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Free State Tax Service

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Free State Tax Service

Free state tax service 8. Free state tax service   Qualified Tuition Program (QTP) Table of Contents Introduction What Is a Qualified Tuition ProgramDesignated beneficiary. Free state tax service Half-time student. Free state tax service How Much Can You Contribute Are Distributions TaxableFiguring the Taxable Portion of a Distribution Additional Tax on Taxable Distributions Rollovers and Other TransfersRollovers Changing the Designated Beneficiary Introduction Qualified tuition programs (QTPs) are also called “529 plans. Free state tax service ” States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student's qualified education expenses at a postsecondary institution. Free state tax service Eligible educational institutions may establish and maintain programs that allow you to prepay a student's qualified education expenses. Free state tax service If you prepay tuition, the student (designated beneficiary) will be entitled to a waiver or a payment of qualified education expenses. Free state tax service You cannot deduct either payments or contributions to a QTP. Free state tax service For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it. Free state tax service What is the tax benefit of a QTP. Free state tax service   No tax is due on a distribution from a QTP unless the amount distributed is greater than the beneficiary's adjusted qualified education expenses. Free state tax service See Are Distributions Taxable , later, for more information. Free state tax service    Even if a QTP is used to finance a student's education, the student or the student's parents still may be eligible to claim the American opportunity credit or the lifetime learning credit. Free state tax service See Coordination With American Opportunity and Lifetime Learning Credits, later. Free state tax service What Is a Qualified Tuition Program A qualified tuition program is a program set up to allow you to either prepay, or contribute to an account established for paying, a student's qualified education expenses at an eligible educational institution. Free state tax service QTPs can be established and maintained by states (or agencies or instrumentalities of a state) and eligible educational institutions. Free state tax service The program must meet certain requirements. Free state tax service Your state government or the eligible educational institution in which you are interested can tell you whether or not they participate in a QTP. Free state tax service Qualified education expenses. Free state tax service   These are expenses related to enrollment or attendance at an Eligible educational institution (defined later). Free state tax service As shown in the following list, to be qualified, some of the expenses must be required by the institution and some must be incurred by students who are enrolled at least half-time. Free state tax service See Half-time student , later. Free state tax service The following expenses must be required for enrollment or attendance of a Designated beneficiary (defined later) at an eligible educational institution. Free state tax service Tuition and fees. Free state tax service Books, supplies, and equipment. Free state tax service Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible educational institution. Free state tax service Expenses for room and board must be incurred by students who are enrolled at least half-time. Free state tax service The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. Free state tax service The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. Free state tax service The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Free state tax service You will need to contact the eligible educational institution for qualified room and board costs. Free state tax service    For tax years after 2010, the purchase of computer technology or equipment is only a qualified education expense if the computer technology or equipment is required for enrollment or attendance at an eligible institution. Free state tax service Designated beneficiary. Free state tax service   The designated beneficiary is generally the student (or future student) for whom the QTP is intended to provide benefits. Free state tax service The designated beneficiary can be changed after participation in the QTP begins. Free state tax service If a state or local government or certain tax-exempt organizations purchase an interest in a QTP as part of a scholarship program, the designated beneficiary is the person who receives the interest as a scholarship. Free state tax service Half-time student. Free state tax service   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic workload for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Free state tax service Eligible educational institution. Free state tax service   For purposes of a QTP, this is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Free state tax service S. Free state tax service Department of Education. Free state tax service It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free state tax service The educational institution should be able to tell you if it is an eligible educational institution. Free state tax service   Certain educational institutions located outside the United States also participate in the U. Free state tax service S. Free state tax service Department of Education's Federal Student Aid (FSA) programs. Free state tax service   How Much Can You Contribute Contributions to a QTP on behalf of any beneficiary cannot be more than the amount necessary to provide for the qualified education expenses of the beneficiary. Free state tax service There are no income restrictions on the individual contributors. Free state tax service You can contribute to both a QTP and a Coverdell ESA in the same year for the same designated beneficiary. Free state tax service   Are Distributions Taxable The part of a distribution representing the amount paid or contributed to a QTP does not have to be included in income. Free state tax service This is a return of the investment in the plan. Free state tax service The designated beneficiary generally does not have to include in income any earnings distributed from a QTP if the total distribution is less than or equal to adjusted qualified education expenses (defined under Figuring the Taxable Portion of a Distribution , later). Free state tax service Earnings and return of investment. Free state tax service    You will receive a Form 1099-Q, from each of the programs from which you received a QTP distribution