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2011 1040ez

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2011 1040ez

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

2011 1040ez 13. 2011 1040ez   Payment of Taxes Table of Contents How To Make Deposits When To Make Deposits Amount of DepositsSafe Harbor Rule Generally, semimonthly deposits of excise taxes are required. 2011 1040ez A semimonthly period is the first 15 days of a month (the first semimonthly period) or the 16th through the last day of a month (the second semimonthly period). 2011 1040ez However, no deposit is required for the situations listed below; the taxes are payable with Form 720. 2011 1040ez The net liability for taxes listed in Part I (Form 720) does not exceed $2,500 for the quarter. 2011 1040ez The gas guzzler tax is being paid on a one-time filing. 2011 1040ez The liability is for taxes listed in Part II (Form 720), except for the floor stocks tax which generally requires a single deposit. 2011 1040ez How To Make Deposits Electronic deposit requirement. 2011 1040ez   You must use electronic funds transfer to make excise tax deposits. 2011 1040ez Generally, electronic funds transfers are made using the Electronic Federal Tax Payment System (EFTPS). 2011 1040ez If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make deposits on your behalf. 2011 1040ez Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. 2011 1040ez   EFTPS is a free service provided by the Department of Treasury. 2011 1040ez Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. 2011 1040ez To get more information about EFTPS or to enroll in EFTPS, visit www. 2011 1040ez eftps. 2011 1040ez gov or call 1-800-555-4477. 2011 1040ez Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. 2011 1040ez    Depositing on time. 2011 1040ez For EFTPS deposits to be on time, you must initiate the transaction at least 1 day before the date the deposit is due (before 8:00 p. 2011 1040ez m. 2011 1040ez Eastern time). 2011 1040ez You will automatically be enrolled in EFTPS when you apply for an EIN. 2011 1040ez You will receive a separate mailing containing instructions for activating your EFTPS enrollment after you receive your EIN. 2011 1040ez When To Make Deposits There are two methods for determining deposits: the regular method and the alternative method. 2011 1040ez The regular method applies to all taxes in Part I of Form 720 except for communications and air transportation taxes if deposits are based on amounts billed or tickets sold, rather than on amounts actually collected. 2011 1040ez See Alternative method below. 2011 1040ez If you are depositing more than one tax under a method, combine all the taxes under the method and make one deposit for the semimonthly period. 2011 1040ez Regular method. 2011 1040ez   The deposit of tax for a semimonthly period is due by the 14th day following that period. 2011 1040ez Generally, this is the 29th day of a month for the first semimonthly period and the 14th day of the following month for the second semimonthly period. 2011 1040ez If the 14th or the 29th day falls on a Saturday, Sunday, or legal holiday, you must make the deposit by the immediately preceding day that is not a Saturday, Sunday, or legal holiday. 2011 1040ez Alternative method (IRS Nos. 2011 1040ez 22, 26, 27, and 28). 2011 1040ez   Deposits of communications and air transportation taxes may be based on taxes included in amounts billed or tickets sold during a semimonthly period instead of on taxes actually collected during the period. 2011 1040ez Under the alternative method, the tax included in amounts billed or tickets sold during a semimonthly period is considered collected during the first 7 days of the second following semimonthly period. 2011 1040ez The deposit of tax is due by the 3rd banking day after the 7th day of that period. 2011 1040ez   For an example of the alternative method, see the Instructions for Form 720. 2011 1040ez To use the alternative method, you must keep a separate account of the tax included in amounts billed or tickets sold during the month and report on Form 720 the tax included in amounts billed or tickets sold and not the amount of tax that is actually collected. 2011 1040ez For example, amounts billed in December, January, and February are considered collected during January, February, and March and are reported on Form 720 as the tax for the 1st quarter of the calendar year. 2011 1040ez The separate account for each month must reflect: All items of tax included in amounts billed or tickets sold during the month, and Other items of adjustment relating to tax for prior months (within the statute of limitations on credits or refunds). 2011 1040ez The separate account for any month cannot include an adjustment resulting from a refusal to pay or inability to collect unless the refusal has been reported to the IRS. 2011 1040ez See Uncollected Tax Report in chapter 4. 2011 1040ez The net amount of tax that is considered collected during the semimonthly period must be either: The net amount of tax reflected in the separate account for the corresponding semimonthly period of the preceding month, or One-half of the net amount of tax reflected in the separate account for the preceding month. 2011 1040ez Special rule for deposits of taxes in September. 2011 1040ez   See the Instructions for Form 720 for a special rule on deposits made in September. 2011 1040ez Amount of Deposits Deposits for a semimonthly period generally must be at least 95% of the net tax liability for that period unless the safe harbor rule (discussed later) applies. 2011 1040ez Generally, you do not have to make a deposit for a period in which you incurred no tax liability. 2011 1040ez Net tax liability. 2011 1040ez   Your net tax liability is your tax liability for the period minus any claims on Schedule C (Form 720) for the period. 2011 1040ez You may figure your net tax liability for a semimonthly period by dividing your net liability incurred during the calendar month by two. 2011 1040ez If you use this method, you must use it for all semimonthly periods in the calendar quarter. 2011 1040ez Do not reduce your liability by any amounts from Form 720X. 2011 1040ez Safe Harbor Rule The safe harbor rule applies separately to deposits under the regular method and the alternative method. 2011 1040ez Persons who filed Form 720 for the look-back quarter (the 2nd calendar quarter preceding the current quarter) are considered to meet the semimonthly deposit requirement if the deposit for each semimonthly period in the current quarter is at least 1/6 (16. 2011 1040ez 67%) of the net tax liability reported for the look-back quarter. 2011 1040ez For the semimonthly period for which the additional deposit is required, the additional deposit must be at least 11/90 12. 2011 1040ez 23%), 10/90 (11. 2011 1040ez 12%) for non-EFTPS, of the net tax liability reported for the look-back quarter. 2011 1040ez Also, the total deposit for that semimonthly period must be at least 1/6 (16. 2011 1040ez 67%) of the net tax liability reported for the look-back quarter. 2011 1040ez Exceptions. 2011 1040ez   The safe harbor rule does not apply to: The 1st and 2nd quarters beginning on or after the effective date of an increase in the rate of tax unless the deposit of taxes for each semimonthly period in the calendar quarter is at least 1/6 (16. 2011 1040ez 67%) of the tax liability you would have had for the look-back quarter if the increased rate of tax had been in effect for that look-back quarter, Any quarter if liability includes any tax not in effect throughout the look-back quarter, or For deposits under the alternative method, any quarter if liability includes any tax not in effect throughout the look-back quarter and the month preceding the look-back quarter. 2011 1040ez Requirements to be met. 2011 1040ez   For the safe harbor rule to apply, you must: Make each deposit timely at an authorized financial institution, and Pay any underpayment for the current quarter by the due date of the return. 2011 1040ez    The IRS may withdraw the right to make deposits of tax using the safe harbor rule from any person not complying with these rules. 2011 1040ez Tax rate increases. 2011 1040ez   You must modify the safe harbor rule if there has been an increase in the rate of tax. 2011 1040ez You must figure your tax liability in the look-back quarter as if the increased rate had been in effect. 2011 1040ez To qualify for the safe harbor rule, your deposits cannot be less than 1/6 of the refigured tax liability. 2011 1040ez Prev  Up  Next   Home   More Online Publications