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Aarp State Tax Filing For Seniors

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Aarp State Tax Filing For Seniors

Aarp state tax filing for seniors Publication 519 - Introductory Material Table of Contents Future Developments IntroductionOrdering forms and publications. Aarp state tax filing for seniors Tax questions. Aarp state tax filing for seniors What's New Reminders Future Developments For the latest information about developments related to Publication 519, such as legislation enacted after it was published, go to www. Aarp state tax filing for seniors irs. Aarp state tax filing for seniors gov/pub519. Aarp state tax filing for seniors Introduction For tax purposes, an alien is an individual who is not a U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors citizen. Aarp state tax filing for seniors Aliens are classified as nonresident aliens and resident aliens. Aarp state tax filing for seniors This publication will help you determine your status and give you information you will need to file your U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors tax return. Aarp state tax filing for seniors Resident aliens generally are taxed on their worldwide income, the same as U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors citizens. Aarp state tax filing for seniors Nonresident aliens are taxed only on their income from sources within the United States and on certain income connected with the conduct of a trade or business in the United States. Aarp state tax filing for seniors The information in this publication is not as comprehensive for resident aliens as it is for nonresident aliens. Aarp state tax filing for seniors Resident aliens are generally treated the same as U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors citizens and can find more information in other IRS publications. Aarp state tax filing for seniors Table A, Where To Find What You Need To Know About U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors Taxes, provides a list of questions and the chapter or chapters in this publication where you will find the related discussion. Aarp state tax filing for seniors Answers to frequently asked questions are presented in the back of the publication. Aarp state tax filing for seniors Table A. Aarp state tax filing for seniors Where To Find What You Need To Know About U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors Taxes Commonly Asked Questions Where To Find The Answer Am I a nonresident alien or resident alien? See chapter 1. Aarp state tax filing for seniors Can I be a nonresident alien and a resident alien in the same year? See Dual-Status Aliens in chapter 1. Aarp state tax filing for seniors See chapter 6. Aarp state tax filing for seniors I am a resident alien and my spouse is a nonresident alien. Aarp state tax filing for seniors Are there special rules for us? See Nonresident Spouse Treated as a Resident  in chapter 1. Aarp state tax filing for seniors See Community Income in chapter 2. Aarp state tax filing for seniors Is all my income subject to U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors tax? See chapter 2. Aarp state tax filing for seniors See chapter 3. Aarp state tax filing for seniors Is my scholarship subject to U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors tax? See Scholarship Grants, Prizes, and Awards in chapter 2. Aarp state tax filing for seniors See Scholarship and Fellowship Grants in chapter 3. Aarp state tax filing for seniors See chapter 9. Aarp state tax filing for seniors What is the tax rate on my income subject to U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors tax? See chapter 4. Aarp state tax filing for seniors I moved to the United States this year. Aarp state tax filing for seniors Can I deduct my moving expenses on my U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors return? See Deductions in chapter 5. Aarp state tax filing for seniors Can I claim exemptions for my spouse and children? See Exemptions in chapter 5. Aarp state tax filing for seniors I pay income taxes to my home country. Aarp state tax filing for seniors Can I get credit for these taxes on my U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors tax return? See Tax Credits and Payments in chapter 5. Aarp state tax filing for seniors What forms must I file and when and where do I file them? See chapter 7. Aarp state tax filing for seniors How should I pay my U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors income taxes? See chapter 8. Aarp state tax filing for seniors Am I eligible for any benefits under a tax treaty? See Income Entitled to Tax Treaty Benefits in chapter 8. Aarp state tax filing for seniors See chapter 9. Aarp state tax filing for seniors Are employees of foreign governments and international organizations exempt from U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors tax? See chapter 10. Aarp state tax filing for seniors Is there anything special I have to do before leaving the United States? See chapter 11. Aarp state tax filing for seniors See Expatriation Tax in chapter 4. Aarp state tax filing for seniors Comments and suggestions. Aarp state tax filing for seniors   We welcome your comments about this publication and your suggestions for future editions. Aarp state tax filing for seniors   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Aarp state tax filing for seniors NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Aarp state tax filing for seniors Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Aarp state tax filing for seniors   You can send us comments from www. Aarp state tax filing for seniors irs. Aarp state tax filing for seniors gov/formspubs/. Aarp state tax filing for seniors Click on “More Information” and then on “Comment on Tax Forms and Publications. Aarp state tax filing for seniors ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Aarp state tax filing for seniors Ordering forms and publications. Aarp state tax filing for seniors   Visit www. Aarp state tax filing for seniors irs. Aarp state tax filing for seniors gov/formspubs/ to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received. Aarp state tax filing for seniors Internal Revenue Service 1201 N. Aarp state tax filing for seniors Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Aarp state tax filing for seniors   If you have a tax question, check the information available on IRS. Aarp state tax filing for seniors gov or call 1-800-829-1040. Aarp state tax filing for seniors We cannot answer tax questions sent to either of the above addresses. Aarp state tax filing for seniors What's New Personal exemption increased. Aarp state tax filing for seniors  For tax years beginning in 2013, the personal exemption amount is increased to $3,900. Aarp state tax filing for seniors U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors real property interest. Aarp state tax filing for seniors  Generally, the treatment of a regulated investment company (RIC) as a qualified investment entity (QIE) was scheduled to expire at the end of 2011. Aarp state tax filing for seniors The provision has been extended through 2013. Aarp state tax filing for seniors The special rules that apply to distributions from a QIE attributable to the gain from the sale or exchange of a U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors real property interest will continue to apply to any distribution from a RIC in 2013. Aarp state tax filing for seniors Beginning in 2014 (unless extended by legislation), a RIC will only be treated as a QIE for certain distributions from the RIC that are directly or indirectly attributable to distributions received by the RIC from a REIT. Aarp state tax filing for seniors See Qualified investment entities under U. Aarp state tax filing for seniors S. Aarp state tax filing for seniors Real Property Interest. Aarp state tax filing for seniors Interest-related dividends and short-term capital gain