File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Free 1040ez

Military One2011 Ez Tax FormEz File 1040File 2012 Taxes For Free OnlineHrblock Free1040ez 2012 InstructionsTurbotax Free State EfileEz 1040 Form1040ez2013 FormHow To Fill Out 1040ez2009 Tax AmendmentFill Out 1040ezH And R Block LoginState Tax Return Free E-fileMyfreetaxes Com RochestercashFederal Tax Form 2012Free Tax Return2012 Ez Tax FormsH&r Block On LineFree Federal Tax Filing 2012Irs Free EfileIrs OrgFiling A 1040x2010 Tax Forms IrsIncome Tax PreparationsFree Tax Help For SeniorsIrs Gov 1040x InstructionsHow Do I File An Amended ReturnCan I Stillfile My 2012 Taxes OnlineWhere To File 1040xFree Irs And State Tax Filing1040nr-ezTax Amended Return2011 Taxact LoginFree Tax PrepCan I Amend My Tax ReturnCan I Still File My 2011 Tax ReturnIrs 1040ez 2012Can I File My 2012 Taxes In 2014File Amended Tax Return 2009

Free 1040ez

Free 1040ez 7. Free 1040ez   Interest Income Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationSSN for joint account. Free 1040ez Custodian account for your child. Free 1040ez Penalty for failure to supply SSN. Free 1040ez Reporting backup withholding. Free 1040ez Savings account with parent as trustee. Free 1040ez Interest not reported on Form 1099-INT. Free 1040ez Nominees. Free 1040ez Incorrect amount. Free 1040ez Information reporting requirement. Free 1040ez Taxable InterestInterest subject to penalty for early withdrawal. Free 1040ez Money borrowed to invest in certificate of deposit. Free 1040ez U. Free 1040ez S. Free 1040ez Savings Bonds Education Savings Bond Program U. Free 1040ez S. Free 1040ez Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Original Issue Discount (OID) When To Report Interest IncomeConstructive receipt. Free 1040ez How To Report Interest IncomeSchedule B (Form 1040A or 1040). Free 1040ez Reporting tax-exempt interest. Free 1040ez U. Free 1040ez S. Free 1040ez savings bond interest previously reported. Free 1040ez Reminder Foreign-source income. Free 1040ez  If you are a U. Free 1040ez S. Free 1040ez citizen with interest income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U. Free 1040ez S. Free 1040ez law. Free 1040ez This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. Free 1040ez Introduction This chapter discusses the following topics. Free 1040ez Different types of interest income. Free 1040ez What interest is taxable and what interest is nontaxable. Free 1040ez When to report interest income. Free 1040ez How to report interest income on your tax return. Free 1040ez In general, any interest you receive or that is credited to your account and can be withdrawn is taxable income. Free 1040ez Exceptions to this rule are discussed later in this chapter. Free 1040ez You may be able to deduct expenses you have in earning this income on Schedule A (Form 1040) if you itemize your deductions. Free 1040ez See Money borrowed to invest in certificate of deposit , later, and chapter 28. Free 1040ez Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends 8815 Exclusion of Interest From Series EE and I U. Free 1040ez S. Free 1040ez Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. Free 1040ez S. Free 1040ez Savings Bonds Issued After 1989 General Information A few items of general interest are covered here. Free 1040ez Recordkeeping. Free 1040ez You should keep a list showing sources and interest amounts received during the year. Free 1040ez Also, keep the forms you receive showing your interest income (Forms 1099-INT, for example) as an important part of your records. Free 1040ez Tax on unearned income of certain children. Free 1040ez    Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Free 1040ez If so, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. Free 1040ez If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Free 1040ez   Some parents can choose to include the child's interest and dividends on the parent's return. Free 1040ez If you can, use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. Free 1040ez   For more information about the tax on unearned income of children and the parents' election, see chapter 31. Free 1040ez Beneficiary of an estate or trust. Free 1040ez   Interest you receive as a beneficiary of an estate or trust is generally taxable income. Free 1040ez You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Free 1040ez , from the fiduciary. Free 1040ez Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Free 1040ez Social security number (SSN). Free 1040ez   You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. Free 1040ez This includes payers of interest. Free 1040ez If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. Free 1040ez SSN for joint account. Free 1040ez   If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. Free 1040ez (For information on who owns the funds in a joint account, see Joint accounts , later. Free 1040ez ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. Free 1040ez This is because only one name and SSN can be shown on Form 1099. Free 1040ez   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. Free 1040ez For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. Free 1040ez Custodian account for your child. Free 1040ez   If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. Free 1040ez For example, you must give your child's SSN to the payer of interest on an account owned by your child, even though the interest is paid to you as custodian. Free 1040ez Penalty for failure to supply SSN. Free 1040ez   If you do not give your SSN to the payer of interest, you may have to pay a penalty. Free 1040ez See Failure to supply SSN under Penalties in chapter 1. Free 1040ez Backup withholding also may apply. Free 1040ez Backup withholding. Free 1040ez   Your interest income is generally not subject to regular withholding. Free 1040ez However, it may be subject to backup withholding to ensure that income tax is collected on the income. Free 1040ez Under backup withholding, the payer of interest must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Free 1040ez   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. Free 1040ez For more information, see Backup Withholding in chapter 4. Free 1040ez Reporting backup withholding. Free 1040ez   If backup withholding is deducted from your interest income, the payer must give you a Form 1099-INT for the year indicating the amount withheld. Free 1040ez The Form 1099-INT will show any backup withholding as “Federal income tax withheld. Free 1040ez ” Joint accounts. Free 1040ez   If two or more persons hold property (such as a savings account or bond) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest from the property is determined by local law. Free 1040ez Income from property given to a child. Free 1040ez   Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property. Free 1040ez   Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. Free 1040ez Savings account with parent as trustee. Free 1040ez   Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. Free 1040ez The savings account legally belongs to the child. Free 1040ez The parents are not legally permitted to use any of the funds to support the child. Free 1040ez Form 1099-INT. Free 1040ez   Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. Free 1040ez This form shows you the interest you received during the year. Free 1040ez Keep this form for your records. Free 1040ez You do not have to attach it to your tax return. Free 1040ez   Report on your tax return the total interest income you receive for the tax year. Free 1040ez Interest not reported on Form 1099-INT. Free 1040ez   Even if you do not receive Form 1099-INT, you must still report all of your interest income. Free 1040ez For example, you may receive distributive shares of interest from partnerships or S corporations. Free 1040ez This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deduction, Credits, etc. Free 1040ez , or Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Free 1040ez Nominees. Free 1040ez   Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf. Free 1040ez   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on nominee distributions under How To Report Interest Income in chapter 1 of Publication 550, or Schedule B (Form 1040A or 1040) instructions. Free 1040ez Incorrect amount. Free 1040ez   If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. Free 1040ez The new Form 1099-INT you receive will be marked “Corrected. Free 1040ez ” Form 1099-OID. Free 1040ez   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. Free 1040ez For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. Free 1040ez Exempt-interest dividends. Free 1040ez   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. Free 1040ez (However, see Information reporting requirement , next. Free 1040ez ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Free 1040ez You do not reduce your basis for distributions that are exempt-interest dividends. Free 1040ez Information reporting requirement. Free 1040ez   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. Free 1040ez This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. Free 1040ez Note. Free 1040ez Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Free 1040ez See Alternative Minimum Tax (AMT) in chapter 30 for more information. Free 1040ez Chapter 1 of Publication 550 contains a discussion on private activity bonds under State or Local Government Obligations. Free 1040ez Interest on VA dividends. Free 1040ez   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. Free 1040ez This includes interest paid on dividends on converted United States Government Life Insurance and on National Service Life Insurance policies. Free 1040ez Individual retirement arrangements (IRAs). Free 1040ez   Interest on a Roth IRA generally is not taxable. Free 1040ez Interest on a traditional IRA is tax deferred. Free 1040ez You generally do not include it in your income until you make withdrawals from the IRA. Free 1040ez See chapter 17. Free 1040ez Taxable Interest Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. Free 1040ez The following are some sources of taxable interest. Free 1040ez Dividends that are actually interest. Free 1040ez   Certain distributions commonly called dividends are actually interest. Free 1040ez You must report as interest so-called “dividends” on deposits or on share accounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks. Free 1040ez  The “dividends” will be shown as interest income on Form 1099-INT. Free 1040ez Money market funds. Free 1040ez   Money market funds pay dividends and are offered by nonbank financial institutions, such as mutual funds and stock brokerage houses. Free 1040ez Generally, amounts you receive from money market funds should be reported as dividends, not as interest. Free 1040ez Certificates of deposit and other deferred interest accounts. Free 1040ez   If you open any of these accounts, interest may be paid at fixed intervals of 1 year or less during the term of the account. Free 1040ez You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. Free 1040ez The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. Free 1040ez If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. Free 1040ez Interest subject to penalty for early withdrawal. Free 1040ez   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. Free 1040ez You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. Free 1040ez See Penalty on early withdrawal of savings in chapter 1 of Publication 550 for more information on how to report the interest and deduct the penalty. Free 1040ez Money borrowed to invest in certificate of deposit. Free 1040ez   The interest you pay on money borrowed from a bank or savings institution to meet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separate items. Free 1040ez You must report the total interest you earn on the certificate in your income. Free 1040ez If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. Free 1040ez See Interest Expenses in chapter 3 of Publication 550. Free 1040ez Example. Free 1040ez You deposited $5,000 with a bank and borrowed $5,000 from the bank to make up the $10,000 minimum deposit required to buy a 6-month certificate of deposit. Free 1040ez The certificate earned $575 at maturity in 2013, but you received only $265, which represented the $575 you earned minus $310 interest charged on your $5,000 loan. Free 1040ez The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. Free 1040ez The bank also gives you a statement showing that you paid $310 interest for 2013. Free 1040ez You must include the $575 in your income. Free 1040ez If you itemize your deductions on Schedule A (Form 1040), you can deduct $310, subject to the net investment income limit. Free 1040ez Gift for opening account. Free 1040ez   If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest. Free 1040ez   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. Free 1040ez For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. Free 1040ez The value is determined by the cost to the financial institution. Free 1040ez Example. Free 1040ez You open a savings account at your local bank and deposit $800. Free 1040ez The account earns $20 interest. Free 1040ez You also receive a $15 calculator. Free 1040ez If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. Free 1040ez You must report $35 interest income on your tax return. Free 1040ez Interest on insurance dividends. Free 1040ez   Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited to your account. Free 1040ez However, if you can withdraw it only on the anniversary date of the policy (or other specified date), the interest is taxable in the year that date occurs. Free 1040ez Prepaid insurance premiums. Free 1040ez   Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw. Free 1040ez U. Free 1040ez S. Free 1040ez obligations. Free 1040ez   Interest on U. Free 1040ez S. Free 1040ez obligations, such as U. Free 1040ez S. Free 1040ez Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. Free 1040ez Interest on tax refunds. Free 1040ez   Interest you receive on tax refunds is taxable income. Free 1040ez Interest on condemnation award. Free 1040ez   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. Free 1040ez Installment sale payments. Free 1040ez   If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for interest payable with the deferred payments. Free 1040ez That interest is taxable when you receive it. Free 1040ez If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. Free 1040ez See Unstated Interest and Original Issue Discount in Publication 537, Installment Sales. Free 1040ez Interest on annuity contract. Free 1040ez   Accumulated interest on an annuity contract you sell before its maturity date is taxable. Free 1040ez Usurious interest. Free 1040ez   Usurious interest is interest charged at an illegal rate. Free 1040ez This is taxable as interest unless state law automatically changes it to a payment on the principal. Free 1040ez Interest income on frozen deposits. Free 1040ez   Exclude from your gross income interest on frozen deposits. Free 1040ez A deposit is frozen if, at the end of the year, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state where the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. Free 1040ez   The amount of interest you must exclude is the interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from these deposits during the year, and The amount you could have withdrawn as of the end of the year (not reduced by any penalty for premature withdrawals of a time deposit). Free 1040ez If you receive a Form 1099-INT for interest income on deposits that were frozen at the end of 2013, see Frozen