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E File Form 1040ez

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E File Form 1040ez

E file form 1040ez 3. E file form 1040ez   Lifetime Learning Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. E file form 1040ez They are the American opportunity credit and the lifetime learning credit. E file form 1040ez This chapter discusses the lifetime learning credit. E file form 1040ez The American opportunity credit is discussed in chapter 2, The American Opportunity Credit . E file form 1040ez This chapter explains: Who can claim the lifetime learning credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. E file form 1040ez What is the tax benefit of the lifetime learning credit. E file form 1040ez   For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all eligible students. E file form 1040ez There is no limit on the number of years the lifetime learning credit can be claimed for each student. E file form 1040ez   A tax credit reduces the amount of income tax you may have to pay. E file form 1040ez Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. E file form 1040ez The lifetime learning credit is a nonrefundable credit. E file form 1040ez This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you. E file form 1040ez   Your allowable lifetime learning credit may be limited by the amount of your income and the amount of your tax. E file form 1040ez Can you claim more than one education credit this year. E file form 1040ez   For each student, you can elect for any year only one of the credits. E file form 1040ez For example, if you elect to take the lifetime learning credit for a child on your 2013 tax return, you cannot, for that same child, also claim the American opportunity credit for 2013. E file form 1040ez   If you are eligible to claim the lifetime learning credit and you are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both. E file form 1040ez   If you pay qualified education expenses for more than one student in the same year, you can choose to take certain credits on a per-student, per-year basis. E file form 1040ez This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. E file form 1040ez Differences between the American opportunity and lifetime learning credits. E file form 1040ez   There are several differences between these two credits. E file form 1040ez For example, you can claim the American opportunity credit for the same student for no more than 4 tax years, but any year in which the Hope Scholarship Credit was claimed counts toward the 4 years. E file form 1040ez However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. E file form 1040ez The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. E file form 1040ez Overview of the lifetime learning credit. E file form 1040ez   See Table 3-1, Overview of the Lifetime Learning Credit for the basics of the lifetime learning credit. E file form 1040ez The details are discussed in this chapter. E file form 1040ez Can You Claim the Credit The following rules will help you determine if you are eligible to claim the lifetime learning credit on your tax return. E file form 1040ez Who Can Claim the Credit Generally, you can claim the lifetime learning credit if all three of the following requirements are met. E file form 1040ez You pay qualified education expenses of higher education. E file form 1040ez You pay the education expenses for an eligible student. E file form 1040ez The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. E file form 1040ez Table 3-1. E file form 1040ez Overview of the Lifetime Learning Credit Maximum credit Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $127,000 if married filling jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable Nonrefundable—credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available for an unlimited number of years Type of program required Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Available for one or more courses Felony drug conviction Felony drug convictions do not make the student ineligible Qualified expenses Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Note. E file form 1040ez Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. E file form 1040ez “Qualified education expenses” are defined later under Qualified Education Expenses . E file form 1040ez “Eligible students” are defined later under Who Is an Eligible Student . E file form 1040ez A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . E file form 1040ez You may find Figure 3-1, Can You Claim the Lifetime Learning Credit for 2013 , later, helpful in determining if you can claim a lifetime learning credit on your tax return. E file form 1040ez Who Cannot Claim the Credit You cannot claim the lifetime learning credit for 2013 if any of the following apply. E file form 1040ez Your filing status is married filing separately. E file form 1040ez You are listed as a dependent on another person's tax return (such as your parents'). E file form 1040ez See Who Can Claim a Dependent's Expenses , later. E file form 1040ez Your modified adjusted gross income (MAGI) is $63,000 or more ($127,000 or more in the case of a joint return). E file form 1040ez MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . E file form 1040ez You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. E file form 1040ez More information on nonresident aliens can be found in Publication 519. E file form 1040ez You claim the American Opportunity Credit (see chapter 2) or a Tuition and Fees Deduction (see chapter 6) for the same student in 2013. E file form 1040ez What Expenses Qualify The lifetime learning credit is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. E file form 1040ez Generally, the credit is allowed for qualified education expenses paid in 2013 for an academic period beginning in 2013 or in the first 3 months of 2014. E file form 1040ez For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 credit. E file form 1040ez Academic period. E file form 1040ez   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. E file form 1040ez In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. E file form 1040ez Paid with borrowed funds. E file form 1040ez   You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. E file form 1040ez You use the expenses to figure the lifetime learning credit for the year in which the expenses are paid, not the year in which