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2010 Turbotax

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2010 Turbotax

2010 turbotax 1. 2010 turbotax   Filing Information Table of Contents What's New Reminders Introduction Do I Have To File a Return?Individuals—In General Dependents Certain Children Under Age 19 or Full-Time Students Self-Employed Persons Aliens Who Should File Which Form Should I Use?Form 1040EZ Form 1040A Form 1040 Does My Return Have To Be on Paper?IRS e-file When Do I Have To File?Private delivery services. 2010 turbotax Extensions of Time To File How Do I Prepare My Return?When Do I Report My Income and Expenses? Social Security Number (SSN) Presidential Election Campaign Fund Computations Attachments Third Party Designee Signatures Paid Preparer Refunds Amount You Owe Gift To Reduce Debt Held by the Public Name and Address Where Do I File? What Happens After I File?What Records Should I Keep? Why Keep Records? Kinds of Records to Keep Basic Records How Long to Keep Records Refund Information Interest on Refunds Change of Address What If I Made a Mistake?Amended Returns and Claims for Refund Penalties Identity Theft What's New Filing status for same-sex married couple. 2010 turbotax   If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. 2010 turbotax See Publication 501 for more information. 2010 turbotax Additional Medicare Tax. 2010 turbotax  Beginning in 2013, a 0. 2010 turbotax 9% Additional Medicare Tax applies to Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income over a threshold amount based on your filing status. 2010 turbotax For more information, see the Instructions for Form 1040, line 60, and Form 8959. 2010 turbotax Net Investment Income Tax. 2010 turbotax  Beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). 2010 turbotax NIIT is a 3. 2010 turbotax 8% tax on the lesser of net investment income or the excess of your modified adjusted gross income over a threshold amount. 2010 turbotax For more information, see the Instructions for Form 1040, line 60, and Form 8960. 2010 turbotax Refundable credit for prior year minimum tax. 2010 turbotax  The refundable portion of the credit for prior year minimum tax is no longer available. 2010 turbotax Who must file. 2010 turbotax  Generally, the amount of income you can receive before you must file a return has been increased. 2010 turbotax See Table 1-1, Table 1-2, and Table 1-3 for the specific amounts. 2010 turbotax Reminders File online. 2010 turbotax  Rather than filing a return on paper, you may be able to file electronically using IRS e-file. 2010 turbotax Create your own personal identification number (PIN) and file a completely paperless tax return. 2010 turbotax For more information, see Does My Return Have To Be on Paper , later. 2010 turbotax Change of address. 2010 turbotax  If you change your address, you should notify the IRS. 2010 turbotax You can use Form 8822 to notify the IRS of the change. 2010 turbotax See Change of Address , later, under What Happens After I File. 2010 turbotax Enter your social security number. 2010 turbotax  You must enter your social security number (SSN) in the spaces provided on your tax return. 2010 turbotax If you file a joint return, enter the SSNs in the same order as the names. 2010 turbotax Direct deposit of refund. 2010 turbotax  Instead of getting a paper check, you may be able to have your refund deposited directly into your account at a bank or other financial institution. 2010 turbotax See Direct Deposit under Refunds, later. 2010 turbotax If you choose direct deposit of your refund, you may be able to split the refund among two or three accounts. 2010 turbotax Pay online or by phone. 2010 turbotax  If you owe additional tax, you may be able to pay online or by phone. 2010 turbotax See How To Pay , later. 2010 turbotax Installment agreement. 2010 turbotax  If you cannot pay the full amount due with your return, you may ask to make monthly installment payments. 2010 turbotax See Installment Agreement , later, under Amount You Owe. 2010 turbotax You may be able to apply online for a payment agreement if you owe federal tax, interest, and penalties. 2010 turbotax Automatic 6-month extension. 2010 turbotax  You can get an automatic 6-month extension to file your tax return if, no later than the date your return is due, you file Form 4868, Application for Automatic Extension of Time To File U. 2010 turbotax S. 2010 turbotax Individual Income Tax Return. 2010 turbotax See Automatic Extension , later. 2010 turbotax Service in combat zone. 2010 turbotax  You are allowed extra time to take care of your tax matters if you are a member of the Armed Forces who served in a combat zone, or if you served in the combat zone in support of the Armed Forces. 2010 turbotax See Individuals Serving in Combat Zone , later, under When Do I Have To File. 2010 turbotax Adoption taxpayer identification number. 2010 turbotax  If a child has been placed in your home for purposes of legal adoption and you will not be able to get a social security number for the child in time to file your return, you may be able to get an adoption taxpayer identification number (ATIN). 2010 turbotax For more information, see Social Security Number (SSN) , later. 2010 turbotax Taxpayer identification number for aliens. 2010 turbotax  If you or your dependent is a nonresident or resident alien who does not have and is not eligible to get a social security number, file Form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS. 2010 turbotax For more information, see Social Security Number (SSN) , later. 2010 turbotax Frivolous tax submissions. 2010 turbotax  The IRS has published a list of positions that are identified as frivolous. 2010 turbotax The penalty for filing a frivolous tax return is $5,000. 2010 turbotax Also, the $5,000 penalty will apply to other specified frivolous submissions. 2010 turbotax For more information, see Civil Penalties , later. 2010 turbotax Introduction This chapter discusses the following topics. 2010 turbotax Whether you have to file a return. 2010 turbotax Which form to use. 2010 turbotax How to file electronically. 2010 turbotax When, how, and where to file your return. 2010 turbotax What happens if you pay too little or too much tax. 2010 turbotax What records you should keep and how long you should keep them. 2010 turbotax How you can change a return you have already filed. 2010 turbotax Do I Have To File a Return? You must file a federal income tax return if you are a citizen or resident of the United States or a resident of Puerto Rico and you meet the filing requirements for any of the following categories that apply to you. 2010 turbotax Individuals in general. 2010 turbotax (There are special rules for surviving spouses, executors, administrators, legal representatives, U. 2010 turbotax S. 2010 turbotax citizens and residents living outside the United States, residents of Puerto Rico, and individuals with income from U. 2010 turbotax S. 2010 turbotax possessions. 2010 turbotax ) Dependents. 2010 turbotax Certain children under age 19 or full-time students. 2010 turbotax Self-employed persons. 2010 turbotax Aliens. 2010 turbotax The filing requirements for each category are explained in this chapter. 2010 turbotax The filing requirements apply even if you do not owe tax. 2010 turbotax Even if you do not have to file a return, it may be to your advantage to do so. 2010 turbotax See Who Should File, later. 2010 turbotax File only one federal income tax return for the year regardless of how many jobs you had, how many Forms W-2 you received, or how many states you lived in during the year. 2010 turbotax Do not file more than one original return for the same year, even if you have not gotten your refund or have not heard from the IRS since you filed. 2010 turbotax Individuals—In General If you are a U. 2010 turbotax S. 2010 turbotax citizen or resident, whether you must file a return depends on three factors: Your gross income, Your filing status, and Your age. 2010 turbotax To find out whether you must file, see Table 1-1, Table 1-2, and Table 1-3. 2010 turbotax Even if no table shows that you must file, you may need to file to get money back. 2010 turbotax (See Who Should File , later. 2010 turbotax ) Gross income. 2010 turbotax   This includes all income you receive in the form of money, goods, property, and services that is not exempt from tax. 2010 turbotax It also includes income from sources outside the United States or from the sale of your main home (even if you can exclude all or part of it). 2010 turbotax Include part of your social security benefits if: You were married, filing a separate return, and you lived with your spouse at any time during 2013; or Half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). 2010 turbotax If either (1) or (2) applies, see the instructions for Form 1040 or 1040A, or Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to figure the social security benefits you must include in gross income. 2010 turbotax   Common types of income are discussed in Part Two of this publication. 2010 turbotax Community income. 2010 turbotax   If you are married and your permanent home is in a community property state, half of any income described by state law as community income may be considered yours. 2010 turbotax This affects your federal taxes, including whether you must file if you do not file a joint return with your spouse. 2010 turbotax See Publication 555, Community Property, for more information. 2010 turbotax Nevada, Washington, and California domestic partners. 2010 turbotax   A registered domestic partner in Nevada, Washington, or California generally must report half the combined community income of the individual and his or her domestic partner. 2010 turbotax See Publication 555. 2010 turbotax Self-employed individuals. 2010 turbotax   If you are self-employed, your gross income includes the amount on line 7 of Schedule C (Form 1040), Profit or Loss From Business; line 1 of Schedule C-EZ (Form 1040), Net Profit From Business; and line 9 of Schedule F (Form 1040), Profit or Loss From Farming. 2010 turbotax See Self-Employed Persons , later, for more information about your filing requirements. 2010 turbotax    If you do not report all of your self-employment income, your social security benefits may be lower when you retire. 2010 turbotax Filing status. 2010 turbotax   Your filing status depends on whether you are single or married and on your family situation. 2010 turbotax Your filing status is determined on the last day of your tax year, which is December 31 for most taxpayers. 2010 turbotax See chapter 2 for an explanation of each filing status. 2010 turbotax Age. 2010 turbotax   If you are 65 or older at the end of the year, you generally can have a higher amount of gross income than other taxpayers before you must file. 2010 turbotax See Table 1-1. 2010 turbotax You are considered 65 on the day before your 65th birthday. 2010 turbotax For example, if your 65th birthday is on January 1, 2014, you are considered 65 for 2013. 2010 turbotax Table 1-1. 2010 turbotax 2013 Filing Requirements for Most Taxpayers IF your filing status is. 2010 turbotax . 2010 turbotax . 2010 turbotax AND at the end of 2013 you  were. 2010 turbotax . 2010 turbotax . 2010 turbotax * THEN file a return if  your gross income  was at least. 2010 turbotax . 2010 turbotax . 2010 turbotax ** single under 65 $10,000     65 or older $11,500   married filing jointly*** under 65 (both spouses) $20,000     65 or older (one spouse) $21,200     65 or older (both spouses) $22,400   married filing separately any age $3,900   head of household under 65 $12,850     65 or older $14,350   qualifying widow(er) with dependent child under 65 $16,100   65 or older $17,300   * If you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. 2010 turbotax ** Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). 2010 turbotax Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time during 2013 or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). 2010 turbotax If (a) or (b) applies, see the Instructions for Form 1040 or 1040A or Publication 915 to figure the taxable part of social security benefits you must include in gross income. 2010 turbotax Gross income includes gains, but not losses, reported on Form 8949 or Schedule D. 2010 turbotax Gross income from a business means, for example, the amount on Schedule C, line 7, or Schedule F, line 9. 2010 turbotax But, in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C, line 7, or Schedule F, line 9. 2010 turbotax *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900, you must file a return regardless of your age. 2010 turbotax Surviving Spouses, Executors, Administrators, and Legal Representatives You must file a final return for a decedent (a person who died) if both of the following are true. 2010 turbotax You are the surviving spouse, executor, administrator, or legal representative. 2010 turbotax The decedent met the filing requirements at the date of death. 2010 turbotax For more information on rules for filing a decedent's final return, see Publication 559, Survivors, Executors, and Administrators. 2010 turbotax U. 2010 turbotax S. 2010 turbotax Citizens and Resident Aliens Living Abroad To determine whether you must file a return, include in your gross income any income you received abroad, including any income you can exclude under the foreign earned income exclusion. 2010 turbotax For information on special tax rules that may apply to you, see Publication 54, Tax Guide for U. 2010 turbotax S. 2010 turbotax Citizens and Resident Aliens Abroad. 2010 turbotax It is available online and at most U. 2010 turbotax S. 2010 turbotax embassies and consulates. 2010 turbotax See How To Get Tax Help in the back of this publication. 2010 turbotax Residents of Puerto Rico If you are a U. 2010 turbotax S. 2010 turbotax citizen and also a bona fide resident of Puerto Rico, you generally must file a U. 2010 turbotax S. 2010 turbotax income tax return for any year in which you meet the income requirements. 2010 turbotax This is in addition to any legal requirement you may have to file an income tax return with Puerto Rico. 2010 turbotax If you are a bona fide resident of Puerto Rico for the entire year, your U. 2010 turbotax S. 2010 turbotax gross income does not include income from sources within Puerto Rico. 2010 turbotax It does, however, include any income you received for your services as an employee of the United States or a U. 2010 turbotax S. 2010 turbotax agency. 2010 turbotax If you receive income from Puerto Rican sources that is not subject to U. 2010 turbotax S. 2010 turbotax tax, you must reduce your standard deduction. 2010 turbotax As a result, the amount of income you must have before you are required to file a U. 2010 turbotax S. 2010 turbotax income tax return is lower than the applicable amount in Table 1-1 or Table 1-2. 2010 turbotax For more information, see Publication 570, Tax Guide for Individuals With Income From U. 2010 turbotax S. 2010 turbotax Possessions. 2010 turbotax Individuals With Income From U. 2010 turbotax S. 2010 turbotax Possessions If you had income from Guam, the Commonwealth of the Northern Mariana Islands, American Samoa, or the U. 2010 turbotax S. 2010 turbotax Virgin Islands, special rules may apply when determining whether you must file a U. 2010 turbotax S. 2010 turbotax federal income tax return. 2010 turbotax In addition, you may have to file a return with the individual island government. 2010 turbotax See Publication 570 for more information. 2010 turbotax Dependents If you are a dependent (one who meets the dependency tests in chapter 3), see Table 1-2 to find out whether you must file a return. 2010 turbotax You also must file if your situation is described in Table 1-3. 2010 turbotax Responsibility of parent. 2010 turbotax   Generally, a child is responsible for filing his or her own tax return and for paying any tax on the return. 2010 turbotax If a dependent child must file an income tax return but cannot file due to age or any other reason, then a parent, guardian, or other legally responsible person must file it for the child. 2010 turbotax If the child cannot sign the return, the parent or guardian must sign the child's name followed by the words “By (your signature), parent for minor child. 2010 turbotax ” Child's earnings. 2010 turbotax   Amounts a child earns by performing services are included in his or her gross income and not the gross income of the parent. 2010 turbotax This is true even if under local law the child's parent has the right to the earnings and may actually have received them. 2010 turbotax But if the child does not pay the tax due on this income, the parent is liable for the tax. 2010 turbotax Certain Children Under Age 19 or Full-Time Students If a child's only income is interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends), the child was under age 19 at the end of 2013 or was a full-time student under age 24 at the end of 2013, and certain other conditions are met, a parent can elect to include the child's income on the parent's return. 2010 turbotax If this election is made, the child does not have to file a return. 2010 turbotax See Parent's Election To Report Child's Interest and Dividends in chapter 31. 2010 turbotax Self-Employed Persons You are self-employed if you: Carry on a trade or business as a sole proprietor, Are an independent contractor, Are a member of a partnership, or Are in business for yourself in any other way. 2010 turbotax Self-employment can include work in addition to your regular full-time business activities, such as certain part-time work you do at home or in addition to your regular job. 2010 turbotax You must file a return if your gross income is at least as much as the filing requirement amount for your filing status and age (shown in Table 1-1). 2010 turbotax Also, you must file Form 1040 and Schedule SE (Form 1040), Self-Employment Tax, if: Your net earnings from self-employment (excluding church employee income) were $400 or more, or You had church employee income of $108. 2010 turbotax 28 or more. 2010 turbotax (See Table 1-3. 2010 turbotax ) Use Schedule SE (Form 1040) to figure your self-employment tax. 2010 turbotax Self-employment tax is comparable to the social security and Medicare tax withheld from an employee's wages. 