deposits under How To Report Interest Income in chapter 1 of Publication 550, for information about reporting this interest income exclusion on your tax return. Free 1040ez   The interest you exclude is treated as credited to your account in the following year. Free 1040ez You must include it in income in the year you can withdraw it. Free 1040ez Example. Free 1040ez $100 of interest was credited on your frozen deposit during the year. Free 1040ez You withdrew $80 but could not withdraw any more as of the end of the year. Free 1040ez You must include $80 in your income and exclude $20 from your income for the year. Free 1040ez You must include the $20 in your income for the year you can withdraw it. Free 1040ez Bonds traded flat. Free 1040ez   If you buy a bond at a discount when interest has been defaulted or when the interest has accrued but has not been paid, the transaction is described as trading a bond flat. Free 1040ez The defaulted or unpaid interest is not income and is not taxable as interest if paid later. Free 1040ez When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. Free 1040ez Interest that accrues after the date of purchase, however, is taxable interest income for the year it is received or accrued. Free 1040ez See Bonds Sold Between Interest Dates , later, for more information. Free 1040ez Below-market loans. Free 1040ez   In general, a below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Free 1040ez See Below-Market Loans in chapter 1 of Publication 550 for more information. Free 1040ez U. Free 1040ez S. Free 1040ez Savings Bonds This section provides tax information on U. Free 1040ez S. Free 1040ez savings bonds. Free 1040ez It explains how to report the interest income on these bonds and how to treat transfers of these bonds. Free 1040ez For other information on U. Free 1040ez S. Free 1040ez savings bonds, write to:  For series EE and I paper savings bonds: Bureau of the Public Debt Division of Customer Assistance P. Free 1040ez O. Free 1040ez Box 7012 Parkersburg, WV 26106-7012  For series EE and I electronic bonds: Bureau of the Public Debt Division of Customer Assistance P. Free 1040ez O. Free 1040ez Box 7015 Parkersburg, WV 26106–7015  For series HH/H: Bureau of the Public Debt Division of Customer Assistance P. Free 1040ez O. Free 1040ez Box 2186 Parkersburg, WV 26106-2186 Or, on the Internet, visit: www. Free 1040ez treasurydirect. Free 1040ez gov/indiv/indiv. Free 1040ez htm. Free 1040ez Accrual method taxpayers. Free 1040ez   If you use an accrual method of accounting, you must report interest on U. Free 1040ez S. Free 1040ez savings bonds each year as it accrues. Free 1040ez You cannot postpone reporting interest until you receive it or until the bonds mature. Free 1040ez Accrual methods of accounting are explained in chapter 1 under Accounting Methods . Free 1040ez Cash method taxpayers. Free 1040ez   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. Free 1040ez S. Free 1040ez savings bonds when you receive it. Free 1040ez The cash method of accounting is explained in chapter 1 under Accounting Methods. Free 1040ez But see Reporting options for cash method taxpayers , later. Free 1040ez Series HH bonds. Free 1040ez    These bonds were issued at face value. Free 1040ez Interest is paid twice a year by direct deposit to your bank account. Free 1040ez If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. Free 1040ez   Series HH bonds were first offered in 1980 and last offered in August 2004. Free 1040ez Before 1980, series H bonds were issued. Free 1040ez Series H bonds are treated the same as series HH bonds. Free 1040ez If you are a cash method taxpayer, you must report the interest when you receive it. Free 1040ez   Series H bonds have a maturity period of 30 years. Free 1040ez Series HH bonds mature in 20 years. Free 1040ez The last series H bonds matured in 2009. Free 1040ez Series EE and series I bonds. Free 1040ez   Interest on these bonds is payable when you redeem the bonds. Free 1040ez The difference between the purchase price and the redemption value is taxable interest. Free 1040ez Series EE bonds. Free 1040ez   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. Free 1040ez   Before July 1980, series E bonds were issued. Free 1040ez The original 10-year maturity period of series E bonds has been extended to 40 years for bonds issued before December 1965 and 30 years for bonds issued after November 1965. Free 1040ez Paper series EE and series E bonds are issued at a discount. Free 1040ez The face value is payable to you at maturity. Free 1040ez Electronic series EE bonds are issued at their face value. Free 1040ez The face value plus accrued interest is payable to you at maturity. Free 1040ez As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. Free 1040ez   Owners of paper series EE bonds can convert them to electronic bonds. Free 1040ez These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). Free 1040ez Series I bonds. Free 1040ez   Series I bonds were first offered in 1998. Free 1040ez These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. Free 1040ez The face value plus all accrued interest is payable to you at maturity. Free 1040ez Reporting options for cash method taxpayers. Free 1040ez   If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways. Free 1040ez Method 1. Free 1040ez Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year they mature. Free 1040ez (However, see Savings bonds traded , later. Free 1040ez )  Note. Free 1040ez Series EE bonds issued in 1983 matured in 2013. Free 1040ez If you have used method 1, you generally must report the interest on these bonds on your 2013 return. Free 1040ez The last series E bonds were issued in 1980 and matured in 2010. Free 1040ez If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. Free 1040ez Method 2. Free 1040ez Choose to report the increase in redemption value as interest each year. Free 1040ez You must use the same method for all series EE, series E, and series I bonds you own. Free 1040ez If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. Free 1040ez    If you plan to cash your bonds in the same year you will pay for higher education expenses, you may want to use method 1 because you may be able to exclude the interest from your income. Free 1040ez To learn how, see Education Savings Bond Program, later. Free 1040ez Change from method 1. Free 1040ez   If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. Free 1040ez In the year of change you must report all interest accrued to date and not previously reported for all your bonds. Free 1040ez   Once you choose to report the interest each year, you must continue to do so for all series EE, series E, and series I bonds you own and for any you get later, unless you request permission to change, as explained next. Free 1040ez Change from method 2. Free 1040ez   To change from method 2 to method 1, you must request permission from the IRS. Free 1040ez Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. Free 1040ez You have typed or printed the following number at the top: “131. Free 1040ez ” It includes your name and social security number under “131. Free 1040ez ” It includes the year of change (both the beginning and ending dates). Free 1040ez It identifies the savings bonds for which you are requesting this change. Free 1040ez It includes your agreement to: Report all interest on any bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, and Report all interest on the bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of the interest reported in prior tax years. Free 1040ez   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). Free 1040ez   You can have an automatic extension of 6 months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. Free 1040ez On the statement, type or print “Filed pursuant to section 301. Free 1040ez 9100-2. Free 1040ez ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). Free 1040ez    By the date you file the original statement with your return, you must also send a signed copy to the address below. Free 1040ez   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. Free 1040ez O. Free 1040ez Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. Free 1040ez   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) Room 5336 1111 Constitution Avenue, NW  Washington, DC 20224   Instead of filing this statement, you can request permission to change from method 2 to method 1 by filing Form 3115, Application for Change in Accounting Method. Free 1040ez In that case, follow the form instructions for an automatic change. Free 1040ez No user fee is required. Free 1040ez Co-owners. Free 1040ez   If a U. Free 1040ez S. Free 1040ez savings bond is issued in the names of co-owners, such as you and your child or you and your spouse, interest on the bond is generally taxable to the co-owner who bought the bond. Free 1040ez One co-owner's funds used. Free 1040ez    If you used your funds to buy the bond, you must pay the tax on the interest. Free 1040ez This is true even if you let the other co-owner redeem the bond and keep all the proceeds. Free 1040ez Under these circumstances, the co-owner who redeemed the bond will receive a Form 1099-INT at the time of redemption and must provide you with another Form 1099-INT showing the amount of interest from the bond taxable to you. Free 1040ez The co-owner who redeemed the bond is a “nominee. Free 1040ez ” See Nominee distributions under How To Report Interest Income in chapter 1 of Publication 550 for more information about how a person who is a nominee reports interest income belonging to another person. Free 1040ez Both co-owners' funds used. Free 1040ez   If you and the other co-owner each contribute part of the bond's purchase price, the interest is generally taxable to each of you, in proportion to the amount each of you paid. Free 1040ez Community property. Free 1040ez   If you and your spouse live in a community property state and hold bonds as community property, one-half of the interest is considered received by each of you. Free 1040ez If you file separate returns, each of you generally must report one-half of the bond interest. Free 1040ez For more information about community property, see Publication 555. Free 1040ez Table 7-1. Free 1040ez   These rules are also shown in Table 7-1. Free 1040ez Ownership transferred. Free 1040ez   If you bought series E, series EE, or series I bonds entirely with your own funds and had them reissued in your co-owner's name or beneficiary's name alone, you must include in your gross income for the year of reissue all interest that you earned on these bonds and have not previously reported. Free 1040ez But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. Free 1040ez   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. Free 1040ez Purchased jointly. Free 1040ez   If you and a co-owner each contributed funds to buy series E, series EE, or series I bonds jointly and later have the bonds reissued in the co-owner's name alone, you must include in your gross income for the year of reissue your share of all the interest earned on the bonds that you have not previously reported. Free 1040ez The former co-owner does not have to include in gross income at the time of reissue his or her share of the interest earned that was not reported before the transfer. Free 1040ez This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. Free 1040ez   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. Free 1040ez But the new co-owner will report only his or her share of the interest earned after the transfer. Free 1040ez   If bonds that you and a co-owner bought jointly are reissued to each of you separately in the same proportion as your contribution to the purchase price, neither you nor your co-owner has to report at that time the interest earned before the bonds were reissued. Free 1040ez    Table 7-1. Free 1040ez Who Pays the Tax on U. Free 1040ez S. Free 1040ez Savings Bond Interest IF . Free 1040ez . Free 1040ez . Free 1040ez THEN the interest must be reported by . Free 1040ez . Free 1040ez . Free 1040ez you buy a bond in your name and the name of another person as co-owners, using only your own funds you. Free 1040ez you buy a bond in the name of another person, who is the sole owner of the bond the person for whom you bought the bond. Free 1040ez you and another person buy a bond as co-owners, each contributing part of the purchase price both you and the other co-owner, in proportion to the amount each paid for the bond. Free 1040ez you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. Free 1040ez If you file separate returns, both you and your spouse generally report one-half of the interest. Free 1040ez Example 1. Free 1040ez You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. Free 1040ez The bond was issued to you and your spouse as co-owners. Free 1040ez You both postpone reporting interest on the bond. Free 1040ez You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Free 1040ez At that time neither you nor your spouse has to report the interest earned to the date of reissue. Free 1040ez Example 2. Free 1040ez You bought a $1,000 series EE savings bond entirely with your own funds. Free 1040ez The bond was issued to you and your spouse as co-owners. Free 1040ez You both postpone reporting interest on the bond. Free 1040ez You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Free 1040ez You must report half the interest earned to the date of reissue. Free 1040ez Transfer to a trust. Free 1040ez   If you own series E, series EE, or series I bonds and transfer them to a trust, giving up all rights of ownership, you must include in your income for that year the interest earned to the date of transfer if you have not already reported it. Free 1040ez However, if you are considered the owner of the trust and if the increase in value both before and after the transfer continues to be taxable to you, you can continue to defer reporting the interest earned each year. Free 1040ez You must include the total interest in your income in the year you cash or dispose of the bonds or the year the bonds finally mature, whichever is earlier. Free 1040ez   The same rules apply to previously unreported interest on series EE or series E bonds if the transfer to a trust consisted of series HH or series H bonds you acquired in a trade for the series EE or series E bonds. Free 1040ez See Savings bonds traded , later. Free 1040ez Decedents. Free 1040ez   The manner of reporting interest income on series E, series EE, or series I bonds, after the death of the owner (decedent), depends on the accounting and income-reporting methods previously used by the decedent. Free 1040ez This is explained in chapter 1 of Publication 550. Free 1040ez Savings bonds traded. Free 1040ez   If you postponed reporting the interest on your series EE or series E bonds, you did not recognize taxable income when you traded the bonds for series HH or series H bonds, unless you received cash in the trade. Free 1040ez (You cannot trade series I bonds for series HH bonds. Free 1040ez After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. Free 1040ez ) Any cash you received is income up to the amount of the interest earned on the bonds traded. Free 1040ez When your series HH or series H bonds mature, or if you dispose of them before maturity, you report as interest the difference between their redemption value and your cost. Free 1040ez Your cost is the sum of the amount you paid for the traded series EE or series E bonds plus any amount you had to pay at the time of the trade. Free 1040ez Example. Free 1040ez You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. Free 1040ez You reported the $223 