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H&r Block Free State Tax Filing

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H&r Block Free State Tax Filing

H&r block free state tax filing 20. H&r block free state tax filing   Standard Deduction Table of Contents What's New Introduction Standard Deduction Amount Standard Deduction for Dependents Who Should ItemizeWhen to itemize. H&r block free state tax filing Married persons who filed separate returns. H&r block free state tax filing What's New Standard deduction increased. H&r block free state tax filing  The standard deduction for some taxpayers who do not itemize their deductions on Schedule A (Form 1040) is higher for 2013 than it was for 2012. H&r block free state tax filing The amount depends on your filing status. H&r block free state tax filing You can use the 2013 Standard Deduction Tables in this chapter to figure your standard deduction. H&r block free state tax filing Introduction This chapter discusses the following topics. H&r block free state tax filing How to figure the amount of your standard deduction. H&r block free state tax filing The standard deduction for dependents. H&r block free state tax filing Who should itemize deductions. H&r block free state tax filing Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions. H&r block free state tax filing If you have a choice, you can use the method that gives you the lower tax. H&r block free state tax filing The standard deduction is a dollar amount that reduces your taxable income. H&r block free state tax filing It is a benefit that eliminates the need for many taxpayers to itemize actual deductions, such as medical expenses, charitable contributions, and taxes, on Schedule A (Form 1040). H&r block free state tax filing The standard deduction is higher for taxpayers who: Are 65 or older, or Are blind. H&r block free state tax filing You benefit from the standard deduction if your standard deduction is more than the total of your allowable itemized deductions. H&r block free state tax filing Persons not eligible for the standard deduction. H&r block free state tax filing   Your standard deduction is zero and you should itemize any deductions you have if: Your filing status is married filing separately, and your spouse itemizes deductions on his or her return, You are filing a tax return for a short tax year because of a change in your annual accounting period, or You are a nonresident or dual-status alien during the year. H&r block free state tax filing You are considered a dual-status alien if you were both a nonresident and resident alien during the year. H&r block free state tax filing Note. H&r block free state tax filing If you are a nonresident alien who is married to a U. H&r block free state tax filing S. H&r block free state tax filing citizen or resident alien at the end of the year, you can choose to be treated as a U. H&r block free state tax filing S. H&r block free state tax filing resident. H&r block free state tax filing (See Publication 519, U. H&r block free state tax filing S. H&r block free state tax filing Tax Guide for Aliens. H&r block free state tax filing ) If you make this choice, you can take the standard deduction. H&r block free state tax filing If an exemption for you can be claimed on another person's return (such as your parents' return), your standard deduction may be limited. H&r block free state tax filing See Standard Deduction for Dependents, later. H&r block free state tax filing Standard Deduction Amount The standard deduction amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer. H&r block free state tax filing Generally, the standard deduction amounts are adjusted each year for inflation. H&r block free state tax filing The standard deduction amounts for most people are shown in Table 20-1. H&r block free state tax filing Decedent's final return. H&r block free state tax filing   The standard deduction for a decedent's final tax return is the same as it would have been had the decedent continued to live. H&r block free state tax filing However, if the decedent was not 65 or older at the time of death, the higher standard deduction for age cannot be claimed. H&r block free state tax filing Higher Standard Deduction for Age (65 or Older) If you are age 65 or older on the last day of the year and do not itemize deductions, you are entitled to a higher standard deduction. H&r block free state tax filing You are considered 65 on the day before your 65th birthday. H&r block free state tax filing Therefore, you can take a higher standard deduction for 2013 if you were born before January 2, 1949. H&r block free state tax filing Use Table 20-2 to figure the standard deduction amount. H&r block free state tax filing Higher Standard Deduction for Blindness If you are blind on the last day of the year and you do not itemize deductions, you are entitled to a higher standard deduction. H&r block free state tax filing Not totally blind. H&r block free state tax filing   If you are not totally blind, you must get a certified statement from an eye doctor (ophthalmologist or optometrist) that: You cannot see better than 20/200 in the better eye with glasses or contact lenses, or Your field of vision is 20 degrees or less. H&r block free state tax filing   If your eye condition is not likely to improve beyond these limits, the statement should include this fact. H&r block free state tax filing You must keep the statement in your records. H&r block free state tax filing   If your vision can be corrected beyond these limits only by contact lenses that you can wear only briefly because of pain, infection, or ulcers, you can take the higher standard deduction for blindness if you otherwise qualify. H&r block free state tax filing Spouse 65 or Older or Blind You can take the higher standard deduction if your spouse is age 65 or older or blind and: You file a joint return, or You file a separate return and can claim an exemption for your spouse because your spouse had no gross