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Federal Tax Forms And State Forms

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Federal Tax Forms And State Forms

Federal tax forms and state forms Part Five -   Standard Deduction and Itemized Deductions After you have figured your adjusted gross income, you are ready to subtract the deductions used to figure taxable income. Federal tax forms and state forms You can subtract either the standard deduction or itemized deductions. Federal tax forms and state forms Itemized deductions are deductions for certain expenses that are listed on Schedule A (Form 1040). Federal tax forms and state forms The ten chapters in this part discuss the standard deduction, each itemized deduction, and a limit on some of your itemized deductions if your adjusted gross income is more than certain amounts. Federal tax forms and state forms See chapter 20 for the factors to consider when deciding whether to subtract the standard deduction or itemized deductions. Federal tax forms and state forms Table of Contents 20. Federal tax forms and state forms   Standard DeductionWhat's New Introduction Standard Deduction Amount Standard Deduction for Dependents Who Should ItemizeWhen to itemize. Federal tax forms and state forms Married persons who filed separate returns. Federal tax forms and state forms 21. Federal tax forms and state forms   Medical and Dental ExpensesWhat's New Introduction Useful Items - You may want to see: What Are Medical Expenses? What Expenses Can You Include This Year?Community property states. Federal tax forms and state forms How Much of the Expenses Can You Deduct? Whose Medical Expenses Can You Include?Yourself Spouse Dependent Decedent What Medical Expenses Are Includible?Insurance Premiums Meals and Lodging Transportation Disabled Dependent Care Expenses How Do You Treat Reimbursements?Insurance Reimbursement Damages for Personal Injuries How Do You Figure and Report the Deduction on Your Tax Return?What Tax Form Do You Use? Impairment-Related Work Expenses Health Insurance Costs for Self-Employed Persons 22. Federal tax forms and state forms   TaxesIntroductionIndian tribal government. Federal tax forms and state forms Useful Items - You may want to see: Tests To Deduct Any Tax Income TaxesState and Local Income Taxes Foreign Income Taxes General Sales TaxesMotor vehicles. Federal tax forms and state forms Real Estate TaxesReal estate taxes for prior years. Federal tax forms and state forms Examples. Federal tax forms and state forms Form 1099-S. Federal tax forms and state forms Real Estate-Related Items You Cannot Deduct Personal Property Taxes Taxes and Fees You Cannot Deduct Where To Deduct 23. Federal tax forms and state forms   Interest ExpenseIntroduction Useful Items - You may want to see: Home Mortgage InterestAmount Deductible Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement Investment InterestInvestment Property Allocation of Interest Expense Limit on Deduction Items You Cannot DeductPersonal Interest Allocation of Interest How To ReportMore than one borrower. Federal tax forms and state forms Mortgage proceeds used for business or investment. Federal tax forms and state forms 24. Federal tax forms and state forms   ContributionsIntroduction Useful Items - You may want to see: Organizations That Qualify To Receive Deductible ContributionsTypes of Qualified Organizations Contributions You Can DeductContributions From Which You Benefit Expenses Paid for Student Living With You Out-of-Pocket Expenses in Giving Services Contributions You Cannot DeductContributions to Individuals Contributions to Nonqualified Organizations Contributions From Which You Benefit Value of Time or Services Personal Expenses Appraisal Fees Contributions of PropertyException. Federal tax forms and state forms Household items. Federal tax forms and state forms Deduction more than $500. Federal tax forms and state forms Form 1098-C. Federal tax forms and state forms Filing deadline approaching and still no Form 1098-C. Federal tax forms and state forms Exception 1—vehicle used or improved by organization. Federal tax forms and state forms Exception 2—vehicle given or sold to needy individual. Federal tax forms and state forms Deduction $500 or less. Federal tax forms and state forms Right to use property. Federal tax forms and state forms Tangible personal property. Federal tax forms and state forms Future interest. Federal tax forms and state forms Determining Fair Market Value Giving Property That Has Decreased in Value Giving Property That Has Increased in Value When To DeductChecks. Federal tax forms and state forms Text message. Federal tax forms and state forms Credit card. Federal tax forms and state forms Pay-by-phone account. Federal tax forms and state forms Stock certificate. Federal tax forms and state forms Promissory note. Federal tax forms and state forms Option. Federal tax forms and state forms Borrowed funds. Federal tax forms and state forms Limits on DeductionsCarryovers Records To KeepCash Contributions Noncash