2011 1040ez OnlineIrs E File 2011Download Tax Forms 2011I Need To Amend My 2012 Tax ReturnFree State Tax Forms Online2010 Federal Tax ReturnFree File State Return211 Free Tax Preparation Help Online540ez FormAmmend 2010 TaxesIrs 2012 Tax Forms2012 Tax Form 1040ezFile My 2012 Tax ReturnIrs 2011 Amended Tax ReturnFile State Income Tax OnlyForm 1040ezHow To File Taxes OnlineMyfreetaxes Com SandiegoCan I Efile My 2012 Tax Return1040ez Form 2012Irs 1040 Ez InstructionsFree Fillable State Tax FormsIrs 2012 Tax Forms 1040ezAmend Tax Return 20121040nr Ez FormMilitary Tax Free ZonesFreefilefillableforms ComH And R Block Free EfileWhere Can I File Back Taxes OnlineIrs Form 1040ez InstructionsIrs Form 1040x 20111040x 2011 Free File1040ez Tax FormHow Do I File A 2011 Tax ReturnWhere Can I Get 2012 Federal Tax FormsFiling 2012 TaxesFree Federal Tax Forms 20111040ez Instructions 2010File An Amended Tax Return For 2010Filing An Amended Tax Return
1040x example Publication 3991 - Introductory Material Table of Contents Introduction Introduction All of the changes discussed in this publication resulted from the Job Creation and Worker Assistance Act of 2002. 1040x example This publication highlights tax law changes that took effect retroactively for 2001 and others that take effect in 2002 and later years. 1040x example The chapters are divided into separate sections based on when the changes take effect. 1040x example For example, this publication covers the following topics. 1040x example Tax benefits for the area of New York City damaged in terrorist attacks on September 11, 2001. 1040x example New deduction available for educator expenses. 1040x example Limit on the use of the non-accrual experience method of accounting. 1040x example Pension changes such as the new tax credit for certain pension plan startup costs, an increased SEP contribution limit, figuring 403(b) catch-up contributions, and a provision for deemed IRAs. 1040x example Extension of the welfare-to-work credit and work opportunity credit. 1040x example New 5-year carryback rule for net operating losses (NOLs). 1040x example See the discussion of each topic for more information. 1040x example Certain changes had a major effect on two of the publications we issued for 2001. 1040x example We published supplements to those two publications and they have been included in this publication as follows. 1040x example Chapter 4 contains the supplement to Publication 463, Travel, Entertainment, Gift, and Car Expenses. 1040x example This discusses the increase in the amount of depreciation deduction for certain automobiles. 1040x example Chapter 5 contains the supplement to Publication 946, How To Depreciate Property. 1040x example This discusses the special depreciation allowance for property acquired after September 10, 2001. 1040x example Adjusting your withholding or estimated tax payments for 2002. 1040x example If your tax for 2002 will be more or less than your 2001 tax, you may need to adjust your withholding or estimated tax payments accordingly. 1040x example If your tax will decrease, you can get the benefit of lower taxes throughout the year. 1040x example If you will owe more tax, you can avoid a penalty when you file your tax return. 1040x example See the following table for forms and publications that will help you adjust your withholding or estimated tax payments. 1040x example See chapter 6 for information on ordering forms and publications. 1040x example To adjust your. 1040x example . 1040x example . 1040x example . 1040x example Get Form. 1040x example . 1040x example . 1040x example And Publication. 1040x example . 1040x example . 1040x example Withholding W–4, Employee's Withholding Allowance Certificate 919, How Do I Adjust My Tax Withholding? Estimated tax payments 1040–ES, Estimated Tax for Individuals 505, Tax Withholding and Estimated Tax Photographs of missing children. 1040x example The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 1040x example Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 1040x example You can help bring these children home by looking at the photographs and calling 1–800–THE–LOST (1–800–843–5678) if you recognize a child. 1040x example Comments and suggestions. 1040x example We welcome your comments about this publication. 1040x example You can e-mail us while visiting our web site at www. 1040x example irs. 1040x example gov. 1040x example You can write to us at the following address: Internal Revenue Service Technical Publications Branch W:CAR:MP:FP:P 1111 Constitution Ave. 1040x example NW Washington, DC 20224 We respond to many letters by telephone. 1040x example Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 1040x example Prev Up Next Home More Online Publications