income and cannot be claimed as a dependent by another taxpayer. H&r block free state tax filing You cannot claim the higher standard deduction for an individual other than yourself and your spouse. H&r block free state tax filing Examples The following examples illustrate how to determine your standard deduction using Tables 20-1 and 20-2. H&r block free state tax filing Example 1. H&r block free state tax filing Larry, 46, and Donna, 33, are filing a joint return for 2013. H&r block free state tax filing Neither is blind, and neither can be claimed as a dependent. H&r block free state tax filing They decide not to itemize their deductions. H&r block free state tax filing They use Table 20-1. H&r block free state tax filing Their standard deduction is $12,200. H&r block free state tax filing Example 2. H&r block free state tax filing The facts are the same as in Example 1 except that Larry is blind at the end of 2013. H&r block free state tax filing Larry and Donna use Table 20-2. H&r block free state tax filing Their standard deduction is $13,400. H&r block free state tax filing Example 3. H&r block free state tax filing Bill and Lisa are filing a joint return for 2013. H&r block free state tax filing Both are over age 65. H&r block free state tax filing Neither is blind, and neither can be claimed as a dependent. H&r block free state tax filing If they do not itemize deductions, they use Table 20-2. H&r block free state tax filing Their standard deduction is $14,600. H&r block free state tax filing Standard Deduction for Dependents The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the greater of: $1,000, or The individual's earned income for the year plus $350 (but not more than the regular standard deduction amount, generally $6,100). H&r block free state tax filing However, if the individual is 65 or older or blind, the standard deduction may be higher. H&r block free state tax filing If you (or your spouse, if filing jointly) can be claimed as a dependent on someone else's return, use Table 20-3 to determine your standard deduction. H&r block free state tax filing Earned income defined. H&r block free state tax filing   Earned income is salaries, wages, tips, professional fees, and other amounts received as pay for work you actually perform. H&r block free state tax filing    For purposes of the standard deduction, earned income also includes any part of a scholarship or fellowship grant that you must include in your gross income. H&r block free state tax filing See Scholarships and fellowships in chapter 12 for more information on what qualifies as a scholarship or fellowship grant. H&r block free state tax filing Example 1. H&r block free state tax filing Michael is single. H&r block free state tax filing His parents can claim an exemption for him on their 2013 tax return. H&r block free state tax filing He has interest income of $780 and wages of $150. H&r block free state tax filing He has no itemized deductions. H&r block free state tax filing Michael uses Table 20-3 to find his standard deduction. H&r block free state tax filing He enters $150 (his earned income) on line 1, $500 ($150 + $350) on line 3, $1,000 (the larger of $500 and $1,000) on line 5, and $6,100 on line 6. H&r block free state tax filing His standard deduction, on line 7a, is $1,000 (the smaller of $1,000 and $6,100). H&r block free state tax filing Example 2. H&r block free state tax filing Joe, a 22-year-old full-time college student, can be claimed as a dependent on his parents' 2013 tax return. H&r block free state tax filing Joe is married and files a separate return. H&r block free state tax filing His wife does not itemize deductions on her separate return. H&r block free state tax filing Joe has $1,500 in interest income and wages of $3,800. H&r block free state tax filing He has no itemized deductions. H&r block free state tax filing Joe finds his standard deduction by using Table 20-3. H&r block free state tax filing He enters his earned income, $3,800 on line 1. H&r block free state tax filing He adds lines 1 and 2 and enters $4,150 on line 3. H&r block free state tax filing On line 5, he enters $4,150, the larger of lines 3 and 4. H&r block free state tax filing Because Joe is married filing a separate return, he enters $6,100 on line 6. H&r block free state tax filing On line 7a he enters $4,150 as his standard deduction because it is smaller than $6,100, the amount on line 6. H&r block free state tax filing Example 3. H&r block free state tax filing Amy, who is single, can be claimed as a dependent on her parents' 2013 tax return. H&r block free state tax filing She is 18 years old and blind. H&r block free state tax filing She has interest income of $1,300 and wages of $2,900. H&r block free state tax filing She has no itemized deductions. H&r block free state tax filing Amy uses Table 20-3 to find her standard deduction. H&r block free state tax filing She enters her wages of $2,900 on line 1. H&r block free state tax filing She adds lines 1 and 2 and enters $3,250 on line 3. H&r block free state tax filing On line 5, she enters $3,250, the larger of lines 3 and 4. H&r block free state tax filing Because she is single, Amy enters $6,100 on line 6. H&r block free state tax filing She enters $3,250 on line 7a. H&r block free state tax filing This is the smaller of the amounts on lines 5 and 6. H&r block free state tax filing Because she checked one box in the top part of the worksheet, she enters $1,500 on line 7b. H&r block free state tax filing She then adds the amounts on lines 7a and 7b and enters her standard deduction of $4,750 on line 7c. H&r block free state tax filing Example 4. H&r block free state tax filing Ed is single. H&r block free state tax filing His parents can claim an exemption for him on their 2013 tax return. H&r block free state tax filing He has wages of $7,000, interest income of $500, and a business loss of $3,000. H&r block free state tax filing He has no itemized deductions. H&r block free state tax filing Ed