Contributions Out-of-Pocket Expenses How To Report 25. Federal tax forms and state forms   Nonbusiness Casualty and Theft LossesWhat's New Introduction Useful Items - You may want to see: CasualtyFamily pet. Federal tax forms and state forms Progressive deterioration. Federal tax forms and state forms Damage from corrosive drywall. Federal tax forms and state forms Theft Loss on Deposits Proof of Loss Figuring a LossDecrease in Fair Market Value Adjusted Basis Insurance and Other Reimbursements Single Casualty on Multiple Properties Deduction Limits$100 Rule 10% Rule When To Report Gains and LossesDisaster Area Loss How To Report Gains and Losses 26. Federal tax forms and state forms   Car Expenses and Other Employee Business ExpensesWhat's New Introduction Useful Items - You may want to see: Travel ExpensesTraveling Away From Home Tax Home Temporary Assignment or Job What Travel Expenses Are Deductible? Travel in the United States Travel Outside the United States Conventions Entertainment Expenses50% Limit What Entertainment Expenses Are Deductible? What Entertainment Expenses Are Not Deductible? Gift Expenses Transportation ExpensesArmed Forces reservists. Federal tax forms and state forms Parking fees. Federal tax forms and state forms Advertising display on car. Federal tax forms and state forms Car pools. Federal tax forms and state forms Hauling tools or instruments. Federal tax forms and state forms Union members' trips from a union hall. Federal tax forms and state forms Car Expenses RecordkeepingHow To Prove Expenses How Long To Keep Records and Receipts How To ReportGifts. Federal tax forms and state forms Statutory employees. Federal tax forms and state forms Reimbursements Completing Forms 2106 and 2106-EZ Special Rules 27. Federal tax forms and state forms   Tax Benefits for Work-Related EducationWhat's New Introduction Useful Items - You may want to see: Qualifying Work-Related EducationEducation Required by Employer or by Law Education To Maintain or Improve Skills Education To Meet Minimum Requirements Education That Qualifies You for a New Trade or Business What Expenses Can Be DeductedUnclaimed reimbursement. Federal tax forms and state forms Transportation Expenses Travel Expenses No Double Benefit Allowed Reimbursements Deducting Business ExpensesSelf-Employed Persons Employees Performing Artists and Fee-Basis Officials Impairment-Related Work Expenses Recordkeeping 28. Federal tax forms and state forms   Miscellaneous DeductionsWhat's New Introduction Useful Items - You may want to see: Deductions Subject to the 2% LimitUnreimbursed Employee Expenses (Line 21) Tax Preparation Fees (Line 22) Other Expenses (Line 23) Deductions Not Subject to the 2% LimitList of Deductions Nondeductible ExpensesList of Nondeductible Expenses 29. Federal tax forms and state forms   Limit on Itemized DeductionsIntroduction Useful Items - You may want to see: Are You Subject to the Limit? Which Itemized Deductions Are Limited? Which Itemized Deductions Are Not Limited? How Do You Figure the Limit?Example. Federal tax forms and state forms Prev  Up  Next   Home   More Online Publications
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The Federal Tax Forms And State Forms

Federal tax forms and state forms 5. Federal tax forms and state forms   Soil and Water Conservation Expenses Table of Contents Introduction Topics - This chapter discusses: Business of Farming Plan Certification Conservation ExpensesWater well. Federal tax forms and state forms Assessment by Conservation DistrictAssessment for Depreciable Property 25% Limit on DeductionNet operating loss. Federal tax forms and state forms When to Deduct or Capitalize Sale of a Farm Introduction If you are in the business of farming, you can choose to deduct certain expenses for: Soil or water conservation, Prevention of erosion of land used in farming, or Endangered species recovery. Federal tax forms and state forms Otherwise, these are capital expenses that must be added to the basis of the land. Federal tax forms and state forms (See chapter 6 for information on determining basis. Federal tax forms and state forms ) Conservation expenses for land in a foreign country do not qualify for this special treatment. Federal tax forms and state forms The deduction for conservation expenses cannot be more than 25% of your gross income from farming. Federal tax forms and state forms See 25% Limit on Deduction , later. Federal tax forms and state forms Although some expenses are not deductible as soil and water conservation expenses, they may be deductible as ordinary and necessary farm expenses. Federal tax forms and state forms These include interest and taxes, the cost of periodically clearing brush from productive land, the regular removal of sediment from a drainage ditch, and expenses paid or incurred primarily to produce an agricultural crop that may also conserve soil. Federal tax forms and state forms You must include in income most government payments for approved conservation practices. Federal tax forms and state forms