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1040x example 9. 1040x example Dispositions of Property Used in Farming Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. 1040x example Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sale Other Dispositions Other GainsExceptions. 1040x example Amount to report as ordinary income. 1040x example Applicable percentage. 1040x example Amount to report as ordinary income. 1040x example Applicable percentage. 1040x example Introduction When you dispose of property used in your farm business, your taxable gain or loss is usually treated as ordinary income (which is taxed at the same rates as wages and interest income) or capital gain (which is generally taxed at lower rates) under the rules for section 1231 transactions. 1040x example When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. 1040x example Any gain remaining after applying the depreciation recapture rules is a section 1231 gain, which may be taxed as a capital gain. 1040x example Gains and losses from property used in farming are reported on Form 4797, Sales of Business Property. 1040x example Table 9-1 contains examples of items reported on Form 4797 and refers to the part of that form on which they first should be reported. 1040x example Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Other gains Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. 1040x example Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (explained below). 1040x example Their treatment as ordinary or capital gains depends on whether you have a net gain or a net loss from all of your section 1231 transactions in the tax year. 1040x example Table 9-1. 1040x example Where to First Report Certain Items on Form 4797 Type of property Held 1 year or less Held more than 1 year 1 Depreciable trade or business property: a Sold or exchanged at a gain Part II Part III (1245, 1250) b Sold or exchanged at a loss Part II Part I 2 Farmland held less than 10 years for which soil, water, or land clearing expenses were deducted: a Sold at a gain Part II Part III (1252) b Sold at a loss Part II Part I 3 All other farmland Part II Part I 4 Disposition of cost-sharing payment property described in section 126 Part II Part III (1255) 5 Cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less than 24 mos. 1040x example Held 24 mos. 1040x example or more a Sold at a gain Part II Part III (1245) b Sold at a loss Part II Part I c Raised cattle and horses sold at a gain Part II Part I 6 Livestock other than cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less than 12 mos. 1040x example Held 12 mos. 1040x example or more a Sold at a gain Part II Part III (1245) b Sold at a loss Part II Part I c Raised livestock sold at a gain Part II Part I If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). 1040x example Do not take that gain into account as section 1231 gain. 1040x example Section 1231 transactions. 1040x example Gain or loss on the following transactions is subject to section 1231 treatment. 1040x example Sale or exchange of cattle and horses. 1040x example The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 24 months or longer. 1040x example Sale or exchange of other livestock. 1040x example This livestock must be held for draft, breeding, dairy, or sporting purposes and held for 12 months or longer. 1040x example Other livestock includes hogs, mules, sheep, goats, donkeys, and other fur-bearing animals. 1040x example Other livestock does not include poultry. 1040x example Sale or exchange of depreciable personal property. 1040x example This property must be used in your business and held longer than 1 year. 1040x example Generally, property held for the production of rents or royalties is considered to be used in a trade or business. 1040x example Examples of depreciable personal property include farm machinery and trucks. 1040x example It also includes amortizable section 197 intangibles. 1040x example Sale or exchange of real estate. 1040x example This property must be used in your business and held longer than 1 year. 1040x example Examples are your farm or ranch (including barns and sheds). 1040x example Sale or exchange of unharvested crops. 1040x example The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person, and the land must have been held longer than 1 year. 1040x example You cannot keep any right or option to reacquire the land directly or indirectly (other than a right customarily incident to a mortgage or other security transaction). 1040x example Growing crops sold with a leasehold on the land, even if sold to the same person in a single transaction, are not included. 1040x example Distributive share of partnership gains and losses. 1040x example Your distributive share must be from the sale or exchange of property listed above and held longer than 1 year (or for the required period for certain livestock). 1040x example Cutting or disposal of timber. 1040x example Special rules apply if you owned the timber longer than 1 year and elect to treat timber cutting as a sale or exchange, or you enter into a cutting contract, as described in chapter 8 under Timber . 1040x example Condemnation. 1040x example The condemned property (defined in chapter 11) must have been held longer than 1 year. 1040x example It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. 1040x example It cannot be property held for personal use. 1040x example Casualty or theft. 1040x example The casualty or theft must have affected business property, property held for the production of rents or royalties, or investment property (such as notes and bonds). 1040x example You must have held the property longer than 1 year. 1040x example However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. 1040x example Section 1231 does not apply to personal casualty gains and losses. 1040x example See chapter 11 for information on how to treat those gains and losses. 1040x example If the property is not held for the required holding period, the transaction is not subject to section 1231 treatment, and any gain or loss is ordinary income reported in Part II of Form 4797. 1040x example See Table 9-1. 