as taxable income on your tax return. Free 1040ez At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. Free 1040ez You hold the series HH bonds until maturity, when you receive $2,500. Free 1040ez You must report $300 as interest income in the year of maturity. Free 1040ez This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). Free 1040ez (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. Free 1040ez ) Choice to report interest in year of trade. Free 1040ez   You could have chosen to treat all of the previously unreported accrued interest on the series EE or series E bonds traded for series HH bonds as income in the year of the trade. Free 1040ez If you made this choice, it is treated as a change from method 1. Free 1040ez See Change from method 1 under Series EE and series I bonds, earlier. Free 1040ez Form 1099-INT for U. Free 1040ez S. Free 1040ez savings bonds interest. Free 1040ez   When you cash a bond, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. Free 1040ez Box 3 of your Form 1099-INT should show the interest as the difference between the amount you received and the amount paid for the bond. Free 1040ez However, your Form 1099-INT may show more interest than you have to include on your income tax return. Free 1040ez For example, this may happen if any of the following are true. Free 1040ez You chose to report the increase in the redemption value of the bond each year. Free 1040ez The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. Free 1040ez You received the bond from a decedent. Free 1040ez The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or on the decedent's final return, or by the estate on the estate's income tax return. Free 1040ez Ownership of the bond was transferred. Free 1040ez The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. Free 1040ez You were named as a co-owner, and the other co-owner contributed funds to buy the bond. Free 1040ez The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. Free 1040ez (See Co-owners , earlier in this chapter, for more information about the reporting requirements. Free 1040ez ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. Free 1040ez The interest shown on your Form 1099-INT will not be reduced by the interest portion of the amount taxable as a distribution from the plan and not taxable as interest. Free 1040ez (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Free 1040ez , for the year of distribution. Free 1040ez )   For more information on including the correct amount of interest on your return, see How To Report Interest Income , later. Free 1040ez Publication 550 includes examples showing how to report these amounts. Free 1040ez    Interest on U. Free 1040ez S. Free 1040ez savings bonds is exempt from state and local taxes. Free 1040ez The Form 1099-INT you receive will indicate the amount that is for U. Free 1040ez S. Free 1040ez savings bond interest in box 3. Free 1040ez Education Savings Bond Program You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U. Free 1040ez S. Free 1040ez savings bonds during the year if you pay qualified higher educational expenses during the same year. Free 1040ez This exclusion is known as the Education Savings Bond Program. Free 1040ez You do not qualify for this exclusion if your filing status is married filing separately. Free 1040ez Form 8815. Free 1040ez   Use Form 8815 to figure your exclusion. Free 1040ez Attach the form to your Form 1040 or Form 1040A. Free 1040ez Qualified U. Free 1040ez S. Free 1040ez savings bonds. Free 1040ez   A qualified U. Free 1040ez S. Free 1040ez savings bond is a series EE bond issued after 1989 or a series I bond. Free 1040ez The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). Free 1040ez You must be at least 24 years old before the bond's issue date. Free 1040ez For example, a bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child. Free 1040ez    The issue date of a bond may be earlier than the date the bond is purchased because the issue date assigned to a bond is the first day of the month in which it is purchased. Free 1040ez Beneficiary. Free 1040ez   You can designate any individual (including a child) as a beneficiary of the bond. Free 1040ez Verification by IRS. Free 1040ez   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of the Treasury. Free 1040ez Qualified expenses. Free 1040ez   Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent (for whom you claim an exemption) to attend an eligible educational institution. Free 1040ez   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. Free 1040ez   Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Free 1040ez Eligible educational institutions. Free 1040ez   These institutions include most public, private, and nonprofit universities, colleges, and vocational schools that are accredited and eligible to participate in student aid programs run by the U. Free 1040ez S. Free 1040ez Department of Education. Free 1040ez Reduction for certain benefits. Free 1040ez   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. Free 1040ez Tax-free part of scholarships and fellowships (see Scholarships and fellowships in chapter 12). Free 1040ez Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. Free 1040ez Expenses used to figure the tax-free portion of distributions from a qualified tuition program. Free 1040ez Any tax-free payments (other than gifts or inheritances) received for educational expenses, such as Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. Free 1040ez Any expense used in figuring the American Opportunity and lifetime learning credits. Free 1040ez Amount excludable. Free 1040ez   If the total proceeds (interest and principal) from the qualified U. Free 1040ez S. Free 1040ez savings bonds you redeem during the year are not more than your adjusted qualified higher educational expenses for the year, you may be able to exclude all of the interest. Free 1040ez If the proceeds are more than the expenses, you may be able to exclude only part of the interest. Free 1040ez   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. Free 1040ez The numerator of the fraction is the qualified higher educational expenses you paid during the year. Free 1040ez The denominator of the fraction is the total proceeds you received during the year. Free 1040ez Example. Free 1040ez In February 2013, Mark and Joan, a married couple, cashed a qualified series EE U. Free 1040ez S. Free 1040ez savings bond they bought in April 1997. Free 1040ez They received proceeds of $8,372 representing principal of $5,000 and interest of $3,372. Free 1040ez In 2013, they paid $4,000 of their daughter's college tuition. Free 1040ez They are not claiming an education credit for that amount, and their daughter does not have any tax-free educational assistance. Free 1040ez They can exclude $1,611 ($3,372 × ($4,000 ÷ $8,372)) of interest in 2013. Free 1040ez They must pay tax on the remaining $1,761 ($3,372 − $1,611) interest. Free 1040ez Modified adjusted gross income limit. Free 1040ez   The interest exclusion is limited if your modified adjusted gross income (modified AGI) is: $74,700 to $89,700 for taxpayers filing single or head of household, and $112,050 to $142,050 for married taxpayers filing jointly or for a qualifying widow(er) with dependent child. Free 1040ez You do not qualify for the interest exclusion if your modified AGI is equal to or more than the upper limit for your filing status. Free 1040ez   Modified AGI, for purposes of this exclusion, is adjusted gross income (Form 1040, line 37, or Form 1040A, line 21) figured before the interest exclusion, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion and deduction, Exclusion of income for bona fide residents of American Samoa, Exclusion for income from Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for tuition and fees, Deduction for student loan interest, and Deduction for domestic production activities. Free 1040ez   Use the Line 9 Worksheet in the Form 8815 instructions to figure your modified AGI. Free 1040ez If you claim any of the exclusion or deduction items listed above (except items 6, 7, and 8), add the amount of the exclusion or deduction (except items 6, 7, and 8) to the amount on line 5 of the worksheet, and enter the total on Form 8815, line 9, as your modified AGI. Free 1040ez   If you have investment interest expense incurred to earn royalties and other investment income, see Education Savings Bond Program in chapter 1 of Publication 550. Free 1040ez Recordkeeping. Free 1040ez If you claim the interest exclusion, you must keep a written record of the qualified U. Free 1040ez S. Free 1040ez savings bonds you redeem. Free 1040ez Your record must include the serial number, issue date, face value, and total redemption proceeds (principal and interest) of each bond. Free 1040ez You can use Form 8818 to record this information. Free 1040ez You should also keep bills, receipts, canceled checks, or other documentation that shows you paid qualified higher educational expenses during the year. Free 1040ez U. Free 1040ez S. Free 1040ez Treasury Bills, Notes, and Bonds Treasury bills, notes, and bonds are direct debts (obligations) of the U. Free 1040ez S. Free 1040ez Government. Free 1040ez Taxation of interest. Free 1040ez   Interest income from Treasury bills, notes, and bonds is subject to federal income tax but is exempt from all state and local income taxes. Free 1040ez You should receive Form 1099-INT showing the interest (in box 3) paid to you for the year. Free 1040ez   Payments of principal and interest generally will be credited to your designated checking or savings account by direct deposit through the TreasuryDirect® system. Free 1040ez Treasury bills. Free 1040ez   These bills generally have a 4-week, 13-week, 26-week, or 52-week maturity period. Free 1040ez They are generally issued at a discount in the amount of $100 and multiples of $100. Free 1040ez The difference between the discounted price you pay for the bills and the face value you receive at maturity is interest income. Free 1040ez Generally, you report this interest income when the bill is paid at maturity. Free 1040ez If you paid a premium for a bill (more than the face value), you generally report the premium as a section 171 deduction when the bill is paid at maturity. Free 1040ez Treasury notes and bonds. Free 1040ez   Treasury notes have maturity periods of more than 1 year, ranging up to 10 years. Free 1040ez Maturity periods for Treasury bonds are longer than 10 years. Free 1040ez Both generally are issued in denominations of $100 to $1 million and generally pay interest every 6 months. Free 1040ez Generally, you report this interest for the year paid. Free 1040ez For more information, see U. Free 1040ez S. Free 1040ez Treasury Bills, Notes, and Bonds in chapter 1 of Publication 550. Free 1040ez For other information on Treasury notes or bonds, write to:  Bureau of the Public Debt P. Free 1040ez O. Free 1040ez Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. Free 1040ez treasurydirect. Free 1040ez gov/indiv/indiv. Free 1040ez htm. Free 1040ez For information on series EE, series I, and series HH savings bonds, see U. Free 1040ez S. Free 1040ez Savings Bonds , earlier. Free 1040ez Treasury inflation-protected securities (TIPS). Free 1040ez   These securities pay interest twice a year at a fixed rate, based on a principal amount adjusted to take into account inflation and deflation. Free 1040ez For the tax treatment of these securities, see Inflation-Indexed Debt Instruments under Original Issue Discount (OID), in Publication 550. Free 1040ez Bonds Sold Between Interest Dates If you sell a bond between interest payment dates, part of the sales price represents interest accrued to the date of sale. Free 1040ez You must report that part of the sales price as interest income for the year of sale. Free 1040ez If you buy a bond between interest payment dates, part of the purchase price represents interest accrued before the date of purchase. Free 1040ez When that interest is paid to you, treat it as a return of your capital investment, rather than interest income, by reducing your basis in the bond. Free 1040ez See Accrued interest on bonds under How To Report Interest Income in chapter 1 of Publication 550 for information on reporting the payment. Free 1040ez Insurance Life insurance proceeds paid to you as beneficiary of the insured person are usually not taxable. Free 1040ez But if you receive the proceeds in installments, you must usually report a part of each installment payment as interest income. Free 1040ez For more information about insurance proceeds received in installments, see Publication 525, Taxable and Nontaxable Income. Free 1040ez Annuity. Free 1040ez   If you buy an annuity with life insurance proceeds, the annuity payments you receive are taxed as pension and annuity income from a nonqualified plan, not as interest income. Free 1040ez See chapter 10 for information on pension and annuity income from nonqualified plans. Free 1040ez State or Local Government Obligations Interest on a bond used to finance government operations generally is not taxable if the bond is issued by a state, the District of Columbia, a possession of the United States, or any of their political subdivisions. Free 1040ez Bonds issued after 1982 (including tribal economic development bonds issued after February 17, 2009) by an Indian tribal government are treated as issued by a state. Free 1040ez Interest on these bonds is generally tax exempt if the bonds are part of an issue of which substantially all proceeds are to be used in the exercise of any essential government function. Free 1040ez For information on federally guaranteed bonds, mortgage revenue bonds, arbitrage bonds, private activity bonds, qualified tax credit bonds, and Build America bonds, see State or Local Government Obligations in chapter 1 of Publication 550. Free 1040ez Information reporting requirement. Free 1040ez   If you must file a tax return, you are required to show any tax-exempt interest you received on your return. Free 1040ez This is an information reporting requirement only. Free 1040ez It does not change tax-exempt interest to taxable interest. Free 1040ez Original Issue Discount (OID) Original issue discount (OID) is a form of interest. Free 1040ez You generally include OID in your income as it accrues over the term of the debt instrument, whether or not you receive any payments from the issuer. Free 1040ez A debt instrument generally has OID when the instrument is issued for a price that is less than its stated redemption price at maturity. Free 1040ez OID is the difference between the stated redemption price at maturity and the issue price. Free 1040ez All debt instruments that pay no interest before maturity are presumed to be issued at a discount. Free 1040ez Zero coupon bonds are one example of these instruments. Free 1040ez The OID accrual rules generally do not apply to short-term obligations (those with a fixed maturity date of 1 year or less from date of issue). Free 1040ez See Discount on Short-Term Obligations in chapter 1 of Publication 550. Free 1040ez De minimis OID. Free 1040ez   You can treat the discount as zero if it is less than one-fourth of 1% (. Free 1040ez 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Free 1040ez This small discount is known as “de minimis” OID. Free 1040ez Example 1. Free 1040ez You bought a 10-year bond with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Free 1040ez One-fourth of 1% of $1,000 (stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Free 1040ez Because the $20 discount is less than $25, the OID is treated as zero. Free 1040ez (If you hold the bond at