2010 turbotax For more information about this tax, see Publication 334, Tax Guide for Small Business. 2010 turbotax Employees of foreign governments or international organizations. 2010 turbotax   If you are a U. 2010 turbotax S. 2010 turbotax citizen who works in the United States for an international organization, a foreign government, or a wholly owned instrumentality of a foreign government, and your employer is not required to withhold social security and Medicare taxes from your wages, you must include your earnings from services performed in the United States when figuring your net earnings from self-employment. 2010 turbotax Ministers. 2010 turbotax   You must include income from services you performed as a minister when figuring your net earnings from self-employment, unless you have an exemption from self-employment tax. 2010 turbotax This also applies to Christian Science practitioners and members of a religious order who have not taken a vow of poverty. 2010 turbotax For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. 2010 turbotax Table 1-2. 2010 turbotax 2013 Filing Requirements for Dependents See chapter 3 to find out if someone can claim you as a dependent. 2010 turbotax If your parents (or someone else) can claim you as a dependent, use this table to see if you must file a return. 2010 turbotax (See Table 1-3 for other situations when you must file. 2010 turbotax ) In this table, earned income includes salaries, wages, tips, and professional fees. 2010 turbotax It also includes taxable scholarship and fellowship grants. 2010 turbotax (See Scholarships and fellowships in chapter 12. 2010 turbotax ) Unearned income includes investment-type income such as taxable interest, ordinary dividends, and capital gain distributions. 2010 turbotax It also includes unemployment compensation, taxable social security benefits, pensions, annuities, cancellation of debt, and distributions of unearned income from a trust. 2010 turbotax Gross income is the total of your earned and unearned income. 2010 turbotax   Single dependents—Were you either age 65 or older or blind? □ No. 2010 turbotax You must file a return if any of the following apply. 2010 turbotax     • Your unearned income was more than $1,000. 2010 turbotax     • Your earned income was more than $6,100. 2010 turbotax     • Your gross income was more than the larger of:       • $1,000, or       • Your earned income (up to $5,750) plus $350. 2010 turbotax □ Yes. 2010 turbotax You must file a return if any of the following apply. 2010 turbotax     • Your unearned income was more than $2,500 ($4,000 if 65 or older and blind). 2010 turbotax     • Your earned income was more than $7,600 ($9,100 if 65 or older and blind). 2010 turbotax     • Your gross income was more than the larger of:       • $2,500 ($4,000 if 65 or older and blind), or       • Your earned income (up to $5,750) plus $1,850 ($3,350 if 65 or older and blind). 2010 turbotax Married dependents—Were you either age 65 or older or blind? □ No. 2010 turbotax You must file a return if any of the following apply. 2010 turbotax     • Your unearned income was more than $1,000. 2010 turbotax     • Your earned income was more than $6,100. 2010 turbotax     • Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. 2010 turbotax     • Your gross income was more than the larger of:       • $1,000, or       • Your earned income (up to $5,750) plus $350. 2010 turbotax □ Yes. 2010 turbotax You must file a return if any of the following apply. 2010 turbotax     • Your unearned income was more than $2,200 ($3,400 if 65 or older and blind). 2010 turbotax     • Your earned income was more than $7,300 ($8,500 if 65 or older and blind). 2010 turbotax     • Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. 2010 turbotax     • Your gross income was more than the larger of:       • $2,200 ($3,400 if 65 or older and blind), or       • Your earned income (up to $5,750) plus $1,550 ($2,750 if 65 or older and blind). 2010 turbotax Aliens Your status as an alien—resident, nonresident, or dual-status—determines whether and how you must file an income tax return. 2010 turbotax The rules used to determine your alien status are discussed in Publication 519, U. 2010 turbotax S. 2010 turbotax Tax Guide for Aliens. 2010 turbotax Resident alien. 2010 turbotax   If you are a resident alien for the entire year, you must file a tax return following the same rules that apply to U. 2010 turbotax S. 2010 turbotax citizens. 2010 turbotax Use the forms discussed in this publication. 2010 turbotax Nonresident alien. 2010 turbotax   If you are a nonresident alien, the rules and tax forms that apply to you are different from those that apply to U. 2010 turbotax S. 2010 turbotax citizens and resident aliens. 2010 turbotax See Publication 519 to find out if U. 2010 turbotax S. 2010 turbotax income tax laws apply to you and which forms you should file. 2010 turbotax Dual-status taxpayer. 2010 turbotax   If you are a resident alien for part of the tax year and a nonresident alien for the rest of the year, you are a dual-status taxpayer. 2010 turbotax Different rules apply for each part of the year. 2010 turbotax For information on dual-status taxpayers, see Publication 519. 2010 turbotax Table 1-3. 2010 turbotax Other Situations When You Must File a 2013 Return You must file a return if any of the four conditions below apply for 2013. 2010 turbotax 1. 2010 turbotax   You owe any special taxes, including any of the following. 2010 turbotax   a. 2010 turbotax Alternative minimum tax. 2010 turbotax   b. 2010 turbotax Additional tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account. 2010 turbotax But if you are filing a return only because you owe this tax, you can file Form 5329 by itself. 2010 turbotax   c. 2010 turbotax Household employment taxes. 2010 turbotax But if you are filing a return only because you owe this tax, you can file Schedule H by itself. 2010 turbotax   d. 2010 turbotax Social security and Medicare tax on tips you did not report to your employer or on wages you received from an employer who did not withhold these taxes. 2010 turbotax   e. 2010 turbotax Recapture of first-time homebuyer credit. 2010 turbotax   f. 2010 turbotax Write-in taxes, including uncollected social security and Medicare or RRTA tax on tips you reported to your employer or on group-term life insurance and additional taxes on health savings accounts. 2010 turbotax   g. 2010 turbotax Recapture taxes. 2010 turbotax 2. 2010 turbotax   You (or your spouse, if filing jointly) received HSA, Archer MSA, or Medicare Advantage MSA distributions. 2010 turbotax 3. 2010 turbotax   You had net earnings from self-employment of at least $400. 2010 turbotax 4. 2010 turbotax   You had wages of $108. 2010 turbotax 28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes. 2010 turbotax Who Should File Even if you do not have to file, you should file a federal income tax return to get money back if any of the following conditions apply. 2010 turbotax You had federal income tax withheld or made estimated tax payments. 2010 turbotax You qualify for the earned income credit. 2010 turbotax See chapter 36 for more information. 2010 turbotax You qualify for the additional child tax credit. 2010 turbotax See chapter 34 for more information. 2010 turbotax You qualify for the health coverage tax credit. 2010 turbotax See chapter 37 for more information. 2010 turbotax You qualify for the American opportunity credit. 2010 turbotax See chapter 35 for more information. 2010 turbotax You qualify for the credit for federal tax on fuels. 2010 turbotax See chapter 37 for more information. 2010 turbotax Which Form Should I Use? You must use one of three forms to file your return: Form 1040EZ, Form 1040A, or Form 1040. 2010 turbotax (But also see Does My Return Have To Be on Paper , later. 2010 turbotax ) See the discussion under Form 1040 for when you must use that form. 2010 turbotax Form 1040EZ Form 1040EZ is the simplest form to use. 2010 turbotax You can use Form 1040EZ if all of the following apply. 2010 turbotax    Your filing status is single or married filing jointly. 2010 turbotax If you were a nonresident alien at any time in 2013, your filing status must be married filing jointly. 2010 turbotax You (and your spouse if married filing a joint return) were under age 65 and not blind at the end of 2013. 2010 turbotax If you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. 2010 turbotax You do not claim any dependents. 2010 turbotax Your taxable income is less than $100,000. 2010 turbotax Your income is only from wages, salaries, tips, unemployment compensation, Alaska Permanent Fund dividends, taxable scholarship and fellowship grants, and taxable interest of $1,500 or less. 2010 turbotax You do not claim any adjustments to income, such as a deduction for IRA contributions or student loan interest. 2010 turbotax You do not claim any credits other than the earned income credit. 2010 turbotax You do not owe any household employment taxes on wages you paid to a household employee. 2010 turbotax If you earned tips, they are included in boxes 5 and 7 of your Form W-2. 2010 turbotax You are not a debtor in a chapter 11 bankruptcy case filed after October 16, 2005. 2010 turbotax   You must meet all of these requirements to use Form 1040EZ. 2010 turbotax If you do not, you must use Form 1040A or Form 1040. 2010 turbotax Figuring tax. 2010 turbotax   On Form 1040EZ, you can use only the tax table to figure your income tax. 2010 turbotax You cannot use Form 1040EZ to report any other tax. 2010 turbotax Form 1040A If you do not qualify to use Form 1040EZ, you may be able to use Form 1040A. 2010 turbotax You can use Form 1040A if all of the following apply. 2010 turbotax    Your income is only from: Wages, salaries, and tips, Interest, Ordinary dividends (including Alaska Permanent Fund dividends), Capital gain distributions, IRA distributions, Pensions and annuities, Unemployment compensation, Taxable social security and railroad retirement benefits, and Taxable scholarship and fellowship grants. 2010 turbotax If you receive a capital gain distribution that includes unrecaptured section 1250 gain, section 1202 gain, or collectibles (28%) gain, you cannot use Form 1040A. 2010 turbotax You must use Form 1040. 2010 turbotax Your taxable income is less than $100,000. 2010 turbotax Your adjustments to income are for only the following items. 2010 turbotax Educator expenses. 2010 turbotax IRA deduction. 2010 turbotax Student loan interest deduction. 2010 turbotax Tuition and fees. 2010 turbotax You do not itemize your deductions. 2010 turbotax You claim only the following tax credits. 2010 turbotax The credit for child and dependent care expenses. 2010 turbotax (See chapter 32. 2010 turbotax ) The credit for the elderly or the disabled. 2010 turbotax (See chapter 33. 2010 turbotax ) The education credits. 2010 turbotax (See chapter 35. 2010 turbotax ) The retirement savings contribution credit. 2010 turbotax (See chapter 37. 2010 turbotax ) The child tax credit. 2010 turbotax (See chapter 34. 2010 turbotax ) The earned income credit. 2010 turbotax (See chapter 36. 2010 turbotax ) The additional child tax credit. 2010 turbotax (See chapter 34. 2010 turbotax ) You did not have an alternative minimum tax adjustment on stock you acquired from the exercise of an incentive stock option. 2010 turbotax (See Publication 525, Taxable and Nontaxable Income. 2010 turbotax )   You can also use Form 1040A if you received employer-provided dependent care benefits or if you owe tax from the recapture of an education credit or the alternative minimum tax. 2010 turbotax   You must meet all these requirements to use Form 1040A. 2010 turbotax If you do not, you must use Form 1040. 2010 turbotax Form 1040 If you cannot use Form 1040EZ or Form 1040A, you must use Form 1040. 2010 turbotax You can use Form 1040 to report all types of income, deductions, and credits. 2010 turbotax You may pay less tax by filing Form 1040 because you can take itemized deductions, some adjustments to income, and credits you cannot take on Form 1040A or Form 1040EZ. 2010 turbotax You must use Form 1040 if any of the following apply. 2010 turbotax    Your taxable income is $100,000 or more. 2010 turbotax You itemize your deductions on Schedule A. 2010 turbotax You had income that cannot be reported on Form 1040EZ or Form 1040A, including tax-exempt interest from private activity bonds issued after August 7, 1986. 2010 turbotax You claim any adjustments to gross income other than the adjustments listed earlier under Form 1040A. 2010 turbotax Your Form W-2, box 12, shows uncollected employee tax (social security and Medicare tax) on tips (see chapter 6) or group-term life insurance (see chapter 5). 2010 turbotax You received $20 or more in tips in any 1 month and did not report all of them to your employer. 2010 turbotax (See chapter 6. 2010 turbotax ) You were a bona fide resident of Puerto Rico and exclude income from sources in Puerto Rico. 2010 turbotax You claim any credits other than the credits listed earlier under Form 1040A. 2010 turbotax You owe the excise tax on insider stock compensation from an expatriated corporation. 2010 turbotax Your Form W-2 shows an amount in box 12 with a code Z. 2010 turbotax You had a qualified health savings account funding distribution from your IRA. 2010 turbotax You are an employee and your employer did not withhold social security and Medicare tax. 2010 turbotax You have to file other forms with your return to report certain exclusions, taxes, or transactions, such as Form 8959 or Form 8960. 2010 turbotax You are a debtor in a bankruptcy case filed after October 16, 2005. 2010 turbotax You must repay the first-time homebuyer credit. 2010 turbotax You have adjusted gross income of more than $150,000 and must reduce the dollar amount of your exemptions. 2010 turbotax Does My Return Have To Be on Paper? You may be able to file a paperless return using IRS e-file (electronic filing). 2010 turbotax If your 2013 adjusted gross income (AGI) is less than a certain amount, you are eligible for Free File. 2010 turbotax See your tax return instructions for details. 2010 turbotax If you do not qualify for Free File, then you should check out IRS. 2010 turbotax gov for low-cost e-file options or Free File Fillable Forms. 2010 turbotax IRS e-file Table 1-4 lists the benefits of IRS e-file. 2010 turbotax IRS e-file uses automation to replace most of the manual steps needed to process paper returns. 2010 turbotax As a result, the processing of e-file returns is faster and more accurate than the processing of paper returns. 2010 turbotax However, as with a paper return, you are responsible for making sure your return contains accurate information and is filed on time. 2010 turbotax Using e-file does not affect your chances of an IRS examination of your return. 2010 turbotax Free File Fillable Forms. 2010 turbotax   If you do not need the help of a tax preparer, then Free File Fillable Forms may be for you. 2010 turbotax These forms: Do not have an income requirement so everyone is eligible, Are easy to use, Perform basic math calculations, Are available only at IRS. 2010 turbotax gov, and Apply only to a federal tax return. 2010 turbotax Electronic return signatures. 2010 turbotax   To file your return electronically, you must sign the return electronically using a personal identification number (PIN). 2010 turbotax If you are filing online, you must use a Self-Select PIN. 2010 turbotax If you are filing electronically using a tax practitioner, you can use a Self-Select PIN or a Practitioner PIN. 2010 turbotax Self-Select PIN. 2010 turbotax   The Self-Select PIN method allows you to create your own PIN. 2010 turbotax If you are married filing jointly, you and your spouse will each need to create a PIN and enter these PINs as your electronic signatures. 2010 turbotax   A PIN is any combination of five digits you choose except five zeros. 2010 turbotax If you use a PIN, there is nothing to sign and nothing to mail—not even your Forms W-2. 2010 turbotax   To verify your identity, you will be prompted to enter your adjusted gross income (AGI) from your originally filed 2012 federal income tax return, if applicable. 2010 turbotax Do not use your AGI from an amended return (Form 1040X) or a math error correction made by the IRS. 2010 turbotax AGI is the amount shown on your 2012 Form 1040, line 38; Form 1040A, line 22; or Form 1040EZ, line 4. 2010 turbotax If you do not have your 2012 income tax return, you can quickly request a transcript by using our automated self-service tool. 2010 turbotax Visit us at IRS. 2010 turbotax gov and click on Order a Return or Account Transcript or call 1-800-908-9946 to get a free transcript of your return. 2010 turbotax (If you filed electronically last year, you may use your prior year PIN to verify your identity instead of your prior year AGI. 2010 turbotax The prior year PIN is the five digit PIN you used to electronically sign your 2012 return. 2010 turbotax ) You will also be prompted to enter your date of birth. 2010 turbotax Table 1-4. 2010 turbotax Benefits of IRS e-file • Free File allows qualified taxpayers to prepare and e-file their own tax returns for free. 2010 turbotax • Free File is available in English and Spanish. 2010 turbotax • Free File is available online 24 hours a day, 7 days a week. 2010 turbotax • Get your refund faster by e-filing using Direct Deposit. 2010 turbotax • Sign electronically with a secure self-selected PIN and file a completely paperless return. 2010 turbotax • Receive an acknowledgement that your return was received and accepted. 2010 turbotax • If you owe, you can e-file and pay electronically either online or by phone, using your bank account or a credit or debit card. 2010 turbotax You can also file a return early and pay the amount you owe by the due date of your return. 2010 turbotax • Save time by preparing and e-filing federal and state returns together. 2010 turbotax • IRS computers quickly and automatically check for errors or other missing information. 2010 turbotax • Help the environment, use less paper, and save taxpayer money—it costs less to process an e-filed return than a paper return. 2010 turbotax You cannot use the Self-Select PIN method if you are a first-time filer under age 16 at the end of 2013. 2010 turbotax If you cannot locate your prior year AGI or prior year PIN, use the Electronic Filing PIN Request. 