in 2013. Free state tax service The amount of your gross distribution (box 1) shown on each form will be divided between your earnings (box 2) and your basis, or return of investment (box 3). Free state tax service Form 1099-Q should be sent to you by January 31, 2014. Free state tax service Figuring the Taxable Portion of a Distribution To determine if total distributions for the year are more or less than the amount of qualified education expenses, you must compare the total of all QTP distributions for the tax year to the adjusted qualified education expenses. Free state tax service Adjusted qualified education expenses. Free state tax service   This amount is the total qualified education expenses reduced by any tax-free educational assistance. Free state tax service Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Free state tax service Taxable earnings. Free state tax service   Use the following steps to figure the taxable part. Free state tax service Multiply the total distributed earnings shown in box 2 of Form 1099-Q by a fraction. Free state tax service The numerator is the adjusted qualified education expenses paid during the year and the denominator is the total amount distributed during the year. Free state tax service Subtract the amount figured in (1) from the total distributed earnings. Free state tax service The result is the amount the beneficiary must include in income. Free state tax service Report it on Form 1040 or Form 1040NR, line 21. Free state tax service Example 1. Free state tax service In 2007, Sara Clarke's parents opened a savings account for her with a QTP maintained by their state government. Free state tax service Over the years they contributed $18,000 to the account. Free state tax service The total balance in the account was $27,000 on the date the distribution was made. Free state tax service In the summer of 2013, Sara enrolled in college and had $8,300 of qualified education expenses for the rest of the year. Free state tax service She paid her college expenses from the following sources. Free state tax service   Gift from parents $1,600     Partial tuition scholarship (tax-free) 3,100     QTP distribution 5,300           Before Sara can determine the taxable part of her QTP distribution, she must reduce her total qualified education expenses by any tax-free educational assistance. Free state tax service   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Equals: Adjusted qualified  education expenses (AQEE) $5,200   Since the remaining expenses ($5,200) are less than the QTP distribution, part of the earnings will be taxable. Free state tax service Sara's Form 1099-Q shows that $950 of the QTP distribution is earnings. Free state tax service Sara figures the taxable part of the distributed earnings as follows. Free state tax service   1. Free state tax service $950 (earnings) × $5,200 AQEE  $5,300 distribution           =$932 (tax-free earnings)     2. Free state tax service $950 (earnings)−$932 (tax-free earnings)     =$18 (taxable earnings)  Sara must include $18 in income (Form 1040, line 21) as distributed QTP earnings not used for adjusted qualified education expenses. Free state tax service Coordination With American Opportunity and Lifetime Learning Credits An American opportunity or lifetime learning credit (education credit) can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. Free state tax service This means that after the beneficiary reduces qualified education expenses by tax-free educational assistance, he or she must further reduce them by the expenses taken into account in determining the credit. Free state tax service Example 2. Free state tax service Assume the same facts as in Example 1 , except that Sara's parents claimed an American opportunity credit of $2,500 (based on $4,000 expenses). Free state tax service   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Minus: Expenses taken into account  in figuring American opportunity credit −4,000     Equals: Adjusted qualified  education expenses (AQEE) $1,200           The taxable part of the distribution is figured as follows. Free state tax service   1. Free state tax service $950 (earnings) × $1,200 AQEE  $5,300 distribution           =$215 (tax-free earnings)     2. Free state tax service $950 (earnings)−$215 (tax-free earnings)     =$735 (taxable earnings)       Sara must include $735 in income (Form 1040, line 21). Free state tax service This represents distributed earnings not used for adjusted qualified education expenses. Free state tax service Coordination With Coverdell ESA Distributions If a designated beneficiary receives distributions from both a QTP and a Coverdell ESA in the same year, and the total of these distributions is more than the beneficiary's adjusted qualified higher education expenses, the expenses must be allocated between the distributions. Free state tax service For purposes of this allocation, disregard any qualified elementary and secondary education expenses. Free state tax service Example 3. Free state tax service Assume the same facts as in Example 2 , except that instead of receiving a $5,300 distribution from her QTP, Sara received $4,600 from that account and $700 from her Coverdell ESA. Free state tax service In this case, Sara must allocate her $1,200 of adjusted qualified higher education expenses (AQHEE) between the two distributions. Free state tax service   $1,200 AQHEE × $700 ESA distribution  $5,300 total distribution = $158 AQHEE (ESA)     $1,200 AQHEE × $4,600 QTP distribution  $5,300 total distribution = $1,042 AQHEE (QTP)   Sara then figures the taxable portion of her Coverdell ESA distribution based on qualified higher education expenses of $158, and the taxable portion of her QTP distribution based on the other $1,042. Free state tax service Note. Free state tax service If you are required to allocate your expenses between Coverdell ESA and QTP distributions, and you have adjusted qualified elementary and secondary education expenses, see the examples in chapter 7, Coverdell Education Savings Account under Coordination With Qualified Tuition Program (QTP) Distributions . Free state tax service Coordination With Tuition and Fees Deduction. Free state tax service   A tuition and fees deduction can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. Free state tax service Losses on QTP Investments If you have a loss on your investment in a QTP account, you may be able to take the loss on your income tax return. Free state tax service You can take the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. Free state tax service Your basis is the total amount of contributions to that QTP account. Free state tax