However, you can exclude some payments you receive under certain cost-sharing conservation programs. Federal tax forms and state forms For more information, see Agricultural Program Payments in chapter 3. Federal tax forms and state forms To get the full deduction to which you are entitled, you should maintain your records to clearly distinguish between your ordinary and necessary farm business expenses and your soil and water conservation expenses. Federal tax forms and state forms Topics - This chapter discusses: Business of farming Plan certification Conservation expenses Assessment by conservation district 25% limit on deduction When to deduct or capitalize Sale of a farm Business of Farming For purposes of soil and water conservation expenses, you are in the business of farming if you cultivate, operate, or manage a farm for profit, either as an owner or a tenant. Federal tax forms and state forms You are not in the business of farming if you cultivate or operate a farm for recreation or pleasure, rather than for profit. Federal tax forms and state forms You are not farming if you are engaged only in forestry or the growing of timber. Federal tax forms and state forms Farm defined. Federal tax forms and state forms   A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. Federal tax forms and state forms It also includes plantations, ranches, ranges, and orchards. Federal tax forms and state forms A fish farm is an area where fish and other marine animals are grown or raised and artificially fed, protected, etc. Federal tax forms and state forms It does not include an area where they are merely caught or harvested. Federal tax forms and state forms A plant nursery is a farm for purposes of deducting soil and water conservation expenses. Federal tax forms and state forms Farm rental. Federal tax forms and state forms   If you own a farm and receive farm rental payments based on farm production, either in cash or crop shares, you are in the business of farming. Federal tax forms and state forms If you get cash rental for a farm you own that is not used in farm production, you cannot deduct soil and water conservation expenses for that farm. Federal tax forms and state forms   If you receive a fixed rental payment that is not based on farm production, you are in the business of farming only if you materially participate in operating or managing the farm. Federal tax forms and state forms Example. Federal tax forms and state forms You own a farm in Iowa and live in California. Federal tax forms and state forms You rent the farm for $175 in cash per acre and do not materially participate in producing or managing production of the crops grown on the farm. Federal tax forms and state forms You cannot deduct your soil conservation expenses for this farm. Federal tax forms and state forms You must capitalize the expenses and add them to the basis of the land. Federal tax forms and state forms     For more information, see Material participation for landlords under Landlord Participation in Farming in chapter 12. Federal tax forms and state forms Plan Certification You can deduct soil and water conservation expenses only if they are consistent with a plan approved by the Natural Resources Conservation Service (NRCS) of the Department of Agriculture. Federal tax forms and state forms If no such plan exists, the expenses must be consistent with a soil conservation plan of a comparable state agency. Federal tax forms and state forms Keep a copy of the plan with your books and records to support your deductions. Federal tax forms and state forms Conservation plan. Federal tax forms and state forms   A conservation plan includes the farming conservation practices approved for the area where your farmland is located. Federal tax forms and state forms There are three types of approved plans. Federal tax forms and state forms NRCS individual site plans. Federal tax forms and state forms These plans are issued individually to farmers who request assistance from NRCS to develop a conservation plan designed specifically for their farmland. Federal tax forms and state forms NRCS county plans. Federal tax forms and state forms These plans include a listing of farm conservation practices approved for the county where the farmland is located. Federal tax forms and state forms You can deduct expenses for conservation practices not included on the NRCS county plans only if the practice is a part of an individual site plan. Federal tax forms and state forms Comparable state agency plans. Federal tax forms and state forms These plans are approved by state agencies and can be approved individual site plans or county plans. Federal tax forms and state forms   A list of NRCS conservation programs is available at www. Federal tax forms and state forms nrcs. Federal tax forms and state forms usda. Federal tax forms and state forms gov/programs. Federal tax forms and state forms Individual site plans can be obtained from NRCS offices and the comparable state agencies. Federal tax forms and state forms Conservation