uses Table 20-3 to figure his standard deduction. H&r block free state tax filing He enters $4,000 ($7,000 - $3,000) on line 1. H&r block free state tax filing He adds lines 1 and 2 and enters $4,350 on line 3. H&r block free state tax filing On line 5 he enters $4,350, the larger of lines 3 and 4. H&r block free state tax filing Because he is single, Ed enters $6,100 on line 6. H&r block free state tax filing On line 7a he enters $4,350 as his standard deduction because it is smaller than $6,100, the amount on line 6. H&r block free state tax filing Who Should Itemize You should itemize deductions if your total deductions are more than the standard deduction amount. H&r block free state tax filing Also, you should itemize if you do not qualify for the standard deduction, as discussed earlier under Persons not eligible for the standard deduction . H&r block free state tax filing You should first figure your itemized deductions and compare that amount to your standard deduction to make sure you are using the method that gives you the greater benefit. H&r block free state tax filing You may be subject to a limit on some of your itemized deductions if your adjusted gross income is more than: $250,000 if single ($275,000 if head of household, $300,000 if married filing jointly or qualifying widow(er); or $150,000 if married filing separately). H&r block free state tax filing See chapter 29 or the instructions for Schedule A (Form 1040) for more information on figuring the correct amount of your itemized deductions. H&r block free state tax filing When to itemize. H&r block free state tax filing   You may benefit from itemizing your deductions on Schedule A (Form 1040) if you: Do not qualify for the standard deduction, or the amount you can claim is limited, Had large uninsured medical and dental expenses during the year, Paid interest and taxes on your home, Had large unreimbursed employee business expenses or other miscellaneous deductions, Had large uninsured casualty or theft losses, Made large contributions to qualified charities, or Have total itemized deductions that are more than the standard deduction to which you otherwise are entitled. H&r block free state tax filing These deductions are explained in chapters 21–28. H&r block free state tax filing    If you decide to itemize your deductions, complete Schedule A and attach it to your Form 1040. H&r block free state tax filing Enter the amount from Schedule A, line 29, on Form 1040, line 40. H&r block free state tax filing Electing to itemize for state tax or other purposes. H&r block free state tax filing   Even if your itemized deductions are less than your standard deduction, you can elect to itemize deductions on your federal return rather than take the standard deduction. H&r block free state tax filing You may want to do this if, for example, the tax benefit of itemizing your deductions on your state tax return is greater than the tax benefit you lose on your federal return by not taking the standard deduction. H&r block free state tax filing To make this election, you must check the box on line 30 of Schedule A. H&r block free state tax filing Changing your mind. H&r block free state tax filing   If you do not itemize your deductions and later find that you should have itemized — or if you itemize your deductions and later find you should not have — you can change your return by filing Form 1040X, Amended U. H&r block free state tax filing S. H&r block free state tax filing Individual Income Tax Return. H&r block free state tax filing See Amended Returns and Claims for Refund in chapter 1 for more information on amended returns. H&r block free state tax filing Married persons who filed separate returns. H&r block free state tax filing   You can change methods of taking deductions only if you and your spouse both make the same changes. H&r block free state tax filing Both of you must file a consent to assessment for any additional tax either one may owe as a result of the change. H&r block free state tax filing    You and your spouse can use the method that gives you the lower total tax, even though one of you may pay more tax than you would have paid by using the other method. H&r block free state tax filing You both must use the same method of claiming deductions. H&r block free state tax filing If one itemizes deductions, the other should itemize because he or she will not qualify for the standard deduction. H&r block free state tax filing See Persons not eligible for the standard deduction , earlier. H&r block free state tax filing 2013 Standard Deduction Tables If you are married filing a separate return and your spouse itemizes deductions, or if you are a dual-status alien, you cannot take the standard deduction even if you were born before January 2, 1949, or are blind. H&r block free state tax filing Table 20-1. H&r block free state tax filing Standard Deduction Chart for Most People* If your filing status is. H&r block free state tax filing . H&r block free state tax filing . H&r block free state tax filing Your standard deduction is: Single or Married filing separately $6,100 Married filing jointly or Qualifying widow(er) with dependent child 12,200 Head of household 8,950 *Do not use this chart if you were born before January 2, 1949, are blind, or if someone else can claim you (or your spouse if filing jointly) as a dependent. H&r block free state tax filing Use Table 20-2 or 20-3 instead. H&r block free state tax filing Table 20-2. H&r block free state tax filing Standard Deduction Chart for People Born Before January 2, 1949, or Who are Blind Check the correct number of boxes below. H&r block free state tax filing Then go to the chart. H&r block free state tax filing You: Born before January 2, 1949 □ Blind □ Your spouse, if claiming spouse's exemption: Born before January 2, 1949 □ Blind □ Total number of boxes checked   IF  your filing status is. H&r block free state tax filing . H&r block free state tax filing . H&r block free state tax filing AND the number