the loan is repaid. E file form 1040ez Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. E file form 1040ez Student withdraws from class(es). E file form 1040ez   You can claim a lifetime learning credit for qualified education expenses not refunded when a student withdraws. E file form 1040ez Qualified Education Expenses For purposes of the lifetime learning credit, qualified education expenses are tuition and certain related expenses required for enrollment in a course at an eligible educational institution. E file form 1040ez The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills. E file form 1040ez Eligible educational institution. E file form 1040ez   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. E file form 1040ez S. E file form 1040ez Department of Education. E file form 1040ez It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. E file form 1040ez The educational institution should be able to tell you if it is an eligible educational institution. E file form 1040ez   Certain educational institutions located outside the United States also participate in the U. E file form 1040ez S. E file form 1040ez Department of Education's Federal Student Aid (FSA) programs. E file form 1040ez Related expenses. E file form 1040ez   Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution for enrollment or attendance. E file form 1040ez Prepaid expenses. E file form 1040ez   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. E file form 1040ez See Academic period , earlier. E file form 1040ez For example, you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). E file form 1040ez You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). E file form 1040ez In the following examples, assume that each student is an eligible student at an eligible educational institution. E file form 1040ez Example 1. E file form 1040ez   Jackson is a sophomore in University V's degree program in dentistry. E file form 1040ez This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. E file form 1040ez Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense. E file form 1040ez Example 2. E file form 1040ez   Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. E file form 1040ez The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. E file form 1040ez Charles bought his books from a friend, so what he paid for them is not a qualified education expense. E file form 1040ez Donna bought hers at College W's bookstore. E file form 1040ez Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution. E file form 1040ez Example 3. E file form 1040ez   When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. E file form 1040ez This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and student government. E file form 1040ez No portion of the fee covers personal expenses. E file form 1040ez Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. E file form 1040ez Therefore, it is a qualified expense. E file form 1040ez No Double Benefit Allowed You cannot do any of the following: Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim a lifetime learning credit based on those same expenses. E file form 1040ez Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student. E file form 1040ez Claim a lifetime learning credit and an American opportunity credit based on the same qualified education expenses. E file form 1040ez Claim a lifetime learning credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). E file form 1040ez See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. E file form 1040ez Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. E file form 1040ez See Adjustments to Qualified Education Expenses, next. E file form 1040ez This image is too large to be displayed in the current screen. E file form 1040ez Please click the link to view the image. E file form 1040ez Figure 3-1 Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. E file form 1040ez The result is the amount of adjusted qualified education expenses for each student. E file form 1040ez Tax-free educational assistance. E file form 1040ez   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. E file form 1040ez See Academic period , earlier. E file form 1040ez   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. E file form 1040ez This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). E file form 1040ez   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed , later. E file form 1040ez If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed , later. E file form 1040ez   Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. E file form 1040ez Generally, any scholarship or fellowship is treated as tax free. E file form 1040ez However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. E file form 1040ez The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. E file form 1040ez The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. E file form 1040ez You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. E file form 1040ez For examples, see Coordination with Pell grants and other scholarships, later. E file form 1040ez Refunds. E file form 1040ez   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. E file form 1040ez Some tax-free educational assistance received after 2013 may be treated as a refund. E file form 1040ez See Tax-free educational assistance , earlier. E file form 1040ez Refunds received in 2013. E file form 1040ez   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. E file form 1040ez Refunds received after 2013 but before your income tax return is filed. E file form 1040ez   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. E file form 1040ez Refunds received after 2013 and after your income tax return is filed. E file form 1040ez   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. E file form 1040ez See Credit recapture, next. E file form 1040ez Credit recapture. E file form 1040ez    If any tax-free educational assistance for the qualified education expenses paid in 2013 or any refund of your qualified education expenses paid in 2013 is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. E file form 1040ez You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. E file form 1040ez You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). E file form 1040ez Include that amount as an additional tax for the year the refund or tax-free assistance was received. E file form 1040ez Example. E file form 