2010 turbotax This can be found at IRS. 2010 turbotax gov. 2010 turbotax Click on Request an Electronic Filing PIN. 2010 turbotax Or you can call 1-866-704-7388. 2010 turbotax Practitioner PIN. 2010 turbotax   The Practitioner PIN method allows you to authorize your tax practitioner to enter or generate your PIN. 2010 turbotax The practitioner can provide you with details. 2010 turbotax Form 8453. 2010 turbotax   You must send in a paper Form 8453 if you have to attach certain forms or other documents that cannot be electronically filed. 2010 turbotax For details, see Form 8453. 2010 turbotax For more details, visit www. 2010 turbotax irs. 2010 turbotax gov/efile and click on “ Individuals. 2010 turbotax ” Identity Protection PIN. 2010 turbotax   If the IRS gave you an identity protection personal identification number (PIN) because you were a victim of identity theft, enter it in the spaces provided on your tax form. 2010 turbotax If the IRS has not given you this type of number, leave these spaces blank. 2010 turbotax For more information, see the Instructions for Form 1040A or Form 1040. 2010 turbotax Power of attorney. 2010 turbotax   If an agent is signing your return for you, a power of attorney (POA) must be filed. 2010 turbotax Attach the POA to Form 8453 and file it using that form's instructions. 2010 turbotax See Signatures , later, for more information on POAs. 2010 turbotax State returns. 2010 turbotax   In most states, you can file an electronic state return simultaneously with your federal return. 2010 turbotax For more information, check with your local IRS office, state tax agency, tax professional, or the IRS website at  www. 2010 turbotax irs. 2010 turbotax gov/efile. 2010 turbotax Refunds. 2010 turbotax   You can have a refund check mailed to you, or you can have your refund deposited directly to your checking or savings account or split among two or three accounts. 2010 turbotax With e-file, your refund will be issued faster than if you filed on paper. 2010 turbotax   As with a paper return, you may not get all of your refund if you owe certain past-due amounts, such as federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or certain other federal nontax debts, such as student loans. 2010 turbotax See Offset against debts under Refunds, later. 2010 turbotax Refund inquiries. 2010 turbotax   Information about your return will generally be available within 24 hours after the IRS receives your e-filed return. 2010 turbotax See Refund Information , later. 2010 turbotax Amount you owe. 2010 turbotax   To avoid late-payment penalties and interest, pay your taxes in full by April 15, 2014. 2010 turbotax See How To Pay , later, for information on how to pay the amount you owe. 2010 turbotax Using Your Personal Computer You can file your tax return in a fast, easy, and convenient way using your personal computer. 2010 turbotax A computer with Internet access and tax preparation software are all you need. 2010 turbotax Best of all, you can e-file from the comfort of your home 24 hours a day, 7 days a week. 2010 turbotax IRS approved tax preparation software is available for online use on the Internet, for download from the Internet, and in retail stores. 2010 turbotax For information, visit www. 2010 turbotax irs. 2010 turbotax gov/efile. 2010 turbotax Through Employers and Financial Institutions Some businesses offer free e-file to their employees, members, or customers. 2010 turbotax Others offer it for a fee. 2010 turbotax Ask your employer or financial institution if they offer IRS e-file as an employee, member, or customer benefit. 2010 turbotax Free Help With Your Return Free help in preparing your return is available nationwide from IRS-trained volunteers. 2010 turbotax The Volunteer Income Tax Assistance (VITA) program is designed to help low to moderate income taxpayers and the Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 or older with their tax returns. 2010 turbotax Many VITA sites offer free electronic filing and all volunteers will let you know about the credits and deductions you may be entitled to claim. 2010 turbotax To find a site near you, call 1-800-906-9887. 2010 turbotax Or to find the nearest AARP TaxAide site, visit AARP's website at www. 2010 turbotax aarp. 2010 turbotax org/taxaide or call 1-888-227-7669. 2010 turbotax For more information on these programs, go to IRS. 2010 turbotax gov and enter keyword “VITA” in the search box. 2010 turbotax Using a Tax Professional Many tax professionals electronically file tax returns for their clients. 2010 turbotax You may personally enter your PIN or complete Form 8879, IRS e-file Signature Authorization, to authorize the tax professional to enter your PIN on your return. 2010 turbotax Note. 2010 turbotax Tax professionals may charge a fee for IRS e-file. 2010 turbotax Fees can vary depending on the professional and the specific services rendered. 2010 turbotax When Do I Have To File? April 15, 2014, is the due date for filing your 2013 income tax return if you use the calendar year. 2010 turbotax For a quick view of due dates for filing a return with or without an extension of time to file (discussed later), see Table 1-5. 2010 turbotax Table 1-5. 2010 turbotax When To File Your 2013 Return For U. 2010 turbotax S. 2010 turbotax citizens and residents who file returns on a calendar year. 2010 turbotax   For Most Taxpayers For Certain Taxpayers Outside the U. 2010 turbotax S. 2010 turbotax No extension requested April 15, 2014 June 16, 2014 Automatic extension October 15, 2014 October 15, 2014 If you use a fiscal year (a year ending on the last day of any month except December, or a 52-53-week year), your income tax return is due by the 15th day of the 4th month after the close of your fiscal year. 2010 turbotax When the due date for doing any act for tax purposes—filing a return, paying taxes, etc. 2010 turbotax —falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day. 2010 turbotax Filing paper returns on time. 2010 turbotax   Your paper return is filed on time if it is mailed in an envelope that is properly addressed, has enough postage, and is postmarked by the due date. 2010 turbotax If you send your return by registered mail, the date of the registration is the postmark date. 2010 turbotax The registration is evidence that the return was delivered. 2010 turbotax If you send a return by certified mail and have your receipt postmarked by a postal employee, the date on the receipt is the postmark date. 2010 turbotax The postmarked certified mail receipt is evidence that the return was delivered. 2010 turbotax Private delivery services. 2010 turbotax   If you use a private delivery service designated by the IRS to send your return, the postmark date generally is the date the private delivery service records in its database or marks on the mailing label. 2010 turbotax The private delivery service can tell you how to get written proof of this date. 2010 turbotax   For the IRS mailing address to use if you are using a private delivery service, go to IRS. 2010 turbotax gov and enter “private delivery service” in the search box. 2010 turbotax   The following are designated private delivery services. 2010 turbotax DHL Express (DHL): Same Day Service. 2010 turbotax Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. 2010 turbotax United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. 2010 turbotax M. 2010 turbotax , UPS Worldwide Express Plus, and UPS Worldwide Express. 2010 turbotax Filing electronic returns on time. 2010 turbotax   If you use IRS e-file, your return is considered filed on time if the authorized electronic return transmitter postmarks the transmission by the due date. 2010 turbotax An authorized electronic return transmitter is a participant in the IRS e-file program that transmits electronic tax return information directly to the IRS. 2010 turbotax   The electronic postmark is a record of when the authorized electronic return transmitter received the transmission of your electronically filed return on its host system. 2010 turbotax The date and time in your time zone controls whether your electronically filed return is timely. 2010 turbotax Filing late. 2010 turbotax   If you do not file your return by the due date, you may have to pay a failure-to-file penalty and interest. 2010 turbotax For more information, see Penalties , later. 2010 turbotax Also see Interest under Amount You Owe. 2010 turbotax   If you were due a refund but you did not file a return, you generally must file within 3 years from the date the return was due (including extensions) to get that refund. 2010 turbotax Nonresident alien. 2010 turbotax    If you are a nonresident alien and earn wages subject to U. 2010 turbotax S. 2010 turbotax income tax withholding, your 2013 U. 2010 turbotax S. 2010 turbotax income tax return (Form 1040NR or Form 1040NR-EZ) is due by: April 15, 2014, if you use a calendar year, or The 15th day of the 4th month after the end of your fiscal year if you use a fiscal year. 2010 turbotax   If you do not earn wages subject to U. 2010 turbotax S. 2010 turbotax income tax withholding, your return is due by: June 16, 2014, if you use a calendar year, or The 15th day of the 6th month after the end of your fiscal year, if you use a fiscal year. 2010 turbotax See Publication 519 for more filing information. 2010 turbotax Filing for a decedent. 2010 turbotax   If you must file a final income tax return for a taxpayer who died during the year (a decedent), the return is due by the 15th day of the 4th month after the end of the decedent's normal tax year. 2010 turbotax See Publication 559. 2010 turbotax Extensions of Time To File You may be able to get an extension of time to file your return. 2010 turbotax There are three types of situations where you may qualify for an extension: Automatic extensions, You are outside the United States, or You are serving in a combat zone. 2010 turbotax Automatic Extension If you cannot file your 2013 return by the due date, you may be able to get an automatic 6-month extension of time to file. 2010 turbotax Example. 2010 turbotax If your return is due on April 15, 2014, you will have until October 15, 2014, to file. 2010 turbotax If you do not pay the tax due by the regular due date (generally, April 15), you will owe interest. 2010 turbotax You may also be charged penalties, discussed later. 2010 turbotax How to get the automatic extension. 2010 turbotax   You can get the automatic extension by: Using IRS e-file (electronic filing), or Filing a paper form. 2010 turbotax E-file options. 2010 turbotax   There are two ways you can use e-file to get an extension of time to file. 2010 turbotax Complete Form 4868, Application for Automatic Extension of Time To File U. 2010 turbotax S. 2010 turbotax Individual Income Tax Return, to use as a worksheet. 2010 turbotax If you think you may owe tax when you file your return, use Part II of the form to estimate your balance due. 2010 turbotax If you e-file Form 4868 to the IRS, do not also send a paper Form 4868. 2010 turbotax E-file using your personal computer or a tax professional. 2010 turbotax    You can use a tax software package with your personal computer or a tax professional to file Form 4868 electronically. 2010 turbotax You will need to provide certain information from your tax return for 2012. 2010 turbotax If you wish to make a payment by direct transfer from your bank account, see Pay online , under How To Pay, later in this chapter. 2010 turbotax E-file and pay by credit or debit card or by direct transfer from your bank account. 2010 turbotax   You can get an extension by paying part or all of your estimate of tax due by using a credit or debit card or by direct transfer from your bank account. 2010 turbotax You can do this by phone or over the Internet. 2010 turbotax You do not file Form 4868. 2010 turbotax See Pay online , under How To Pay, later in this chapter. 2010 turbotax Filing a paper Form 4868. 2010 turbotax   You can get an extension of time to file by filing a paper Form 4868. 2010 turbotax Mail it to the address shown in the form instructions. 2010 turbotax   If you want to make a payment with the form, make your check or money order payable to “United States Treasury. 2010 turbotax ” Write your SSN, daytime phone number, and “2013 Form 4868” on your check or money order. 2010 turbotax When to file. 2010 turbotax   You must request the automatic extension by the due date for your return. 2010 turbotax You can file your return any time before the 6-month extension period ends. 2010 turbotax When you file your return. 2010 turbotax   Enter any payment you made related to the extension of time to file on Form 1040, line 68. 2010 turbotax If you file Form 1040EZ or Form 1040A, include that payment in your total payments on Form 1040EZ, line 9, or Form 1040A, line 41. 2010 turbotax Also enter “Form 4868” and the amount paid in the space to the left of line 9 or line 41. 2010 turbotax Individuals Outside the United States You are allowed an automatic 2-month extension, without filing Form 4868, (until June 16, 2014, if you use the calendar year) to file your 2013 return and pay any federal income tax due if: You are a U. 2010 turbotax S. 2010 turbotax citizen or resident, and On the due date of your return: You are living outside the United States and Puerto Rico, and your main place of business or post of duty is outside the United States and Puerto Rico, or You are in military or naval service on duty outside the United States and  Puerto Rico. 2010 turbotax However, if you pay the tax due after the regular due date (generally, April 15), interest will be charged from that date until the date the tax is paid. 2010 turbotax If you served in a combat zone or qualified hazardous duty area, you may be eligible for a longer extension of time to file. 2010 turbotax See Individuals Serving in Combat Zone , later, for special rules that apply to you. 2010 turbotax Married taxpayers. 2010 turbotax   If you file a joint return, only one spouse has to qualify for this automatic extension. 2010 turbotax If you and your spouse file separate returns, this automatic extension applies only to the spouse who qualifies. 2010 turbotax How to get the extension. 2010 turbotax   To use this automatic extension, you must attach a statement to your return explaining what situation qualified you for the extension. 2010 turbotax (See the situations listed under (2), earlier. 2010 turbotax ) Extensions beyond 2 months. 2010 turbotax   If you cannot file your return within the automatic 2-month extension period, you may be able to get an additional 4-month extension, for a total of 6 months. 2010 turbotax File Form 4868 and check the box on line 8. 2010 turbotax No further extension. 2010 turbotax   An extension of more than 6 months will generally not be granted. 2010 turbotax However, if you are outside the United States and meet certain tests, you may be granted a longer extension. 2010 turbotax For more information, see When To File and Pay in Publication 54. 2010 turbotax Individuals Serving in Combat Zone The deadline for filing your tax return, paying any tax you may owe, and filing a claim for refund is automatically extended if you serve in a combat zone. 2010 turbotax This applies to members of the Armed Forces, as well as merchant marines serving aboard vessels under the operational control of the Department of Defense, Red Cross personnel, accredited correspondents, and civilians under the direction of the Armed Forces in support of the Armed Forces. 2010 turbotax Combat zone. 2010 turbotax   For purposes of the automatic extension, the term “combat zone” includes the following areas. 2010 turbotax The Arabian peninsula area, effective January 17, 1991. 2010 turbotax The Kosovo area, effective March 24, 1999. 2010 turbotax Afghanistan area, effective September 19, 2001. 2010 turbotax   See Publication 3, Armed Forces' Tax Guide, for more detailed information on the locations comprising each combat zone. 2010 turbotax The publication also has information about other tax benefits available to military personnel serving in a combat zone. 2010 turbotax Extension period. 2010 turbotax   The deadline for filing your return, paying any tax due, and filing a claim for refund is extended for at least 180 days after the later of: The last day you are in a combat zone or the last day the area qualifies as a combat zone, or The last day of any continuous qualified hospitalization for injury from service in the combat zone. 2010 turbotax   In addition to the 180 days, your deadline is also extended by the number of days you had left to take action with the IRS when you entered the combat zone. 2010 turbotax For example, you have 3½ months (January 1 – April 15) to file your tax return. 2010 turbotax Any days left in this period when you entered the combat zone (or the entire 3½ months if you entered it before the beginning of the year) are added to the 180 days. 2010 turbotax See Extension of Deadlines in Publication 3 for more information. 2010 turbotax   The rules on the extension for filing your return also apply when you are deployed outside the United States (away from your permanent duty station) while participating in a designated contingency operation. 2010 turbotax How Do I Prepare My Return? This section explains how to get ready to fill in your tax return and when to report your income and expenses. 2010 turbotax It also explains how to complete certain sections of the form. 2010 turbotax You may find Table 1-6 helpful when you prepare your paper return. 2010 turbotax Table 1-6. 2010 turbotax Six Steps for Preparing Your Paper Return 1 — Get your records together for income and expenses. 2010 turbotax 2 — Get the forms, schedules, and publications you need. 2010 turbotax 3 — Fill in your return. 2010 turbotax 4 — Check your return to make sure it is correct. 2010 turbotax 5 — Sign and date your return. 2010 turbotax 6 — Attach all required forms and schedules. 2010 turbotax Electronic returns. 2010 turbotax   For information you may find useful in preparing a paperless return, see Does My Return Have To Be on Paper , earlier. 2010 turbotax Substitute tax forms. 2010 turbotax   You cannot use your own version of a tax form unless it meets the requirements explained in Publication 1167, General Rules and Specifications for Substitute Forms and Schedules. 2010 turbotax Form W-2. 