in the box above is. H&r block free state tax filing . H&r block free state tax filing . H&r block free state tax filing THEN your standard deduction is. H&r block free state tax filing . H&r block free state tax filing . H&r block free state tax filing Single 1 $7,600   2 9,100 Married filing jointly 1 $13,400 or Qualifying 2 14,600 widow(er) with 3 15,800 dependent child 4 17,000 Married filing 1 $7,300 separately 2 8,500   3 9,700   4 10,900 Head of household 1 $10,450   2 11,950 *If someone else can claim you (or your spouse if filing jointly) as a dependent, use Table 20-3 instead. H&r block free state tax filing Table 20-3. H&r block free state tax filing Standard Deduction Worksheet for Dependents Use this worksheet only if someone else can claim you (or your spouse if filing jointly) as a dependent. H&r block free state tax filing Check the correct number of boxes below. H&r block free state tax filing Then go to the worksheet. H&r block free state tax filing You:   Born before January 2, 1949 □ Blind □ Your spouse, if claiming spouse's exemption: Born before January 2, 1949 □ Blind □ Total number of boxes checked 1. H&r block free state tax filing Enter your earned income (defined below). H&r block free state tax filing If none, enter -0-. H&r block free state tax filing 1. H&r block free state tax filing   2. H&r block free state tax filing Additional amount. H&r block free state tax filing 2. H&r block free state tax filing $350 3. H&r block free state tax filing Add lines 1 and 2. H&r block free state tax filing 3. H&r block free state tax filing   4. H&r block free state tax filing Minimum standard deduction. H&r block free state tax filing 4. H&r block free state tax filing $1,000 5. H&r block free state tax filing Enter the larger of line 3 or line 4. H&r block free state tax filing 5. H&r block free state tax filing   6. H&r block free state tax filing Enter the amount shown below for your filing status. H&r block free state tax filing Single or Married filing separately—$6,100 Married filing jointly—$12,200 Head of household—$8,950 6. H&r block free state tax filing   7. H&r block free state tax filing Standard deduction. H&r block free state tax filing         a. H&r block free state tax filing Enter the smaller of line 5 or line 6. H&r block free state tax filing If born after January 1, 1949, and not blind, stop here. H&r block free state tax filing This is your standard deduction. H&r block free state tax filing Otherwise, go on to line 7b. H&r block free state tax filing 7a. H&r block free state tax filing     b. H&r block free state tax filing If born before January 2, 1949, or blind, multiply $1,500 ($1,200 if married) by the number in the box above. H&r block free state tax filing 7b. H&r block free state tax filing     c. H&r block free state tax filing Add lines 7a and 7b. H&r block free state tax filing This is your standard deduction for 2013. H&r block free state tax filing 7c. H&r block free state tax filing   Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. H&r block free state tax filing It also includes any amount received as a scholarship that you must include in your income. H&r block free state tax filing Prev  Up  Next   Home   More Online Publications
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The H&r Block Free State Tax Filing

H&r block free state tax filing 9. H&r block free state tax filing   Dispositions of Property Used in Farming Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. H&r block free state tax filing Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sale Other Dispositions Other GainsExceptions. H&r block free state tax filing Amount to report as ordinary income. H&r block free state tax filing Applicable percentage. H&r block free state tax filing Amount to report as ordinary income. H&r block free state tax filing Applicable percentage. H&r block free state tax filing Introduction When you dispose of property used in your farm business, your taxable gain or loss is usually treated as ordinary income (which is taxed at the same rates as wages and interest income) or capital gain (which is generally taxed at lower rates) under the rules for section 1231 transactions. H&r block free state tax filing When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. H&r block free state tax filing Any gain remaining after applying the depreciation recapture rules is a section 1231 gain, which may be taxed as a capital gain. H&r block free state tax filing Gains and losses from property used in farming are reported on Form 4797, Sales of Business Property. H&r block free state tax filing Table 9-1 contains examples of items reported on Form 4797 and refers to the part of that form on which they first should be reported. H&r block free state tax filing Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Other gains Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. H&r block free state tax filing Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (explained below). H&r block free state tax filing Their treatment as ordinary or capital gains depends on whether you have a net gain or a net loss from all of your section 1231 transactions in the tax year. H&r block free state tax filing Table 9-1. H&r block free state tax filing Where to First Report Certain Items on Form 4797 Type of property Held 1 year  or less Held more than  1 year 1 Depreciable trade or business property:       a Sold or exchanged at a gain Part II Part III (1245, 1250)   b Sold or exchanged at a loss Part II Part I 2 Farmland held less than 10 years for which soil, water, or land clearing expenses were deducted:       a Sold at a gain Part II Part III (1252)   b Sold at a loss Part II Part I 3 All other farmland Part II Part I 4 Disposition of cost-sharing payment property described in section 126 Part II Part III (1255) 5 Cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less  than 24 mos. H&r block free state tax filing Held 24 mos. H&r block free state tax filing  or more   a Sold at a