010 Per-unit retain certificates issued by a cooperative generally receive the same tax treatment as patronage dividends, discussed earlier. 1040x 2010 Qualified certificates. 1040x 2010   Qualified per-unit retain certificates are those issued to patrons who have agreed to include the stated dollar amount of these certificates in income in the year of receipt. 1040x 2010 The agreement may be made in writing or by getting or keeping membership in a cooperative whose bylaws or charter states that membership constitutes agreement. 1040x 2010 If you receive qualified per-unit retain certificates, include the stated dollar amount of the certificates in income on Schedule F, lines 3a and 3b, for the tax year you receive them. 1040x 2010 Nonqualified certificates. 1040x 2010   Do not include the stated dollar value of a nonqualified per-unit retain certificate in income when you receive it. 1040x 2010 Your basis in the certificate is zero. 1040x 2010 You must include in income any amount you receive from its sale, redemption, or other disposition. 1040x 2010 Report the amount you receive from the disposition as ordinary income on Schedule F, lines 3a and 3b, for the tax year of disposition. 1040x 2010 Cancellation of Debt This section explains the general rule for including canceled debt in income and the exceptions to the general rule. 1040x 2010 For more information on canceled debt, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. 1040x 2010 General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in gross income for tax purposes. 1040x 2010 Discharge of qualified farm indebtedness (defined below) is one of the exceptions to the general rule. 1040x 2010 It is excluded from taxable income (see Exclusions , later). 1040x 2010 Report the canceled amount on Schedule F, line 8, if you incurred the debt in your farming business. 1040x 2010 If the debt is a nonbusiness debt, report the canceled amount as other income on Form 1040, line 21. 1040x 2010 Election to defer income from discharge of indebtedness. 1040x 2010   You can elect to defer income from a discharge of business indebtedness that occurred after 2008 and before 2011. 1040x 2010 Generally, if the election is made, the deferred income is included in gross income ratably over a 5-year period beginning in 2014 (for calendar year taxpayers) and the exclusions listed below do not apply. 1040x 2010 See IRC section 108(i) and Publication 4681 for details. 1040x 2010 Form 1099-C. 1040x 2010   If a federal agency, financial institution, credit union, finance company, or credit card company cancels or forgives your debt of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. 1040x 2010 The amount of debt canceled is shown in box 2. 1040x 2010 Exceptions The following discussion covers some exceptions to the general rule for canceled debt. 1040x 2010 These exceptions apply before the exclusions discussed below. 1040x 2010 Price reduced after purchase. 1040x 2010   If your purchase of property was financed by the seller and the seller reduces the amount of the debt at a time when you are not insolvent and the reduction does not occur in a chapter 11 bankruptcy case, the amount of the debt reduction will be treated as a reduction in the purchase price of the property. 1040x 2010 Reduce your basis in the property by the amount of the reduction in the debt. 1040x 2010 The rules that apply to bankruptcy and insolvency are explained below under Exclusions . 1040x 2010 Deductible debt. 1040x 2010   You do not realize income from a canceled debt to the extent the payment of the debt would have been a deductible expense. 1040x 2010 This exception applies before the price reduction exception discussed above and the bankruptcy and insolvency exclusions discussed next. 1040x 2010 Example. 1040x 2010 You get accounting services for your farm on credit. 1040x 2010 Later, you have trouble paying your farm debts, but you are not bankrupt or insolvent. 1040x 2010 Your accountant forgives part of the amount you owe for the accounting services. 1040x 2010 How you treat the canceled debt depends on your method of accounting. 1040x 2010 Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. 1040x 2010 Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. 1040x 2010 Exclusions Do not include canceled debt in income in the following situations. 1040x 2010 The cancellation takes place in a bankruptcy case under title 11 of the U. 1040x 2010 S. 1040x 2010 Code. 1040x 2010 The cancellation takes place when you are insolvent. 1040x 2010 The canceled debt is a qualified farm debt. 1040x 2010 The canceled debt is a qualified real property business debt (in the case of a taxpayer other than a C corporation). 1040x 2010 See Publication 334, Tax Guide for Small Business, chapter 5. 1040x 2010 The canceled debt is qualified principal residence indebtedness which is discharged after 2006 and before 2014. 1040x 2010 The exclusions do not apply in the following situations: If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations (2), (3), (4), and (5) do not apply. 1040x 2010 If a canceled debt is excluded from income because it takes place when you are insolvent, the exclusions in situations (3) and (4) do not apply to the extent you are insolvent. 