dividends received from mutual funds. Aarp state tax filing for seniors  The exemption of tax on certain interest-related dividends and short-term capital gain dividends paid by a mutual fund or other regulated investment company was scheduled to expire at the end of 2011. Aarp state tax filing for seniors These provisions have been extended through 2013. Aarp state tax filing for seniors The exemption expires for amounts paid in tax years beginning after December 31, 2013 (unless extended by legislation). Aarp state tax filing for seniors Multi-level marketing. Aarp state tax filing for seniors  Clarification regarding the characterization and source of income received from multi-level marketing companies by distributors (upper-tier distributors) that are based on the sales or purchases of persons whom they have recruited and sponsored (lower-tier distributors) is provided. Aarp state tax filing for seniors See Multi-level marketing under Personal Services in chapter 2. Aarp state tax filing for seniors Additional Medicare Tax. Aarp state tax filing for seniors  For 2013, you may be required to pay Additional Medicare Tax. Aarp state tax filing for seniors Also, you may need to report Additional Medicare Tax withheld by your employer. Aarp state tax filing for seniors For more information, see Additional Medicare Tax under Social Security and Medicare Taxes and Self-Employment Tax in chapter 8. Aarp state tax filing for seniors For more information on Additional Medicare Tax, go to IRS. Aarp state tax filing for seniors gov and enter “Additional Medicare Tax” in the search box. Aarp state tax filing for seniors Reminders Refunds of certain withholding tax delayed. Aarp state tax filing for seniors  Refund requests for tax withheld and reported on Form 1042-S, Form 8288-A, or Form 8805 may require additional time for processing. Aarp state tax filing for seniors Allow up to 6 months for these refunds to be issued. Aarp state tax filing for seniors Third party designee. Aarp state tax filing for seniors  You can check the “Yes” box in the “Third Party Designee” area of your return to authorize the IRS to discuss your return with a friend, family member, or any other person you choose. Aarp state tax filing for seniors This allows the IRS to call the person you identified as your designee to answer any questions that may arise during the processing of your return. Aarp state tax filing for seniors It also allows your designee to perform certain actions such as asking the IRS for copies of notices or transcripts related to your return. Aarp state tax filing for seniors Also, the authorization can be revoked. Aarp state tax filing for seniors See your income tax return instructions for details. Aarp state tax filing for seniors Change of address. Aarp state tax filing for seniors . Aarp state tax filing for seniors  If you change your mailing address, be sure to notify the Internal Revenue Service using Form 8822, Change of Address. Aarp state tax filing for seniors Photographs of missing children. Aarp state tax filing for seniors  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Aarp state tax filing for seniors Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Aarp state tax filing for seniors You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Aarp state tax filing for seniors Prev  Up  Next   Home   More Online Publications
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The Aarp State Tax Filing For Seniors

Aarp state tax filing for seniors 8. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. Aarp state tax filing for seniors This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. Aarp state tax filing for seniors A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Aarp state tax filing for seniors An exchange is a transfer of property for other property or services. Aarp state tax filing for seniors Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. Aarp state tax filing for seniors If the amount you realize from a sale or exchange of property is more than its adjusted basis, you will have a gain. Aarp state tax filing for seniors If the adjusted basis of the property is more than the amount you realize, you will have a loss. Aarp state tax filing for seniors Basis and adjusted basis. Aarp state tax filing for seniors   The basis of property you buy is usually its cost. Aarp state tax filing for seniors The adjusted basis of property is basis plus certain additions and minus certain deductions. Aarp state tax filing for seniors See chapter 6 for more information about basis and adjusted basis. Aarp state tax filing for seniors Amount realized. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. Aarp state tax filing for seniors Amount recognized. Aarp state tax filing for seniors   Your gain or loss realized from a sale or exchange of certain property is usually a recognized gain or loss for tax purposes. Aarp state tax filing for seniors A recognized gain is a gain you must include in gross income and report on your income tax return. Aarp state tax filing for seniors A recognized loss is a loss you deduct from gross income. Aarp state tax filing for seniors However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. Aarp state tax filing for seniors See Like-Kind Exchanges next. Aarp state tax filing for seniors Also, a loss from the disposition of property held for personal use is not deductible. Aarp state tax filing for seniors Like-Kind Exchanges Certain exchanges of property are not taxable. Aarp state tax filing for seniors This means any gain from the exchange is not recognized, and any loss cannot be deducted. Aarp state tax filing for seniors Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Aarp state tax filing for seniors The exchange of property for the same kind of property is the most common type of nontaxable exchange. Aarp state tax filing for seniors To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. Aarp state tax filing for seniors Qualifying property. Aarp state tax filing for seniors Like-kind property. Aarp state tax filing for seniors These two requirements are discussed later. Aarp state tax filing for seniors Multiple-party transactions. Aarp state tax filing for seniors   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. Aarp state tax filing for seniors Any part of these multiple-party transactions can qualify as a like-kind exchange if it meets all the requirements described in this section. Aarp state tax filing for seniors Receipt of title from third party. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors Basis of property received. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors See chapter 6 for more information. Aarp state tax filing for seniors Money paid. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors The basis of the property received is the basis of the property given up, increased by the money paid. Aarp state tax filing for seniors Example. Aarp state tax filing for seniors You traded an old tractor with an adjusted basis of $15,000 for a new one. Aarp state tax filing for seniors The new tractor costs $300,000. Aarp state tax filing for seniors You were allowed $80,000 for the old tractor and paid $220,000 cash. Aarp state tax filing for seniors 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). Aarp state tax filing for seniors 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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Reporting the exchange. Aarp state tax filing for seniors   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. Aarp state tax filing for seniors The Instructions for Form 8824 explain how to report the details of the exchange. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. Aarp state tax filing for seniors See chapter 9 for more information. Aarp state tax filing for seniors Qualifying property. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors Machinery, buildings, land, trucks, breeding livestock, rental houses, and certain mutual ditch, reservoir, or irrigation company stock are examples of property that may qualify. Aarp state tax filing for seniors Nonqualifying property. Aarp state tax filing for seniors   The rules for like-kind exchanges do not apply to exchanges of the following property. Aarp state tax filing for seniors Property you use for personal purposes, such as your home and family car. Aarp state tax filing for seniors Stock in trade or other property held primarily for sale, such as crops and produce. Aarp state tax filing for seniors Stocks, bonds, or notes. Aarp state tax filing for seniors However, see Qualifying property above. Aarp state tax filing for seniors Other securities or evidences of indebtedness, such as accounts receivable. Aarp state tax filing for seniors Partnership interests. Aarp state tax filing for seniors However, you may have a nontaxable exchange under other rules. Aarp state tax filing for seniors See Other Nontaxable Exchanges in chapter 1 of Publication 544. Aarp state tax filing for seniors Like-kind property. Aarp state tax filing for seniors   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. Aarp state tax filing for seniors Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Aarp state tax filing for seniors Generally, real property exchanged for real property qualifies as an exchange of like-kind property. Aarp state tax filing for seniors For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors An exchange of a tractor for acreage, however, is not an exchange of like-kind property. Aarp state tax filing for seniors The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. Aarp state tax filing for seniors For example, the exchange of a bull for a cow is not a like-kind exchange. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors    Note. Aarp state tax filing for seniors Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. Aarp state tax filing for seniors Personal property. Aarp state tax filing for seniors   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. Aarp state tax filing for seniors Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. Aarp state tax filing for seniors Property classified in any General Asset Class may not be classified within a Product Class. Aarp state tax filing for seniors Assets that are not in the same class will qualify as like-kind property if they are of the same nature or character. Aarp state tax filing for seniors General Asset Classes. Aarp state tax filing for seniors   General Asset Classes describe the types of property frequently used in many businesses. Aarp state tax filing for seniors They include, but are not limited to, the following property. Aarp state tax filing for seniors Office furniture, fixtures, and equipment (asset class 00. Aarp state tax filing for seniors 11). Aarp state tax filing for seniors Information systems, such as computers and peripheral equipment (asset class 00. Aarp state tax filing for seniors 12). Aarp state tax filing for seniors Data handling equipment except computers (asset class 00. Aarp state tax filing for seniors 13). Aarp state tax filing for seniors Automobiles and taxis (asset class 00. Aarp state tax filing for seniors 22). Aarp state tax filing for seniors Light general purpose trucks (asset class 00. Aarp state tax filing for seniors 241). Aarp state tax filing for seniors Heavy general purpose trucks (asset class 00. Aarp state tax filing for seniors 242). Aarp state tax filing for seniors Tractor units for use over-the-road (asset class 00. Aarp state tax filing for seniors 26). Aarp state tax filing for seniors Trailers and trailer-mounted containers (asset class 00. Aarp state tax filing for seniors 27). Aarp state tax filing for seniors Industrial steam and electric generation and/or distribution systems (asset class 00. Aarp state tax filing for seniors 4). Aarp state tax filing for seniors Product Classes. Aarp state tax filing for seniors   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). Aarp state tax filing for seniors The latest version of the manual can be accessed at www. Aarp state tax filing for seniors census. Aarp state tax filing for seniors gov/eos/www/naics/. Aarp state tax filing for seniors Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. Aarp state tax filing for seniors ntis. Aarp state tax filing for seniors gov/products/naics. Aarp state tax filing for seniors aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. Aarp state tax filing for seniors A CD-ROM version with search and retrieval software is also available from NTIS. Aarp state tax filing for seniors    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. Aarp state tax filing for seniors Partially nontaxable exchange. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors A loss is not deductible. Aarp state tax filing for seniors Example 1. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors 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). Aarp state tax filing for seniors However, only $10,000, the cash received, is recognized (included in income). Aarp state tax filing for seniors Example 2. Aarp state tax filing for seniors Assume the same facts as in Example 1, except that, instead of money, you received a tractor with a FMV of $10,000. Aarp state tax filing for seniors Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). Aarp state tax filing for seniors Example 3. Aarp state tax filing for seniors Assume in Example 1 that the FMV of the land you received was only $15,000. Aarp state tax filing for seniors Your $5,000 loss is not recognized. Aarp state tax filing for seniors Unlike property given up. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. Aarp state tax filing for seniors Like-kind exchanges between related persons. Aarp state tax filing for seniors   Special rules apply to like-kind exchanges between related persons. Aarp state tax filing for seniors These rules affect both direct and indirect exchanges. Aarp state tax filing for seniors Under these rules, if either person disposes of the property within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Aarp state tax filing for seniors The gain or loss on the original exchange must be recognized as of the date of the later disposition. Aarp state tax filing for seniors The 2-year holding period begins on the date of the last transfer of property that was part of the like-kind exchange. Aarp state tax filing for seniors Related persons. Aarp state tax filing for seniors   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. Aarp state tax filing for seniors ), 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. Aarp state tax filing for seniors   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. Aarp state tax filing for seniors Example. Aarp state tax filing for seniors You used a grey pickup truck in your farming business. Aarp state tax filing for seniors Your sister used a red pickup truck in her landscaping business. Aarp state tax filing for seniors In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. Aarp state tax filing for seniors At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. Aarp state tax filing for seniors The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. Aarp state tax filing for seniors 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). Aarp state tax filing for seniors 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). Aarp state tax filing for seniors However, because this was a like-kind exchange, you recognized no gain. Aarp state tax filing for seniors 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). Aarp state tax filing for seniors She recognized gain only to the extent of the money she received, $200. Aarp state tax filing for seniors 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). Aarp state tax filing for seniors In 2013, you sold the red pickup truck to a third party for $7,000. Aarp state tax filing for seniors Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Aarp state tax filing for seniors On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. Aarp state tax filing for seniors 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). Aarp state tax filing for seniors In addition, your sister must report on her tax return for 2013 the $6,000 balance of her gain on the 2012 exchange. Aarp state tax filing for seniors Her adjusted basis in the grey pickup truck is increased to $7,000 (its $1,000 basis plus the $6,000 gain recognized). Aarp state tax filing for seniors Exceptions to the rules for related persons. Aarp state tax filing for seniors   The following property dispositions are excluded from these rules. Aarp state tax filing for seniors Dispositions due to the death of either related person. Aarp state tax filing for seniors Involuntary conversions. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Multiple property exchanges. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. Aarp state tax filing for seniors Transfer and receive properties in two or more exchange groups. Aarp state tax filing for seniors Transfer or receive more than one property within a single exchange group. Aarp state tax filing for seniors   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. Aarp state tax filing for seniors Deferred exchange. Aarp state tax filing for seniors   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors The property you receive is replacement property. Aarp state tax filing for seniors The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. Aarp state tax filing for seniors In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. Aarp state tax filing for seniors   For more information see Deferred Exchanges in chapter 1 of Publication 544. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors This rule does not apply if the recipient is a nonresident alien. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors This rule applies for determining loss as well as gain. Aarp state tax filing for seniors Any gain recognized on a transfer in trust increases the basis. Aarp state tax filing for seniors For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. Aarp state tax filing for seniors 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). Aarp state tax filing for seniors You may also have a capital gain if your section 1231 transactions result in a net gain. Aarp state tax filing for seniors See Section 1231 Gains and Losses in  chapter 9. Aarp state tax filing for seniors 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). Aarp state tax filing for seniors Your net capital gains may be taxed at a lower tax rate than ordinary income. Aarp state tax filing for seniors See Capital Gains Tax Rates , later. Aarp state tax filing for seniors Your deduction for a net capital loss may be limited. Aarp state tax filing for seniors See Treatment of Capital Losses , later. Aarp state tax filing for seniors Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. Aarp state tax filing for seniors The following items are examples of capital assets. Aarp state tax filing for seniors A home owned and occupied by you and your family. Aarp state tax filing for seniors Household furnishings. Aarp state tax filing for seniors A car used for pleasure. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Stocks and bonds. Aarp state tax filing for seniors However, there are special rules for gains on qualified small business stock. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Personal-use property. Aarp state tax filing for seniors   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. Aarp state tax filing for seniors Loss from the sale or exchange of personal-use property is not deductible. Aarp state tax filing for seniors You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Aarp state tax filing for seniors For information on casualties and thefts, see chapter 11. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors The time you own an asset before disposing of it is the holding period. Aarp state tax filing for seniors If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. Aarp state tax filing for seniors Report it in Part I of Schedule D (Form 1040). Aarp state tax filing for seniors If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. Aarp state tax filing for seniors Report it in Part II of Schedule D (Form 1040). Aarp state tax filing for seniors Holding period. Aarp state tax filing for seniors   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. Aarp state tax filing for seniors The day you disposed of the property is part of your holding period. Aarp state tax filing for seniors Example. Aarp state tax filing for seniors If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Inherited property. Aarp state tax filing for seniors   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Aarp state tax filing for seniors This rule does not apply to livestock used in a farm business. Aarp state tax filing for seniors See Holding period under Livestock , later. Aarp state tax filing for seniors Nonbusiness bad debt. Aarp state tax filing for seniors   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. Aarp state tax filing for seniors See chapter 4 of Publication 550. Aarp state tax filing for seniors Nontaxable exchange. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors That is, it begins on the same day as your holding period for the old property. Aarp state tax filing for seniors Gift. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors Real property. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors   However, taking possession of real property under an option agreement is not enough to start the holding period. Aarp state tax filing for seniors The holding period cannot start until there is an actual contract of sale. Aarp state tax filing for seniors The holding period of the seller cannot end before that time. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Net short-term capital gain or loss. Aarp state tax filing for seniors   Combine your short-term capital gains and losses. Aarp state tax filing for seniors Do this by adding all of your short-term capital gains. Aarp state tax filing for seniors Then add all of your short-term capital losses. Aarp state tax filing for seniors Subtract the lesser total from the greater. Aarp state tax filing for seniors The difference is your net short-term capital gain or loss. Aarp state tax filing for seniors Net long-term capital gain or loss. Aarp state tax filing for seniors   Follow the same steps to combine your long-term capital gains and losses. Aarp state tax filing for seniors The result is your net long-term capital gain or loss. Aarp state tax filing for seniors Net gain. Aarp state tax filing for seniors   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors See Capital Gains Tax Rates , later. Aarp state tax filing for seniors Net loss. Aarp state tax filing for seniors   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Aarp state tax filing for seniors But there are limits on how much loss you can deduct and when you can deduct it. Aarp state tax filing for seniors See Treatment of Capital Losses next. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors 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). Aarp state tax filing for seniors If your other income is low, you may not be able to use the full $3,000. Aarp state tax filing for seniors The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). Aarp state tax filing for seniors Capital loss carryover. Aarp state tax filing for seniors   Generally, you have a capital loss carryover if either of the following situations applies to you. Aarp state tax filing for seniors Your net loss on Schedule D (Form 1040), is more than the yearly limit. Aarp state tax filing for seniors Your taxable income without your deduction for exemptions is less than zero. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors    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). Aarp state tax filing for seniors 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. Aarp state tax filing for seniors These lower rates are called the maximum capital gains rates. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). Aarp state tax filing for seniors Also see Publication 550. Aarp state tax filing for seniors Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. Aarp state tax filing for seniors A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). Aarp state tax filing for seniors Property held for sale in the ordinary course of your farm business. Aarp state tax filing for seniors   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. Aarp state tax filing for seniors 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). Aarp state tax filing for seniors The treatment of this property is discussed in chapter 3. Aarp state tax filing for seniors Land and depreciable properties. Aarp state tax filing for seniors   Land and depreciable property you use in farming are not capital assets. Aarp state tax filing for seniors Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors The sales of these business assets are reported on Form 4797. Aarp state tax filing for seniors See chapter 9 for more information. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors A forward contract is generally similar to a futures contract except that the terms are not standardized and the contract is not exchange traded. Aarp state tax filing for seniors Businesses may enter into commodity futures contracts or forward contracts and may acquire options on commodity futures contracts as either of the following. Aarp state tax filing for seniors Hedging transactions. Aarp state tax filing for seniors Transactions that are not hedging transactions. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors There is a limit on the amount of capital losses you can deduct each year. Aarp state tax filing for seniors Hedging transactions are not subject to the mark-to-market rules. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors The gain or loss on the termination of these hedges is generally ordinary gain or loss. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Examples include fuel and feed. Aarp state tax filing for seniors If you have numerous transactions in the commodity futures market during the year, you must be able to show which transactions are hedging transactions. Aarp state tax filing for seniors Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. Aarp state tax filing for seniors It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. Aarp state tax filing for seniors Retain the identification of each hedging transaction with your books and records. Aarp state tax filing for seniors Also, identify the item(s) or aggregate risk that is being hedged in your records. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Accounting methods for hedging transactions. Aarp state tax filing for seniors   The accounting method you use for a hedging transaction must clearly reflect income. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors There are requirements and limits on the method you can use for certain hedging transactions. Aarp state tax filing for seniors See Regulations section 1. Aarp state tax filing for seniors 446-4(e) for those requirements and limits. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors Cash method. Aarp state tax filing for seniors Farm-price method. Aarp state tax filing for seniors Unit-livestock-price method. Aarp state tax filing for seniors   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. Aarp state tax filing for seniors   Your books and records must describe the accounting method used for each type of hedging transaction. Aarp state tax filing for seniors They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. Aarp state tax filing for seniors You must make the additional identification no more than 35 days after entering into the hedging transaction. Aarp state tax filing for seniors Example of a hedging transaction. Aarp state tax filing for seniors   You file your income tax returns on the cash method. Aarp state tax filing for seniors On July 2 you anticipate a yield of 50,000 bushels of corn this year. Aarp state tax filing for seniors The December futures price is $5. Aarp state tax filing for seniors 75 a bushel, but there are indications that by harvest time the price will drop. Aarp state tax filing for seniors To protect yourself against a drop in the price, you enter into the following hedging transaction. Aarp state tax filing for seniors You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. Aarp state tax filing for seniors 75 a bushel. Aarp state tax filing for seniors   The price did not drop as anticipated but rose to $6 a bushel. Aarp state tax filing for seniors In November, you sell your crop at a local elevator for $6 a bushel. Aarp state tax filing for seniors You also close out your futures position by buying ten December contracts for $6 a bushel. Aarp state tax filing for seniors You paid a broker's commission of $1,400 ($70 per contract) for the complete in and out position in the futures market. Aarp state tax filing for seniors   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. Aarp state tax filing for seniors Your loss on the hedge is 25 cents a bushel. Aarp state tax filing for seniors In effect, the net selling price of your corn is $5. Aarp state tax filing for seniors 75 a bushel. Aarp state tax filing for seniors   Report the results of your futures transactions and your sale of corn separately on Schedule F. Aarp state tax filing for seniors See the instructions for the 2013 Schedule F (Form 1040). Aarp state tax filing for seniors   The loss on your futures transactions is $13,900, figured as follows. Aarp state tax filing for seniors July 2 - Sold December corn futures (50,000 bu. Aarp state tax filing for seniors @$5. Aarp state tax filing for seniors 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Aarp state tax filing for seniors @$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. Aarp state tax filing for seniors   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. Aarp state tax filing for seniors × $6). Aarp state tax filing for seniors Report it on Schedule F, Part I, line 2, as income from sales of products you raised. Aarp state tax filing for seniors   Assume you were right and the price went down 25 cents a bushel. Aarp state tax filing for seniors In effect, you would still net $5. Aarp state tax filing for seniors 75 a bushel, figured as follows. Aarp state tax filing for seniors Sold cash corn, per bushel $5. Aarp state tax filing for seniors 50 Gain on hedge, per bushel . Aarp state tax filing for seniors 25 Net price, per bushel $5. Aarp state tax filing for seniors 75       The gain on your futures transactions would have been $11,100, figured as follows. Aarp state tax filing for seniors July 2 - Sold December corn futures (50,000 bu. Aarp state tax filing for seniors @$5. Aarp state tax filing for seniors 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Aarp state tax filing for seniors @$5. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors Livestock This part discusses the sale or exchange of livestock used in your farm business. Aarp state tax filing for seniors Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. Aarp state tax filing for seniors However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. Aarp state tax filing for seniors See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. Aarp state tax filing for seniors The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. Aarp state tax filing for seniors The sale of this livestock is reported on Schedule F. Aarp state tax filing for seniors See chapter 3. Aarp state tax filing for seniors Also, special rules apply to sales or exchanges caused by weather-related conditions. Aarp state tax filing for seniors See chapter 3. Aarp state tax filing for seniors Holding period. Aarp state tax filing for seniors   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). Aarp state tax filing for seniors Livestock. Aarp state tax filing for seniors   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. Aarp state tax filing for seniors Also, for section 1231 transactions, livestock does not include chickens, turkeys, pigeons, geese, emus, ostriches, rheas, or other birds, fish, frogs, reptiles, etc. Aarp state tax filing for seniors Livestock used in farm business. Aarp state tax filing for seniors   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. Aarp state tax filing for seniors The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Example 1. Aarp state tax filing for seniors You discover an animal that you intend to use for breeding purposes is sterile. Aarp state tax filing for seniors You dispose of it within a reasonable time. Aarp state tax filing for seniors This animal was held for breeding purposes. Aarp state tax filing for seniors Example 2. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors These young animals were held for breeding or dairy purposes. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors See Sales Caused by Weather-Related Conditions in chapter 3. Aarp state tax filing for seniors Example 3. Aarp state tax filing for seniors You are in the business of raising hogs for slaughter. Aarp state tax filing for seniors Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. Aarp state tax filing for seniors You sell the brood sows after obtaining the litter. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Example 4. Aarp state tax filing for seniors You are in the business of raising registered cattle for sale to others for use as breeding cattle. Aarp state tax filing for seniors The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. Aarp state tax filing for seniors Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. Aarp state tax filing for seniors Such use does not demonstrate that you are holding the cattle for breeding purposes. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors The same applies to hog and sheep breeders. Aarp state tax filing for seniors Example 5. Aarp state tax filing for seniors You breed, raise, and train horses for racing purposes. Aarp state tax filing for seniors Every year you cull horses from your racing stable. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors These horses are all considered held for sporting purposes. Aarp state tax filing for seniors Figuring gain or loss on the cash method. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors Raised livestock. Aarp state tax filing for seniors   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. Aarp state tax filing for seniors Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. Aarp state tax filing for seniors The basis of the animal sold is zero if the costs of raising it were deducted during the years the animal was being raised. Aarp state tax filing for seniors However, see Uniform Capitalization Rules in chapter 6. Aarp state tax filing for seniors Purchased livestock. Aarp state tax filing for seniors   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. Aarp state tax filing for seniors Example. Aarp state tax filing for seniors A farmer sold a breeding cow on January 8, 2013, for $1,250. Aarp state tax filing for seniors Expenses of the sale were $125. Aarp state tax filing for seniors The cow was bought July 2, 2009, for $1,300. Aarp state tax filing for seniors Depreciation (not less than the amount allowable) was $867. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. Aarp state tax filing for seniors Any loss on the disposition of such property is treated as a long-term capital loss. Aarp state tax filing for seniors Converted wetland. Aarp state tax filing for seniors   This is generally land that was drained or filled to make the production of agricultural commodities possible. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors   A wetland (before conversion) is land that meets all the following conditions. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors It supports, under normal circumstances, mostly plants that grow in saturated soil. Aarp state tax filing for seniors Highly erodible cropland. Aarp state tax filing for seniors   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. Aarp state tax filing for seniors Generally, highly erodible cropland is land currently classified by the Department of Agriculture as Class IV, VI, VII, or VIII under its classification system. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Successor. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors Timber Standing timber you held as investment property is a capital asset. Aarp state tax filing for seniors Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. Aarp state tax filing for seniors If you held the timber primarily for sale to customers, it is not a capital asset. Aarp state tax filing for seniors Gain or loss on its sale is ordinary business income or loss. Aarp state tax filing for seniors It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). Aarp state tax filing for seniors See the Instructions for Schedule F (Form 1040). Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. Aarp state tax filing for seniors , are ordinary farm income and expenses reported on Schedule F. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Timber considered cut. Aarp state tax filing for seniors   Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Aarp state tax filing for seniors This is true whether the timber is cut under contract or whether you cut it yourself. Aarp state tax filing for seniors Christmas trees. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors They qualify for both rules discussed below. Aarp state tax filing for seniors Election to treat cutting as a sale or exchange. Aarp state tax filing for seniors   Under the general rule, the cutting of timber results in no gain or loss. Aarp state tax filing for seniors It is not until a sale or exchange occurs that gain or loss is realized. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Any later sale results in ordinary business income or loss. Aarp state tax filing for seniors See the example below. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors Making the election. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors You do not have to make the election in the first year you cut the timber. Aarp state tax filing for seniors You can make it in any year to which the election would apply. Aarp state tax filing for seniors If the timber is partnership property, the election is made on the partnership return. Aarp state tax filing for seniors This election cannot be made on an amended return. Aarp state tax filing for seniors   Once you have made the election, it remains in effect for all later years unless you revoke it. Aarp state tax filing for seniors Election under section 631(a) may be revoked. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors The prior election (and revocation) is disregarded for purposes of making a subsequent election. Aarp state tax filing for seniors See Form T (Timber), Forest Activities Schedule, for more information. Aarp state tax filing for seniors Gain or loss. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors 611-3. Aarp state tax filing for seniors   Depletion of timber is discussed in chapter 7. Aarp state tax filing for seniors Example. Aarp state tax filing for seniors   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Aarp state tax filing for seniors It had an adjusted basis for depletion of $40 per MBF. Aarp state tax filing for seniors You are a calendar year taxpayer. Aarp state tax filing for seniors On January 1, 2013, the timber had a FMV of $350 per MBF. Aarp state tax filing for seniors It was cut in April for sale. Aarp state tax filing for seniors On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Aarp state tax filing for seniors You report the difference between the FMV and your adjusted basis for depletion as a gain. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors You figure your gain as follows. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Outright sales of timber. Aarp state tax filing for seniors   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). Aarp state tax filing for seniors 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). Aarp state tax filing for seniors Cutting contract. Aarp state tax filing for seniors   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Aarp state tax filing for seniors You are the owner of the timber. Aarp state tax filing for seniors You held the timber longer than 1 year before its disposal. Aarp state tax filing for seniors You kept an economic interest in the timber. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors Include this amount on Form 4797 along with your other section 1231 gains or losses. Aarp state tax filing for seniors Date of disposal. Aarp state tax filing for seniors   The date of disposal is the date the timber is cut. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors   This election applies only to figure the holding period of the timber. Aarp state tax filing for seniors It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Aarp state tax filing for seniors   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Aarp state tax filing for seniors The statement must identify the advance payments subject to the election and the contract under which they were made. Aarp state tax filing for seniors   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). Aarp state tax filing for seniors Attach the statement to the amended return and write “Filed pursuant to section 301. Aarp state tax filing for seniors 9100-2” at the top of the statement. Aarp state tax filing for seniors File the amended return at the same address the original return was filed. Aarp state tax filing for seniors Owner. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Tree stumps. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Aarp state tax filing for seniors However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Aarp state tax filing for seniors Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Aarp state tax filing for seniors   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Aarp state tax filing for seniors 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). Aarp state tax filing for seniors If you have a gain from the sale, you may be allowed to exclude the gain on your home. Aarp state tax filing for seniors For more information, see Publication 523, Selling Your Home. Aarp state tax filing for seniors The gain on the sale of your business property is taxable. Aarp state tax filing for seniors A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. Aarp state tax filing for seniors Your taxable gain or loss on the sale of property used in your farm business is taxed under the rules for section 1231 transactions. Aarp state tax filing for seniors See chapter 9. Aarp state tax filing for seniors Losses from personal-use property, other than casualty or theft losses, are not deductible. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors See chapter 10 for information about installment sales. Aarp state tax filing for seniors When you sell your farm, the gain or loss on each asset is figured separately. Aarp state tax filing for seniors The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. Aarp state tax filing for seniors Each of the assets sold must be classified as one of the following. Aarp state tax filing for seniors Capital asset held 1 year or less. Aarp state tax filing for seniors Capital asset held longer than 1 year. Aarp state tax filing for seniors 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 ). Aarp state tax filing for seniors 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). Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Allocation of consideration paid for a farm. Aarp state tax filing for seniors   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. Aarp state tax filing for seniors The residual method is required only if the group of assets sold constitutes a trade or business. Aarp state tax filing for seniors This method determines gain or loss from the transfer of each asset. Aarp state tax filing for seniors It also determines the buyer's basis in the business assets. Aarp state tax filing for seniors For more information, see Sale of a Business in chapter 2 of Publication 544. Aarp state tax filing for seniors Property used in farm operation. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors Recognized gains and losses on business property must be reported on your return for the year of the sale. Aarp state tax filing for seniors If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). Aarp state tax filing for seniors Example. Aarp state tax filing for seniors You sell your farm, including your main home, which you have owned since December 2001. Aarp state tax filing for seniors You realize gain on the sale as follows. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Treat the balance as section 1231 gain. Aarp state tax filing for seniors 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 . Aarp state tax filing for seniors Partial sale. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. Aarp state tax filing for seniors For a detailed discussion on installment sales, see Publication 544. Aarp state tax filing for seniors Adjusted basis of the part sold. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors , on the part sold. Aarp state tax filing for seniors 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 . Aarp state tax filing for seniors Example. Aarp state tax filing for seniors You bought a 600-acre farm for $700,000. Aarp state tax filing for seniors The farm included land and buildings. Aarp state tax filing for seniors The purchase contract designated $600,000 of the purchase price to the land. Aarp state tax filing for seniors You later sold 60 acres of land on which you had installed a fence. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Use this amount to determine your gain or loss on the sale of the 60 acres. Aarp state tax filing for seniors Assessed values for local property taxes. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors Example. Aarp state tax filing for seniors Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. Aarp state tax filing for seniors Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. Aarp state tax filing for seniors The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). Aarp state tax filing for seniors Sale of your home. Aarp state tax filing for seniors   Your home is a capital asset and not property used in the trade or business of farming. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. Aarp state tax filing for seniors   If you use part of your home for business, you must make an appropriate adjustment to the basis for depreciation allowed or allowable. Aarp state tax filing for seniors For more information on basis, see chapter 6. Aarp state tax filing for seniors More information. Aarp state tax filing for seniors   For more information on selling your home, see Publication 523. Aarp state tax filing for seniors Gain from condemnation. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Aarp state tax filing for seniors This is true even if you voluntarily return the property to the lender. Aarp state tax filing for seniors You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. Aarp state tax filing for seniors Buyer's (borrower's) gain or loss. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Aarp state tax filing for seniors See Determining Gain or Loss , earlier. Aarp state tax filing for seniors Worksheet 8-1. Aarp state tax filing for seniors Worksheet for Foreclosures andRepossessions Part 1. Aarp state tax filing for seniors Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Aarp state tax filing for seniors Complete this part only if you were personally liable for the debt. Aarp state tax filing for seniors Otherwise, go to Part 2. Aarp state tax filing for seniors   1. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Enter the Fair Market Value of the transferred property   3. Aarp state tax filing for seniors Ordinary income from cancellation of debt upon foreclosure or repossession. Aarp state tax filing for seniors * Subtract line 2 from line 1. Aarp state tax filing for seniors If zero or less, enter -0-   Part 2. Aarp state tax filing for seniors Figure your gain or loss from foreclosure or repossession. Aarp state tax filing for seniors   4. Aarp state tax filing for seniors If you completed Part 1, enter the smaller of line 1 or line 2. Aarp state tax filing for seniors If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. Aarp state tax filing for seniors Enter any proceeds you received from the foreclosure sale   6. Aarp state tax filing for seniors Add lines 4 and 5   7. Aarp state tax filing for seniors Enter the adjusted basis of the transferred property   8. Aarp state tax filing for seniors Gain or loss from foreclosure or repossession. Aarp state tax filing for seniors Subtract line 7  from line 6   * The income may not be taxable. Aarp state tax filing for seniors See Cancellation of debt . Aarp state tax filing for seniors    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. Aarp state tax filing for seniors Amount realized on a nonrecourse debt. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Example 1. Aarp state tax filing for seniors Ann paid $200,000 for land used in her farming business. Aarp state tax filing for seniors She paid $15,000 down and borrowed the remaining $185,000 from a bank. Aarp state tax filing for seniors Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. Aarp state tax filing for seniors The bank foreclosed on the loan 2 years after Ann stopped making payments. Aarp state tax filing for seniors When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. Aarp state tax filing for seniors The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. Aarp state tax filing for seniors She figures her gain or loss on Form 4797, Part I, by comparing the amount realized ($180,000) with her adjusted basis ($200,000). Aarp state tax filing for seniors She has a $20,000 deductible loss. Aarp state tax filing for seniors Example 2. Aarp state tax filing for seniors Assume the same facts as in Example 1 except the FMV of the land was $210,000. Aarp state tax filing for seniors The result is the same. Aarp state tax filing for seniors The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. Aarp state tax filing for seniors Because her adjusted basis is $200,000, she has a deductible loss of $20,000, which she reports on Form 4797, Part I. Aarp state tax filing for seniors Amount realized on a recourse debt. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors The amount realized does not include the canceled debt that is your income from cancellation of debt. Aarp state tax filing for seniors See Cancellation of debt , later. Aarp state tax filing for seniors Example 3. Aarp state tax filing for seniors Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). Aarp state tax filing for seniors In this case, the amount she realizes is $170,000. Aarp state tax filing for seniors This is the canceled debt ($180,000) up to the FMV of the land ($170,000). Aarp state tax filing for seniors Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). Aarp state tax filing for seniors She has a $30,000 deductible loss, which she figures on Form 4797, Part I. Aarp state tax filing for seniors She is also treated as receiving ordinary income from cancellation of debt. Aarp state tax filing for seniors That income is $10,000 ($180,000 − $170,000). Aarp state tax filing for seniors This is the part of the canceled debt not included in the amount realized. Aarp state tax filing for seniors She reports this as other income on Schedule F, line 8. Aarp state tax filing for seniors Seller's (lender's) gain or loss on repossession. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors For more information, see Repossession in Publication 537, Installment Sales. Aarp state tax filing for seniors Cancellation of debt. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors This income is separate from any gain or loss realized from the foreclosure or repossession. Aarp state tax filing for seniors Report the income from cancellation of a business debt on Schedule F, line 8. Aarp state tax filing for seniors Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Aarp state tax filing for seniors    You can use Worksheet 8-1 to figure your income from cancellation of debt. Aarp state tax filing for seniors   However, income from cancellation of debt is not taxed if any of the following apply. Aarp state tax filing for seniors The cancellation is intended as a gift. Aarp state tax filing for seniors The debt is qualified farm debt (see chapter 3). Aarp state tax filing for seniors The debt is qualified real property business debt (see chapter 5 of Publication 334). Aarp state tax filing for seniors You are insolvent or bankrupt (see  chapter 3). Aarp state tax filing for seniors The debt is qualified principal residence indebtedness (see chapter 3). Aarp state tax filing for seniors   Use Form 982 to report the income exclusion. Aarp state tax filing for seniors Abandonment The abandonment of property is a disposition of property. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors Business or investment property. Aarp state tax filing for seniors   Loss from abandonment of business or investment property is deductible as a loss. Aarp state tax filing for seniors Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Aarp state tax filing for seniors If your adjusted basis is more than the amount you realize (if any), then you have a loss. Aarp state tax filing for seniors If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Aarp state tax filing for seniors This rule also applies to leasehold improvements the lessor made for the lessee. Aarp state tax filing for seniors 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 . Aarp state tax filing for seniors   If the abandoned property is secured by debt, special rules apply. Aarp state tax filing for seniors 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). Aarp state tax filing for seniors For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Aarp state tax filing for seniors The abandonment loss is deducted in the tax year in which the loss is sustained. Aarp state tax filing for seniors Report the loss on Form 4797, Part II, line 10. Aarp state tax filing for seniors Personal-use property. Aarp state tax filing for seniors   You cannot deduct any loss from abandonment of your home or other property held for personal use. Aarp state tax filing for seniors Canceled debt. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors This income is separate from any loss realized from abandonment of the property. Aarp state tax filing for seniors Report income from cancellation of a debt related to a business or rental activity as business or rental income. Aarp state tax filing for seniors Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Aarp state tax filing for seniors   However, income from cancellation of debt is not taxed in certain circumstances. Aarp state tax filing for seniors See Cancellation of debt earlier under Foreclosure or Repossession . Aarp state tax filing for seniors Forms 1099-A and 1099-C. Aarp state tax filing for seniors   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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors 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. Aarp state tax filing for seniors For foreclosures, repossessions, abandonments of property, and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Aarp state tax filing for seniors Prev  Up  Next   Home   More Online Publications