service You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit. Free state tax service If you have distributions from more than one QTP account during a year, you must combine the information (amount of distribution, basis, etc. Free state tax service ) from all such accounts in order to determine your taxable earnings for the year. Free state tax service By doing this, the loss from one QTP account reduces the distributed earnings (if any) from any other QTP accounts. Free state tax service Example 1. Free state tax service In 2013, Taylor received a final distribution of $1,000 from QTP #1. Free state tax service His unrecovered basis in that account before the distribution was $3,000. Free state tax service If Taylor itemizes his deductions, he can claim the $2,000 loss on Schedule A (Form 1040). Free state tax service Example 2. Free state tax service Assume the same facts as in Example 1 , except that Taylor also had a distribution of $9,000 from QTP #2, giving him total distributions for 2013 of $10,000. Free state tax service His total basis in these distributions was $4,500 ($3,000 for QTP #1 and $1,500 for QTP #2). Free state tax service Taylor's adjusted qualified education expenses for 2013 totaled $6,000. Free state tax service In order to figure his taxable earnings, Taylor combines the two accounts and determines his taxable earnings as follows. Free state tax service   1. Free state tax service $10,000 (total distribution)−$4,500 (basis portion of distribution)     = $5,500 (earnings included in distribution)   2. Free state tax service $5,500 (earnings) x $6,000 AQEE  $10,000 distribution           =$3,300 (tax-free earnings)     3. Free state tax service $5,500 (earnings)−$3,300 (tax-free earnings)     =$2,200 (taxable earnings)                 Taylor must include $2,200 in income on Form 1040, line 21. Free state tax service Because Taylor's accounts must be combined, he cannot deduct his $2,000 loss (QTP #1) on Schedule A (Form 1040). Free state tax service Instead, the $2,000 loss reduces the total earnings that were distributed, thereby reducing his taxable earnings. Free state tax service Additional Tax on Taxable Distributions Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. Free state tax service Exceptions. Free state tax service   The 10% additional tax does not apply to distributions: Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. Free state tax service Made because the designated beneficiary is disabled. Free state tax service A person is considered to be disabled if he or she shows proof that he or she cannot do any substantial gainful activity because of his or her physical or mental condition. Free state tax service A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration. Free state tax service Included in income because the designated beneficiary received: A tax-free scholarship or fellowship (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), or Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Free state tax service Made on account of the attendance of the designated beneficiary at a U. Free state tax service S. Free state tax service military academy (such as the USNA at Annapolis). Free state tax service This exception applies only to the extent that the amount of the distribution does not exceed the costs of advanced education (as defined in section 2005(d)(3) of title 10 of the U. Free state tax service S. Free state tax service Code) attributable to such attendance. Free state tax service Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit (see Coordination With American Opportunity and Lifetime Learning Credits , earlier. Free state tax service ) Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. Free state tax service Figuring the additional tax. Free state tax service    Use Part II of Form 5329, to figure any additional tax. Free state tax service Report the amount on Form 1040, line 58, or Form 1040NR, line 56. Free state tax service Rollovers and Other Transfers Assets can be rolled over or transferred from one QTP to another. Free state tax service In addition, the designated beneficiary can be changed without transferring accounts. Free state tax service Rollovers Any amount distributed from a QTP is not taxable if it is rolled over to another QTP for the benefit of the same beneficiary or for the benefit of a member of the beneficiary's family (including the beneficiary's spouse). Free state tax service An amount is rolled over if it is paid to another QTP within 60 days after the date of the distribution. Free state tax service Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. Free state tax service These are not taxable distributions. Free state tax service Members of the beneficiary's family. Free state tax service   For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary. Free state tax service Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. Free state tax service Brother, sister, stepbrother, or stepsister. Free state tax service Father or mother or ancestor of either. Free state tax service Stepfather or stepmother. Free state tax service Son or daughter of a brother or sister. Free state tax service Brother or sister of father or mother. Free state tax service Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. Free state tax service The spouse of any individual listed above. Free state tax service First cousin. Free state tax service Example. Free state tax service When Aaron graduated from college last year he had $5,000 left in his QTP. Free state tax service He wanted to give this money to his younger brother, who was in junior high school. Free state tax service In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron contributed the same amount to his brother's QTP within 60 days of the distribution. Free state tax service If the rollover is to another QTP for the same beneficiary, only one rollover is allowed within 12 months of a previous transfer to any QTP for that designated beneficiary. Free state tax service Changing the Designated Beneficiary There are no income tax consequences if the designated beneficiary of an account is changed to a member of the beneficiary's family. Free state tax service See Members of the beneficiary's family , earlier. Free state tax service Example. Free state tax service Assume the same situation as in the last example. Free state tax service Instead of closing his QTP and paying the distribution into his brother's QTP, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his brother. Free state tax service Prev  Up  Next   Home   More Online Publications
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Tax Relief in Disaster Situations