Expenses You can deduct conservation expenses only for land you or your tenant are using, or have used in the past, for farming. Federal tax forms and state forms These expenses include, but are not limited to, the following. Federal tax forms and state forms The treatment or movement of earth, such as: Leveling, Conditioning, Grading, Terracing, Contour furrowing, and Restoration of soil fertility. Federal tax forms and state forms The construction, control, and protection of: Diversion channels, Drainage ditches, Irrigation ditches, Earthen dams, and Watercourses, outlets, and ponds. Federal tax forms and state forms The eradication of brush. Federal tax forms and state forms The planting of windbreaks. Federal tax forms and state forms You cannot deduct expenses to drain or fill wetlands, or to prepare land for center pivot irrigation systems, as soil and water conservation expenses. Federal tax forms and state forms These expenses are added to the basis of the land. Federal tax forms and state forms If you choose to deduct soil and water conservation expenses, you cannot exclude from gross income any cost-sharing payments you receive for those expenses. Federal tax forms and state forms See chapter 3 for information about payments eligible for the cost-sharing exclusion. Federal tax forms and state forms New farm or farmland. Federal tax forms and state forms   If you acquire a new farm or new farmland from someone who was using it in farming immediately before you acquired the land, soil and water conservation expenses you incur on it will be treated as made on land used in farming at the time the expenses were paid or incurred. Federal tax forms and state forms You can deduct soil and water conservation expenses for this land if your use of it is substantially a continuation of its use in farming. Federal tax forms and state forms The new farming activity does not have to be the same as the old farming activity. Federal tax forms and state forms For example, if you buy land that was used for grazing cattle and then prepare it for use as an apple orchard, you can deduct your conservation expenses. Federal tax forms and state forms Land not used for farming. Federal tax forms and state forms   If your conservation expenses benefit both land that does not qualify as land used for farming and land that does qualify, you must allocate the expenses between the two types of land. Federal tax forms and state forms For example, if the expenses benefit 200 acres of your land, but only 120 acres of this land are used for farming, then you can deduct 60% (120 ÷ 200) of the expenses. Federal tax forms and state forms You can use another method to allocate these expenses if you can clearly show that your method is more reasonable. Federal tax forms and state forms Depreciable conservation assets. Federal tax forms and state forms   You generally cannot deduct your expenses for depreciable conservation assets. Federal tax forms and state forms However, you can deduct certain amounts you pay or incur for an assessment for depreciable property that a soil and water conservation or drainage district levies against your farm. Federal tax forms and state forms See Assessment for Depreciable Property , later. Federal tax forms and state forms   You must capitalize expenses to buy, build, install, or improve depreciable structures or facilities. Federal tax forms and state forms These expenses include those for materials, supplies, wages, fuel, hauling, and moving dirt when making structures such as tanks, reservoirs, pipes, culverts, canals, dams, wells, or pumps composed of masonry, concrete, tile, metal, or wood. Federal tax forms and state forms You recover your capital investment through annual allowances for depreciation. Federal tax forms and state forms   You can deduct soil and water conservation expenses for nondepreciable earthen items. Federal tax forms and state forms Nondepreciable earthen items include certain dams, ponds, and terraces described under Property Having a Determinable Useful Life in chapter 7. Federal tax forms and state forms Water well. Federal tax forms and state forms   You cannot deduct the cost of drilling a water well for irrigation and other agricultural purposes as a soil and water conservation expense. Federal tax forms and state forms It is a capital expense. Federal tax forms and state forms You recover your cost through depreciation. Federal tax forms and state forms You also must capitalize your cost for drilling a test hole. Federal tax forms and state forms If the test hole produces no water and you continue drilling, the cost of the test hole is added to the cost of the producing well. Federal tax forms and state forms You can recover the total cost through depreciation deductions. Federal tax forms and state forms   If a test hole, dry hole, or dried-up well (resulting from prolonged lack of rain, for instance) is abandoned, you can deduct your unrecovered cost in the year of abandonment. Federal tax forms and state forms Abandonment means that all