2010 turbotax   If you were an employee, you should receive Form W-2 from your employer. 2010 turbotax You will need the information from this form to prepare your return. 2010 turbotax See Form W-2 under Credit for Withholding and Estimated Tax in chapter 4. 2010 turbotax   Your employer is required to provide or send Form W-2 to you no later than January 31, 2014. 2010 turbotax If it is mailed, you should allow adequate time to receive it before contacting your employer. 2010 turbotax If you still do not get the form by February 15, the IRS can help you by requesting the form from your employer. 2010 turbotax When you request IRS help, be prepared to provide the following information. 2010 turbotax Your name, address (including ZIP code), and phone number. 2010 turbotax Your SSN. 2010 turbotax Your dates of employment. 2010 turbotax Your employer's name, address (including ZIP code), and phone number. 2010 turbotax Form 1099. 2010 turbotax   If you received certain types of income, you may receive a Form 1099. 2010 turbotax For example, if you received taxable interest of $10 or more, the payer is required to provide or send Form 1099 to you no later than January 31, 2014 (or by February 18, 2014, if furnished by a broker). 2010 turbotax If it is mailed, you should allow adequate time to receive it before contacting the payer. 2010 turbotax If you still do not get the form by February 18 (or by March 5, 2014, if furnished by a broker), call the IRS for help. 2010 turbotax When Do I Report My Income and Expenses? You must figure your taxable income on the basis of a tax year. 2010 turbotax A “tax year” is an annual accounting period used for keeping records and reporting income and expenses. 2010 turbotax You must account for your income and expenses in a way that clearly shows your taxable income. 2010 turbotax The way you do this is called an accounting method. 2010 turbotax This section explains which accounting periods and methods you can use. 2010 turbotax Accounting Periods Most individual tax returns cover a calendar year—the 12 months from January 1 through December 31. 2010 turbotax If you do not use a calendar year, your accounting period is a fiscal year. 2010 turbotax A regular fiscal year is a 12-month period that ends on the last day of any month except December. 2010 turbotax A 52-53-week fiscal year varies from 52 to 53 weeks and always ends on the same day of the week. 2010 turbotax You choose your accounting period (tax year) when you file your first income tax return. 2010 turbotax It cannot be longer than 12 months. 2010 turbotax More information. 2010 turbotax   For more information on accounting periods, including how to change your accounting period, see Publication 538, Accounting Periods and Methods. 2010 turbotax Accounting Methods Your accounting method is the way you account for your income and expenses. 2010 turbotax Most taxpayers use either the cash method or an accrual method. 2010 turbotax You choose a method when you file your first income tax return. 2010 turbotax If you want to change your accounting method after that, you generally must get IRS approval. 2010 turbotax Cash method. 2010 turbotax   If you use this method, report all items of income in the year in which you actually or constructively receive them. 2010 turbotax Generally, you deduct all expenses in the year you actually pay them. 2010 turbotax This is the method most individual taxpayers use. 2010 turbotax Constructive receipt. 2010 turbotax   Generally, you constructively receive income when it is credited to your account or set apart in any way that makes it available to you. 2010 turbotax You do not need to have physical possession of it. 2010 turbotax For example, interest credited to your bank account on December 31, 2013, is taxable income to you in 2013 if you could have withdrawn it in 2013 (even if the amount is not entered in your records or withdrawn until 2014). 2010 turbotax Garnisheed wages. 2010 turbotax   If your employer uses your wages to pay your debts, or if your wages are attached or garnisheed, the full amount is constructively received by you. 2010 turbotax You must include these wages in income for the year you would have received them. 2010 turbotax Debts paid for you. 2010 turbotax   If another person cancels or pays your debts (but not as a gift or loan), you have constructively received the amount and generally must include it in your gross income for the year. 2010 turbotax See Canceled Debts in chapter 12 for more information. 2010 turbotax Payment to third party. 2010 turbotax   If a third party is paid income from property you own, you have constructively received the income. 2010 turbotax It is the same as if you had actually received the income and paid it to the third party. 2010 turbotax Payment to an agent. 2010 turbotax   Income an agent receives for you is income you constructively received in the year the agent receives it. 2010 turbotax If you indicate in a contract that your income is to be paid to another person, you must include the amount in your gross income when the other person receives it. 2010 turbotax Check received or available. 2010 turbotax   A valid check that was made available to you before the end of the tax year is constructively received by you in that year. 2010 turbotax A check that was “made available to you” includes a check you have already received, but not cashed or deposited. 2010 turbotax It also includes, for example, your last paycheck of the year that your employer made available for you to pick up at the office before the end of the year. 2010 turbotax It is constructively received by you in that year whether or not you pick it up before the end of the year or wait to receive it by mail after the end of the year. 2010 turbotax No constructive receipt. 2010 turbotax   There may be facts to show that you did not constructively receive income. 2010 turbotax Example. 2010 turbotax Alice Johnson, a teacher, agreed to her school board's condition that, in her absence, she would receive only the difference between her regular salary and the salary of a substitute teacher hired by the school board. 2010 turbotax Therefore, Alice did not constructively receive the amount by which her salary was reduced to pay the substitute teacher. 2010 turbotax Accrual method. 2010 turbotax   If you use an accrual method, you generally report income when you earn it, rather than when you receive it. 2010 turbotax You generally deduct your expenses when you incur them, rather than when you pay them. 2010 turbotax Income paid in advance. 2010 turbotax   An advance payment of income is generally included in gross income in the year you receive it. 2010 turbotax Your method of accounting does not matter as long as the income is available to you. 2010 turbotax An advance payment may include rent or interest you receive in advance and pay for services you will perform later. 2010 turbotax   A limited deferral until the next tax year may be allowed for certain advance payments. 2010 turbotax See Publication 538 for specific information. 2010 turbotax Additional information. 2010 turbotax   For more information on accounting methods, including how to change your accounting method, see Publication 538. 2010 turbotax Social Security Number (SSN) You must enter your SSN on your return. 2010 turbotax If you are married, enter the SSNs for both you and your spouse, whether you file jointly or separately. 2010 turbotax If you are filing a joint return, include the SSNs in the same order as the names. 2010 turbotax Use this same order in submitting other forms and documents to the IRS. 2010 turbotax Check that both the name and SSN on your Form 1040, W-2, and 1099 agree with your social security card. 2010 turbotax If they do not, certain deductions and credits on your Form 1040 may be reduced or disallowed and you may not receive credit for your social security earnings. 2010 turbotax If your Form W-2 shows an incorrect SSN or name, notify your employer or the form-issuing agent as soon as possible to make sure your earnings are credited to your social security record. 2010 turbotax If the name or SSN on your social security card is incorrect, call the SSA at 1-800-772-1213. 2010 turbotax Name change. 2010 turbotax   If you changed your name because of marriage, divorce, etc. 2010 turbotax , be sure to report the change to your local Social Security Administration (SSA) office before filing your return. 2010 turbotax This prevents delays in processing your return and issuing refunds. 2010 turbotax It also safeguards your future social security benefits. 2010 turbotax Dependent's SSN. 2010 turbotax   You must provide the SSN of each dependent you claim, regardless of the dependent's age. 2010 turbotax This requirement applies to all dependents (not just your children) claimed on your tax return. 2010 turbotax Exception. 2010 turbotax    If your child was born and died in 2013 and did not have an SSN, enter “DIED” in column (2) of line 6c (Form 1040 or 1040A) and include a copy of the child's birth certificate, death certificate, or hospital records. 2010 turbotax The document must show that the child was born alive. 2010 turbotax No SSN. 2010 turbotax   File Form SS-5, Application for a Social Security Card, with your local SSA office to get an SSN for yourself or your dependent. 2010 turbotax It usually takes about 2 weeks to get an SSN. 2010 turbotax If you or your dependent is not eligible for an SSN, see Individual taxpayer identification number (ITIN) , later. 2010 turbotax   If you are a U. 2010 turbotax S. 2010 turbotax citizen or resident alien, you must show proof of age, identity, and citizenship or alien status with your Form SS-5. 2010 turbotax If you are 12 or older and have never been assigned an SSN, you must appear in person with this proof at an SSA office. 2010 turbotax   Form SS-5 is available at any SSA office, on the Internet at www. 2010 turbotax socialsecurity. 2010 turbotax gov, or by calling 1-800-772-1213. 2010 turbotax If you have any questions about which documents you can use as proof of age, identity, or citizenship, contact your SSA office. 2010 turbotax   If your dependent does not have an SSN by the time your return is due, you may want to ask for an extension of time to file, as explained earlier under When Do I Have To File . 2010 turbotax   If you do not provide a required SSN or if you provide an incorrect SSN, your tax may be increased and any refund may be reduced. 2010 turbotax Adoption taxpayer identification number (ATIN). 2010 turbotax   If you are in the process of adopting a child who is a U. 2010 turbotax S. 2010 turbotax citizen or resident and cannot get an SSN for the child until the adoption is final, you can apply for an ATIN to use instead of an SSN. 2010 turbotax    File Form W-7A, Application for Taxpayer Identification Number for Pending U. 2010 turbotax S. 2010 turbotax Adoptions, with the IRS to get an ATIN if all of the following are true. 2010 turbotax You have a child living with you who was placed in your home for legal adoption. 2010 turbotax You cannot get the child's existing SSN even though you have made a reasonable attempt to get it from the birth parents, the placement agency, and other persons. 2010 turbotax You cannot get an SSN for the child from the SSA because, for example, the adoption is not final. 2010 turbotax You are eligible to claim the child as a dependent on your tax return. 2010 turbotax After the adoption is final, you must apply for an SSN for the child. 2010 turbotax You cannot continue using the ATIN. 2010 turbotax   See Form W-7A for more information. 2010 turbotax Nonresident alien spouse. 2010 turbotax   If your spouse is a nonresident alien, your spouse must have either an SSN or an ITIN if: You file a joint return, You file a separate return and claim an exemption for your spouse, or Your spouse is filing a separate return. 2010 turbotax If your spouse is not eligible for an SSN, see the following discussion on ITINs. 2010 turbotax Individual taxpayer identification number (ITIN). 2010 turbotax   The IRS will issue you an ITIN if you are a nonresident or resident alien and you do not have and are not eligible to get an SSN. 2010 turbotax This also applies to an alien spouse or dependent. 2010 turbotax To apply for an ITIN, file Form W-7 with the IRS. 2010 turbotax It usually takes about 6 to 10 weeks to get an ITIN. 2010 turbotax Enter the ITIN on your tax return wherever an SSN is requested. 2010 turbotax    If you are applying for an ITIN for yourself, your spouse, or a dependent in order to file your tax return, attach your completed tax return to your Form W-7. 2010 turbotax See the Form W-7 instructions for how and where to file. 2010 turbotax You cannot e-file a return using an ITIN in the calendar year the ITIN is issued; however, you can e-file returns in the following years. 2010 turbotax ITIN for tax use only. 2010 turbotax   An ITIN is for tax use only. 2010 turbotax It does not entitle you or your dependent to social security benefits or change the employment or immigration status of either of you under U. 2010 turbotax S. 2010 turbotax law. 2010 turbotax Penalty for not providing social security number. 2010 turbotax   If you do not include your SSN or the SSN of your spouse or dependent as required, you may have to pay a penalty. 2010 turbotax See the discussion on Penalties , later, for more information. 2010 turbotax SSN on correspondence. 2010 turbotax   If you write to the IRS about your tax account, be sure to include your SSN (and the name and SSN of your spouse, if you filed a joint return) in your correspondence. 2010 turbotax Because your SSN is used to identify your account, this helps the IRS respond to your correspondence promptly. 2010 turbotax Presidential Election Campaign Fund This fund helps pay for Presidential election campaigns. 2010 turbotax If you want $3 to go to this fund, check the box. 2010 turbotax If you are filing a joint return, your spouse can also have $3 go to the fund. 2010 turbotax If you check a box, your tax or refund will not change. 2010 turbotax Computations The following information may be useful in making the return easier to complete. 2010 turbotax Rounding off dollars. 2010 turbotax   You can round off cents to whole dollars on your return and schedules. 2010 turbotax If you do round to whole dollars, you must round all amounts. 2010 turbotax To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. 2010 turbotax For example, $1. 2010 turbotax 39 becomes $1 and $2. 2010 turbotax 50 becomes $3. 2010 turbotax   If you have to add two or more amounts to figure the amount to enter on a line, include cents when adding the amounts and round off only the total. 2010 turbotax Example. 2010 turbotax You receive two Forms W-2: one showing wages of $5,000. 2010 turbotax 55 and one showing wages of $18,500. 2010 turbotax 73. 2010 turbotax On Form 1040, line 7, you would enter $23,501 ($5,000. 2010 turbotax 55 + $18,500. 2010 turbotax 73 = $23,501. 2010 turbotax 28), not $23,502 ($5,001 + $18,501). 2010 turbotax Equal amounts. 2010 turbotax   If you are asked to enter the smaller or larger of two equal amounts, enter that amount. 2010 turbotax Example. 2010 turbotax Line 1 is $500. 2010 turbotax Line 3 is $500. 2010 turbotax Line 5 asks you to enter the smaller of line 1 or 3. 2010 turbotax Enter $500 on line 5. 2010 turbotax Negative amounts. 2010 turbotax   If you file a paper return and you need to enter a negative amount, put the amount in parentheses rather than using a minus sign. 2010 turbotax To combine positive and negative amounts, add all the positive amounts together and then subtract the negative amounts. 2010 turbotax Attachments Depending on the form you file and the items reported on your return, you may have to complete additional schedules and forms and attach them to your paper return. 2010 turbotax You may be able to file a paperless return using IRS e-file. 2010 turbotax There's nothing to attach or mail, not even your Forms W-2. 2010 turbotax See Does My Return Have To Be on Paper, earlier. 2010 turbotax Form W-2. 2010 turbotax   Form W-2 is a statement from your employer of wages and other compensation paid to you and taxes withheld from your pay. 2010 turbotax You should have a Form W-2 from each employer. 2010 turbotax If you file a paper return, be sure to attach a copy of Form W-2 in the place indicated on the front page of your return. 2010 turbotax Attach it to the front page of your paper return, not to any attachments. 2010 turbotax For more information, see Form W-2 in chapter 4. 2010 turbotax   If you received a Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 2010 turbotax , showing federal income tax withheld, and you file a paper return, attach a copy of that form in the place indicated on the front page of your return. 2010 turbotax Form 1040EZ. 2010 turbotax   There are no additional schedules to file with Form 1040EZ. 2010 turbotax Form 1040A. 2010 turbotax   If you file a paper return, attach any forms and schedules behind Form 1040A in order of the “Attachment Sequence Number” shown in the upper right corner of the form or schedule. 2010 turbotax Then arrange all other statements or attachments in the same order as the forms and schedules they relate to and attach them last. 2010 turbotax Do not attach items unless required to do so. 2010 turbotax Form 1040. 2010 turbotax   If you file a paper return, attach any forms and schedules behind Form 1040 in order of the “Attachment Sequence Number” shown in the upper right corner of the form or schedule. 2010 turbotax Then arrange all other statements or attachments in the same order as the forms and schedules they relate to and attach them last. 2010 turbotax Do not attach items unless required to do so. 2010 turbotax Third Party Designee You can authorize the IRS to discuss your return with your preparer, a friend, family member, or any other person you choose. 2010 turbotax If you check the “Yes” box in the Third party designee area of your 2013 tax return and provide the information required, you are authorizing: The IRS to call the designee to answer any questions that arise during the processing of your return, and The designee to: Give information that is missing from your return to the IRS, Call the IRS for information about th
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Priority Guidance Plan