maturity, you will recognize $20 ($1,000 − $980) of capital gain. Free 1040ez ) Example 2. Free 1040ez The facts are the same as in Example 1, except that the bond was issued at $950. Free 1040ez The OID is $50. Free 1040ez Because the $50 discount is more than the $25 figured in Example 1, you must include the OID in income as it accrues over the term of the bond. Free 1040ez Debt instrument bought after original issue. Free 1040ez   If you buy a debt instrument with de minimis OID at a premium, the discount is not includible in income. Free 1040ez If you buy a debt instrument with de minimis OID at a discount, the discount is reported under the market discount rules. Free 1040ez See Market Discount Bonds in chapter 1 of Publication 550. Free 1040ez Exceptions to reporting OID. Free 1040ez   The OID rules discussed in this chapter do not apply to the following debt instruments. Free 1040ez Tax-exempt obligations. Free 1040ez (However, see Stripped tax-exempt obligations under Stripped Bonds and Coupons in chapter 1 of Publication 550). Free 1040ez U. Free 1040ez S. Free 1040ez savings bonds. Free 1040ez Short-term debt instruments (those with a fixed maturity date of not more than 1 year from the date of issue). Free 1040ez Obligations issued by an individual before March 2, 1984. Free 1040ez Loans between individuals if all the following are true. Free 1040ez The lender is not in the business of lending money. Free 1040ez The amount of the loan, plus the amount of any outstanding prior loans between the same individuals, is $10,000 or less. Free 1040ez Avoiding any federal tax is not one of the principal purposes of the loan. Free 1040ez Form 1099-OID. Free 1040ez   The issuer of the debt instrument (or your broker if you held the instrument through a broker) should give you Form 1099-OID, or a similar statement, if the total OID for the calendar year is $10 or more. Free 1040ez Form 1099-OID will show, in box 1, the amount of OID for the part of the year that you held the bond. Free 1040ez It also will show, in box 2, the stated interest you must include in your income. Free 1040ez A copy of Form 1099-OID will be sent to the IRS. Free 1040ez Do not file your copy with your return. Free 1040ez Keep it for your records. Free 1040ez   In most cases, you must report the entire amount in boxes 1 and 2 of Form 1099-OID as interest income. Free 1040ez But see Refiguring OID shown on Form 1099-OID, later in this discussion, for more information. Free 1040ez Form 1099-OID not received. Free 1040ez   If you had OID for the year but did not receive a Form 1099-OID, you can find tables on IRS. Free 1040ez gov that list total OID on certain debt instruments and have information that will help you figure OID. Free 1040ez For the latest OID tables, go to www. Free 1040ez irs. Free 1040ez gov and enter “OID tables” in the Search box. Free 1040ez If your debt instrument is not listed, consult the issuer for further information about the accrued OID for the year. Free 1040ez Nominee. Free 1040ez   If someone else is the holder of record (the registered owner) of an OID instrument belonging to you and receives a Form 1099-OID on your behalf, that person must give you a Form 1099-OID. Free 1040ez Refiguring OID shown on Form 1099-OID. Free 1040ez   You must refigure the OID shown in box 1 or box 8 of Form 1099-OID if either of the following apply. Free 1040ez You bought the debt instrument after its original issue and paid a premium or an acquisition premium. Free 1040ez The debt instrument is a stripped bond or a stripped coupon (including certain zero coupon instruments). Free 1040ez For information about figuring the correct amount of OID to include in your income, see Figuring OID on Long-Term Debt Instruments in Publication 1212. Free 1040ez Refiguring periodic interest shown on Form 1099-OID. Free 1040ez   If you disposed of a debt instrument or acquired it from another holder during the year, see Bonds Sold Between Interest Dates , earlier, for information about the treatment of periodic interest that may be shown in box 2 of Form 1099-OID for that instrument. Free 1040ez Certificates of deposit (CDs). Free 1040ez   If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID. Free 1040ez   This also applies to similar deposit arrangements with banks, building and loan associations, etc. Free 1040ez , including: Time deposits, Bonus plans, Savings certificates, Deferred income certificates, Bonus savings certificates, and Growth savings certificates. Free 1040ez Bearer CDs. Free 1040ez   CDs issued after 1982 generally must be in registered form. Free 1040ez Bearer CDs are CDs not in registered form. Free 1040ez They are not issued in the depositor's name and are transferable from one individual to another. Free 1040ez   Banks must provide the IRS and the person redeeming a bearer CD with a Form 1099-INT. Free 1040ez More information. Free 1040ez   See chapter 1 of Publication 550 for more information about OID and related topics, such as market discount bonds. Free 1040ez When To Report Interest Income When to report your interest income depends on whether you use the cash method or an accrual method to report income. Free 1040ez Cash method. Free 1040ez   Most individual taxpayers use the cash method. Free 1040ez If you use this method, you generally report your interest income in the year in which you actually or constructively receive it. Free 1040ez However, there are special rules for reporting the discount on certain debt instruments. Free 1040ez See U. Free 1040ez S. Free 1040ez Savings Bonds and Original Issue Discount (OID) , earlier. Free 1040ez Example. Free 1040ez On September 1, 2011, you loaned another individual $2,000 at 12%, compounded annually. Free 1040ez You are not in the business of lending money. Free 1040ez The note stated that principal and interest would be due on August 31, 2013. Free 1040ez In 2013, you received $2,508. Free 1040ez 80 ($2,000 principal and $508. Free 1040ez 80 interest). Free 1040ez If you use the cash method, you must include in income on your 2013 return the $508. Free 1040ez 80 interest you received in that year. Free 1040ez Constructive receipt. Free 1040ez   You constructively receive income when it is credited to your account or made available to you. Free 1040ez You do not need to have physical possession of it. Free 1040ez For example, you are considered to receive interest, dividends, or other earnings on any deposit or account in a bank, savings and loan, or similar financial institution, or interest on life insurance policy dividends left to accumulate, when they are credited to your account and subject to your withdrawal. Free 1040ez This is true even if they are not yet entered in your passbook. Free 1040ez   You constructively receive income on the deposit or account even if you must: Make withdrawals in multiples of even amounts, Give a notice to withdraw before making the withdrawal, Withdraw all or part of the account to withdraw the earnings, or Pay a penalty on early withdrawals, unless the interest you are to receive on an early withdrawal or redemption is substantially less than the interest payable at maturity. Free 1040ez Accrual method. Free 1040ez   If you use an accrual method, you report your interest income when you earn it, whether or not you have received it. Free 1040ez Interest is earned over the term of the debt instrument. Free 1040ez Example. Free 1040ez If, in the previous example, you use an accrual method, you must include the interest in your income as you earn it. Free 1040ez You would report the interest as follows: 2011, $80; 2012, $249. Free 1040ez 60; and 2013, $179. Free 1040ez 20. Free 1040ez Coupon bonds. Free 1040ez   Interest on coupon bonds is taxable in the year the coupon becomes due and payable. Free 1040ez It does not matter when you mail the coupon for payment. Free 1040ez How To Report Interest Income Generally, you report all your taxable interest income on Form 1040, line 8a; Form 1040A, line 8a; or Form 1040EZ, line 2. Free 1040ez You cannot use Form 1040EZ if your taxable interest income is more than $1,500. Free 1040ez Instead, you must use Form 1040A or Form 1040. Free 1040ez Form 1040A. Free 1040ez   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040A and any of the following are true. Free 1040ez Your taxable interest income is more than $1,500. Free 1040ez You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Free 1040ez You received interest from a seller-financed mortgage, and the buyer used the property as a home. Free 1040ez You received a Form 1099-INT for U. Free 1040ez S. Free 1040ez savings bond interest that includes amounts you reported before 2013. Free 1040ez You received, as a nominee, interest that actually belongs to someone else. Free 1040ez You received a Form 1099-INT for interest on frozen deposits. Free 1040ez You are reporting OID in an amount less than the amount shown on Form 1099-OID. Free 1040ez You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Free 1040ez You acquired taxable bonds after 1987 and choose to reduce interest income from the bonds by any amortizable bond premium (see Bond Premium Amortization in chapter 3 of Publication 550). Free 1040ez List each payer's name and the amount of interest income received from each payer on line 1. Free 1040ez If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Free 1040ez   You cannot use Form 1040A if you must use Form 1040, as described next. Free 1040ez Form 1040. Free 1040ez   You must use Form 1040 instead of Form 1040A or Form 1040EZ if: You forfeited interest income because of the early withdrawal of a time deposit; You acquired taxable bonds after 1987, you choose to reduce interest income from the bonds by any amortizable bond premium, and you are deducting the excess of bond premium amortization for the accrual period over the qualified stated interest for the period (see Bond Premium Amortization in chapter 3 of Publication 550); or You received tax-exempt interest from private activity bonds issued after August 7, 1986. Free 1040ez Schedule B (Form 1040A or 1040). Free 1040ez   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040 and any of the following apply. Free 1040ez Your taxable interest income is more than $1,500. Free 1040ez You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Free 1040ez You received interest from a seller-financed mortgage, and the buyer used the property as a home. Free 1040ez You received a Form 1099-INT for U. Free 1040ez S. Free 1040ez savings bond interest that includes amounts you reported before 2013. Free 1040ez You received, as a nominee, interest that actually belongs to someone else. Free 1040ez You received a Form 1099-INT for interest on frozen deposits. Free 1040ez You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Free 1040ez You are reporting OID in an amount less than the amount shown on Form 1099-OID. Free 1040ez Statement (2) in the preceding list under Form 1040 is true. Free 1040ez In Part I, line 1, list each payer's name and the amount received from each. Free 1040ez If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Free 1040ez Reporting tax-exempt interest. Free 1040ez   Total your tax-exempt interest (such as interest or accrued OID on certain state and municipal bonds, including tax-exempt interest on zero coupon municipal bonds) and exempt-interest dividends from a mutual fund as shown on Form 1099-INT, box 8, and on Form 1099-DIV, box 10. Free 1040ez Add these amounts to any other tax-exempt interest you received. Free 1040ez Report the total on line 8b of Form 1040A or 1040. Free 1040ez   If you file Form 1040EZ, enter “TEI” and the amount in the space to the left of line 2. Free 1040ez Do not add tax-exempt interest in the total on Form 1040EZ, line 2. Free 1040ez   Form 1099-INT, box 9, and Form 1099-DIV, box 11, show the tax-exempt interest subject to the alternative minimum tax on Form 6251. Free 1040ez These amounts are already included in the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Free 1040ez Do not add the amounts in Form 1099-INT, box 9 and Form 1099-DIV, box 11 to, or subtract them from, the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Free 1040ez    Do not report interest from an individual retirement account (IRA) as tax-exempt interest. Free 1040ez Form 1099-INT. Free 1040ez   Your taxable interest income, except for interest from U. Free 1040ez S. Free 1040ez savings bonds and Treasury obligations, is shown in box 1 of Form 1099-INT. Free 1040ez Add this amount to any other taxable interest income you received. Free 1040ez You must report all of your taxable interest income even if you do not receive a Form 1099-INT. Free 1040ez Generally, contact your financial institution if you do not receive a Form 1099-INT by February 15. Free 1040ez Your identifying number may be truncated on any paper Form 1099-INT you receive. Free 1040ez   If you forfeited interest income because of the early withdrawal of a time deposit, the deductible amount will be shown on Form 1099-INT in box 2. Free 1040ez See Penalty on early withdrawal of savings in chapter 1 of Publication 550. Free 1040ez   Box 3 of Form 1099-INT shows the interest income you received from U. Free 1040ez S. Free 1040ez savings bonds, Treasury bills, Treasury notes, and Treasury bonds. Free 1040ez Add the amount shown in box 3 to any other taxable interest income you received, unless part of the amount in box 3 was previously included in your interest income. Free 1040ez If part of the amount shown in box 3 was previously included in your interest income, see U. Free 1040ez S. Free 1040ez savings bond interest previously reported , later. Free 1040ez   Box 4 of Form 1099-INT will contain an amount if you were subject to backup withholding. Free 1040ez Report the amount from box 4 on Form 1040EZ, line 7; on Form 1040A, line 36; or Form 1040, line 62 (federal income tax withheld). Free 1040ez   Box 5 of Form 1099-INT shows investment expenses you may be able to deduct as an itemized deduction. Free 1040ez See chapter 28 for more information about investment expenses. Free 1040ez   If there are entries in boxes 6 and 7 of Form 1099-INT, you must file Form 1040. Free 1040ez You may be able to take a credit for the amount shown in box 6 unless you deduct this amount on line 8 of Schedule A (Form 1040). Free 1040ez To take the credit, you may have to file Form 1116, Foreign Tax Credit. Free 1040ez For more information, see Publication 514, Foreign Tax Credit for Individuals. Free 1040ez U. Free 1040ez S. Free 1040ez savings bond interest previously reported. Free 1040ez   If you received a Form 1099-INT for U. Free 1040ez S. Free 1040ez savings bond interest, the form may show interest you do not have to report. Free 1040ez See Form 1099-INT for U. Free 1040ez S. Free 1040ez savings bonds interest , earlier, under U. Free 1040ez S. Free 1040ez Savings Bonds. Free 1040ez   On Schedule B (Form 1040A or 1040), Part I, line 1, report all the interest shown on your Form 1099-INT. Free 1040ez Then follow these steps. Free 1040ez Several lines above line 2, enter a subtotal of all interest listed on line 1. Free 1040ez Below the subtotal enter “U. Free 1040ez S. Free 1040ez Savings Bond Interest Previously Reported” and enter amounts previously reported or interest accrued before you received the bond. Free 1040ez Subtract these amounts from the subtotal and enter the result on line 2. Free 1040ez More information. Free 1040ez   For more information about how to report interest income, see chapter 1 of Publication 550 or the instructions for the form you must file. Free 1040ez Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Procurement