gain Part II Part III (1245)   b Sold at a loss Part II Part I   c Raised cattle and horses sold at a gain Part II Part I 6 Livestock other than cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less  than 12 mos. H&r block free state tax filing Held 12 mos. H&r block free state tax filing   or more   a Sold at a gain Part II Part III (1245)   b Sold at a loss Part II Part I   c Raised livestock sold at a gain Part II Part I If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). H&r block free state tax filing Do not take that gain into account as section 1231 gain. H&r block free state tax filing Section 1231 transactions. H&r block free state tax filing   Gain or loss on the following transactions is subject to section 1231 treatment. H&r block free state tax filing Sale or exchange of cattle and horses. H&r block free state tax filing The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 24 months or longer. H&r block free state tax filing Sale or exchange of other livestock. H&r block free state tax filing This livestock must be held for draft, breeding, dairy, or sporting purposes and held for 12 months or longer. H&r block free state tax filing Other livestock includes hogs, mules, sheep, goats, donkeys, and other fur-bearing animals. H&r block free state tax filing Other livestock does not include poultry. H&r block free state tax filing Sale or exchange of depreciable personal property. H&r block free state tax filing This property must be used in your business and held longer than 1 year. H&r block free state tax filing Generally, property held for the production of rents or royalties is considered to be used in a trade or business. H&r block free state tax filing Examples of depreciable personal property include farm machinery and trucks. H&r block free state tax filing It also includes amortizable section 197 intangibles. H&r block free state tax filing Sale or exchange of real estate. H&r block free state tax filing This property must be used in your business and held longer than 1 year. H&r block free state tax filing Examples are your farm or ranch (including barns and sheds). H&r block free state tax filing Sale or exchange of unharvested crops. H&r block free state tax filing The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person, and the land must have been held longer than 1 year. H&r block free state tax filing You cannot keep any right or option to reacquire the land directly or indirectly (other than a right customarily incident to a mortgage or other security transaction). H&r block free state tax filing Growing crops sold with a leasehold on the land, even if sold to the same person in a single transaction, are not included. H&r block free state tax filing Distributive share of partnership gains and losses. H&r block free state tax filing Your distributive share must be from the sale or exchange of property listed above and held longer than 1 year (or for the required period for certain livestock). H&r block free state tax filing Cutting or disposal of timber. H&r block free state tax filing Special rules apply if you owned the timber longer than 1 year and elect to treat timber cutting as a sale or exchange, or you enter into a cutting contract, as described in chapter 8 under Timber . H&r block free state tax filing Condemnation. H&r block free state tax filing The condemned property (defined in chapter 11) must have been held longer than 1 year. H&r block free state tax filing It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. H&r block free state tax filing It cannot be property held for personal use. H&r block free state tax filing Casualty or theft. H&r block free state tax filing The casualty or theft must have affected business property, property held for the production of rents or royalties, or investment property (such as notes and bonds). H&r block free state tax filing You must have held the property longer than 1 year. H&r block free state tax filing However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. H&r block free state tax filing Section 1231 does not apply to personal casualty gains and losses. H&r block free state tax filing See chapter 11 for information on how to treat those gains and losses. H&r block free state tax filing If the property is not held for the required holding period, the transaction is not subject to section 1231 treatment, and any gain or loss is ordinary income reported in Part II of Form 4797. H&r block free state tax filing See Table 9-1. H&r block free state tax filing Property for sale to customers. H&r block free state tax filing   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. H&r block free state tax filing If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. H&r block free state tax filing Treatment as ordinary or capital. H&r block free state tax filing   To determine the treatment of section 1231 gains and losses, combine all of your section 1231 gains and losses for the year. H&r block free state tax filing If you have a net section 1231 loss, it is an ordinary loss. H&r block free state tax filing If you have a net section 1231 gain, it is ordinary income up to your nonrecaptured section 1231 losses from previous years, explained next. H&r block free state tax filing The rest, if any, is long-term capital gain. H&r block free state tax filing Nonrecaptured section 1231 losses. H&r block free state tax filing   Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain by treating the gain as ordinary income. H&r block free state tax filing These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. H&r block free state tax filing Example. H&r block free state tax filing In 2013, Ben has a $2,000 net section 1231 gain. H&r block free state tax filing To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. H&r block free state tax filing From 2008 through 2012 he had the following section 1231 gains and losses. H&r block free state tax filing Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800   Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. H&r block free state tax filing 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500)   3) Net section 1231 gain (2012) 1,800   4) Remaining net section 1231 loss from prior 5 years ($700)   5) Gain treated as  ordinary income $700 6) Gain treated as long-term  capital gain $1,300 His remaining net section 1231 loss from 2010 is completely recaptured in 2013. H&r block free state tax filing Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if it is otherwise nontaxable) as ordinary income. H&r block free state tax filing To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. H&r block free state tax filing For more information, see chapter 3 of Publication 544. H&r block free state tax filing Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable. H&r block free state tax filing Any recognized gain that is more than the part that is ordinary income is a section 1231 gain. H&r block free state tax filing See Treatment as ordinary or capital under Section 1231 Gains and Losses , earlier. H&r block free state tax filing Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. H&r block free state tax filing Personal property (either tangible or intangible). H&r block free state tax filing Other tangible property (except buildings and their structural components) used as any of the following. H&r block free state tax filing See Buildings and structural components below. H&r block free state tax filing An integral part of manufacturing, production, or extraction, or of furnishing certain services. H&r block free state tax filing A research facility in any of the activities in (a). H&r block free state tax filing A facility in any of the activities in (a) above, for the bulk storage of fungible commodities (discussed later). H&r block free state tax filing That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. H&r block free state tax filing Amortization of certified pollution control facilities. H&r block free state tax filing The section 179 expense deduction. H&r block free state tax filing Deduction for clean-fuel vehicles and certain refueling property. H&r block free state tax filing Expenditures to remove architectural and transportation barriers to the handicapped and elderly. H&r block free state tax filing Certain reforestation expenditures (as described under Reforestation Costs in chapter 7. H&r block free state tax filing Single purpose agricultural (livestock) or horticultural structures. H&r block free state tax filing Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. H&r block free state tax filing Buildings and structural components. H&r block free state tax filing   Section 1245 property does not include buildings and structural components. H&r block free state tax filing The term building includes a house, barn, warehouse, or garage. H&r block free state tax filing The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. H&r block free state tax filing   Do not treat a structure that is essentially machinery or equipment as a building or structural component. H&r block free state tax filing Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. H&r block free state tax filing   The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. H&r block free state tax filing Structures such as oil and gas storage tanks, grain storage bins, and silos are not treated as buildings, but as section 1245 property. H&r block free state tax filing Facility for bulk storage of fungible commodities. H&r block free state tax filing   This is a facility used mainly for the bulk storage of fungible commodities. H&r block free state tax filing Bulk storage means storage of a commodity in a large mass before it is used. H&r block free state tax filing For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. H&r block free state tax filing To be fungible, a commodity must be such that one part may be used in place of another. H&r block free state tax filing Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. H&r block free state tax filing The depreciation (which includes any section 179 deduction claimed) and amortization allowed or allowable on the property. H&r block free state tax filing The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). H&r block free state tax filing For any other disposition of section 1245 property, ordinary income is the lesser of (1) above or the amount by which its fair market value (FMV) is more than its adjusted basis. H&r block free state tax filing For details, see chapter 3 of Publication 544. H&r block free state tax filing Use Part III of Form 4797 to figure the ordinary income part of the gain. H&r block free state tax filing Depreciation claimed on other property or claimed by other taxpayers. H&r block free state tax filing   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. H&r block free state tax filing Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. H&r block free state tax filing For details on exchanges of property that are not taxable, see Like-Kind Exchanges in chapter 8. H&r block free state tax filing Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift and part of the transfer is a sale or exchange). H&r block free state tax filing Example. H&r block free state tax filing Jeff Free paid $120,000 for a tractor in 2012. H&r block free state tax filing On February 23, 2013, he traded it for a chopper and paid an additional $30,000. H&r block free state tax filing To figure his depreciation deduction on the chopper for the current year, Jeff continues to use the basis of the tractor as he would have before the trade. H&r block free state tax filing Jeff can also depreciate the additional $30,000 for the chopper. H&r block free state tax filing Depreciation and amortization. H&r block free state tax filing   Depreciation and amortization deductions that must be recaptured as ordinary income include (but are not limited to) the following items. H&r block free state tax filing See Depreciation Recapture in chapter 3 of Publication 544 