The Treasury Department's Office of Tax Policy and IRS use the Guidance Priority List each year to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance. The Guidance Priority List focuses resources on guidance items that are most important to taxpayers and tax administration. Published guidance plays an important role in increasing voluntary compliance by helping to clarify ambiguous areas of the tax law.

Priority Guidance Plans

Guidance Plan News

Current Year:

 

Notice 2014-18
Public comment invited on recommendations for 2014-2015 Guidance Priority List (type IRS-2014-0011 in the search field on the Regulations.gov homepage)   

Prior Years:

 

Notice 2013-22 
Public comment invited on recommendations for 2013-2014 Guidance Priority List

Notice 2012-25
Public comment invited on recommendations for 2012-2013 Guidance Priority List

Notice 2011-39
Public comment on recommendations for 2011-2012 Guidance Priority List.

Notice 2010-43
Public comment on recommendations for 2010-2011 Guidance Priority List.

Notice 2009-43
Public comment on recommendations for 2009-2010 Guidance Priority List.

Notice 2008-47
Public comment on recommendations for 2008-2009 Guidance Priority List.


Public Comments on Recommendations for Priority Guidance Plan

Public Comment Notice 2013-22

 

 


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Page Last Reviewed or Updated: 28-Mar-2014

The 2010 Turbotax

2010 turbotax 8. 2010 turbotax   Gains and Losses Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesDetermining Gain or Loss Like-Kind Exchanges Transfer to Spouse Ordinary or Capital Gain or LossCapital Assets Noncapital Assets Hedging (Commodity Futures) Livestock Converted Wetland and Highly Erodible Cropland Timber Sale of a Farm Foreclosure or Repossession Abandonment Introduction This chapter explains how to figure, and report on your tax return, your gain or loss on the disposition of your property or debt and whether such gain or loss is ordinary or capital. 2010 turbotax Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. 2010 turbotax Dispositions discussed in this chapter include sales, exchanges, foreclosures, repossessions, canceled debts, hedging transactions, and elections to treat cutting of timber as a sale or exchange. 2010 turbotax Topics - This chapter discusses: Sales and exchanges Ordinary or capital gain or loss Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 523 Selling Your Home 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 908 Bankruptcy Tax Guide Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8949 Sales and Other Dispositions of Capital Assets See chapter 16 for information about getting publications and forms. 2010 turbotax Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. 2010 turbotax This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. 2010 turbotax A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. 2010 turbotax An exchange is a transfer of property for other property or services. 2010 turbotax Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. 2010 turbotax If the amount you realize from a sale or exchange of property is more than its adjusted basis, you will have a gain. 2010 turbotax If the adjusted basis of the property is more than the amount you realize, you will have a loss. 2010 turbotax Basis and adjusted basis. 2010 turbotax   The basis of property you buy is usually its cost. 2010 turbotax The adjusted basis of property is basis plus certain additions and minus certain deductions. 2010 turbotax See chapter 6 for more information about basis and adjusted basis. 2010 turbotax Amount realized. 2010 turbotax   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (FMV) (defined in chapter 6) of all property or services you receive. 2010 turbotax The amount you realize also includes any of your liabilities assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. 2010 turbotax   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. 2010 turbotax Amount recognized. 2010 turbotax   Your gain or loss realized from a sale or exchange of certain property is usually a recognized gain or loss for tax purposes. 2010 turbotax A recognized gain is a gain you must include in gross income and report on your income tax return. 2010 turbotax A recognized loss is a loss you deduct from gross income. 2010 turbotax However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. 2010 turbotax See Like-Kind Exchanges next. 2010 turbotax Also, a loss from the disposition of property held for personal use is not deductible. 2010 turbotax Like-Kind Exchanges Certain exchanges of property are not taxable. 2010 turbotax This means any gain from the exchange is not recognized, and any loss cannot be deducted. 2010 turbotax Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. 2010 turbotax The exchange of property for the same kind of property is the most common type of nontaxable exchange. 2010 turbotax To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. 2010 turbotax Qualifying property. 2010 turbotax Like-kind property. 2010 turbotax These two requirements are discussed later. 2010 turbotax Multiple-party transactions. 2010 turbotax   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. 2010 turbotax Any part of these multiple-party transactions can qualify as a like-kind exchange if it meets all the requirements described in this section. 2010 turbotax Receipt of title from third party. 2010 turbotax   If you receive property in a like-kind exchange and the other party who transfers the property to you does not give you the title, but a third party does, you can still treat this transaction as a like-kind exchange if it meets all the requirements. 2010 turbotax Basis of property received. 2010 turbotax   If you receive property in a like-kind exchange, the basis of the property will be the same as the basis of the property you gave up. 2010 turbotax See chapter 6 for more information. 2010 turbotax Money paid. 2010 turbotax   If, in addition to giving up like-kind property, you pay money in a like-kind exchange, you still have no recognized gain or loss. 2010 turbotax The basis of the property received is the basis of the property given up, increased by the money paid. 2010 turbotax Example. 2010 turbotax You traded an old tractor with an adjusted basis of $15,000 for a new one. 2010 turbotax The new tractor costs $300,000. 2010 turbotax You were allowed $80,000 for the old tractor and paid $220,000 cash. 2010 turbotax You have no recognized gain or loss on the transaction regardless of the adjusted basis of your old tractor and the basis of the new tractor is $235,000, the adjusted basis of the old tractor plus the cash paid ($15,000 + $220,000). 2010 turbotax If you had sold the old tractor to a third party for $80,000 and bought a new one, you would have a recognized gain or loss on the sale of your old tractor equal to the difference between the amount realized and the adjusted basis of the old tractor. 2010 turbotax In this case, the taxable gain would be $65,000 ($80,000 − $15,000) and the basis of the new tractor would be $300,000. 2010 turbotax Reporting the exchange. 2010 turbotax   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. 2010 turbotax The Instructions for Form 8824 explain how to report the details of the exchange. 2010 turbotax   If you have any recognized gain because you received money or unlike property, report it on Schedule D (Form 1040) or Form 4797, whichever applies. 2010 turbotax You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. 2010 turbotax See chapter 9 for more information. 2010 turbotax Qualifying property. 2010 turbotax   In a like-kind exchange, both the property you give up and the property you receive must be held by you for investment or for productive use in your trade or business. 2010 turbotax Machinery, buildings, land, trucks, breeding livestock, rental houses, and certain mutual ditch, reservoir, or irrigation company stock are examples of property that may qualify. 2010 turbotax Nonqualifying property. 2010 turbotax   The rules for like-kind exchanges do not apply to exchanges of the following property. 2010 turbotax Property you use for personal purposes, such as your home and family car. 2010 turbotax Stock in trade or other property held primarily for sale, such as crops and produce. 2010 turbotax Stocks, bonds, or notes. 2010 turbotax However, see Qualifying property above. 2010 turbotax Other securities or evidences of indebtedness, such as accounts receivable. 2010 turbotax Partnership interests. 2010 turbotax However, you may have a nontaxable exchange under other rules. 2010 turbotax See Other Nontaxable Exchanges in chapter 1 of Publication 544. 2010 turbotax Like-kind property. 2010 turbotax   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. 2010 turbotax Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. 2010 turbotax Generally, real property exchanged for real property qualifies as an exchange of like-kind property. 2010 turbotax For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. 2010 turbotax   An exchange of a tractor for a new tractor is an exchange of like-kind property, and so is an exchange of timber land for crop acreage. 2010 turbotax An exchange of a tractor for acreage, however, is not an exchange of like-kind property. 2010 turbotax The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. 2010 turbotax For example, the exchange of a bull for a cow is not a like-kind exchange. 2010 turbotax An exchange of the assets of a business for the assets of a similar business cannot be treated as an exchange of one property for another property. 2010 turbotax    Note. 2010 turbotax Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. 2010 turbotax Personal property. 2010 turbotax   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. 2010 turbotax Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. 2010 turbotax Property classified in any General Asset Class may not be classified within a Product Class. 2010 turbotax Assets that are not in the same class will qualify as like-kind property if they are of the same nature or character. 2010 turbotax General Asset Classes. 2010 turbotax   General Asset Classes describe the types of property frequently used in many businesses. 2010 turbotax They include, but are not limited to, the following property. 2010 turbotax Office furniture, fixtures, and equipment (asset class 00. 2010 turbotax 11). 2010 turbotax Information systems, such as computers and peripheral equipment (asset class 00. 2010 turbotax 12). 2010 turbotax Data handling equipment except computers (asset class 00. 2010 turbotax 13). 2010 turbotax Automobiles and taxis (asset class 00. 2010 turbotax 22). 2010 turbotax Light general purpose trucks (asset class 00. 2010 turbotax 241). 2010 turbotax Heavy general purpose trucks (asset class 00. 2010 turbotax 242). 2010 turbotax Tractor units for use over-the-road (asset class 00. 2010 turbotax 26). 2010 turbotax Trailers and trailer-mounted containers (asset class 00. 2010 turbotax 27). 2010 turbotax Industrial steam and electric generation and/or distribution systems (asset class 00. 2010 turbotax 4). 2010 turbotax Product Classes. 2010 turbotax   Product Classes include property listed in a 6-digit product class in sectors 31 through 33 of the North American Industry Classification System (NAICS) of the Executive Office of the President, Office of Management and Budget, United States, (NAICS Manual). 2010 turbotax The latest version of the manual can be accessed at www. 2010 turbotax census. 2010 turbotax gov/eos/www/naics/. 2010 turbotax Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. 2010 turbotax ntis. 2010 turbotax gov/products/naics. 2010 turbotax aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. 2010 turbotax A CD-ROM version with search and retrieval software is also available from NTIS. 2010 turbotax    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. 2010 turbotax Partially nontaxable exchange. 2010 turbotax   If, in addition to like-kind property, you receive money or unlike property in an exchange on which you realize gain, you have a partially nontaxable exchange. 2010 turbotax You are taxed on the gain you realize, but only to the extent of the money and the FMV of the unlike property you receive. 2010 turbotax A loss is not deductible. 2010 turbotax Example 1. 2010 turbotax You trade farmland that cost $30,000 for $10,000 cash and other land to be used in farming with a FMV of $50,000. 2010 turbotax You have a realized gain of $30,000 ($50,000 FMV of new land + $10,000 cash − $30,000 basis of old farmland = $30,000 realized gain). 2010 turbotax However, only $10,000, the cash received, is recognized (included in income). 2010 turbotax Example 2. 2010 turbotax Assume the same facts as in Example 1, except that, instead of money, you received a tractor with a FMV of $10,000. 2010 turbotax Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). 2010 turbotax Example 3. 2010 turbotax Assume in Example 1 that the FMV of the land you received was only $15,000. 2010 turbotax Your $5,000 loss is not recognized. 2010 turbotax Unlike property given up. 2010 turbotax   If, in addition to like-kind property, you give up unlike property, you must recognize gain or loss on the unlike property you give up. 2010 turbotax The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. 2010 turbotax Like-kind exchanges between related persons. 2010 turbotax   Special rules apply to like-kind exchanges between related persons. 2010 turbotax These rules affect both direct and indirect exchanges. 2010 turbotax Under these rules, if either person disposes of the property within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. 2010 turbotax The gain or loss on the original exchange must be recognized as of the date of the later disposition. 2010 turbotax The 2-year holding period begins on the date of the last transfer of property that was part of the like-kind exchange. 2010 turbotax Related persons. 2010 turbotax   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. 2010 turbotax ), you and a corporation in which you have more than 50% ownership, you and a partnership in which you directly or indirectly own more than a 50% interest of the capital or profits, and two partnerships in which you directly or indirectly own more than 50% of the capital interests or profits. 2010 turbotax   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. 2010 turbotax Example. 2010 turbotax You used a grey pickup truck in your farming business. 2010 turbotax Your sister used a red pickup truck in her landscaping business. 2010 turbotax In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. 2010 turbotax At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. 2010 turbotax The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. 2010 turbotax You realized a gain of $1,000 (the $7,200 FMV of the red pickup truck, minus the grey pickup truck's $6,000 adjusted basis, minus the $200 you paid). 2010 turbotax Your sister realized a gain of $6,200 (the $7,000 FMV of the grey pickup truck plus the $200 you paid, minus the $1,000 adjusted basis of the red pickup truck). 2010 turbotax However, because this was a like-kind exchange, you recognized no gain. 2010 turbotax Your basis in the red pickup truck was $6,200 (the $6,000 adjusted basis of the grey pickup truck plus the $200 you paid). 2010 turbotax She recognized gain only to the extent of the money she received, $200. 2010 turbotax Her basis in the grey pickup truck was $1,000 (the $1,000 adjusted basis of the red pickup truck minus the $200 received, plus the $200 gain recognized). 2010 turbotax In 2013, you sold the red pickup truck to a third party for $7,000. 2010 turbotax Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. 2010 turbotax On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. 2010 turbotax You also report a loss on the sale as $200 (the adjusted basis of the red pickup truck, $7,200 (its $6,200 basis plus the $1,000 gain recognized), minus the $7,000 realized from the sale). 2010 turbotax In addition, your sister must report on her tax return for 2013 the $6,000 balance of her gain on the 2012 exchange. 2010 turbotax Her adjusted basis in the grey pickup truck is increased to $7,000 (its $1,000 basis plus the $6,000 gain recognized). 