Procurement At-a-Glance - Our dedicated acquisition professionals deliver world class, customer-focused acquisition services with the highest degree of integrity and the cooperative effort of our partners.


Small Business Program Office - The Internal Revenue Service (IRS) Small Business Program Office was established to assist small, HUBZone small, small disadvantaged, women-owned small, veteran-owned small and service disabled veteran-owned small businesses, to develop, grow, and ensure their long-term success.


Procurement Business Opportunities - The Procurement Office acquires the products and services required to support the IRS mission. We advertise commercial opportunities on Federal Business Opportunities (FedBizOpps) web site.


Justification for Other Than Full and Open Competition (JOFOC) - All open market JOFOCs exceeding the Simplified Acquisition Threshold (SAT) are posted on this web site in addition to being advertised on the Federal Business Opportunities (FedBizOpps) web site. (Some information may have been redacted to exclude proprietary information).


The American Recovery and Reinvestment Act of 2009 - The American Recovery and Reinvestment Act of 2009 (ARRA) – Approved on February 17, 2009, ARRA primarily provides supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and State and local fiscal stabilization. Hyperlinks to various procurement actions awarded using ARRA funds are included herein.

What's New at Procurement



11/01/2013JEFO - Renewal of Maintenance for Net App Mass Storage equipment in support of the SOI Program



09/26/2013 Post-Award Posting of JOFOC TIRSE-14-P-00003-Utilities



09/06/2013
Justification for an Exception to Fair Opportunity



08/22/2013
Solicitation No: D-3-D9-23-MA-I10 – Neopost Postage Meter Supplies



08/19/2013 TIRNO-13-C-00055 JOFOC Post Award

 

 

More...


Contractor Security - Contract employees assigned to work under IRS contracts must undergo investigative processing appropriate to the position sensitivity and risk level designation associated with the work to be performed, as described in the Department of the Treasury Security Manual (TD P 15-71). In support of this undertaking, the contractor shall furnish prescribed security forms and documentation to the Contractor Security Lifecycle Program (CSLP), within 10 business days of assigning (or reassigning) a contractor employee to an IRS contract and prior to the contract employee performing any work there under.


Publication 4812 - Contractor Security Controls - Functions as the standard for security controls to be employed by contractors who will have or need access to IRS information, and/or who will have or need access to, maintain or operate IRS information systems in order to perform or carry out and meet their contractual obligations. Publication 4812 is a &quotlayperson's guide&quot to NIST SP 800-53 when access to IRS information or information systems under contracts for services on behalf of the IRS is outside of IRS controlled facilities or the direct control of the Service (as opposed to Internal Revenue Manual 10.8.1 - Information Technology (IT) Security, Policy and Guidance, which applies when contractors are accessing IRS information and information systems at Government controlled facilities).


Contracts - Information about the Prime Modernization Contract and Prime Contract Outreach Information. Treasury-Wide Contracts ( Total Information Processing Support Services (TIPSS-4), and Treasury Commercial Vehicles (TCV) Blanket Purchase Agreements). Government-Wide Contracts Land Mobile Radio (LMR) Subscriber Unit.


Total Information Processing Support Services (TIPSS-4) - Discover more about the wide spectrum of Information Technology services that TIPSS-4 offers. Included you will find guidance, and useful information to help you acquire the right services to support your program goals and objectives.


Treasury Acquisition Institute (TAI) Training - The Treasury Acquisition Institute (TAI) was established by the Department of the Treasury and Internal Revenue Service in partnerships with other Treasury Bureaus on September 14, 1983. TAI was created to coordinate and lead Departmental and Bureau efforts to obtain the best training possible for their acquisition professionals.


Guides for Doing Business with the Government - Information on how to do business with the Federal Government.


Treasury Inspector General for Tax Administration (TIGTA) FAR Contractor Reporting - This link allows contractors to comply with the reporting requirements in the December 12, 2008, Federal Acquisition Regulation final rule. Specifically, contractors must use this process to satisfy the requirement that they notify TIGTA, in writing, whenever the contractor has credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed a violation of the civil False Claims Act or a violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations in connection with the award, performance, or closeout of a contract or any related subcontract.


Useful Links - Links to various sites.


Procurement A..Z Index - Search for Procurement information alphabetically.



Questions about the Procurement information on this site, please contact the webmaster.


Contact the Office of Procurement for other Procurement related questions.