1040ez   You pay $9,300 in tuition and fees in December 2013, and your child began college in January 2014. E file form 1040ez You filed your 2013 tax return on February 14, 2014, and claimed a lifetime learning credit of $1,860. E file form 1040ez You claimed no other tax credits. E file form 1040ez After you filed your return, your child withdrew from two courses and you received a refund of $2,900. E file form 1040ez You must refigure your 2013 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. E file form 1040ez The refigured credit is $1,280 and your tax liability increased by $580. E file form 1040ez See instructions for your 2014 income tax return to determine where to include this tax. E file form 1040ez If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. E file form 1040ez Amounts that do not reduce qualified education expenses. E file form 1040ez   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. E file form 1040ez   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. E file form 1040ez The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. E file form 1040ez The use of the money is not restricted. E file form 1040ez For examples, see Adjustments to Qualified Education Expenses in chapter 2, American Opportunity Credit. E file form 1040ez Coordination with Pell grants and other scholarships. E file form 1040ez   In some cases, you may be able to reduce your tax liability by including scholarships in income. E file form 1040ez If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. E file form 1040ez The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. E file form 1040ez Example 1—No scholarship. E file form 1040ez Judy Green, who is unmarried, is taking courses at a public community college to be recertified to teach in public schools. E file form 1040ez Her AGI and her MAGI, for purposes of the credit, are $27,000. E file form 1040ez Judy takes the standard deduction of $5,950 and personal exemption of $3,800, reducing her AGI to taxable income of $17,250 and her tax before credits is $2,156. E file form 1040ez She claims no credits other than the lifetime learning credit. E file form 1040ez In July 2013 she paid $700 for the summer 2013 semester; in August 2013 she paid $1,900 for the fall 2013 semester; and in December 2013 she paid another $1,900 for the spring semester beginning in January 2014. E file form 1040ez Judy and the college meet all requirements for the lifetime learning tax credit. E file form 1040ez She can use all of the $4,500 tuition she paid in 2013 when figuring her 2013 lifetime learning credit. E file form 1040ez She claims a $900 lifetime learning credit and her tax after credits is $1,256. E file form 1040ez Example 2—Scholarship excluded from income. E file form 1040ez The facts are the same as in Example 1—No scholarship, except that Judy was awarded a $1,500 scholarship. E file form 1040ez Under the terms of her scholarship, it may be used to pay any educational expenses, including room and board. E file form 1040ez If Judy excludes the scholarship from income, she will be deemed (for purposes of computing her education credit) as having used the scholarship to pay for tuition, required fees, and course materials. E file form 1040ez Only $3,000 of the $4,500 tuition she paid in 2013 could be used when figuring her 2013 lifetime learning credit. E file form 1040ez Her lifetime learning credit would be reduced to $600 and her tax after credits would be $1,556. E file form 1040ez Example 3—Scholarship included in income. E file form 1040ez The facts are the same as in Example 2—Scholarship excluded from income. E file form 1040ez If, unlike Example 2, Judy includes the $1,500 scholarship in income, she will be deemed to have used the entire scholarship to pay for room and board. E file form 1040ez Judy's AGI will increase to $28,500, her taxable income would be $18,750, and her tax before credits would be $2,381. E file form 1040ez She would be able to use the $4,500 of adjusted qualified education expenses to figure her credit. E file form 1040ez Judy could claim a $900 lifetime learning credit and her tax after credits would be $1,481. E file form 1040ez Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. E file form 1040ez This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. E file form 1040ez Sports, games, hobbies, and noncredit courses. E file form 1040ez   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. E file form 1040ez However, if the course of instruction or other education is part of the student's degree program or is taken by the student to acquire or improve job skills, these expenses can qualify. E file form 1040ez Comprehensive or bundled fees. E file form 1040ez   Some eligible educational institutions combine all of their fees for an academic period into one amount. E file form 1040ez If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. E file form 1040ez The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T. E file form 1040ez See Figuring the Credit , later, for more information about Form 1098-T. E file form 1040ez Who Is an Eligible Student For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier). E file form 1040ez Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim a lifetime learning credit for your dependent's expenses for that year. E file form 1040ez For you to claim a lifetime learning credit for your dependent's expenses, you must also claim an exemption for your dependent. E file form 1040ez You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. E file form 1040ez IF you. E file form 1040ez . E file form 1040ez . E file form 1040ez THEN only. E file form 1040ez . E file form 1040ez . E file form 1040ez claim an exemption on your tax return for a dependent who is an eligible student you can claim the lifetime learning credit based on that dependent's expenses. E file form 1040ez The dependent cannot claim the credit. E file form 1040ez do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the lifetime learning credit. E file form 1040ez You cannot claim the credit based on this dependent's expenses. E file form 1040ez Expenses paid by dependent. E file form 1040ez   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. E file form 1040ez Include these expenses when figuring the amount of your lifetime learning credit. E file form 1040ez    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. E file form 