2010 turbotax Exceptions to the rules for related persons. 2010 turbotax   The following property dispositions are excluded from these rules. 2010 turbotax Dispositions due to the death of either related person. 2010 turbotax Involuntary conversions. 2010 turbotax Dispositions where it is established to the satisfaction of the IRS that neither the exchange nor the disposition has, as a main purpose, the avoidance of federal income tax. 2010 turbotax Multiple property exchanges. 2010 turbotax   Under the like-kind exchange rules, you must generally make a property-by-property comparison to figure your recognized gain and the basis of the property you receive in the exchange. 2010 turbotax However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. 2010 turbotax Transfer and receive properties in two or more exchange groups. 2010 turbotax Transfer or receive more than one property within a single exchange group. 2010 turbotax   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. 2010 turbotax Deferred exchange. 2010 turbotax   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. 2010 turbotax A deferred exchange is an exchange in which you transfer property you use in business or hold for investment and later receive like-kind property you will use in business or hold for investment. 2010 turbotax The property you receive is replacement property. 2010 turbotax The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. 2010 turbotax In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. 2010 turbotax   For more information see Deferred Exchanges in chapter 1 of Publication 544. 2010 turbotax Transfer to Spouse No gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or a former spouse if incident to divorce. 2010 turbotax This rule does not apply if the recipient is a nonresident alien. 2010 turbotax Nor does this rule apply to a transfer in trust to the extent the liabilities assumed and the liabilities on the property are more than the property's adjusted basis. 2010 turbotax Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is not considered a sale or exchange. 2010 turbotax The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. 2010 turbotax This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its FMV at the time of transfer or any consideration paid by the recipient. 2010 turbotax This rule applies for determining loss as well as gain. 2010 turbotax Any gain recognized on a transfer in trust increases the basis. 2010 turbotax For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. 2010 turbotax Ordinary or Capital Gain or Loss Generally, you will have a capital gain or loss if you sell or exchange a capital asset (defined below). 2010 turbotax You may also have a capital gain if your section 1231 transactions result in a net gain. 2010 turbotax See Section 1231 Gains and Losses in  chapter 9. 2010 turbotax To figure your net capital gain or loss, you must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). 2010 turbotax Your net capital gains may be taxed at a lower tax rate than ordinary income. 2010 turbotax See Capital Gains Tax Rates , later. 2010 turbotax Your deduction for a net capital loss may be limited. 2010 turbotax See Treatment of Capital Losses , later. 2010 turbotax Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. 2010 turbotax The following items are examples of capital assets. 2010 turbotax A home owned and occupied by you and your family. 2010 turbotax Household furnishings. 2010 turbotax A car used for pleasure. 2010 turbotax If your car is used both for pleasure and for farm business, it is partly a capital asset and partly a noncapital asset, defined later. 2010 turbotax Stocks and bonds. 2010 turbotax However, there are special rules for gains on qualified small business stock. 2010 turbotax For more information on this subject, see Gains on Qualified Small Business Stock and Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. 2010 turbotax Personal-use property. 2010 turbotax   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. 2010 turbotax Loss from the sale or exchange of personal-use property is not deductible. 2010 turbotax You can deduct a loss relating to personal-use property only if it results from a casualty or theft. 2010 turbotax For information on casualties and thefts, see chapter 11. 2010 turbotax Long and Short Term Where you report a capital gain or loss depends on how long you own the asset before you sell or exchange it. 2010 turbotax The time you own an asset before disposing of it is the holding period. 2010 turbotax If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. 2010 turbotax Report it in Part I of Schedule D (Form 1040). 2010 turbotax If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. 2010 turbotax Report it in Part II of Schedule D (Form 1040). 2010 turbotax Holding period. 2010 turbotax   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. 2010 turbotax The day you disposed of the property is part of your holding period. 2010 turbotax Example. 2010 turbotax If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. 2010 turbotax If you sold the asset on June 19, 2013, your holding period is not longer than 1 year, but if you sold it on June 20, 2013, your holding period is longer than 1 year. 2010 turbotax Inherited property. 2010 turbotax   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. 2010 turbotax This rule does not apply to livestock used in a farm business. 2010 turbotax See Holding period under Livestock , later. 2010 turbotax Nonbusiness bad debt. 2010 turbotax   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. 2010 turbotax See chapter 4 of Publication 550. 2010 turbotax Nontaxable exchange. 2010 turbotax   If you acquire an asset in exchange for another asset and your basis for the new asset is figured, in whole or in part, by using your basis in the old property, the holding period of the new property includes the holding period of the old property. 2010 turbotax That is, it begins on the same day as your holding period for the old property. 2010 turbotax Gift. 2010 turbotax   If you receive a gift of property and your basis in it is figured using the donor's basis, your holding period includes the donor's holding period. 2010 turbotax Real property. 2010 turbotax   To figure how long you held real property, start counting on the day after you received title to it or, if earlier, on the day after you took possession of it and assumed the burdens and privileges of ownership. 2010 turbotax   However, taking possession of real property under an option agreement is not enough to start the holding period. 2010 turbotax The holding period cannot start until there is an actual contract of sale. 2010 turbotax The holding period of the seller cannot end before that time. 2010 turbotax Figuring Net Gain or Loss The totals for short-term capital gains and losses and the totals for long-term capital gains and losses must be figured separately. 2010 turbotax Net short-term capital gain or loss. 2010 turbotax   Combine your short-term capital gains and losses. 2010 turbotax Do this by adding all of your short-term capital gains. 2010 turbotax Then add all of your short-term capital losses. 2010 turbotax Subtract the lesser total from the greater. 2010 turbotax The difference is your net short-term capital gain or loss. 2010 turbotax Net long-term capital gain or loss. 2010 turbotax   Follow the same steps to combine your long-term capital gains and losses. 2010 turbotax The result is your net long-term capital gain or loss. 2010 turbotax Net gain. 2010 turbotax   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. 2010 turbotax However, part of your gain (but not more than your net capital gain) may be taxed at a lower rate than the rate of tax on your ordinary income. 2010 turbotax See Capital Gains Tax Rates , later. 2010 turbotax Net loss. 2010 turbotax   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. 2010 turbotax But there are limits on how much loss you can deduct and when you can deduct it. 2010 turbotax See Treatment of Capital Losses next. 2010 turbotax Treatment of Capital Losses If your capital losses are more than your capital gains, you must claim the difference even if you do not have ordinary income to offset it. 2010 turbotax For taxpayers other than corporations, the yearly limit on the capital loss you can deduct is $3,000 ($1,500 if you are married and file a separate return). 2010 turbotax If your other income is low, you may not be able to use the full $3,000. 2010 turbotax The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). 2010 turbotax Capital loss carryover. 2010 turbotax   Generally, you have a capital loss carryover if either of the following situations applies to you. 2010 turbotax Your net loss on Schedule D (Form 1040), is more than the yearly limit. 2010 turbotax Your taxable income without your deduction for exemptions is less than zero. 2010 turbotax If either of these situations applies to you for 2013, see Capital Losses under Reporting Capital Gains and Losses in chapter 4 of Publication 550 to figure the amount you can carry over to 2014. 2010 turbotax    To figure your capital loss carryover from 2013 to 2014, you will need a copy of your 2013 Form 1040 and Schedule D (Form 1040). 2010 turbotax Capital Gains Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. 2010 turbotax These lower rates are called the maximum capital gains rates. 2010 turbotax The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. 2010 turbotax See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). 2010 turbotax Also see Publication 550. 2010 turbotax Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. 2010 turbotax A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). 2010 turbotax Property held for sale in the ordinary course of your farm business. 2010 turbotax   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. 2010 turbotax Gain or loss from sales or other dispositions of this property is reported on Schedule F (Form 1040) (not on Schedule D (Form 1040) or Form 4797). 2010 turbotax The treatment of this property is discussed in chapter 3. 2010 turbotax Land and depreciable properties. 2010 turbotax   Land and depreciable property you use in farming are not capital assets. 2010 turbotax Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. 2010 turbotax However, your gains and losses from sales and exchanges of your farmland and depreciable properties must be considered together with certain other transactions to determine whether the gains and losses are treated as capital or ordinary gains and losses. 2010 turbotax The sales of these business assets are reported on Form 4797. 2010 turbotax See chapter 9 for more information. 2010 turbotax Hedging (Commodity Futures) Hedging transactions are transactions that you enter into in the normal course of business primarily to manage the risk of interest rate or price changes, or currency fluctuations, with respect to borrowings, ordinary property, or ordinary obligations. 2010 turbotax Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. 2010 turbotax A commodity futures contract is a standardized, exchange-traded contract for the sale or purchase of a fixed amount of a commodity at a future date for a fixed price. 2010 turbotax The holder of an option on a futures contract has the right (but not the obligation) for a specified period of time to enter into a futures contract to buy or sell at a particular price. 2010 turbotax A forward contract is generally similar to a futures contract except that the terms are not standardized and the contract is not exchange traded. 2010 turbotax Businesses may enter into commodity futures contracts or forward contracts and may acquire options on commodity futures contracts as either of the following. 2010 turbotax Hedging transactions. 2010 turbotax Transactions that are not hedging transactions. 2010 turbotax Futures transactions with exchange-traded commodity futures contracts that are not hedging transactions, generally, result in capital gain or loss and are subject to the mark-to-market rules discussed in Publication 550. 2010 turbotax There is a limit on the amount of capital losses you can deduct each year. 2010 turbotax Hedging transactions are not subject to the mark-to-market rules. 2010 turbotax If, as a farmer-producer, to protect yourself from the risk of unfavorable price fluctuations, you enter into commodity forward contracts, futures contracts, or options on futures contracts and the contracts cover an amount of the commodity within your range of production, the transactions are generally considered hedging transactions. 2010 turbotax They can take place at any time you have the commodity under production, have it on hand for sale, or reasonably expect to have it on hand. 2010 turbotax The gain or loss on the termination of these hedges is generally ordinary gain or loss. 2010 turbotax Farmers who file their income tax returns on the cash method report any profit or loss on the hedging transaction on Schedule F, line 8. 2010 turbotax Gains or losses from hedging transactions that hedge supplies of a type regularly used or consumed in the ordinary course of your trade or business may be ordinary gains or losses. 2010 turbotax Examples include fuel and feed. 2010 turbotax If you have numerous transactions in the commodity futures market during the year, you must be able to show which transactions are hedging transactions. 2010 turbotax Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. 2010 turbotax It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. 2010 turbotax Retain the identification of each hedging transaction with your books and records. 2010 turbotax Also, identify the item(s) or aggregate risk that is being hedged in your records. 2010 turbotax Although the identification of the hedging transaction must be made before the end of the day it was entered into, you have 35 days after entering into the transaction to identify the hedged item(s) or risk. 2010 turbotax For more information on the tax treatment of futures and options contracts, see Commodity Futures and Section 1256 Contracts Marked to Market in Publication 550. 2010 turbotax Accounting methods for hedging transactions. 2010 turbotax   The accounting method you use for a hedging transaction must clearly reflect income. 2010 turbotax This means that your accounting method must reasonably match the timing of income, deduction, gain, or loss from a hedging transaction with the timing of income, deduction, gain, or loss from the item or items being hedged. 2010 turbotax There are requirements and limits on the method you can use for certain hedging transactions. 2010 turbotax See Regulations section 1. 2010 turbotax 446-4(e) for those requirements and limits. 2010 turbotax   Hedging transactions must be accounted for under the rules stated above unless the transaction is subject to mark-to-market accounting under section 475 or you use an accounting method other than the following methods. 2010 turbotax Cash method. 2010 turbotax Farm-price method. 2010 turbotax Unit-livestock-price method. 2010 turbotax   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. 2010 turbotax   Your books and records must describe the accounting method used for each type of hedging transaction. 2010 turbotax They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. 2010 turbotax You must make the additional identification no more than 35 days after entering into the hedging transaction. 2010 turbotax Example of a hedging transaction. 2010 turbotax   You file your income tax returns on the cash method. 2010 turbotax On July 2 you anticipate a yield of 50,000 bushels of corn this year. 2010 turbotax The December futures price is $5. 2010 turbotax 75 a bushel, but there are indications that by harvest time the price will drop. 2010 turbotax To protect yourself against a drop in the price, you enter into the following hedging transaction. 2010 turbotax You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. 2010 turbotax 75 a bushel. 2010 turbotax   The price did not drop as anticipated but rose to $6 a bushel. 2010 turbotax In November, you sell your crop at a local elevator for $6 a bushel. 