Page Last Reviewed or Updated: 19-Feb-2014

The Free 1040ez

Free 1040ez 3. Free 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. Free 1040ez Form 4797. Free 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. Free 1040ez Granting the right to remove deposits. Free 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. Free 1040ez You must report the income from all the different sources on your tax return, unless it is excluded by law. Free 1040ez Where you report the income on your tax return depends on its source. Free 1040ez This chapter discusses farm income you report on Schedule F (Form 1040), Profit or Loss From Farming. Free 1040ez For information on where to report other income, see the Instructions for Form 1040, U. Free 1040ez S. Free 1040ez Individual Income Tax Return. Free 1040ez Accounting method. Free 1040ez   The rules discussed in this chapter assume you use the cash method of accounting. Free 1040ez Under the cash method, you generally include an item of income in gross income in the year you receive it. Free 1040ez See Cash Method in chapter 2. Free 1040ez   If you use an accrual method of accounting, different rules may apply to your situation. Free 1040ez See Accrual Method in chapter 2. Free 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. Free 1040ez Schedule F (Form 1040) Individuals, trusts, and partnerships report farm income on Schedule F (Form 1040), Profit or Loss From Farming. Free 1040ez Use this schedule to figure the net profit or loss from regular farming operations. Free 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. Free 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. Free 1040ez It also includes income from the sale of crop shares if you materially participate in producing the crop. Free 1040ez See Rents (Including Crop Shares) , later. Free 1040ez Income received from operating a nursery, which specializes in growing ornamental plants, is considered to be income from farming. Free 1040ez Income reported on Schedule F does not include gains or losses from sales or other dispositions of the following farm assets. Free 1040ez Land. Free 1040ez Depreciable farm equipment. Free 1040ez Buildings and structures. Free 1040ez Livestock held for draft, breeding, sport, or dairy purposes. Free 1040ez Gains and losses from most dispositions of farm assets are discussed in chapters 8 and 9. Free 1040ez Gains and losses from casualties, thefts, and condemnations are discussed in chapter 11. Free 1040ez Sales of Farm Products Where to report. Free 1040ez    Table 3-1 shows where to report the sale of farm products on your tax return. Free 1040ez Schedule F. Free 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. Free 1040ez This includes money and the fair market value of any property or services you receive. Free 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). Free 1040ez See chapter 6 for information on the basis of assets. Free 1040ez You generally report these amounts on Schedule F for the year you receive payment. Free 1040ez Example. Free 1040ez In 2012, you bought 20 feeder calves for $11,000 for resale. Free 1040ez You sold them in 2013 for $21,000. Free 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. Free 1040ez Form 4797. Free 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. Free 1040ez In either case, you should always report these sales on Form 4797 instead of Schedule F. Free 1040ez See Livestock under Ordinary or Capital Gain or Loss in chapter 8. Free 1040ez Animals you do not hold primarily for sale are considered business assets of your farm. Free 1040ez Table 3-1. Free 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. Free 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. Free 1040ez This applies even if your agent pays you in a later year. Free 1040ez For a discussion on constructive receipt of income, see Cash Method under Accounting Methods in chapter 2. Free 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. Free 1040ez You must meet all the following conditions to qualify. Free 1040ez Your principal trade or business is farming. Free 1040ez You use the cash method of accounting. Free 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. Free 1040ez The weather-related condition caused an area to be designated as eligible for assistance by the federal government. Free 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. Free 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. Free 1040ez A weather-related sale or exchange of livestock (other than poultry) held for draft, breeding, or dairy purposes may be an involuntary conversion. Free 1040ez See Other Involuntary Conversions in chapter 11. Free 1040ez Usual business practice. Free 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. Free 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. Free 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. Free 1040ez Connection with affected area. Free 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. Free 1040ez However, the sale must occur solely because of a weather-related condition that affected the water, grazing, or other requirements of the livestock. Free 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. Free 1040ez Classes of livestock. Free 1040ez   You must figure the amount to be postponed separately for each generic class of animals—for example, hogs, sheep, and cattle. Free 1040ez Do not separate animals into classes based on age, sex, or breed. Free 1040ez Amount to be postponed. Free 1040ez   Follow these steps to figure the amount of gain to be postponed for each class of animals. Free 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. Free 1040ez For this purpose, do not treat any postponed gain from the previous year as income received from the sale of livestock. Free 1040ez Multiply the result in (1) by the excess number of such livestock sold solely because of weather-related conditions. Free 1040ez Example. Free 1040ez You are a calendar year taxpayer and you normally sell 100 head of beef cattle a year. Free 1040ez As a result of drought, you sold 135 head during 2012. Free 1040ez You realized $70,200 from the sale. Free 1040ez On August 9, 2012, as a result of drought, the affected area was declared a disaster area eligible for federal assistance. Free 1040ez The income you can postpone until 2013 is $18,200 [($70,200 ÷ 135) × 35]. Free 1040ez How to postpone gain. Free 1040ez   To postpone gain, attach a statement to your tax return for the year of the sale. Free 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. Free 1040ez A statement that you are postponing gain under Internal Revenue Code (IRC) section 451(e). Free 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. Free 1040ez A statement explaining the relationship of the area affected by the weather-related condition to your early sale or exchange of the livestock. Free 1040ez The number of animals sold in each of the 3 preceding years. Free 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. Free 1040ez The total number of animals sold and the number sold because of weather-related conditions during the tax year. Free 1040ez A computation, as described above, of the income to be postponed for each class of livestock. Free 1040ez   Generally, you must file the statement and the return by the due date of the return, including extensions. Free 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. Free 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). Free 1040ez Attach the statement to the amended return and write “Filed pursuant to section 301. Free 1040ez 9100-2” at the top of the amended return. Free 1040ez File the amended return at the same address you filed the original return. Free 1040ez Once you have filed the statement, you can cancel your postponement of gain only with the approval of the IRS. Free 1040ez Rents (Including Crop Shares) The rent you receive for the use of your farmland is generally rental income, not farm income. Free 1040ez However, if you materially participate in farming operations on the land, the rent is farm income. Free 1040ez See Landlord Participation in Farming in chapter 12. Free 1040ez Pasture income and rental. Free 1040ez   If you pasture someone else's livestock and take care of them for a fee, the income is from your farming business. Free 1040ez You must enter it as Other income on Schedule F. Free 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. Free 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. Free 1040ez It does not matter whether you use the cash method of accounting or an accrual method of accounting. Free 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. Free 1040ez See Landlord Participation in Farming in chapter 12. Free 1040ez Report the rental income on Schedule F. Free 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). Free 1040ez The income is not included in self-employment income. Free 1040ez Crop shares you use to feed livestock. Free 1040ez   Crop shares you receive as a landlord and feed to your livestock are considered converted to money when fed to the livestock. Free 1040ez You must include the fair market value of the crop shares in income at that time. Free 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. Free 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. Free 1040ez See  chapter 12. Free 1040ez Crop shares you give to others (gift). Free 1040ez   Crop shares you receive as a landlord and give to others are considered converted to money when you make the gift. Free 1040ez You must report the fair market value of the crop share as income, even though someone else receives payment for the crop share. Free 1040ez Example. Free 1040ez A tenant farmed part of your land under a crop-share arrangement. Free 1040ez The tenant harvested and delivered the crop in your name to an elevator company. Free 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. Free 1040ez They sell their crop shares in the following year and the elevator company makes payments directly to your children. Free 1040ez In this situation, you are considered to have received rental income and then made a gift of that income. Free 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. Free 1040ez Crop share loss. Free 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. Free 1040ez See Publication 925 for information on these rules. Free 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. Free 1040ez However, you can exclude from income some payments you receive under certain cost-sharing conservation programs. Free 1040ez See Cost-Sharing Exclusion (Improvements) , later. Free 1040ez Report the agricultural program payment on the appropriate line of Schedule F, Part I. Free 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. Free 1040ez However, you can deduct the amount you refund or return or that reduces some other payment or loan to you. Free 1040ez Claim the deduction on Schedule F for the year of repayment or reduction. Free 1040ez Commodity Credit Corporation (CCC) Loans Generally, you do not report loans you receive as income. Free 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. Free 1040ez You do not need approval from the IRS to adopt this method of reporting CCC loans. Free 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. Free 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. Free 1040ez For more information, see Part I of the Instructions for Form 3115 and Revenue Procedure 2008-52. Free 1040ez Revenue Procedure 2008-52, 2008-36 I. Free 1040ez R. Free 1040ez B. Free 1040ez 587, is available at  www. Free 1040ez irs. Free 1040ez gov/irb/2008-36_IRB/ar09. Free 1040ez html. Free 1040ez You can request income tax withholding from CCC loan payments you receive. Free 1040ez Use Form W-4V, Voluntary Withholding Request. Free 1040ez See chapter 16 for information about ordering the form. Free 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. Free 1040ez Attach a statement to your return showing the details of the loan. Free 1040ez You must file the statement and the return by the due date of the return, including extensions. Free 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). Free 1040ez Attach the statement to the amended return and write “Filed pursuant to section 301. Free 1040ez 9100-2” at the top of the return. Free 1040ez File the amended return at the same address you filed the original return. Free 1040ez When you make this election, the amount you report as income becomes your basis in the commodity. Free 1040ez See chapter 6 for information on the basis of assets. Free 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. Free 1040ez If the sale proceeds are less than your basis in the commodity, you can report the difference as a loss on Schedule F. Free 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. Free 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. Free 1040ez Form 1099-A. Free 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. Free 1040ez “CCC” should be shown in box 6. Free 1040ez The amount of any CCC loan outstanding when you forfeited your commodity should also be indicated on the form. Free 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. Free 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. Free 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. Free 1040ez Market gain should be reported as follows. Free 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. Free 1040ez However, adjust the basis of the commodity for the amount of the market gain. Free 1040ez If you did not include the CCC loan in income in the year received, include the market gain in your income. Free 1040ez The following examples show how to report market gain. Free 1040ez Example 1. Free 1040ez Mike Green is a cotton farmer. Free 1040ez He uses the cash method of accounting and files his tax return on a calendar year basis. Free 1040ez He has deducted all expenses incurred in producing the cotton and has a zero basis in the commodity. Free 1040ez In 2012, Mike pledged 1,000 pounds of cotton as collateral for a CCC loan of $2,000 (a loan rate of $2. Free 1040ez 00 per pound). Free 1040ez In 2013, he repaid the loan and redeemed the cotton for $1,500 when the world price was $1. Free 1040ez 50 per pound (lower than the loan amount). Free 1040ez Later in 2013, he sold the cotton for $2,500. Free 1040ez The market gain on the redemption was $. Free 1040ez 50 ($2. Free 1040ez 00 – $1. Free 1040ez 50) per pound. Free 1040ez Mike realized total market gain of $500 ($. Free 1040ez 50 x 1,000 pounds). Free 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. Free 1040ez Included CCC loan. Free 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. Free 1040ez The $500 market gain is not recognized on the redemption. Free 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. Free 1040ez   Mike's basis in the cotton after he redeemed it was $1,500, which is the redemption (repurchase) price paid for the cotton. Free 1040ez His gain from the sale is $1,000 ($2,500 – $1,500). Free 1040ez He reports the $1,000 gain as income for 2013 on Schedule F, line 1b. Free 1040ez Excluded CCC loan. Free 1040ez   Mike has income of $500 from market gain in 2013. Free 1040ez He reports it on Schedule F, lines 4a and 4b. Free 1040ez His basis in the cotton is zero, so his gain from its sale is $2,500. Free 1040ez He reports the $2,500 gain as income for 2013 on Schedule F, line 1b. Free 1040ez Example 2. Free 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. Free 1040ez Under that contract, Mike authorized the cotton buyer to pay the CCC loan on Mike's behalf. Free 1040ez In 2013, the cotton buyer repaid the loan for $1,500 and immediately exercised his option, buying the cotton for $1,500. Free 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. Free 1040ez Included CCC loan. Free 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. Free 1040ez The $500 market gain is not recognized on the redemption. Free 