1040x example Property for sale to customers. 1040x example A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. 1040x example If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. 1040x example Treatment as ordinary or capital. 1040x example To determine the treatment of section 1231 gains and losses, combine all of your section 1231 gains and losses for the year. 1040x example If you have a net section 1231 loss, it is an ordinary loss. 1040x example If you have a net section 1231 gain, it is ordinary income up to your nonrecaptured section 1231 losses from previous years, explained next. 1040x example The rest, if any, is long-term capital gain. 1040x example Nonrecaptured section 1231 losses. 1040x example Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain by treating the gain as ordinary income. 1040x example These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. 1040x example Example. 1040x example In 2013, Ben has a $2,000 net section 1231 gain. 1040x example To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. 1040x example From 2008 through 2012 he had the following section 1231 gains and losses. 1040x example Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800 Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. 1040x example 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500) 3) Net section 1231 gain (2012) 1,800 4) Remaining net section 1231 loss from prior 5 years ($700) 5) Gain treated as ordinary income $700 6) Gain treated as long-term capital gain $1,300 His remaining net section 1231 loss from 2010 is completely recaptured in 2013. 1040x example Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if it is otherwise nontaxable) as ordinary income. 1040x example To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. 1040x example For more information, see chapter 3 of Publication 544. 1040x example Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable. 1040x example Any recognized gain that is more than the part that is ordinary income is a section 1231 gain. 1040x example See Treatment as ordinary or capital under Section 1231 Gains and Losses , earlier. 1040x example Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. 1040x example Personal property (either tangible or intangible). 1040x example Other tangible property (except buildings and their structural components) used as any of the following. 1040x example See Buildings and structural components below. 1040x example An integral part of manufacturing, production, or extraction, or of furnishing certain services. 1040x example A research facility in any of the activities in (a). 1040x example A facility in any of the activities in (a) above, for the bulk storage of fungible commodities (discussed later). 1040x example That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. 1040x example Amortization of certified pollution control facilities. 1040x example The section 179 expense deduction. 1040x example Deduction for clean-fuel vehicles and certain refueling property. 1040x example Expenditures to remove architectural and transportation barriers to the handicapped and elderly. 1040x example Certain reforestation expenditures (as described under Reforestation Costs in chapter 7. 1040x example Single purpose agricultural (livestock) or horticultural structures. 1040x example Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. 1040x example Buildings and structural components. 1040x example Section 1245 property does not include buildings and structural components. 1040x example The term building includes a house, barn, warehouse, or garage. 1040x example The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. 1040x example Do not treat a structure that is essentially machinery or equipment as a building or structural component. 1040x example Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. 1040x example The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. 1040x example Structures such as oil and gas storage tanks, grain storage bins, and silos are not treated as buildings, but as section 1245 property. 1040x example Facility for bulk storage of fungible commodities. 1040x example This is a facility used mainly for the bulk storage of fungible commodities. 1040x example Bulk storage means storage of a commodity in a large mass before it is used. 1040x example For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. 1040x example To be fungible, a commodity must be such that one part may be used in place of another. 1040x example Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. 1040x example The depreciation (which includes any section 179 deduction claimed) and amortization allowed or allowable on the property. 1040x example The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). 1040x example For any other disposition of section 1245 property, ordinary income is the lesser of (1) above or the amount by which its fair market value (FMV) is more than its adjusted basis. 1040x example For details, see chapter 3 of Publication 544. 1040x example Use Part III of Form 4797 to figure the ordinary income part of the gain. 1040x example Depreciation claimed on other property or claimed by other taxpayers. 1040x example Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. 1040x example Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. 1040x example For details on exchanges of property that are not taxable, see Like-Kind Exchanges in chapter 8. 