1040ez Expenses paid by you. E file form 1040ez   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the lifetime learning credit. E file form 1040ez If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the lifetime learning credit. E file form 1040ez Expenses paid by others. E file form 1040ez   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. E file form 1040ez In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. E file form 1040ez If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. E file form 1040ez Example. E file form 1040ez In 2013, Ms. E file form 1040ez Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. E file form 1040ez For purposes of claiming a lifetime learning credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. E file form 1040ez Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim a lifetime learning credit. E file form 1040ez If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim a lifetime learning credit. E file form 1040ez If anyone else claims an exemption for Todd, Todd cannot claim a lifetime learning credit. E file form 1040ez Tuition reduction. E file form 1040ez   When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. E file form 1040ez If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. E file form 1040ez For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. E file form 1040ez Figuring the Credit The amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible students. E file form 1040ez The maximum amount of lifetime learning credit you can claim for 2013 is $2,000 (20% × $10,000). E file form 1040ez However, that amount may be reduced based on your MAGI. E file form 1040ez See Effect of the Amount of Your Income on the Amount of Your Credit , later. E file form 1040ez Example. E file form 1040ez Bruce and Toni Harper are married and file a joint tax return. E file form 1040ez For 2013, their MAGI is $75,000. E file form 1040ez Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. E file form 1040ez She already has a bachelor's degree in history and wants to become a nurse. E file form 1040ez In August 2013, Toni paid $5,000 of qualified education expenses for her fall 2013 semester. E file form 1040ez Bruce and Toni can claim a $1,000 (20% × $5,000) lifetime learning credit on their 2013 joint tax return. E file form 1040ez Form 1098-T. E file form 1040ez   To help you figure your lifetime learning credit, the student should receive Form 1098-T. E file form 1040ez Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. E file form 1040ez An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. E file form 1040ez However, the amounts in boxes 1 and 2 of Form 1098-T might be different from what you paid. E file form 1040ez When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. E file form 1040ez   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. E file form 1040ez    The eligible educational institution may ask for a completed Form W-9S, or similar statement to obtain the student's name, address, and taxpayer identification number. E file form 1040ez Effect of the Amount of Your Income on the Amount of Your Credit The amount of your lifetime learning credit is phased out (gradually reduced) if your MAGI is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). E file form 1040ez You cannot claim a lifetime learning credit if your MAGI is $63,000 or more ($127,000 or more if you file a joint return). E file form 1040ez Modified adjusted gross income (MAGI). E file form 1040ez   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. E file form 1040ez MAGI when using Form 1040A. E file form 1040ez   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. E file form 1040ez MAGI when using Form 1040. E file form 1040ez   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. E file form 1040ez You can use Worksheet 3-1 to figure your MAGI. E file form 1040ez Worksheet 3-1. E file form 1040ez MAGI for the Lifetime Learning Credit 1. E file form 1040ez Enter your adjusted gross income  (Form 1040, line 38)   1. E file form 1040ez   2. E file form 1040ez Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. E file form 1040ez       3. E file form 1040ez Enter your foreign housing deduction (Form 2555, line 50)   3. E file form 1040ez       4. E file form 1040ez Enter the amount of income from Puerto Rico you are excluding   4. E file form 1040ez       5. E file form 1040ez Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. E file form 1040ez       6. E file form 1040ez Add the amounts on lines 2, 3, 4, and 5   6. E file form 1040ez   7. E file form 1040ez Add the amounts on lines 1 and 6. E file form 1040ez  This is your modified adjusted  gross income. E file form 1040ez Enter this amount  on Form 8863, line 14   7. E file form 1040ez   Phaseout. E file form 1040ez   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 10-18 of Form 8863. E file form 1040ez The same method is shown in the following example. E file form 1040ez Example. E file form 1040ez You are filing a joint return with a MAGI of $112,000. E file form 1040ez In 2013, you paid $6,600 of qualified education expenses. E file form 1040ez You figure the tentative lifetime learning credit (20% of the first $10,000 of qualified education expenses you paid for all eligible students). E file form 1040ez The result is a $1,320 (20% x $6,600) tentative credit. E file form 1040ez Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($1,320) by a fraction. E file form 1040ez The numerator of the fraction is $127,000 (the upper limit for those filing a joint return) minus your MAGI. E file form 1040ez The denominator is $20,000, the range of incomes for the phaseout ($107,000 to $127,000). E file form 1040ez The result is the amount of your phased out (reduced) lifetime learning credit ($990). E file form 1040ez   $1,320 × $127,000 − $112,000  $20,000 = $990   Claiming the Credit You claim the lifetime learning credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. E file form 1040ez Enter the credit on Form 1040, line 49, or Form 1040A, line 31. E file form 1040ez Note. E file form 1040ez In Appendix A, Illustrated Example of Education Credits at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. E file form 1040ez Prev  Up  Next   Home   More Online Publications
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The E File Form 1040ez

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