for more details. H&r block free state tax filing Ordinary depreciation deductions. H&r block free state tax filing Section 179 deduction (see chapter 7). H&r block free state tax filing Any special depreciation allowance. H&r block free state tax filing Amortization deductions for all the following costs. H&r block free state tax filing Acquiring a lease. H&r block free state tax filing Lessee improvements. H&r block free state tax filing Pollution control facilities. H&r block free state tax filing Reforestation expenses. H&r block free state tax filing Section 197 intangibles. H&r block free state tax filing Qualified disaster expenses. H&r block free state tax filing Franchises, trademarks, and trade names acquired before August 11, 1993. H&r block free state tax filing Example. H&r block free state tax filing You file your returns on a calendar year basis. H&r block free state tax filing In February 2011, you bought and placed in service for 100% use in your farming business a light-duty truck (5-year property) that cost $10,000. H&r block free state tax filing You used the half-year convention and your MACRS deductions for the truck were $1,500 in 2011 and $2,550 in 2012. H&r block free state tax filing You did not claim the section 179 expense deduction for the truck. H&r block free state tax filing You sold it in May 2013 for $7,000. H&r block free state tax filing The MACRS deduction in 2013, the year of sale, is $893 (½ of $1,785). H&r block free state tax filing Figure the gain treated as ordinary income as follows. H&r block free state tax filing 1) Amount realized $7,000 2) Cost (February 2011) $10,000   3) Depreciation allowed or allowable (MACRS deductions: $1,500 + $2,550 + $893) 4,943   4) Adjusted basis (subtract line 3 from line 2) $5,057 5) Gain realized (subtract line 4 from line 1) 1,943 6) Gain treated as ordinary income (lesser of line 3 or line 5) $1,943 Depreciation allowed or allowable. H&r block free state tax filing   You generally use the greater of the depreciation allowed or allowable when figuring the part of gain to report as ordinary income. H&r block free state tax filing If, in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. H&r block free state tax filing If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. H&r block free state tax filing This treatment applies only when figuring what part of the gain is treated as ordinary income under the rules for section 1245 depreciation recapture. H&r block free state tax filing Disposition of plants and animals. H&r block free state tax filing   If you elect not to use the uniform capitalization rules (see chapter 6), you must treat any plant you produce as section 1245 property. H&r block free state tax filing If you have a gain on the property's disposition, you must recapture the pre-productive expenses you would have capitalized if you had not made the election by treating the gain, up to the amount of these expenses, as ordinary income. H&r block free state tax filing For section 1231 transactions, show these expenses as depreciation on Form 4797, Part III, line 22. H&r block free state tax filing For plant sales that are reported on Schedule F (1040), Profit or Loss From Farming, this recapture rule does not change the reporting of income because the gain is already ordinary income. H&r block free state tax filing You can use the farm-price method or the unit-livestock-price method discussed in  chapter 2 to figure these expenses. H&r block free state tax filing Example. H&r block free state tax filing Janet Maple sold her apple orchard in 2013 for $80,000. H&r block free state tax filing Her adjusted basis at the time of sale was $60,000. H&r block free state tax filing She bought the orchard in 2006, but the trees did not produce a crop until 2009. H&r block free state tax filing Her pre-productive expenses were $6,000. H&r block free state tax filing She elected not to use the uniform capitalization rules. H&r block free state tax filing Janet must treat $6,000 of the gain as ordinary income. H&r block free state tax filing Section 1250 Property Section 1250 property includes all real property subject to an allowance for depreciation that is not and never has been section 1245 property. H&r block free state tax filing It includes buildings and structural components that are not section 1245 property (discussed earlier). H&r block free state tax filing It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. H&r block free state tax filing A fee simple interest in land is not section 1250 property because, like land, it is not depreciable. H&r block free state tax filing Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable. H&r block free state tax filing To determine the additional depreciation on section 1250 property, see Depreciation Recapture in chapter 3 of Publication 544. H&r block free state tax filing You will not have additional depreciation if any of the following apply to the property disposed of. H&r block free state tax filing You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method and you have held the property longer than 1 year. H&r block free state tax filing You chose the alternate ACRS (straight line) method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. H&r block free state tax filing The property was nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made) and you held it longer than 1 year. H&r block free state tax filing These properties are depreciated using the straight line method. H&r block free state tax filing Installment Sale If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. H&r block free state tax filing This applies even if no payments are received in that year. H&r block free state tax filing If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. H&r block free state tax filing For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. H&r block free state tax filing If you dispose of more than one asset in a single transaction, you must separately figure the gain on each