economic benefits from the well are terminated. Federal tax forms and state forms For example, filling or sealing a well excavation or casing so that all economic benefits from the well are terminated constitutes an abandonment. Federal tax forms and state forms Endangered species recovery expenses. Federal tax forms and state forms   If you are in the business of farming and meet other specific requirements, you can choose to deduct the conservation expenses discussed earlier as endangered species recovery expenses. Federal tax forms and state forms Otherwise, these are capital expenses that must be added to the basis of the land. Federal tax forms and state forms   The expenses must be paid or incurred for the purpose of achieving site-specific management actions recommended in a recovery plan approved under section 4(f) of the Endangered Species Act of 1973. Federal tax forms and state forms See Internal Revenue Code section 175 for more information. Federal tax forms and state forms Assessment by Conservation District In some localities, a soil or water conservation or drainage district incurs expenses for soil or water conservation and levies an assessment against the farmers who benefit from the expenses. Federal tax forms and state forms You can deduct as a conservation expense amounts you pay or incur for the part of an assessment that: Covers expenses you could deduct if you had paid them directly, or Covers expenses for depreciable property used in the district's business. Federal tax forms and state forms Assessment for Depreciable Property You generally can deduct as a conservation expense amounts you pay or incur for the part of a conservation or drainage district assessment that covers expenses for depreciable property. Federal tax forms and state forms This includes items such as pumps, locks, concrete structures (including dams and weir gates), draglines, and similar equipment. Federal tax forms and state forms The depreciable property must be used in the district's soil and water conservation activities. Federal tax forms and state forms However, the following limits apply to these assessments. Federal tax forms and state forms The total assessment limit. Federal tax forms and state forms The yearly assessment limit. Federal tax forms and state forms After you apply these limits, the amount you can deduct is added to your other conservation expenses for the year. Federal tax forms and state forms The total for these expenses is then subject to the 25% of gross income from farming limit on the deduction, discussed later. Federal tax forms and state forms See Table 5-1 for a brief summary of these limits. Federal tax forms and state forms Table 5-1. Federal tax forms and state forms Limits on Deducting an Assessment by a Conservation District for Depreciable Property Total Limit on Deduction for Assessment for Depreciable Property Yearly Limit on Deduction for Assessment for Depreciable Property Yearly Limit for All Conservation Expenses 10% of: $500 + 10% of: 25% of: Total assessment against all members of the district for the property. Federal tax forms and state forms Your deductible share of the cost to the district for the property. Federal tax forms and state forms Your gross income from farming. Federal tax forms and state forms No one taxpayer can deduct more than 10% of the total assessment. Federal tax forms and state forms Any amount over 10% is a capital expense and is added to the basis of your land. Federal tax forms and state forms If an assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. Federal tax forms and state forms If the amount you pay or incur for any year is more than the limit, you can deduct for that year only 10% of your deductible share of the cost. Federal tax forms and state forms You can deduct the remainder in equal amounts over the next 9 tax years. Federal tax forms and state forms Limit for all conservation expenses, including assessments for depreciable property. Federal tax forms and state forms Amounts greater than 25% can be carried to the following year and added to that year's expenses. Federal tax forms and state forms The total is then subject to the 25% of gross income from farming limit in that year. Federal tax forms and state forms To ensure your deduction is within the deduction limits, keep records to show the following. Federal tax forms and state forms The total assessment against all members of the district for the depreciable property. Federal tax forms and state forms Your deductible share of the cost to the district for the depreciable property. Federal tax forms and state forms Your gross income from farming. Federal tax forms and state forms Total assessment limit. Federal tax forms and state forms   You cannot deduct more than 10% of the total amount assessed to all members of the conservation or drainage district for the depreciable property. Federal tax forms and state forms This applies whether you pay the assessment in one payment or in installments. Federal tax forms and state forms If your assessment