2010 turbotax You also close out your futures position by buying ten December contracts for $6 a bushel. 2010 turbotax You paid a broker's commission of $1,400 ($70 per contract) for the complete in and out position in the futures market. 2010 turbotax   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. 2010 turbotax Your loss on the hedge is 25 cents a bushel. 2010 turbotax In effect, the net selling price of your corn is $5. 2010 turbotax 75 a bushel. 2010 turbotax   Report the results of your futures transactions and your sale of corn separately on Schedule F. 2010 turbotax See the instructions for the 2013 Schedule F (Form 1040). 2010 turbotax   The loss on your futures transactions is $13,900, figured as follows. 2010 turbotax July 2 - Sold December corn futures (50,000 bu. 2010 turbotax @$5. 2010 turbotax 75) $287,500 November 6 - Bought December corn futures (50,000 bu. 2010 turbotax @$6 plus $1,400 broker's commission) 301,400 Futures loss ($13,900) This loss is reported as a negative figure on Schedule F, Part I, line 8, as other income. 2010 turbotax   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. 2010 turbotax × $6). 2010 turbotax Report it on Schedule F, Part I, line 2, as income from sales of products you raised. 2010 turbotax   Assume you were right and the price went down 25 cents a bushel. 2010 turbotax In effect, you would still net $5. 2010 turbotax 75 a bushel, figured as follows. 2010 turbotax Sold cash corn, per bushel $5. 2010 turbotax 50 Gain on hedge, per bushel . 2010 turbotax 25 Net price, per bushel $5. 2010 turbotax 75       The gain on your futures transactions would have been $11,100, figured as follows. 2010 turbotax July 2 - Sold December corn futures (50,000 bu. 2010 turbotax @$5. 2010 turbotax 75) $287,500 November 6 - Bought December corn futures (50,000 bu. 2010 turbotax @$5. 2010 turbotax 50 plus $1,400 broker's commission) 276,400 Futures gain $11,100 The $11,100 is reported on Schedule F, Part I, line 8, as other income. 2010 turbotax   The proceeds from the sale of your corn at the local elevator, $275,000, are reported on Schedule F, Part I, line 2, as income from sales of products you raised. 2010 turbotax Livestock This part discusses the sale or exchange of livestock used in your farm business. 2010 turbotax Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. 2010 turbotax However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. 2010 turbotax See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. 2010 turbotax The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. 2010 turbotax The sale of this livestock is reported on Schedule F. 2010 turbotax See chapter 3. 2010 turbotax Also, special rules apply to sales or exchanges caused by weather-related conditions. 2010 turbotax See chapter 3. 2010 turbotax Holding period. 2010 turbotax   The sale or exchange of livestock used in your farm business (defined below) qualifies as a section 1231 transaction if you held the livestock for 12 months or more (24 months or more for horses and cattle). 2010 turbotax Livestock. 2010 turbotax   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. 2010 turbotax Also, for section 1231 transactions, livestock does not include chickens, turkeys, pigeons, geese, emus, ostriches, rheas, or other birds, fish, frogs, reptiles, etc. 2010 turbotax Livestock used in farm business. 2010 turbotax   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. 2010 turbotax The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. 2010 turbotax An animal is not held for draft, breeding, dairy, or sporting purposes merely because it is suitable for that purpose, or because it is held for sale to other persons for use by them for that purpose. 2010 turbotax However, a draft, breeding, or sporting purpose may be present if an animal is disposed of within a reasonable time after it is prevented from its intended use or made undesirable as a result of an accident, disease, drought, or unfitness of the animal. 2010 turbotax Example 1. 2010 turbotax You discover an animal that you intend to use for breeding purposes is sterile. 2010 turbotax You dispose of it within a reasonable time. 2010 turbotax This animal was held for breeding purposes. 2010 turbotax Example 2. 2010 turbotax You retire and sell your entire herd, including young animals that you would have used for breeding or dairy purposes had you remained in business. 2010 turbotax These young animals were held for breeding or dairy purposes. 2010 turbotax Also, if you sell young animals to reduce your breeding or dairy herd because of drought, these animals are treated as having been held for breeding or dairy purposes. 2010 turbotax See Sales Caused by Weather-Related Conditions in chapter 3. 2010 turbotax Example 3. 2010 turbotax You are in the business of raising hogs for slaughter. 2010 turbotax Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. 2010 turbotax You sell the brood sows after obtaining the litter. 2010 turbotax Even though you hold these brood sows for ultimate sale to customers in the ordinary course of your business, they are considered to be held for breeding purposes. 2010 turbotax Example 4. 2010 turbotax You are in the business of raising registered cattle for sale to others for use as breeding cattle. 2010 turbotax The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. 2010 turbotax Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. 2010 turbotax Such use does not demonstrate that you are holding the cattle for breeding purposes. 2010 turbotax However, those cattle you held as additions or replacements to your own breeding herd to produce calves are considered to be held for breeding purposes, even though they may not actually have produced calves. 2010 turbotax The same applies to hog and sheep breeders. 2010 turbotax Example 5. 2010 turbotax You breed, raise, and train horses for racing purposes. 2010 turbotax Every year you cull horses from your racing stable. 2010 turbotax In 2013, you decided that to prevent your racing stable from getting too large to be effectively operated, you must cull six horses that had been raced at public tracks in 2012. 2010 turbotax These horses are all considered held for sporting purposes. 2010 turbotax Figuring gain or loss on the cash method. 2010 turbotax   Farmers or ranchers who use the cash method of accounting figure their gain or loss on the sale of livestock used in their farming business as follows. 2010 turbotax Raised livestock. 2010 turbotax   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. 2010 turbotax Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. 2010 turbotax The basis of the animal sold is zero if the costs of raising it were deducted during the years the animal was being raised. 2010 turbotax However, see Uniform Capitalization Rules in chapter 6. 2010 turbotax Purchased livestock. 2010 turbotax   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. 2010 turbotax Example. 2010 turbotax A farmer sold a breeding cow on January 8, 2013, for $1,250. 2010 turbotax Expenses of the sale were $125. 2010 turbotax The cow was bought July 2, 2009, for $1,300. 2010 turbotax Depreciation (not less than the amount allowable) was $867. 2010 turbotax Gross sales price $1,250 Cost (basis) $1,300   Minus: Depreciation deduction 867   Unrecovered cost (adjusted basis) $ 433   Expense of sale 125 558 Gain realized $ 692 Converted Wetland and Highly Erodible Cropland Special rules apply to dispositions of land converted to farming use after March 1, 1986. 2010 turbotax Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. 2010 turbotax Any loss on the disposition of such property is treated as a long-term capital loss. 2010 turbotax Converted wetland. 2010 turbotax   This is generally land that was drained or filled to make the production of agricultural commodities possible. 2010 turbotax It includes converted wetland held by the person who originally converted it or held by any other person who used the converted wetland at any time after conversion for farming. 2010 turbotax   A wetland (before conversion) is land that meets all the following conditions. 2010 turbotax It is mostly soil that, in its undrained condition, is saturated, flooded, or ponded long enough during a growing season to develop an oxygen-deficient state that supports the growth and regeneration of plants growing in water. 2010 turbotax It is saturated by surface or groundwater at a frequency and duration sufficient to support mostly plants that are adapted for life in saturated soil. 2010 turbotax It supports, under normal circumstances, mostly plants that grow in saturated soil. 2010 turbotax Highly erodible cropland. 2010 turbotax   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. 2010 turbotax Generally, highly erodible cropland is land currently classified by the Department of Agriculture as Class IV, VI, VII, or VIII under its classification system. 2010 turbotax Highly erodible cropland also includes land that would have an excessive average annual erosion rate in relation to the soil loss tolerance level, as determined by the Department of Agriculture. 2010 turbotax Successor. 2010 turbotax   Converted wetland or highly erodible cropland is also land held by any person whose basis in the land is figured by reference to the adjusted basis of a person in whose hands the property was converted wetland or highly erodible cropland. 2010 turbotax Timber Standing timber you held as investment property is a capital asset. 2010 turbotax Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. 2010 turbotax If you held the timber primarily for sale to customers, it is not a capital asset. 2010 turbotax Gain or loss on its sale is ordinary business income or loss. 2010 turbotax It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). 2010 turbotax See the Instructions for Schedule F (Form 1040). 2010 turbotax Farmers who cut timber on their land and sell it as logs, firewood, or pulpwood usually have no cost or other basis for that timber. 2010 turbotax Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. 2010 turbotax , are ordinary farm income and expenses reported on Schedule F. 2010 turbotax Different rules apply if you owned the timber longer than 1 year and elect to treat timber cutting as a sale or exchange or you enter into a cutting contract, discussed below. 2010 turbotax Timber considered cut. 2010 turbotax   Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. 2010 turbotax This is true whether the timber is cut under contract or whether you cut it yourself. 2010 turbotax Christmas trees. 2010 turbotax   Evergreen trees, such as Christmas trees, that are more than 6 years old when severed from their roots and sold for ornamental purposes are included in the term timber. 2010 turbotax They qualify for both rules discussed below. 2010 turbotax Election to treat cutting as a sale or exchange. 2010 turbotax   Under the general rule, the cutting of timber results in no gain or loss. 2010 turbotax It is not until a sale or exchange occurs that gain or loss is realized. 2010 turbotax But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year it is cut. 2010 turbotax Even though the cut timber is not actually sold or exchanged, you report your gain or loss on the cutting for the year the timber is cut. 2010 turbotax Any later sale results in ordinary business income or loss. 2010 turbotax See the example below. 2010 turbotax   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or use in your trade or business. 2010 turbotax Making the election. 2010 turbotax   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of your gain or loss. 2010 turbotax You do not have to make the election in the first year you cut the timber. 2010 turbotax You can make it in any year to which the election would apply. 2010 turbotax If the timber is partnership property, the election is made on the partnership return. 2010 turbotax This election cannot be made on an amended return. 2010 turbotax   Once you have made the election, it remains in effect for all later years unless you revoke it. 2010 turbotax Election under section 631(a) may be revoked. 2010 turbotax   If you previously elected for any tax year ending before October 23, 2004, to treat the cutting of timber as a sale or exchange under section 631(a), you may revoke this election without the consent of the IRS for any tax year ending after October 22, 2004. 2010 turbotax The prior election (and revocation) is disregarded for purposes of making a subsequent election. 2010 turbotax See Form T (Timber), Forest Activities Schedule, for more information. 2010 turbotax Gain or loss. 2010 turbotax   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its FMV on the first day of your tax year in which it is cut. 2010 turbotax   Your adjusted basis for depletion of cut timber is based on the number of units (board feet, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. 2010 turbotax Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 and Regulations section 1. 2010 turbotax 611-3. 2010 turbotax   Depletion of timber is discussed in chapter 7. 2010 turbotax Example. 2010 turbotax   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. 2010 turbotax It had an adjusted basis for depletion of $40 per MBF. 2010 turbotax You are a calendar year taxpayer. 2010 turbotax On January 1, 2013, the timber had a FMV of $350 per MBF. 2010 turbotax It was cut in April for sale. 2010 turbotax On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. 2010 turbotax You report the difference between the FMV and your adjusted basis for depletion as a gain. 2010 turbotax This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as a capital gain or as ordinary gain. 2010 turbotax You figure your gain as follows. 2010 turbotax FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000   The FMV becomes your basis in the cut timber, and a later sale of the cut timber, including any by-product or tree tops, will result in ordinary business income or loss. 2010 turbotax Outright sales of timber. 2010 turbotax   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined later). 2010 turbotax However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see Date of disposal below). 2010 turbotax Cutting contract. 2010 turbotax   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. 2010 turbotax You are the owner of the timber. 2010 turbotax You held the timber longer than 1 year before its disposal. 2010 turbotax You kept an economic interest in the timber. 2010 turbotax   You have kept an economic interest in standing timber if, under the cutting contract, the expected return on your investment is conditioned on the cutting of the timber. 2010 turbotax   The difference between the amount realized from the disposal of the timber and its adjusted basis for depletion is treated as gain or loss on its sale. 2010 turbotax Include this amount on Form 4797 along with your other section 1231 gains or losses. 2010 turbotax Date of disposal. 2010 turbotax   The date of disposal is the date the timber is cut. 2010 turbotax However, for outright sales by landowners or if you receive payment under the contract before the timber is cut, you can elect to treat the date of payment as the date of disposal. 2010 turbotax   This election applies only to figure the holding period of the timber. 2010 turbotax It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). 2010 turbotax   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. 2010 turbotax The statement must identify the advance payments subject to the election and the contract under which they were made. 2010 turbotax   If you timely filed your return for the year you received payment without making the election, you can still make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). 2010 turbotax Attach the statement to the amended return and write “Filed pursuant to section 301. 2010 turbotax 9100-2” at the top of the statement. 2010 turbotax File the amended return at the same address the original return was filed. 2010 turbotax Owner. 2010 turbotax   An owner is any person who owns an interest in the timber, including a sublessor and the holder of a contract to cut the timber. 