asset so that it may be properly reported. H&r block free state tax filing To do this, allocate the selling price and the payments you receive in the year of sale to each asset. H&r block free state tax filing Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. H&r block free state tax filing For more information on installment sales, see chapter 10. H&r block free state tax filing Other Dispositions Chapter 3 of Publication 544 discusses the tax treatment of the following transfers of depreciable property. H&r block free state tax filing By gift. H&r block free state tax filing At death. H&r block free state tax filing In like-kind exchanges. H&r block free state tax filing In involuntary conversions. H&r block free state tax filing Publication 544 also explains how to handle a single transaction involving multiple properties. H&r block free state tax filing Other Gains This section discusses gain on the disposition of farmland for which you were allowed either of the following. H&r block free state tax filing Deductions for soil and water conservation expenditures (section 1252 property). H&r block free state tax filing Exclusions from income for certain cost sharing payments (section 1255 property). H&r block free state tax filing Section 1252 property. H&r block free state tax filing   If you disposed of farmland you held more than 1 year and less than 10 years at a gain and you were allowed deductions for soil and water conservation expenses for the land, as discussed in chapter 5, you must treat part of the gain as ordinary income and treat the balance as section 1231 gain. H&r block free state tax filing Exceptions. H&r block free state tax filing   Do not treat gain on the following transactions as gain on section 1252 property. H&r block free state tax filing Disposition of farmland by gift. H&r block free state tax filing Transfer of farm property at death (except for income in respect of a decedent). H&r block free state tax filing For more information, see Regulations section 1. H&r block free state tax filing 1252-2. H&r block free state tax filing Amount to report as ordinary income. H&r block free state tax filing   You report as ordinary income the lesser of the following amounts. H&r block free state tax filing Your gain (determined by subtracting the adjusted basis from the amount realized from a sale, exchange, or involuntary conversion, or the FMV for all other dispositions). H&r block free state tax filing The total deductions allowed for soil and water conservation expenses multiplied by the applicable percentage, discussed next. H&r block free state tax filing Applicable percentage. H&r block free state tax filing   The applicable percentage is based on the length of time you held the land. H&r block free state tax filing If you dispose of your farmland within 5 years after the date you acquired it, the percentage is 100%. H&r block free state tax filing If you dispose of the land within the 6th through 9th year after you acquired it, the applicable percentage is reduced by 20% a year for each year or part of a year you hold the land after the 5th year. H&r block free state tax filing If you dispose of the land 10 or more years after you acquired it, the percentage is 0%, and the entire gain is a section 1231 gain. H&r block free state tax filing Example. H&r block free state tax filing You acquired farmland on January 19, 2005. H&r block free state tax filing On October 3, 2013, you sold the land at a $30,000 gain. H&r block free state tax filing Between January 1 and October 3, 2013, you incur soil and water conservation expenditures of $15,000 for the land that are fully deductible in 2013. H&r block free state tax filing The applicable percentage is 40% since you sold the land within the 8th year after you acquired it. H&r block free state tax filing You treat $6,000 (40% of $15,000) of the $30,000 gain as ordinary income and the $24,000 balance as a section 1231 gain. H&r block free state tax filing Section 1255 property. H&r block free state tax filing   If you receive certain cost-sharing payments on property and you exclude those payments from income (as discussed in chapter 3), you may have to treat part of any gain as ordinary income and treat the balance as a section 1231 gain. H&r block free state tax filing If you chose not to exclude these payments, you will not have to recognize ordinary income under this provision. H&r block free state tax filing Amount to report as ordinary income. H&r block free state tax filing   You report as ordinary income the lesser of the following amounts. H&r block free state tax filing The applicable percentage of the total excluded cost-sharing payments. H&r block free state tax filing The gain on the disposition of the property. H&r block free state tax filing You do not report ordinary income under this rule to the extent the gain is recognized as ordinary income under sections 1231 through 1254, 1256, and 1257. H&r block free state tax filing However, if applicable, gain reported under this rule must be reported regardless of any contrary provisions (including nonrecognition provisions) under any other section. H&r block free state tax filing Applicable percentage. H&r block free state tax filing   The applicable percentage of the excluded cost-sharing payments to be reported as ordinary income is based on the length of time you hold the property after receiving the payments. H&r block free state tax filing If the property is held less than 10 years after you receive the payments, the percentage is 100%. H&r block free state tax filing After 10 years, the percentage is reduced by 10% a year, or part of a year, until the rate is 0%. H&r block free state tax filing Form 4797, Part III. H&r block free state tax filing   Use Form 4797, Part III, to figure the ordinary income part of a gain from the sale, exchange, or involuntary conversion of section 1252 property and section 1255 property. H&r block free state tax filing Prev  Up  Next   Home   More Online Publications