is more than 10% of the total amount assessed, both the following rules apply. Federal tax forms and state forms The amount over 10% is a capital expense and is added to the basis of your land. Federal tax forms and state forms If the assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. Federal tax forms and state forms Yearly assessment limit. Federal tax forms and state forms   The maximum amount you can deduct in any one year is the total of 10% of your deductible share of the cost as explained earlier, plus $500. Federal tax forms and state forms If the amount you pay or incur is equal to or less than the maximum amount, you can deduct it in the year it is paid or incurred. Federal tax forms and state forms If the amount you pay or incur is more, you can deduct in that year only 10% of your deductible share of the cost. Federal tax forms and state forms You can deduct the remainder in equal amounts over the next 9 tax years. Federal tax forms and state forms Your total conservation expense deduction for each year is also subject to the 25% of gross income from farming limit on the deduction, discussed later. Federal tax forms and state forms Example 1. Federal tax forms and state forms This year, the soil conservation district levies and you pay an assessment of $2,400 against your farm. Federal tax forms and state forms Of the assessment, $1,500 is for digging drainage ditches. Federal tax forms and state forms You can deduct this part as a soil or conservation expense as if you had paid it directly. Federal tax forms and state forms The remaining $900 is for depreciable equipment to be used in the district's irrigation activities. Federal tax forms and state forms The total amount assessed by the district against all its members for the depreciable equipment is $7,000. Federal tax forms and state forms The total amount you can deduct for the depreciable equipment is limited to 10% of the total amount assessed by the district against all its members for depreciable equipment, or $700. Federal tax forms and state forms The $200 excess ($900 − $700) is a capital expense you must add to the basis of your farm. Federal tax forms and state forms To figure the maximum amount you can deduct for the depreciable equipment this year, multiply your deductible share of the total assessment ($700) by 10%. Federal tax forms and state forms Add $500 to the result for a total of $570. Federal tax forms and state forms Your deductible share, $700, is greater than the maximum amount deductible in one year, so you can deduct only $70 of the amount you paid or incurred for depreciable property this year (10% of $700). Federal tax forms and state forms You can deduct the balance at the rate of $70 a year over the next 9 years. Federal tax forms and state forms You add $70 to the $1,500 portion of the assessment for drainage ditches. Federal tax forms and state forms You can deduct $1,570 of the $2,400 assessment as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed later. Federal tax forms and state forms Example 2. Federal tax forms and state forms Assume the same facts in Example 1 except that $1,850 of the $2,400 assessment is for digging drainage ditches and $550 is for depreciable equipment. Federal tax forms and state forms The total amount assessed by the district against all its members for depreciable equipment is $5,500. Federal tax forms and state forms The total amount you can deduct for the depreciable equipment is limited to 10% of this amount, or $550. Federal tax forms and state forms The maximum amount you can deduct this year for the depreciable equipment is $555 (10% of your deductible share of the total assessment, $55, plus $500). Federal tax forms and state forms Since your deductible share is less than the maximum amount deductible in one year, you can deduct the entire $550 this year. Federal tax forms and state forms You can deduct the entire assessment, $2,400, as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed below. Federal tax forms and state forms Sale or other disposal of land during 9-year period. Federal tax forms and state forms   If you dispose of the land during the 9-year period for deducting conservation expenses subject to the yearly limit, any amounts you have not yet deducted because of this limit are added to the basis of the property. Federal tax forms and state forms Death of farmer during 9-year period. Federal tax forms and state forms   If a farmer dies during the 9-year period, any remaining amounts not yet deducted are deducted in the year of death. Federal tax forms and state forms 25% Limit on Deduction The total deduction for conservation expenses in any tax year is limited to 25% of your gross income from farming for the year. Federal tax forms and state forms Gross income from farming. Federal tax forms and state forms   Gross income from farming is the income you derive in the business of farming from the production of crops, fish, fruits, other agricultural products, or livestock. Federal tax forms and state forms Gains