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. Free 1040ez   Also, as in Example 1, Mike's basis in the cotton when the cotton buyer redeemed it for him was $1,500. Free 1040ez Mike has no gain or loss on its sale to the cotton buyer for that amount. Free 1040ez Excluded CCC loan. Free 1040ez   As in Example 1, Mike has income of $500 from market gain in 2013. Free 1040ez He reports it on Schedule F, lines 4a and 4b. Free 1040ez His basis in the cotton is zero, so his gain from its sale is $1,500. Free 1040ez He reports the $1,500 gain as income for 2013 on Schedule F, line 1b. Free 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. Free 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. Free 1040ez Cost-share payments you receive may qualify for the cost-sharing exclusion. Free 1040ez See Cost-Sharing Exclusion (Improvements) , later. Free 1040ez CRP payments are reported to you on Form 1099-G. Free 1040ez Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. Free 1040ez See the instructions for Schedule SE (Form 1040). Free 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. Free 1040ez You generally include them in the year you receive them. Free 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. Free 1040ez You can request income tax withholding from crop disaster payments you receive from the federal government. Free 1040ez Use Form W-4V, Voluntary Withholding Request. Free 1040ez See chapter 16 for information about ordering the form. Free 1040ez Election to postpone reporting until the following year. Free 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. Free 1040ez You use the cash method of accounting. Free 1040ez You receive the crop insurance proceeds in the same tax year the crops are damaged. Free 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. Free 1040ez   Deferral is not permitted for proceeds received from revenue insurance policies. Free 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. Free 1040ez Check the box on line 8c and attach a statement to your tax return. Free 1040ez The statement must include your name and address and contain the following information. Free 1040ez A statement that you are making an election under IRC section 451(d) and Regulations section 1. Free 1040ez 451-6. Free 1040ez The specific crop or crops physically destroyed or damaged. Free 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. Free 1040ez The cause of the physical destruction or damage and the date or dates it occurred. Free 1040ez The total payments you received from insurance carriers, itemized for each specific crop, and the date you received each payment. Free 1040ez The name of each insurance carrier from whom you received payments. Free 1040ez   One election covers all crops representing a single trade or business. Free 1040ez If you have more than one farming business, make a separate election for each one. Free 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. Free 1040ez   An election is binding for the year unless the IRS approves your request to change it. Free 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. Free 1040ez Ogden Submission Processing Center P. Free 1040ez O. Free 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. Free 1040ez These programs include partial reimbursement for the cost of purchased feed and for certain transportation expenses. Free 1040ez They also include the donation or sale at a below-market price of feed owned by the Commodity Credit Corporation. Free 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. Free 1040ez You must include these benefits in income in the year you receive them. Free 1040ez You cannot postpone reporting them under the rules explained earlier for weather-related sales of livestock or crop insurance proceeds. Free 1040ez Report the benefits on Schedule F, Part I, as agricultural program payments. Free 1040ez You can usually take a current deduction for the same amount as a feed expense. Free 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. Free 1040ez A payment is any economic benefit you get as a result of an improvement. Free 1040ez However, this exclusion applies only to that part of a payment that meets all three of the following tests. Free 1040ez It was for a capital expense. Free 1040ez You cannot exclude any part of a payment for an expense you can deduct in the year you pay or incur it. Free 1040ez You must include the payment for a deductible expense in income, and you can take any offsetting deduction. Free 1040ez See chapter 5 for information on deducting soil and water conservation expenses. Free 1040ez It does not substantially increase your annual income from the property for which it is made. Free 1040ez An increase in annual income is substantial if it is more than the greater of the following amounts. Free 1040ez 10% of the average annual income derived from the affected property before receiving the improvement. Free 1040ez $2. Free 1040ez 50 times the number of affected acres. Free 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. Free 1040ez Qualifying programs. Free 1040ez   If the three tests listed above are met, you can exclude part or all of the payments from the following programs. Free 1040ez The rural clean water program authorized by the Federal Water Pollution Control Act. Free 1040ez The rural abandoned mine program authorized by the Surface Mining Control and Reclamation Act of 1977. Free 1040ez The water bank program authorized by the Water Bank Act. Free 1040ez The emergency conservation measures program authorized by title IV of the Agricultural Credit Act of 1978. Free 1040ez The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act. Free 1040ez The great plains conservation program authorized by the Soil Conservation and Domestic Policy Act. Free 1040ez The resource conservation and development program authorized by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation and Domestic Allotment Act. Free 1040ez Certain small watershed programs, listed later. Free 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. Free 1040ez Several state programs have been approved. Free 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). Free 1040ez Small watershed programs. Free 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. Free 1040ez The programs under the Watershed Protection and Flood Prevention Act. Free 1040ez The flood prevention projects under the Flood Control Act of 1944. Free 1040ez The Emergency Watershed Protection Program under the Flood Control Act of 1950. Free 1040ez Certain programs under the Colorado River Basin Salinity Control Act. Free 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. Free 1040ez The Environmental Quality Incentives Program (EQIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. Free 1040ez The Wildlife Habitat Incentives Program (WHIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. Free 1040ez The Soil and Water Conservation Assistance Program authorized by the Agricultural Risk Protection Act of 2000. Free 1040ez The Agricultural Management Assistance Program authorized by the Agricultural Risk Protection Act of 2000. Free 1040ez The Conservation Reserve Program authorized by the Food Security Act of 1985 and the Federal Agriculture Improvement and Reform Act of 1996. Free 1040ez The Forest Land Enhancement Program authorized under the Farm Security and Rural Investment Act of 2002. Free 1040ez The Conservation Security Program authorized by the Food Security Act of 1985. Free 1040ez The Forest Health Protection Program (FHPP) authorized by the Cooperative Forestry Assistance Act of 1978. Free 1040ez Income realized. Free 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). Free 1040ez Value of the improvement. Free 1040ez   You determine the value of the improvement by multiplying its fair market value (defined in chapter 6) by a fraction. Free 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. Free 1040ez Any government payments under a program not listed earlier. Free 1040ez Any part of a government payment under a program listed earlier that the Secretary of Agriculture has not certified as primarily for conservation. Free 1040ez Any government payment to you for rent or for your services. Free 1040ez The denominator of the fraction is the total cost of the improvement. Free 1040ez Excludable portion. Free 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. Free 1040ez 10% of the prior average annual income from the affected acreage. Free 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. Free 1040ez $2. Free 1040ez 50 times the number of affected acres. Free 1040ez The calculation of present fair market value of the right to receive annual income is too complex to discuss in this publication. Free 1040ez You may need to consult your tax advisor for assistance. Free 1040ez Example. Free 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. Free 1040ez The total cost of the improvement was $500,000. Free 1040ez The USDA paid $490,000. Free 1040ez You paid $10,000. Free 1040ez The value of the cost-sharing improvement is $15,000. Free 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. Free 1040ez The excludable portion is the greater amount, $1,550. Free 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. Free 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. Free 1040ez Any payment excluded from income is not part of your basis. Free 1040ez In the example above, the increase in basis is $500,000 – $490,000 + $3,450 = $13,450. Free 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. Free 1040ez How to report the exclusion. Free 1040ez   Attach a statement to your tax return (or amended return) for the tax year you receive the last government payment for the improvement. Free 1040ez The statement must include the following information. Free 1040ez The dollar amount of the cost funded by the government payment. Free 1040ez The value of the improvement. Free 1040ez The amount you are excluding. Free 1040ez   Report the total cost-sharing payments you receive on Schedule F, line 4a, and the taxable amount on line 4b. Free 1040ez Recapture. Free 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. Free 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. Free 1040ez You must report the recapture on Form 4797. Free 1040ez See Section 1255 property under Other Gains in chapter 9. Free 1040ez Electing not to exclude payments. Free 1040ez   You can elect not to exclude all or part of any payments you receive under these programs. Free 1040ez If you make this election for all of these payments, none of the above restrictions and rules apply. Free 1040ez You must make this election by the due date, including extensions, for filing your return. Free 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. Free 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). Free 1040ez Write “Filed pursuant to section 301. Free 1040ez 9100-2” at the top of the amended return and file it at the same address you filed the original return. Free 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. Free 1040ez You must include these payments on Schedule F, lines 4a and 4b. Free 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. Free 1040ez You must include these payments on Schedule F, lines 6a and 6b. Free 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. Free 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. Free 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. Free 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. Free 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. Free 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. Free 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. Free 1040ez The gain or loss is capital or ordinary depending on how you used the quota. Free 1040ez See Capital or ordinary gain or loss , later. Free 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. Free 1040ez Adjusted basis. Free 1040ez   The adjusted basis of your quota is determined differently depending on how you obtained the quota. Free 1040ez The basis of a quota derived from an original grant by the federal government is zero. Free 1040ez The basis of a purchased quota is the purchase price. Free 1040ez The basis of a quota received as a gift is generally the same as the donor's basis. Free 1040ez However, under certain circumstances, the basis is increased by the amount of gift taxes paid. Free 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. Free 1040ez The basis of an inherited quota is generally the fair market value of the quota at the time of the decedent's death. Free 1040ez Reduction of basis. Free 1040ez   You are required to reduce the basis of your tobacco quota by the following amounts. Free 1040ez Deductions you took for amortization, depletion, or depreciation. Free 1040ez Amounts you previously deducted as a loss because of a reduction in the number of pounds of tobacco allowable under the quota. Free 1040ez The entire cost of a purchased quota you deducted in an earlier year (which reduces your basis to zero). Free 1040ez Amount treated as interest. Free 1040ez   You must reduce your tobacco quota buyout program payment by the amount treated as interest. Free 1040ez The interest is reportable as ordinary income. Free 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. Free 1040ez   In all other cases, a portion of each payment may be treated as interest for federal tax purposes. Free 1040ez You may be required to reduce your total quota buyout program payment before you calculate your gain or loss. Free 1040ez For more information, see Notice 2005-57, 2005-32 I. Free 1040ez R. Free 1040ez B. Free 1040ez 267, available at www. Free 1040ez irs. Free 1040ez gov/irb/2005-32_IRB/ar13. Free 1040ez html. Free 1040ez Installment method. Free 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. Free 1040ez Under the installment method, a portion of the gain is taken into account in each year in which a payment is received. Free 1040ez See chapter 10 for more information. Free 1040ez Capital or ordinary gain or loss. Free 1040ez   Whether your gain or loss is ordinary or capital depends on how you used the quota. Free 1040ez Quota used in the trade or business of farming. Free 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. Free 1040ez See Section 1231 transactions in the Instructions for Form 4797 for detailed information on reporting section 1231 transactions. Free 1040ez Quota held for investment. Free 1040ez   If you held the quota for investment purposes, any gain or loss is capital gain or loss. Free 1040ez The same result also applies if you held the quota for the production of income, though not connected with a trade or business. Free 1040ez Gain treated as ordinary income. Free 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. Free 1040ez Any resulting capital gain is taxed as ordinary income up to the amount previously deducted. Free 1040ez The cost of acquiring a quota. Free 1040ez Amounts for amortization, depletion, or depreciation. Free 1040ez Amounts to reflect a reduction in the quota pounds. Free 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. Free 1040ez Self-employment income. Free 1040ez   The tobacco quota buyout payments are not self-employment income. Free 1040ez Income averaging for farmers. Free 1040ez   The gain or loss resulting from the quota payments does not qualify for income averaging. Free 1040ez A tobacco quota is considered an interest in land. Free 1040ez Income averaging is not available for gain or loss arising from the sale or other disposition of land. Free 1040ez Involuntary conversion. Free 1040ez   The buyout of the tobacco quota is not an involuntary conversion. Free 1040ez Form 1099-S. Free 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. Free 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. Free 1040ez Like-kind exchange of quota. Free 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. Free 