1040x example Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift and part of the transfer is a sale or exchange). 1040x example Example. 1040x example Jeff Free paid $120,000 for a tractor in 2012. 1040x example On February 23, 2013, he traded it for a chopper and paid an additional $30,000. 1040x example To figure his depreciation deduction on the chopper for the current year, Jeff continues to use the basis of the tractor as he would have before the trade. 1040x example Jeff can also depreciate the additional $30,000 for the chopper. 1040x example Depreciation and amortization. 1040x example Depreciation and amortization deductions that must be recaptured as ordinary income include (but are not limited to) the following items. 1040x example See Depreciation Recapture in chapter 3 of Publication 544 for more details. 1040x example Ordinary depreciation deductions. 1040x example Section 179 deduction (see chapter 7). 1040x example Any special depreciation allowance. 1040x example Amortization deductions for all the following costs. 1040x example Acquiring a lease. 1040x example Lessee improvements. 1040x example Pollution control facilities. 1040x example Reforestation expenses. 1040x example Section 197 intangibles. 1040x example Qualified disaster expenses. 1040x example Franchises, trademarks, and trade names acquired before August 11, 1993. 1040x example Example. 1040x example You file your returns on a calendar year basis. 1040x example In February 2011, you bought and placed in service for 100% use in your farming business a light-duty truck (5-year property) that cost $10,000. 1040x example You used the half-year convention and your MACRS deductions for the truck were $1,500 in 2011 and $2,550 in 2012. 1040x example You did not claim the section 179 expense deduction for the truck. 1040x example You sold it in May 2013 for $7,000. 1040x example The MACRS deduction in 2013, the year of sale, is $893 (½ of $1,785). 1040x example Figure the gain treated as ordinary income as follows. 1040x example 1) Amount realized $7,000 2) Cost (February 2011) $10,000 3) Depreciation allowed or allowable (MACRS deductions: $1,500 + $2,550 + $893) 4,943 4) Adjusted basis (subtract line 3 from line 2) $5,057 5) Gain realized (subtract line 4 from line 1) 1,943 6) Gain treated as ordinary income (lesser of line 3 or line 5) $1,943 Depreciation allowed or allowable. 1040x example You generally use the greater of the depreciation allowed or allowable when figuring the part of gain to report as ordinary income. 1040x example If, in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. 1040x example If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. 1040x example This treatment applies only when figuring what part of the gain is treated as ordinary income under the rules for section 1245 depreciation recapture. 1040x example Disposition of plants and animals. 1040x example If you elect not to use the uniform capitalization rules (see chapter 6), you must treat any plant you produce as section 1245 property. 1040x example If you have a gain on the property's disposition, you must recapture the pre-productive expenses you would have capitalized if you had not made the election by treating the gain, up to the amount of these expenses, as ordinary income. 1040x example For section 1231 transactions, show these expenses as depreciation on Form 4797, Part III, line 22. 1040x example For plant sales that are reported on Schedule F (1040), Profit or Loss From Farming, this recapture rule does not change the reporting of income because the gain is already ordinary income. 1040x example You can use the farm-price method or the unit-livestock-price method discussed in chapter 2 to figure these expenses. 1040x example Example. 1040x example Janet Maple sold her apple orchard in 2013 for $80,000. 1040x example Her adjusted basis at the time of sale was $60,000. 1040x example She bought the orchard in 2006, but the trees did not produce a crop until 2009. 1040x example Her pre-productive expenses were $6,000. 1040x example She elected not to use the uniform capitalization rules. 1040x example Janet must treat $6,000 of the gain as ordinary income. 1040x example Section 1250 Property Section 1250 property includes all real property subject to an allowance for depreciation that is not and never has been section 1245 property. 1040x example It includes buildings and structural components that are not section 1245 property (discussed earlier). 1040x example It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. 1040x example A fee simple interest in land is not section 1250 property because, like land, it is not depreciable. 1040x example Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable. 1040x example To determine the additional depreciation on section 1250 property, see Depreciation Recapture in chapter 3 of Publication 544. 1040x example You will not have additional depreciation if any of the following apply to the property disposed of. 1040x example You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method and you have held the property longer than 1 year. 1040x example You chose the alternate ACRS (straight line) method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. 1040x example The property was nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made) and you held it longer than 1 year. 1040x example These properties are depreciated using the straight line method. 1040x example Installment Sale If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. 