Recent Tax Relief

  • Colorado victims of September 2013 floods, see news release
  • Illinois victims of November 2013 storms and flooding, see news release
  • Colorado victims of September 2013 storms and flooding, see news release
  • Alaska victims of May 2013 flooding, see news release
  • Oklahoma victims of May 2013 tornado see news release
  • Illinois victims of April 16, 2013 storms, tornadoes and flooding, see news release
  • Mississippi victims of February 10, 2013 storms, tornadoes and flooding, see news release
  • West Virginia victims of June 2012 storms and straight-line winds, see news release
  • Oklahoma victims of Freedom Wildfire that began on Aug. 3, 2012, see news release
  • Florida victims of June 2012 Tropical Storm Debby, see news release 
  • West Virginia victims of March 2012 storms, see news release
  • Tennessee victims of February 2012 storms, see news release
  • West Virginia victims of February 2012 storms, see news release
  • Indiana victims of February 2012 storms, see news release
  • Kentucky victims of February 2012 storms, see news release
  • Alabama victims of January 2012 storms, see news release
  • Virginia victims of August 2011 earthquake, see news release
  • Puerto Rico victims of September 2011 Tropical Storm Maria, see news release
  • Iowa victims of May 2011 flooding, see news release
  • New York victims of September 2011 remnants of Tropical Storm Lee, see news release
  • Pennsylvania victims of September 2011 Tropical Storm Lee, see news release
  • Texas victims of August 2011 wildfires, see news release
  • Kentucky victims of June 2011 severe storms, see news release
  • South Dakota victims of March 2011 flooding, see news release
  • Missouri victims of June flooding, see news release
  • Nebraska victims of May flooding, see news release
  • Montana victims of April 2011 storms and flooding, see news release

Relief for Victims of Hurricane Sandy

The IRS is in the process of providing tax relief to victims of Hurricane Sandy in the Mid-Atlantic and Northeastern United States. So far, IRS filing and payment relief applies to the following localities:

  • Tax Relief in Connecticut: Fairfield, Middlesex, New Haven and New London counties and the Mashantucket Pequot Tribal Nation and Mohegan Tribal Nation located within New London County;
  • Tax Relief in Maryland: Somerset County;
  • Tax Relief in New Jersey: Atlantic, Bergen, Burlington, Camden, Cape May, Cumberland, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Salem, Somerset, Sussex, Union and Warren counties;
  • Tax Relief in New York: Bronx, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Sullivan, Suffolk, Ulster and Westchester counties;
  • Tax Relief in Rhode Island: Newport and Washington counties.

The IRS also announced additional tax relief to certain affected individuals and businesses, further extending tax deadlines of that relief until April 1 for the following localities:

  • In New Jersey: Monmouth and Ocean counties.
  • In New York: Nassau, Queens, Richmond and Suffolk counties.