1040ez See Notice 2005-57 for more information. Free 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. Free 1040ez Taxation of payments to tobacco growers. Free 1040ez   Payments to growers replace ordinary income that would have been earned had the tobacco marketing quota and price support programs continued. Free 1040ez Individuals will generally report the payments as an Agricultural program payment on Schedule F. Free 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. Free 1040ez Self-employment income. Free 1040ez   Payments to growers generally represent self-employment income. Free 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. Free 1040ez Income averaging for farmers. Free 1040ez   Payments to growers who are individuals qualify for farm income averaging. Free 1040ez Form 1099-G. Free 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. Free 1040ez Other Payments You must include most other government program payments in income. Free 1040ez Fertilizer and Lime Include in income the value of fertilizer or lime you receive under a government program. Free 1040ez How to claim the offsetting deduction is explained under Fertilizer and Lime in chapter 4. Free 1040ez Improvements If government payments are based on improvements, such as a pollution control facility, you must include them in income. Free 1040ez You must also capitalize the full cost of the improvement. Free 1040ez Since you have included the payments in income, they do not reduce your basis. Free 1040ez However, see Cost-Sharing Exclusion (Improvements) , earlier, for additional information. Free 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. Free 1040ez You should receive a Form 1099-MISC, Miscellaneous Income, that shows the payment amount. Free 1040ez If you produce a tobacco crop, report the payments as income from farming on your Schedule F. Free 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. Free 1040ez Payment to More Than One Person The USDA reports program payments to the IRS. Free 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). Free 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. Free 1040ez You should file Form 1099-G to report the identity of the actual recipient to the IRS. Free 1040ez You should also give this information to the recipient. Free 1040ez You can avoid the inconvenience of unnecessary inquiries about the identity of the recipient if you file this form. Free 1040ez Report the total amount reported to you as the payee of record on Schedule F, line 4a or 6a. Free 1040ez However, do not report as a taxable amount on line 4b or 6b any amount belonging to someone else. Free 1040ez See chapter 16 for information about ordering Form 1099-G. Free 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). Free 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. Free 1040ez Form 1099-PATR. Free 1040ez   The cooperative will report the income to you on Form 1099-PATR or a similar form and send a copy to the IRS. Free 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. Free 1040ez For information on the alternative minimum tax, see the Instructions for Form 6251. Free 1040ez Patronage Dividends You generally report patronage dividends as income on Schedule F, lines 3a and 3b, for the tax year you receive them. Free 1040ez They include the following items. Free 1040ez Money paid as a patronage dividend, including cash advances received (for example, from a marketing cooperative). Free 1040ez The stated dollar value of qualified written notices of allocation. Free 1040ez The fair market value of other property. Free 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. Free 1040ez You must reduce the cost or other basis of these items by the amount of such patronage dividends received. Free 1040ez Personal items include fuel purchased for personal use, basic local telephone service, and personal long distance calls. Free 1040ez If you cannot determine what the dividend is for, report it as income on lines 3a and 3b. Free 1040ez Qualified written notice of allocation. Free 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. Free 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. Free 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. Free 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. Free 1040ez Signing and giving a written agreement to the cooperative. Free 1040ez Getting or keeping membership in the cooperative after it adopted a bylaw providing that membership constitutes agreement. Free 1040ez The cooperative must notify you in writing of this bylaw and give you a copy. Free 1040ez Endorsing and cashing a qualified check paid as part of the same patronage dividend. Free 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. Free 1040ez Qualified check. Free 1040ez   A qualified check is any instrument that is redeemable in money and meets both of the following requirements. Free 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. Free 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. Free 1040ez Loss on redemption. Free 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. Free 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. Free 1040ez Nonqualified notice of allocation. Free 1040ez   Do not include the stated dollar value of any nonqualified notice of allocation in income when you receive it. Free 1040ez Your basis in the notice is zero. Free 1040ez You must include in income for the tax year of disposition any amount you receive from its sale, redemption, or other disposition. Free 1040ez Report that amount, up to the stated dollar value of the notice, on Schedule F, lines 3a and 3b. Free 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. Free 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. Free 1040ez For example, if it represents interest income, report it on your return as interest. Free 1040ez Buying or selling capital assets or depreciable property. Free 1040ez   Do not include in income patronage dividends from buying capital assets or depreciable property used in your business. Free 1040ez You must, however, reduce the basis of these assets by the dividends. Free 1040ez This reduction is taken into account as of the first day of the tax year in which the dividends are received. Free 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. Free 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. Free 1040ez Example. Free 1040ez On July 1, 2012, Mr. Free 1040ez Brown, a patron of a cooperative association, bought a machine for his dairy farm business from the association for $2,900. Free 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). Free 1040ez Mr. Free 1040ez Brown files his return on a calendar year basis. Free 1040ez For 2012, he claimed a depreciation deduction of $311, using the 10. Free 1040ez 71% depreciation rate from the 150% declining balance, half-year convention table (shown in Table A-14 in Appendix A of Publication 946). Free 1040ez On July 2, 2013, the cooperative association paid Mr. Free 1040ez Brown a $300 cash patronage dividend for buying the machine. Free 1040ez Mr. Free 1040ez Brown adjusts the basis of the machine and figures his depreciation deduction for 2013 (and later years) as follows. Free 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. Free 1040ez 38% × 1. Free 1040ez 5 = 23. Free 1040ez 07% Depreciation deduction for 2013 ($2,289 × 23. Free 1040ez 07%) $528 Exceptions. Free 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. Free 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. Free 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). Free 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. Free 1040ez Personal purchases. Free 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). Free 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. Free 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. Free 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. Free 1040ez These allocations can be paid in money, other property, or qualified certificates. Free 1040ez Per-unit retain certificates issued by a cooperative generally receive the same tax treatment as patronage dividends, discussed earlier. Free 1040ez Qualified certificates. Free 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. Free 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. Free 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. Free 1040ez Nonqualified certificates. Free 1040ez   Do not include the stated dollar value of a nonqualified per-unit retain certificate in income when you receive it. Free 1040ez Your basis in the certificate is zero. Free 1040ez You must include in income any amount you receive from its sale, redemption, or other disposition. Free 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. Free 1040ez Cancellation of Debt This section explains the general rule for including canceled debt in income and the exceptions to the general rule. Free 1040ez For more information on canceled debt, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Free 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. Free 1040ez Discharge of qualified farm indebtedness (defined below) is one of the exceptions to the general rule. Free 1040ez It is excluded from taxable income (see Exclusions , later). Free 1040ez Report the canceled amount on Schedule F, line 8, if you incurred the debt in your farming business. Free 1040ez If the debt is a nonbusiness debt, report the canceled amount as other income on Form 1040, line 21. Free 1040ez Election to defer income from discharge of indebtedness. Free 1040ez   You can elect to defer income from a discharge of business indebtedness that occurred after 2008 and before 2011. Free 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. Free 1040ez See IRC section 108(i) and Publication 4681 for details. Free 1040ez Form 1099-C. Free 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. Free 1040ez The amount of debt canceled is shown in box 2. Free 1040ez Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Free 1040ez These exceptions apply before the exclusions discussed below. Free 1040ez Price reduced after purchase. Free 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. Free 1040ez Reduce your basis in the property by the amount of the reduction in the debt. Free 1040ez The rules that apply to bankruptcy and insolvency are explained below under Exclusions . Free 1040ez Deductible debt. Free 1040ez   You do not realize income from a canceled debt to the extent the payment of the debt would have been a deductible expense. Free 1040ez This exception applies before the price reduction exception discussed above and the bankruptcy and insolvency exclusions discussed next. Free 1040ez Example. Free 1040ez You get accounting services for your farm on credit. Free 1040ez Later, you have trouble paying your farm debts, but you are not bankrupt or insolvent. Free 1040ez Your accountant forgives part of the amount you owe for the accounting services. Free 1040ez How you treat the canceled debt depends on your method of accounting. Free 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. Free 1040ez Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Free 1040ez Exclusions Do not include canceled debt in income in the following situations. Free 1040ez The cancellation takes place in a bankruptcy case under title 11 of the U. Free 1040ez S. Free 1040ez Code. Free 1040ez The cancellation takes place when you are insolvent. Free 1040ez The canceled debt is a qualified farm debt. Free 1040ez The canceled debt is a qualified real property business debt (in the case of a taxpayer other than a C corporation). Free 1040ez See Publication 334, Tax Guide for Small Business, chapter 5. Free 1040ez The canceled debt is qualified principal residence indebtedness which is discharged after 2006 and before 2014. Free 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. Free 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. Free 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. Free 1040ez See Form 982 , later, for information on how to claim an exclusion for a canceled debt. Free 1040ez Debt. Free 1040ez   For this discussion, debt includes any debt for which you are liable or that attaches to property you hold. Free 1040ez Bankruptcy and Insolvency You can exclude a canceled debt from income if you are bankrupt or to the extent you are insolvent. Free 1040ez Bankruptcy. Free 1040ez   A bankruptcy case is a case under title 11 of the U. Free 1040ez S. Free 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. Free 1040ez   Do not include debt canceled in a bankruptcy case in your income in the year it is canceled. Free 1040ez Instead, you must use the amount canceled to reduce your tax attributes, explained below under Reduction of tax attributes . Free 1040ez Insolvency. Free 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. Free 1040ez   You can exclude canceled debt from gross income up to the amount by which you are insolvent. Free 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. Free 1040ez Otherwise, you include the difference in gross income. Free 1040ez Use the amount excluded because of insolvency to reduce any tax attributes, as explained below under Reduction of tax attributes . Free 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. Free 1040ez Example. Free 1040ez You had a $15,000 debt that was not qualified principal residence debt canceled outside of bankruptcy. Free 1040ez Immediately before the cancellation, your liabilities totaled $80,000 and your assets totaled $75,000. Free 1040ez Since your liabilities were more than your assets, you were insolvent to the extent of $5,000 ($80,000 − $75,000). Free 1040ez You can exclude this amount from income. Free 1040ez The remaining canceled debt ($10,000) may be subject to the qualified farm debt or qualified real property business debt rules. Free 1040ez If not, you must include it in income. Free 1040ez Reduction of tax attributes. Free 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. Free 1040ez Order of reduction. Free 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. Free 1040ez Net operating loss (NOL). Free 1040ez Reduce any NOL for the tax year of the debt cancellation, and then any NOL carryover to that year. Free 1040ez Reduce the NOL or NOL carryover one dollar for each dollar of excluded canceled debt. Free 1040ez General business credit carryover. Free 1040ez Reduce the credit carryover to or from the tax year of the debt cancellation. Free 1040ez Reduce the carryover 331/3 cents for each dollar of excluded canceled debt. Free 1040ez Minimum tax credit. Free 1040ez Reduce the minimum tax credit available at the beginning of the tax year following the tax year of the debt cancellation. Free 1040ez Reduce the credit 331/3 cents for each dollar of excluded canceled debt. Free 1040ez Capital loss. Free 1040ez Reduce any net capital loss for the tax year of the debt cancellation, and then any capital loss carryover to that year. Free 1040ez Reduce the capital loss or loss carryover one dollar for each dollar of excluded canceled debt. Free 1040ez Basis. Free 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. Free 1040ez Real property (except inventory) used in your trade or business or held for investment that secured the canceled debt. Free 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. Free 1040ez Other property (except inventory and accounts and notes receivable) used in your trade or business or held for investment. Free 1040ez Inventory and accounts and notes receivable. Free 1040ez Other property. Free 1040ez Reduce the basis one dollar for each dollar of excluded canceled debt. Free 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. Free 1040ez For allocation rules that apply to basis reductions for multiple canceled debts, see Regulations section 1. Free 1040ez 1017-1(b)(2). Free 1040ez Also see Electing to reduce the basis of depreciable property