1040x example This applies even if no payments are received in that year. 1040x example If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. 1040x example For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. 1040x example If you dispose of more than one asset in a single transaction, you must separately figure the gain on each asset so that it may be properly reported. 1040x example To do this, allocate the selling price and the payments you receive in the year of sale to each asset. 1040x example Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. 1040x example For more information on installment sales, see chapter 10. 1040x example Other Dispositions Chapter 3 of Publication 544 discusses the tax treatment of the following transfers of depreciable property. 1040x example By gift. 1040x example At death. 1040x example In like-kind exchanges. 1040x example In involuntary conversions. 1040x example Publication 544 also explains how to handle a single transaction involving multiple properties. 1040x example Other Gains This section discusses gain on the disposition of farmland for which you were allowed either of the following. 1040x example Deductions for soil and water conservation expenditures (section 1252 property). 1040x example Exclusions from income for certain cost sharing payments (section 1255 property). 1040x example Section 1252 property. 1040x example If you disposed of farmland you held more than 1 year and less than 10 years at a gain and you were allowed deductions for soil and water conservation expenses for the land, as discussed in chapter 5, you must treat part of the gain as ordinary income and treat the balance as section 1231 gain. 1040x example Exceptions. 1040x example Do not treat gain on the following transactions as gain on section 1252 property. 1040x example Disposition of farmland by gift. 1040x example Transfer of farm property at death (except for income in respect of a decedent). 1040x example For more information, see Regulations section 1. 1040x example 1252-2. 1040x example Amount to report as ordinary income. 1040x example You report as ordinary income the lesser of the following amounts. 1040x example Your gain (determined by subtracting the adjusted basis from the amount realized from a sale, exchange, or involuntary conversion, or the FMV for all other dispositions). 1040x example The total deductions allowed for soil and water conservation expenses multiplied by the applicable percentage, discussed next. 1040x example Applicable percentage. 1040x example The applicable percentage is based on the length of time you held the land. 1040x example If you dispose of your farmland within 5 years after the date you acquired it, the percentage is 100%. 1040x example If you dispose of the land within the 6th through 9th year after you acquired it, the applicable percentage is reduced by 20% a year for each year or part of a year you hold the land after the 5th year. 1040x example If you dispose of the land 10 or more years after you acquired it, the percentage is 0%, and the entire gain is a section 1231 gain. 1040x example Example. 1040x example You acquired farmland on January 19, 2005. 1040x example On October 3, 2013, you sold the land at a $30,000 gain. 1040x example Between January 1 and October 3, 2013, you incur soil and water conservation expenditures of $15,000 for the land that are fully deductible in 2013. 1040x example The applicable percentage is 40% since you sold the land within the 8th year after you acquired it. 1040x example You treat $6,000 (40% of $15,000) of the $30,000 gain as ordinary income and the $24,000 balance as a section 1231 gain. 1040x example Section 1255 property. 1040x example If you receive certain cost-sharing payments on property and you exclude those payments from income (as discussed in chapter 3), you may have to treat part of any gain as ordinary income and treat the balance as a section 1231 gain. 1040x example If you chose not to exclude these payments, you will not have to recognize ordinary income under this provision. 1040x example Amount to report as ordinary income. 1040x example You report as ordinary income the lesser of the following amounts. 1040x example The applicable percentage of the total excluded cost-sharing payments. 1040x example The gain on the disposition of the property. 1040x example You do not report ordinary income under this rule to the extent the gain is recognized as ordinary income under sections 1231 through 1254, 1256, and 1257. 1040x example However, if applicable, gain reported under this rule must be reported regardless of any contrary provisions (including nonrecognition provisions) under any other section. 1040x example Applicable percentage. 1040x example The applicable percentage of the excluded cost-sharing payments to be reported as ordinary income is based on the length of time you hold the property after receiving the payments. 1040x example If the property is held less than 10 years after you receive the payments, the percentage is 100%. 1040x example After 10 years, the percentage is reduced by 10% a year, or part of a year, until the rate is 0%. 1040x example Form 4797, Part III. 1040x example Use Form 4797, Part III, to figure the ordinary income part of a gain from the sale, exchange, or involuntary conversion of section 1252 property and section 1255 property. 1040x example Prev Up Next Home More Online Publications