from sales of draft, breeding, or dairy livestock are included. Federal tax forms and state forms Gains from sales of assets such as farm machinery, or from the disposition of land, are not included. Federal tax forms and state forms Carryover of deduction. Federal tax forms and state forms   If your deductible conservation expenses in any year are more than 25% of your gross income from farming for that year, you can carry the unused deduction over to later years. Federal tax forms and state forms However, the deduction in any later year is limited to 25% of the gross income from farming for that year as well. Federal tax forms and state forms Example. Federal tax forms and state forms In 2012, you have gross income of $32,000 from two farms. Federal tax forms and state forms During the year, you incurred $10,000 of deductible soil and water conservation expenses for one of the farms. Federal tax forms and state forms However, your deduction is limited to 25% of $32,000, or $8,000. Federal tax forms and state forms The $2,000 excess ($10,000 − $8,000) is carried over to 2013 and added to deductible soil and water conservation expenses made in that year. Federal tax forms and state forms The total of the 2012 carryover plus 2013 expenses is deductible in 2013, subject to the limit of 25% of your gross income from farming in 2013. Federal tax forms and state forms Any expenses over the limit in that year are carried to 2014 and later years. Federal tax forms and state forms Net operating loss. Federal tax forms and state forms   The deduction for soil and water conservation expenses, after applying the 25% limit, is included when figuring a net operating loss (NOL) for the year. Federal tax forms and state forms If the NOL is carried to another year, the soil and water conservation deduction included in the NOL is not subject to the 25% limit in the year to which it is carried. Federal tax forms and state forms When to Deduct or Capitalize If you choose to deduct soil and water conservation expenses, you must deduct the total allowable amount on your tax return for the first year you pay or incur these expenses. Federal tax forms and state forms If you do not choose to deduct the expenses, you must capitalize them. Federal tax forms and state forms Change of method. Federal tax forms and state forms   If you want to change your method for the treatment of soil and water conservation expenses, or you want to treat the expenses for a particular project or a single farm in a different manner, you must get the approval of the IRS. Federal tax forms and state forms To get this approval, submit a written request by the due date of your return for the first tax year you want the new method to apply. Federal tax forms and state forms You or your authorized representative must sign the request. Federal tax forms and state forms   The request must include the following information. Federal tax forms and state forms Your name and address. Federal tax forms and state forms The first tax year the method or change of method is to apply. Federal tax forms and state forms Whether the method or change of method applies to all your soil and water conservation expenses or only to those for a particular project or farm. Federal tax forms and state forms If the method or change of method does not apply to all your expenses, identify the project or farm to which the expenses apply. Federal tax forms and state forms The total expenses you paid or incurred in the first tax year the method or change of method is to apply. Federal tax forms and state forms A statement that you will account separately in your books for the expenses to which this method or change of method relates. Federal tax forms and state forms Send your request to the following  address. Federal tax forms and state forms  Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999  For more information, see Change in  Accounting Method in chapter 2. Federal tax forms and state forms Sale of a Farm If you sell your farm, you cannot adjust the basis of the land at the time of the sale for any unused carryover of soil and water conservation expenses (except for deductions of assessments for depreciable property, discussed earlier). Federal tax forms and state forms However, if you acquire another farm and return to the business of farming, you can start taking deductions again for the unused carryovers. Federal tax forms and state forms Gain on sale of farmland. Federal tax forms and state forms   If you held the land 5 years or less before you sold it, gain on the sale of the land is treated as ordinary income up to the amount you previously deducted for soil and water conservation expenses. Federal tax forms and state forms If you held the land less than 10 but more than 5 years, the gain is treated as ordinary income up to a specified percentage of the previous deductions. Federal tax forms and state forms See Section 1252 property under Other Gains in chapter 9. Federal tax forms and state forms Prev  Up  Next   Home   More Online Publications