The IRS filing and payment relief will be updated based on FEMA's declarations of individual assistance. Visit the page Help for Victims of Hurricane Sandy for additional information on IRS relief for victims of Hurricane Sandy.
 


Relief for Victims of Hurricane Isaac

The IRS has provided tax relief to victims of Hurricane Isaac. Relief for taxpayers in various locations, including postponement of filing and payment deadlines, is listed here. 

For information on disaster recovery, visit disasterassistance.gov.
 


Relief for Victims of Hurricane Irene

The IRS is in the process of providing tax relief to victims of Hurricane Irene. Relief for taxpayers in various locations, including postponement of filing and payment deadlines, will be listed here as it is announced. Watch this page for updates.

Update: IRS e-File, Free File to Remain Available to Victims of Irene, Lee and Texas Wildfires through Oct. 31.

 


Tax Relief for Hurricane Katrina, Rita and Wilma Victims

The Housing and Economic Recovery Act of 2008 offers a new option to homeowners who previously claimed a casualty loss deduction resulting from hurricanes Katrina, Rita and Wilma. See the news release, notice and questions and answers for further details.

The IRS offers tax assistance to victims of the 2005 Gulf Coast hurricanes.

 


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Page Last Reviewed or Updated: 25-Mar-2014

The Free State Tax Service

Free state tax service 3. Free state tax service   Dispositions of Business Property Table of Contents Introduction Useful Items - You may want to see: What Is a Disposition of Property?Like-kind exchanges. Free state tax service How Do I Figure a Gain or Loss?Is My Gain or Loss Ordinary or Capital? Is My Capital Gain or Loss Short Term or Long Term? Where Do I Report Gains and Losses? Introduction If you dispose of business property, you may have a gain or loss that you report on Form 1040. Free state tax service However, in some cases you may have a gain that is not taxable or a loss that is not deductible. Free state tax service This chapter discusses whether you have a disposition, how to figure the gain or loss, and where to report the gain or loss. Free state tax service Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property Sch D (Form 1040) Capital Gains and Losses See chapter 12 for information about getting publications and forms. Free state tax service What Is a Disposition of Property? A disposition of property includes the following transactions. Free state tax service You sell property for cash or other property. Free state tax service You exchange property for other property. Free state tax service You receive money as a tenant for the cancellation of a lease. Free state tax service You receive money for granting the exclusive use of a copyright throughout its life in a particular medium. Free state tax service You transfer property to satisfy a debt. Free state tax service You abandon property. Free state tax service Your bank or other financial institution forecloses on your mortgage or repossesses your property. Free state tax service Your property is damaged, destroyed, or stolen, and you receive property or money in payment. Free state tax service Your property is condemned, or disposed of under the threat of condemnation, and you receive property or money in payment. Free state tax service For details about damaged, destroyed, or stolen property, see Publication 547, Casualties, Disasters, and Thefts. Free state tax service For details about other dispositions, see chapter 1 in Publication 544. Free state tax service Nontaxable exchanges. Free state tax service   Certain exchanges of property are not taxable. Free state tax service This means any gain from the exchange is not recognized and you cannot deduct any loss. Free state tax service Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Free state tax service Like-kind exchanges. Free state tax service   A like-kind exchange is the exchange of property for the same kind of property. Free state tax service It is the most common type of nontaxable exchange. Free state tax service To be a like-kind exchange, the property traded and the property received must be both of the following. Free state tax service Business or investment property. Free state tax service Like property. Free state tax service   Report the exchange of like-kind property on Form 8824, Like-Kind Exchanges. Free state tax service For more information about like-kind exchanges, see chapter 1 in Publication 544. Free state tax service Installment sales. Free state tax service   An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. Free state tax service If you finance the buyer's purchase of your property, instead of having the buyer get a loan or mortgage from a third party, you probably have an installment sale. Free state tax service   For more information about installment sales, see Publication 537, Installment Sales. Free state tax service Sale of a business. Free state tax service   The sale of a business usually is not a sale of one asset. Free state tax service Instead, all the assets of the business are sold. Free state tax service Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss. Free state tax service   Both the buyer and seller involved in the sale of a business must report to the IRS the allocation of the sales price among the business assets. Free state tax service Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. Free state tax service The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Free state tax service   For more information about the sale of a business, see chapter 2 