2010 turbotax You own an interest in timber if you have the right to cut it for sale on your own account or for use in your business. 2010 turbotax Tree stumps. 2010 turbotax   Tree stumps are a capital asset if they are on land held by an investor who is not in the timber or stump business as a buyer, seller, or processor. 2010 turbotax Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. 2010 turbotax However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. 2010 turbotax Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. 2010 turbotax   See Form T (Timber) and its separate instructions for more information about dispositions of timber. 2010 turbotax Sale of a Farm The sale of your farm will usually involve the sale of both nonbusiness property (your home) and business property (the land and buildings used in the farm operation and perhaps machinery and livestock). 2010 turbotax If you have a gain from the sale, you may be allowed to exclude the gain on your home. 2010 turbotax For more information, see Publication 523, Selling Your Home. 2010 turbotax The gain on the sale of your business property is taxable. 2010 turbotax A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. 2010 turbotax Your taxable gain or loss on the sale of property used in your farm business is taxed under the rules for section 1231 transactions. 2010 turbotax See chapter 9. 2010 turbotax Losses from personal-use property, other than casualty or theft losses, are not deductible. 2010 turbotax If you receive payments for your farm in installments, your gain is taxed over the period of years the payments are received, unless you elect not to use the installment method of reporting the gain. 2010 turbotax See chapter 10 for information about installment sales. 2010 turbotax When you sell your farm, the gain or loss on each asset is figured separately. 2010 turbotax The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. 2010 turbotax Each of the assets sold must be classified as one of the following. 2010 turbotax Capital asset held 1 year or less. 2010 turbotax Capital asset held longer than 1 year. 2010 turbotax Property (including real estate) used in your business and held 1 year or less (including draft, breeding, dairy, and sporting animals held less than the holding periods discussed earlier under Livestock ). 2010 turbotax Property (including real estate) used in your business and held longer than 1 year (including only draft, breeding, dairy, and sporting animals held for the holding periods discussed earlier). 2010 turbotax Property held primarily for sale or which is of the kind that would be included in inventory if on hand at the end of your tax year. 2010 turbotax Allocation of consideration paid for a farm. 2010 turbotax   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. 2010 turbotax The residual method is required only if the group of assets sold constitutes a trade or business. 2010 turbotax This method determines gain or loss from the transfer of each asset. 2010 turbotax It also determines the buyer's basis in the business assets. 2010 turbotax For more information, see Sale of a Business in chapter 2 of Publication 544. 2010 turbotax Property used in farm operation. 2010 turbotax   The rules for excluding the gain on the sale of your home, described later under Sale of your home , do not apply to the property used for your farming business. 2010 turbotax Recognized gains and losses on business property must be reported on your return for the year of the sale. 2010 turbotax If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). 2010 turbotax Example. 2010 turbotax You sell your farm, including your main home, which you have owned since December 2001. 2010 turbotax You realize gain on the sale as follows. 2010 turbotax   Farm   Farm   With Home Without   Home Only Home Selling price $382,000 $158,000 $224,000 Cost (or other basis) 240,000 110,000 130,000 Gain $142,000 $48,000 $94,000 You must report the $94,000 gain from the sale of the property used in your farm business. 2010 turbotax All or a part of that gain may have to be reported as ordinary income from the recapture of depreciation or soil and water conservation expenses. 2010 turbotax Treat the balance as section 1231 gain. 2010 turbotax The $48,000 gain from the sale of your home is not taxable as long as you meet the requirements explained later under Sale of your home . 2010 turbotax Partial sale. 2010 turbotax   If you sell only part of your farm, you must report any recognized gain or loss on the sale of that part on your tax return for the year of the sale. 2010 turbotax You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. 2010 turbotax For a detailed discussion on installment sales, see Publication 544. 2010 turbotax Adjusted basis of the part sold. 2010 turbotax   This is the properly allocated part of your original cost or other basis of the entire farm plus or minus necessary adjustments for improvements, depreciation, etc. 2010 turbotax , on the part sold. 2010 turbotax If your home is on the farm, you must properly adjust the basis to exclude those costs from your farm asset costs, as discussed below under Sale of your home . 2010 turbotax Example. 2010 turbotax You bought a 600-acre farm for $700,000. 2010 turbotax The farm included land and buildings. 2010 turbotax The purchase contract designated $600,000 of the purchase price to the land. 2010 turbotax You later sold 60 acres of land on which you had installed a fence. 2010 turbotax Your adjusted basis for the part of your farm sold is $60,000 (1/10 of $600,000), plus any unrecovered cost (cost not depreciated) of the fence on the 60 acres at the time of sale. 2010 turbotax Use this amount to determine your gain or loss on the sale of the 60 acres. 2010 turbotax Assessed values for local property taxes. 2010 turbotax   If you paid a flat sum for the entire farm and no other facts are available for properly allocating your original cost or other basis between the land and the buildings, you can use the assessed values for local property taxes for the year of purchase to allocate the costs. 2010 turbotax Example. 2010 turbotax Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. 2010 turbotax However, in the year of purchase, local taxes on the entire property were based on assessed valuations of $420,000 for land and $140,000 for improvements, or a total of $560,000. 2010 turbotax The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. 2010 turbotax Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. 2010 turbotax The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). 2010 turbotax Sale of your home. 2010 turbotax   Your home is a capital asset and not property used in the trade or business of farming. 2010 turbotax If you sell a farm that includes a house you and your family occupy, you must determine the part of the selling price and the part of the cost or other basis allocable to your home. 2010 turbotax Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. 2010 turbotax   If you use part of your home for business, you must make an appropriate adjustment to the basis for depreciation allowed or allowable. 2010 turbotax For more information on basis, see chapter 6. 2010 turbotax More information. 2010 turbotax   For more information on selling your home, see Publication 523. 2010 turbotax Gain from condemnation. 2010 turbotax   If you have a gain from a condemnation or sale under threat of condemnation, you may use the preceding rules for excluding the gain, rather than the rules discussed under Postponing Gain in chapter 11. 2010 turbotax However, any gain that cannot be excluded (because it is more than the limit) may be postponed under the rules discussed under Postponing Gain in chapter 11. 2010 turbotax Foreclosure or Repossession If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. 2010 turbotax The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. 2010 turbotax This is true even if you voluntarily return the property to the lender. 2010 turbotax You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. 2010 turbotax Buyer's (borrower's) gain or loss. 2010 turbotax   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. 2010 turbotax The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. 2010 turbotax See Determining Gain or Loss , earlier. 2010 turbotax Worksheet 8-1. 2010 turbotax Worksheet for Foreclosures andRepossessions Part 1. 2010 turbotax Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. 2010 turbotax Complete this part only if you were personally liable for the debt. 2010 turbotax Otherwise, go to Part 2. 2010 turbotax   1. 2010 turbotax Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable after the transfer of property   2. 2010 turbotax Enter the Fair Market Value of the transferred property   3. 2010 turbotax Ordinary income from cancellation of debt upon foreclosure or repossession. 2010 turbotax * Subtract line 2 from line 1. 2010 turbotax If zero or less, enter -0-   Part 2. 2010 turbotax Figure your gain or loss from foreclosure or repossession. 2010 turbotax   4. 2010 turbotax If you completed Part 1, enter the smaller of line 1 or line 2. 2010 turbotax If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. 2010 turbotax Enter any proceeds you received from the foreclosure sale   6. 2010 turbotax Add lines 4 and 5   7. 2010 turbotax Enter the adjusted basis of the transferred property   8. 2010 turbotax Gain or loss from foreclosure or repossession. 2010 turbotax Subtract line 7  from line 6   * The income may not be taxable. 2010 turbotax See Cancellation of debt . 2010 turbotax    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. 2010 turbotax Amount realized on a nonrecourse debt. 2010 turbotax   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full amount of the debt canceled by the transfer. 2010 turbotax The full canceled debt is included in the amount realized even if the fair market value of the property is less than the canceled debt. 2010 turbotax Example 1. 2010 turbotax Ann paid $200,000 for land used in her farming business. 2010 turbotax She paid $15,000 down and borrowed the remaining $185,000 from a bank. 2010 turbotax Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. 2010 turbotax The bank foreclosed on the loan 2 years after Ann stopped making payments. 2010 turbotax When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. 2010 turbotax The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. 2010 turbotax She figures her gain or loss on Form 4797, Part I, by comparing the amount realized ($180,000) with her adjusted basis ($200,000). 2010 turbotax She has a $20,000 deductible loss. 2010 turbotax Example 2. 2010 turbotax Assume the same facts as in Example 1 except the FMV of the land was $210,000. 2010 turbotax The result is the same. 2010 turbotax The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. 2010 turbotax Because her adjusted basis is $200,000, she has a deductible loss of $20,000, which she reports on Form 4797, Part I. 2010 turbotax Amount realized on a recourse debt. 2010 turbotax   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. 2010 turbotax   You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. 2010 turbotax The amount realized does not include the canceled debt that is your income from cancellation of debt. 2010 turbotax See Cancellation of debt , later. 2010 turbotax Example 3. 2010 turbotax Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). 2010 turbotax In this case, the amount she realizes is $170,000. 2010 turbotax This is the canceled debt ($180,000) up to the FMV of the land ($170,000). 2010 turbotax Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). 2010 turbotax She has a $30,000 deductible loss, which she figures on Form 4797, Part I. 2010 turbotax She is also treated as receiving ordinary income from cancellation of debt. 2010 turbotax That income is $10,000 ($180,000 − $170,000). 2010 turbotax This is the part of the canceled debt not included in the amount realized. 2010 turbotax She reports this as other income on Schedule F, line 8. 2010 turbotax Seller's (lender's) gain or loss on repossession. 2010 turbotax   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. 2010 turbotax For more information, see Repossession in Publication 537, Installment Sales. 2010 turbotax Cancellation of debt. 2010 turbotax   If property that is repossessed or foreclosed upon secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the FMV of the property. 2010 turbotax This income is separate from any gain or loss realized from the foreclosure or repossession. 2010 turbotax Report the income from cancellation of a business debt on Schedule F, line 8. 2010 turbotax Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. 2010 turbotax    You can use Worksheet 8-1 to figure your income from cancellation of debt. 2010 turbotax   However, income from cancellation of debt is not taxed if any of the following apply. 2010 turbotax The cancellation is intended as a gift. 2010 turbotax The debt is qualified farm debt (see chapter 3). 2010 turbotax The debt is qualified real property business debt (see chapter 5 of Publication 334). 2010 turbotax You are insolvent or bankrupt (see  chapter 3). 2010 turbotax The debt is qualified principal residence indebtedness (see chapter 3). 2010 turbotax   Use Form 982 to report the income exclusion. 2010 turbotax Abandonment The abandonment of property is a disposition of property. 2010 turbotax You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership, but without passing it on to anyone else. 2010 turbotax Business or investment property. 2010 turbotax   Loss from abandonment of business or investment property is deductible as a loss. 2010 turbotax Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. 2010 turbotax If your adjusted basis is more than the amount you realize (if any), then you have a loss. 2010 turbotax If the amount you realize (if any) is more than your adjusted basis, then you have a gain. 2010 turbotax This rule also applies to leasehold improvements the lessor made for the lessee. 2010 turbotax However, if the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed earlier under Foreclosure or Repossession . 2010 turbotax   If the abandoned property is secured by debt, special rules apply. 2010 turbotax The tax consequences of abandonment of property that secures a debt depend on whether you are personally liable for the debt (recourse debt) or were not personally liable for the debt (nonrecourse debt). 2010 turbotax For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). 2010 turbotax The abandonment loss is deducted in the tax year in which the loss is sustained. 2010 turbotax Report the loss on Form 4797, Part II, line 10. 2010 turbotax Personal-use property. 2010 turbotax   You cannot deduct any loss from abandonment of your home or other property held for personal use. 2010 turbotax Canceled debt. 2010 turbotax   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. 2010 turbotax This income is separate from any loss realized from abandonment of the property. 2010 turbotax Report income from cancellation of a debt related to a business or rental activity as business or rental income. 2010 turbotax Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. 2010 turbotax   However, income from cancellation of debt is not taxed in certain circumstances. 2010 turbotax See Cancellation of debt earlier under Foreclosure or Repossession . 2010 turbotax Forms 1099-A and 1099-C. 2010 turbotax   A lender who acquires an interest in your property in a foreclosure, repossession, or abandonment should send you Form 1099-A showing the information you need to figure your loss from the foreclosure, repossession, or abandonment. 2010 turbotax However, if the lender cancels part of your debt and the lender must file Form 1099-C, the lender may include the information about the foreclosure, repossession, or abandonment on that form instead of Form 1099-A. 2010 turbotax The lender must file Form 1099-C and send you a copy if the canceled debt is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. 2010 turbotax For foreclosures, repossessions, abandonments of property, and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. 2010 turbotax Prev  Up  Next   Home   More Online Publications