1040x 2010 If a canceled debt is excluded from income because it is qualified principal residence indebtedness, the exclusion in situation (2) does not apply unless you elect to apply situation (2) instead of the exclusion for qualified principal residence indebtedness. 1040x 2010 See Form 982 , later, for information on how to claim an exclusion for a canceled debt. 1040x 2010 Debt. 1040x 2010   For this discussion, debt includes any debt for which you are liable or that attaches to property you hold. 1040x 2010 Bankruptcy and Insolvency You can exclude a canceled debt from income if you are bankrupt or to the extent you are insolvent. 1040x 2010 Bankruptcy. 1040x 2010   A bankruptcy case is a case under title 11 of the U. 1040x 2010 S. 1040x 2010 Code if you are under the jurisdiction of the court and the cancellation of the debt is granted by the court or is the result of a plan approved by the court. 1040x 2010   Do not include debt canceled in a bankruptcy case in your income in the year it is canceled. 1040x 2010 Instead, you must use the amount canceled to reduce your tax attributes, explained below under Reduction of tax attributes . 1040x 2010 Insolvency. 1040x 2010   You are insolvent to the extent your liabilities are more than the fair market value of your assets immediately before the cancellation of debt. 1040x 2010   You can exclude canceled debt from gross income up to the amount by which you are insolvent. 1040x 2010 If the canceled debt is more than this amount and the debt qualifies, you can apply the rules for qualified farm debt or qualified real property business debt to the difference. 1040x 2010 Otherwise, you include the difference in gross income. 1040x 2010 Use the amount excluded because of insolvency to reduce any tax attributes, as explained below under Reduction of tax attributes . 1040x 2010 You must reduce the tax attributes under the insolvency rules before applying the rules for qualified farm debt or for qualified real property business debt. 1040x 2010 Example. 1040x 2010 You had a $15,000 debt that was not qualified principal residence debt canceled outside of bankruptcy. 1040x 2010 Immediately before the cancellation, your liabilities totaled $80,000 and your assets totaled $75,000. 1040x 2010 Since your liabilities were more than your assets, you were insolvent to the extent of $5,000 ($80,000 − $75,000). 1040x 2010 You can exclude this amount from income. 1040x 2010 The remaining canceled debt ($10,000) may be subject to the qualified farm debt or qualified real property business debt rules. 1040x 2010 If not, you must include it in income. 1040x 2010 Reduction of tax attributes. 1040x 2010   If you exclude canceled debt from income in a bankruptcy case or during insolvency, you must use the excluded debt to reduce certain tax attributes. 1040x 2010 Order of reduction. 1040x 2010   You must use the excluded canceled debt to reduce the following tax attributes in the order listed unless you elect to reduce the basis of depreciable property first, as explained later. 1040x 2010 Net operating loss (NOL). 1040x 2010 Reduce any NOL for the tax year of the debt cancellation, and then any NOL carryover to that year. 1040x 2010 Reduce the NOL or NOL carryover one dollar for each dollar of excluded canceled debt. 1040x 2010 General business credit carryover. 1040x 2010 Reduce the credit carryover to or from the tax year of the debt cancellation. 1040x 2010 Reduce the carryover 331/3 cents for each dollar of excluded canceled debt. 1040x 2010 Minimum tax credit. 1040x 2010 Reduce the minimum tax credit available at the beginning of the tax year following the tax year of the debt cancellation. 1040x 2010 Reduce the credit 331/3 cents for each dollar of excluded canceled debt. 1040x 2010 Capital loss. 1040x 2010 Reduce any net capital loss for the tax year of the debt cancellation, and then any capital loss carryover to that year. 1040x 2010 Reduce the capital loss or loss carryover one dollar for each dollar of excluded canceled debt. 1040x 2010 Basis. 1040x 2010 Reduce the basis of the property you hold at the beginning of the tax year following the tax year of the debt cancellation in the following order. 1040x 2010 Real property (except inventory) used in your trade or business or held for investment that secured the canceled debt. 1040x 2010 Personal property (except inventory and accounts and notes receivable) used in your trade or business or held for investment that secured the canceled debt. 1040x 2010 Other property (except inventory and accounts and notes receivable) used in your trade or business or held for investment. 1040x 2010 Inventory and accounts and notes receivable. 1040x 2010 Other property. 1040x 2010 Reduce the basis one dollar for each dollar of excluded canceled debt. 1040x 2010 However, the reduction cannot be more than the total basis of property and the amount of money you hold immediately after the debt cancellation minus your total liabilities immediately after the cancellation. 1040x 2010 For allocation rules that apply to basis reductions for multiple canceled debts, see Regulations section 1. 1040x 2010 1017-1(b)(2). 1040x 2010 Also see Electing to reduce the basis of depreciable property