of Publication 544. Free state tax service How Do I Figure a Gain or Loss? Table 3-1. Free state tax service How To Figure a Gain or Loss IF your. Free state tax service . Free state tax service . Free state tax service THEN you have a. Free state tax service . Free state tax service . Free state tax service Adjusted basis is more than the amount realized Loss. Free state tax service Amount realized is more than the adjusted basis Gain. Free state tax service Basis, adjusted basis, amount realized, fair market value, and amount recognized are defined next. Free state tax service You need to know these definitions to figure your gain or loss. Free state tax service Basis. Free state tax service   The cost or purchase price of property is usually its basis for figuring the gain or loss from its sale or other disposition. Free state tax service However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. Free state tax service For more information about basis, see Publication 551, Basis of Assets. Free state tax service Adjusted basis. Free state tax service   The adjusted basis of property is your original cost or other basis plus certain additions, and minus certain deductions such as depreciation and casualty losses. Free state tax service In determining gain or loss, the costs of transferring property to a new owner, such as selling expenses, are added to the adjusted basis of the property. Free state tax service Amount realized. Free state tax service   The amount you realize from a disposition is the total of all money you receive plus the fair market value of all property or services you receive. Free state tax service The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Free state tax service Fair market value. Free state tax service   Fair market value is the price at which the property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Free state tax service Amount recognized. Free state tax service   Your gain or loss realized from a disposition of property is usually a recognized gain or loss for tax purposes. Free state tax service Recognized gains must be included in gross income. Free state tax service Recognized losses are deductible from gross income. Free state tax service However, a gain or loss realized from certain exchanges of property is not recognized. Free state tax service See  Nontaxable exchanges, earlier. Free state tax service Also, you cannot deduct a loss from the disposition of property held for personal use. Free state tax service Is My Gain or Loss Ordinary or Capital? You must classify your gains and losses as either ordinary or capital gains or losses. Free state tax service You must do this to figure your net capital gain or loss. Free state tax service Generally, you will have a capital gain or loss if you dispose of a capital asset. Free state tax service For the most part, everything you own and use for personal purposes or investment is a capital asset. Free state tax service Certain property you use in your business is not a capital asset. Free state tax service A gain or loss from a disposition of this property is an ordinary gain or loss. Free state tax service However, if you held the property longer than 1 year, you may be able to treat the gain or loss as a capital gain or loss. Free state tax service These gains and losses are called section 1231 gains and losses. Free state tax service For more information about ordinary and capital gains and losses, see chapters 2 and 3 in Publication 544. Free state tax service Is My Capital Gain or Loss Short Term or Long Term? If you have a capital gain or loss, you must determine whether it is long term or short term. Free state tax service Whether a gain or loss is long or short term depends on how long you own the property before you dispose of it. Free state tax service The time you own property before disposing of it is called the holding period. Free state tax service Table 3-2. Free state tax service Do I Have a Short-Term or Long-Term Gain or Loss? IF you hold the property. Free state tax service . Free state tax service . Free state tax service THEN you have a. Free state tax service . Free state tax service . Free state tax service 1 year or less Short-term capital gain or loss. Free state tax service More than 1 year Long-term capital gain or loss. Free state tax service For more information about short-term and long-term capital gains and losses, see chapter 4 of Publication 544. Free state tax service Where Do I Report Gains and Losses? Report gains and losses from the following dispositions on the forms indicated. Free state tax service The instructions for the forms explain how to fill them out. Free state tax service Dispositions of business property and depreciable property. Free state tax service   Use Form 4797. Free state tax service If you have taxable gain, you may also have to use Schedule D (Form 1040). Free state tax service Like-kind exchanges. Free state tax service   Use Form 8824, Like-Kind Exchanges. Free state tax service You may also have to use Form 4797 and Schedule D (Form 1040). Free state tax service Installment sales. Free state tax service   Use Form 6252, Installment Sale Income. Free state tax service You may also have to use Form 4797 and Schedule D (Form 1040). Free state tax service Casualties and thefts. Free state tax service   Use Form 4684, Casualties and Thefts. Free state tax service You may also have to use Form 4797. Free state tax service Condemned property. Free state tax service   Use Form 4797. Free state tax service You may also have to use Schedule D (Form 1040). Free state tax service Prev  Up  Next   Home   More Online Publications